2021 (10) TMI 1322 - AT - Income Tax

Assessee's Appeal Partly Allowed, Revenue's Appeal Dismissed

The Dy. Commissioner of Incometax, Circle 7 (1) (1) /12 (4), Bangalore Versus M/s. Tesco Bengaluru Pvt. Ltd. (Formerly known as Tesco Hindustan Service Centre Pvt. Ltd.) And Vice-Versa

The Dy. Commissioner of Incometax, Circle 7 (1) (1) /12 (4), Bangalore Versus M/s. Tesco Bengaluru Pvt. Ltd. (Formerly known as Tesco Hindustan Service ... Issues Involved:1. Transfer Pricing Adjustment2. Disallowance of Reimbursement Received3. Disallowance of Vehicle Rental Expenses4. Liabilities No Longer Required Written Back5. Short Grant of TDS6. Exclusion of Certain Expenditure from Export Turnover and Total Turnover while Computing Deduction u/s 10AIssue-wise Detailed Analysis:1. Transfer Pricing Adjustment:The assessee raised an additional ground regarding the application of the arm's length price agreed between the Competent Authorities of UK and India to transactions with AEs in countries other than the UK. The Tribunal admitted this additional ground as it goes to the root of the issue. The assessee, a private limited company providing business process and IT services, faced a TP adjustment of Rs.26,59,09,540 by the TPO, later reduced to Rs.22,20,11,439 by the DRP. The assessee argued that certain companies should be excluded from the comparables list due to functional dissimilarity and turnover filter. The Tribunal agreed, adopting the MAP resolution rate of 15% for both SWD and ITE segments across all jurisdictions, as 83% of the total revenue was from UK transactions. This approach was supported by previous Tribunal decisions in similar cases.2. Disallowance of Reimbursement Received:The assessee contended that the amount received as reimbursement for expat salaries was mistakenly disallowed by the A.O. as expenses due to non-deduction of tax at source. The Tribunal found that the details were on record and directed the A.O. to verify the reimbursement ledger and sample invoices, restoring the issue for re-examination.3. Disallowance of Vehicle Rental Expenses:The assessee claimed deduction for lease rentals paid for vehicles used for business purposes. The A.O. disallowed this, deeming the vehicles were for personal use by employees. The Tribunal referred to its previous decision in the assessee’s case and other judicial precedents, allowing the lease rentals as revenue expenditure, thus allowing the assessee’s claim.4. Liabilities No Longer Required Written Back:The assessee argued that any enhancement of income would be eligible for deduction u/s 10A, citing jurisdictional High Court judgments. The A.O. rejected the claim due to lack of evidence. The Tribunal found that relevant details were on record and directed the A.O. to re-examine the issue in light of the cited judgments.5. Short Grant of TDS:The assessee claimed a shortfall in TDS credit. The DRP directed the A.O. to verify and give credit for the entire amount. The Tribunal noted that the A.O. had not examined this issue and restored it for verification and due credit.6. Exclusion of Certain Expenditure from Export Turnover and Total Turnover while Computing Deduction u/s 10A:The Revenue challenged the DRP's direction to exclude certain expenditures from both export and total turnover. The Tribunal rejected this challenge, citing the Supreme Court judgment in CIT v. HCL Technologies Ltd., which held that such exclusions must be made from both turnovers.Conclusion:The Tribunal partly allowed the assessee's appeal, directing re-examination on certain issues and adopting the MAP resolution rate for TP adjustments. The Revenue's appeal was dismissed, affirming the DRP's directions and the Supreme Court's judgment on turnover exclusions.