Cost reimbursement credits not taxed twice, but transfer-pricing mark-up remains taxable as revenue income.

Cost reimbursement credits could not be taxed again in the relevant assessment year where the underlying expenditure had already been withdrawn from deduction and offered to tax in an earlier year; the later credit was only an accounting adjustment and did not create fresh income. The Tribunal, however, treated the agreed transfer-pricing mark-up as revenue income arising in the year and taxable on that basis. The additions of the reimbursement-related credits were deleted, while the mark-up addition was sustained.

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Issues: Whether the reimbursement-related credits of Rs. 13,21,53,000 and Rs. 5,44,13,490 could be brought to tax in the assessment year 2012-13, and whether the transfer-pricing mark-up of Rs. 21,76,540 was taxable.

Analysis: The assessee had originally debited the expenditure in the earlier assessment year but had voluntarily withdrawn the deduction claim in the revised computation and offered the amount to tax. The later credit to the profit and loss account arose pursuant to the cost reimbursement arrangement, and the amount represented only an accounting adjustment with no real income arising again in the relevant year. The Tribunal therefore accepted the assessee's contention that the reimbursement component could not be taxed twice merely because of the book entry. However, the agreed mark-up under the transfer-pricing arrangement represented income in the relevant year and retained its revenue character.

Conclusion: The additions relating to Rs. 13,21,53,000 and Rs. 5,44,13,490 were deleted, while the addition of Rs. 21,76,540 was sustained. The appeal was thus partly allowed.

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