2018 (11) TMI 598 - HC - Income Tax

Appeal success in tax case for Assessment Year 2008-09 due to lack of evidence and benchmarking

The appeal challenging the common order by the Income Tax Appellate Tribunal for Assessment Years 2004-05 to 2008-09, with a focus on the Assessment Year ... TPA - addition of overhead expenses @8.5% of the turnover is at Arm's Length Price - assessee could not produce evidence for service rendered as overhead expenses by the Joint Venture partners - ITAT deleted the addition - Held that:- The impugned order of the Tribunal examined the agreement entertained into between the JV partners and the assessee. It found that the agreement provides for overhead office expenses of the respective JV partners being allocated to the assessee to the extent of 8.5% of its turnover. Also the TPO has not benched mark the overhead office expenses debited to determine that it was in excess of comparable transactions. The impugned order on facts independently came to the same conclusion as the CIT(A) that the TPO was not correct in stating that the respondent had not furnished the details in support of his claim for allocation of overhead office expenses to the extent of 8.5%. This was found to be incorrect as the respondent assessee has furnished the Certificate of Auditors of the JV partners indicating its overhead charges. The impugned order further records the fact that for the earlier Assessment Years 2004-2005 and 2005-06 on identical facts, the TPO did not challenge the claim of overhead expenses of the respondent's JV being debited with a cap of 8.5% of the turnover of the assessee. The issue urged by the Revenue is essentially one of finding of facts on which both the CIT(A) and the Tribunal have upheld the assessee's stand - no substantial question of law. Not taking inquiry in earlier years by Assessing Officer will not preclude Assessing Officer to investigate the matter in following years - Held that:- This question has become academic. The impugned order of the Tribunal upholds the order of CIT(A) that on facts for the subject assessment year, there was no justification for enhancement the ALP by disallowing allocation of overhead office expenses of the JV partners to respondent assessee with a cap of 8.5% of the turnover of the respondent assessee. The reliance upon the earlier assessment orders was only in support of the fact that in identical factual situation, the TPO did not vary the ALP in respect of the allocation of overhead office expenses to the expenditure of the respective JV partners allocated to the assessee with a cap of 8.5% of its turnover. Appeal admitted on substantial question of law at Sr. No.(i) - Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing the claim of the assessee following the AS7 of the ICAI and by not appreciating the fact that the same is not notified the provisions of Sec.145 of the I.T. Act, 1961? Issues:1. Appeal challenging common order by Income Tax Appellate Tribunal for Assessment Years 2004-05 to 2008-09.2. Questions of law regarding AS7 compliance, deletion of overhead expenses, and relief for A.Y. 2006-07.3. Transfer Pricing Officer's disallowance of overhead expenses.4. Commissioner of Income Tax (Appeals) decision and Tribunal's examination of JV partners agreement.5. Finding of fact upheld by CIT(A) and Tribunal.6. Academic nature of the third question.Analysis:1. The appeal under Section 260A of the Income Tax Act, 1961 challenges the common order passed by the Income Tax Appellate Tribunal for Assessment Years 2004-05 to 2008-09. The specific focus of this appeal is on the Assessment Year 2008-09.2. The reframed questions of law raised by the learned Counsel for the Revenue pertain to compliance with AS7, deletion of overhead expenses, and relief for A.Y. 2006-07. These questions revolve around the justification of the Tribunal's decisions regarding the assessee's claims and the TPO's findings.3. Regarding the disallowance of overhead expenses by the Transfer Pricing Officer (TPO), it was noted that the TPO disallowed the allocation of overhead expenses to the assessee based on an agreement with Joint Ventures (JV partners). The TPO's decision resulted in an addition to the assessment order, which was later challenged in appeal.4. The Commissioner of Income Tax (Appeals) allowed the appeal of the assessee by considering the lack of evidence provided by the TPO to support the disallowance of overhead expenses. The agreement between the JV partners and the assessee was a crucial factor in the decision-making process. The Tribunal further examined the agreement and found that the TPO had not adequately benchmarked the overhead expenses debited to the assessee.5. Both the CIT(A) and the Tribunal upheld the assessee's position, emphasizing that the TPO's claims were not supported by sufficient evidence. The Tribunal's order considered the facts of previous assessment years and found consistency in the treatment of overhead expenses, leading to the conclusion that no substantial question of law arose for consideration.6. The academic nature of the third question was highlighted, indicating that it became irrelevant in light of the findings and decisions made in response to the second question. As a result, this question did not give rise to any substantial question of law and was not entertained for further consideration.In conclusion, the judgment delves into the intricate details of the Transfer Pricing Officer's disallowance of overhead expenses, the subsequent appeals and decisions made by the CIT(A) and the Tribunal, as well as the legal implications of the questions of law raised by the Revenue. The analysis provides a comprehensive overview of the issues addressed in the judgment, highlighting the key arguments and findings that shaped the final outcome of the appeal.