2018 (12) TMI 276 - AT - Income Tax

Tribunal partially allows appeals on transfer pricing, disallows Chennai unit expenses.

Jabil Circuit India Private Limited Versus Asst. CIT, Circle 3 (2) (1), Mumbai

Jabil Circuit India Private Limited Versus Asst. CIT, Circle 3 (2) (1), Mumbai - TMI Issues Involved:1. Transfer pricing adjustment on account of corporate support services received from AE.2. Transfer pricing adjustment on account of business support services from AE.3. Disallowance of expenses pertaining to the Chennai unit.4. Erroneous levy of interest under section 234B and 234C of the Act.5. Ad hoc disallowance of tax depreciation pertaining to the factory building located at the Chennai unit.6. Short-grant of tax credit available under section 115JAA of the Act.Issue-wise Detailed Analysis:1. Transfer Pricing Adjustment on Account of Corporate Support Services:The assessee, JCIPL, received cost allocation charges amounting to Rs. 29,27,90,502 from its overseas Jabil Group entities for support services. The Transfer Pricing Officer (TPO) rejected the arm's length price (ALP) of these charges, citing a lack of direct evidence to substantiate the services rendered and applied the Comparable Uncontrolled Price (CUP) method without identifying comparable transactions. The TPO estimated the value of services at Rs. 1,27,50,000 based on 1500 man-hours at Rs. 8,500 per hour, leading to an adjustment of Rs. 33.36 crores.The Dispute Resolution Panel (DRP) upheld the TPO's decision, noting that the assessee failed to provide specific details about the services and supporting evidence. The DRP found the CPA certificate submitted by the assessee insufficient and not backed by concrete evidence. The DRP concluded that the TPO rightly applied the CUP method and that the assessee did not demonstrate the receipt or benefit of the services claimed.2. Transfer Pricing Adjustment on Account of Business Support Services:JCIPL received business development support charges amounting to Rs. 5,34,80,267 from its AEs. The TPO rejected the ALP of these charges, citing a lack of direct evidence and applied the CUP method. The DRP upheld the TPO's decision, noting that the assessee failed to provide specific details and evidence of the services received.3. Disallowance of Expenses Pertaining to the Chennai Unit:The AO disallowed expenses of Rs. 3,14,07,000 related to the Chennai unit, which had ceased operations since 2009. The AO noted that the assessee had leased out part of the premises and shown the income under 'income from house property.' The DRP upheld the AO's decision, stating that the expenses claimed were not incurred for business purposes and were not allowable under the head 'income from house property.'4. Erroneous Levy of Interest Under Section 234B and 234C:This issue was not specifically addressed in the judgment.5. Ad Hoc Disallowance of Tax Depreciation Pertaining to the Factory Building Located at the Chennai Unit:The AO disallowed Rs. 2,71,85,103 in depreciation for the Chennai unit, stating that the unit had ceased operations and the assets were not used for business purposes. The DRP upheld the AO's decision, noting that depreciation is allowable only if the assets are used for business purposes. The DRP rejected the assessee's argument that the assets were part of a block of assets and that depreciation should be allowed until the block is exhausted.6. Short-Grant of Tax Credit Available Under Section 115JAA of the Act:This issue was not specifically addressed in the judgment.Conclusion:The appeals were partly allowed. The tribunal found that the supporting evidence provided by the assessee for intra-group services was reasonable and cogent, and the TPO's estimation method was whimsical and bizarre. The tribunal set aside the transfer pricing adjustments but upheld the disallowance of expenses and depreciation related to the Chennai unit, as the unit had ceased operations and the income was shown under 'income from house property.'