2022 (12) TMI 422 - AT - Income Tax

Tribunal rules in favor of assessee, cancels transfer pricing adjustment on seafarer expenses

The Tribunal ruled in favor of the assessee, directing the deletion of the transfer pricing adjustment related to the reimbursement of seafarer expenses. ... TP adjustment on account of reimbursement of seafarer expenses - transaction between the assessee and its A.E - doubt on genuineness of the alleged reimbursement of expenses - HELD THAT:- We find that the DRP also did not correctly appreciate the transaction between the assessee and its A.E. and upheld the adjustment made by the TPO by treating the arm's length price of international transaction to be Nil. From the perusal of the record, it is evident that it is not the case of the Revenue that the mark–up charged by the assessee for the services rendered to the A.E. under the aforesaid agreement is not at arm's length price. Revenue has only doubted the genuineness of the alleged reimbursement of expenses made by the assessee to its A.E. As noted above, the transaction is not reimbursement of expenses by the assessee to its A.E. and rather, is reimbursement of expenses by the A.E. to the assessee. We are of the considered opinion that the impugned adjustment made by the TPO and upheld by the learned DRP in respect of international transactions of reimbursement of the sea farers expenses is based on incorrect appreciation of facts. Therefore, we direct the TPO / A.O. to delete the said adjustment. Assessee appeal allowed. Issues Involved:1. Challenge to final assessment order under Income Tax Act for the assessment year 2016-17.2. Determination of taxable income and tax payable.3. Transfer pricing adjustment on reimbursement of seafarer expenses.4. Dispute regarding addition to total income based on transfer pricing adjustment.5. Analysis of objections filed by the assessee during DRP proceedings.6. Correct interpretation of international transaction of reimbursement of seafarer expenses.Issue 1: Challenge to Final Assessment Order:The appeal challenges the final assessment order dated 27/04/2021 passed under sections 143(3), 144C(13), and 144B of the Income Tax Act for the assessment year 2016-17.Issue 2: Determination of Taxable Income and Tax Payable:The assessee contested the determination of taxable income at Rs.1,78,52,8111 instead of the returned income at Rs.22,12,570. Additionally, the calculation of tax payable at Rs.85,65,440, including interest under section 234B, was disputed.Issue 3: Transfer Pricing Adjustment on Reimbursement of Seafarer Expenses:The primary grievance of the assessee was against the transfer pricing adjustment concerning the reimbursement of seafarer expenses. The TPO determined the arm's length price as Nil for the reimbursement of Rs.1,42,29,492 to the Associated Enterprise, leading to an adjustment proposal.Issue 4: Dispute Regarding Addition to Total Income:The assessee objected to the addition of Rs.1,56,40,237 to the total income, despite the TP adjustment in the draft order being Rs.1,53,15,595. The dispute centered on the addition of the entire reimbursement of seafarer expenses without considering the reimbursement by the Associated Enterprise.Issue 5: Analysis of Objections During DRP Proceedings:The assessee filed detailed objections during DRP proceedings, highlighting that expenses were reimbursed by the Associated Enterprise and not by the assessee. Additional evidence was submitted to support this claim, but the objections were rejected by the DRP.Issue 6: Correct Interpretation of International Transaction:The disagreement revolved around the correct interpretation of the international transaction of reimbursement of seafarer expenses. Despite the TPO's initial finding that the assessee received reimbursement from the Associated Enterprise, the adjustment was upheld. The Tribunal ruled in favor of the assessee, directing the deletion of the adjustment as it was based on an incorrect understanding of the facts.This comprehensive analysis of the judgment covers all the relevant issues involved in the appeal before the Appellate Tribunal ITAT Mumbai.