2024 (4) TMI 132 - AT - Income Tax

ITAT restores transfer pricing margin computation and expatriate salary issues to AO for fresh consideration

TPSC (India) Private Limited Versus Deputy Commissioner of Income Tax, Circle-2 (1), Hyderabad

TPSC (India) Private Limited Versus Deputy Commissioner of Income Tax, Circle-2 (1), Hyderabad - TMI Issues Involved:1. Transfer Pricing Adjustments (Ground No. 5)2. Reimbursement of Expatriates' Salary, Bonus, and Provident Fund Costs (Ground No. 6)3. Disallowance of Miscellaneous Expenditure (Grounds No. 8 and 9)4. Provision for Loss on Projects (Ground No. 10)Summary of Judgment:1. Transfer Pricing Adjustments (Ground No. 5):The assessee argued that the learned TPO should restrict or proportionate transfer pricing adjustments to international transactions with AEs only, specifically for engineering services and receipt of technical advisory services. The learned AR cited various case laws asserting that adjustments should be limited to international transactions and not at the entity level. The Tribunal found merit in the assessee's argument, noting that the assessee had provided detailed margin computations for AE transactions, which were not considered by the authorities. The Tribunal restored the issue to the file of the learned AO/learned TPO for fresh consideration, directing them to consider the segmental data provided by the assessee.2. Reimbursement of Expatriates' Salary, Bonus, and Provident Fund Costs (Ground No. 6):The assessee contended that these expenses were incurred for administrative convenience and should be reimbursed by the AE. The learned TPO and DRP had rejected the claim due to the lack of documentary evidence. The assessee now possesses the necessary documents and requested an opportunity to present them. The Tribunal restored this issue to the file of the learned AO/learned TPO, directing the assessee to provide all requisite documents for proper adjudication.3. Disallowance of Miscellaneous Expenditure (Grounds No. 8 and 9):The assessee argued that the expenditure of Rs. 1,09,86,866/- was related to the current year and not prior period expenses, supported by invoices dated within the relevant financial year. The Tribunal found the argument plausible and restored the issue to the file of the learned AO/learned TPO for verification of the invoices and determination of the nature of the expenditure.4. Provision for Loss on Projects (Ground No. 10):The assessee claimed a provision for loss on a project under Accounting Standard 7-Construction Contract, which the learned AO disallowed. The assessee referred to para 22.2 of ICDS-III, which was not considered by the learned DRP. The Tribunal restored this issue to the file of the learned DRP, directing the assessee to present all relevant submissions and documents for proper examination in light of ICDS-III.Conclusion:The appeal of the assessee is treated as allowed for statistical purposes, with all contested issues restored to the respective authorities for fresh consideration and verification.