Consistency in transfer pricing and identical facts defeated tax disallowance, while foreign travel expense relief was only partial.

Consistent acceptance of the assessee's transfer pricing benchmarking in earlier and later years led to deletion of the adjustment on imports, trading transactions and service fee payments, as the Tribunal applied the principle of consistency on identical facts. The foreign travel claim was not fully supported by complete details and the initial disallowance was ad hoc, so a partial disallowance of 10% was retained. The disallowance under section 40(a)(i) for allocated expenses was deleted because the Revenue had not identified the actual payments accruing during the year and the facts matched the assessee's earlier year position.

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Issues: (i) Whether the transfer pricing adjustment on imports, trading transactions and service fee payments was liable to be sustained or deleted; (ii) Whether the disallowance out of foreign travel expenses was justified; (iii) Whether the disallowance under section 40(a)(i) for alleged non-deduction of tax at source on allocated expenses was sustainable.

Issue (i): Whether the transfer pricing adjustment on imports, trading transactions and service fee payments was liable to be sustained or deleted.

Analysis: The adjustment was tested against the methods adopted by the assessee and the Revenue's objections to the comparable data and method selection. The Tribunal noted that the assessee had furnished comparable prices and supporting invoices before the lower authorities. It also noted that in the immediately preceding year and in subsequent years the Revenue had accepted the assessee's benchmarking, and that the earlier remand proceedings had ended in acceptance of the arm's length computation. On these facts, the Tribunal applied the principle of consistency and rejected the Revenue's challenge to the rejection of the transfer pricing adjustment.

Conclusion: The deletion of the transfer pricing adjustment was upheld and the issue was decided against the Revenue.

Issue (ii): Whether the disallowance out of foreign travel expenses was justified.

Analysis: The assessee had not been specifically called upon to file complete details of the foreign travel expenditure, and the original disallowance was made on an ad hoc basis. At the same time, the record did not contain complete supporting details for the entire claim. Balancing these circumstances, the Tribunal held that a partial disallowance was warranted instead of full deletion or full sustenance of the amount disallowed by the Assessing Officer.

Conclusion: The disallowance was reduced to 10% of the total foreign travel and the issue was partly decided in favour of the Revenue.

Issue (iii): Whether the disallowance under section 40(a)(i) for alleged non-deduction of tax at source on allocated expenses was sustainable.

Analysis: The Tribunal followed its decision in the assessee's earlier year, where similar foreign currency expenditure had been deleted because the Revenue had not identified the payments actually accruing during the year and the assessee's explanation on non-deduction of tax had been accepted. Finding the facts to be identical and noting no change in the nature of payment or circumstances, the Tribunal held that the disallowance could not be sustained.

Conclusion: The deletion of the disallowance under section 40(a)(i) was upheld and the issue was decided against the Revenue.

Final Conclusion: The Revenue's challenge failed on the transfer pricing and section 40(a)(i) issues, but succeeded only to a limited extent on foreign travel expenses, resulting in a partly allowed appeal.

Ratio Decidendi: Where the same benchmarking or expenditure treatment has been consistently accepted in earlier and subsequent assessment years on identical facts, a divergent view should not ordinarily be taken, and an ad hoc disallowance cannot be sustained without proper factual basis.

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