TaxTMI 
TaxTMI 
2011 (4) TMI 877
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....d 2 are directed against CIT(A)'s order in upholding the action of the Assessing Officer in adding a mark-up of Rs.25,82,578 to the returned income of the assessee being 8 per cent of the cost of Rs.3,22,82,224 incurred by the assessee on behalf of BG Pipavav LNG Pvt. Ltd. 5. In the course of assessment proceedings, it was found by the Assessing Officer that the assessee had incurred a cost of Rs.3,22,82,224 on behalf of its associate enterprise for which it was reimbursed by its associate enterprise without any mark up. The Assessing Officer, therefore, issued a show-cause notice to the assessee to explain as to why 8 per cent mark up on cost of Rs.3,22,82,224 incurred by the assessee on behalf of its AE should not be added back to assessee's income in the same way as 8 per cent mark up was applied to the amount of services rendered by the assessee to its associate enterprise. In reply, the assessee stated that its associate enterprise namely BGLNG Pipavav (in short 'BGLNG') had undertaken project development activities in India, namely, identifying, analyzing specific projects in India etc. In a cost sharing arrangement, the assessee and BGLNG shared various resources a....
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....in the range of +/- 5 per cent of the arm's length price margin of 10.55 per cent. no adjustment in arm's length price was made by the TPO. The Assessing Officer, therefore, took a view that the assessee's plea that the reimbursement of the cost of Rs.3,22,92,224 was a part of cost sharing arrangement was not accepted by the TPO. The Assessing Officer, therefore, worked out the mark up of 8 per cent on cost of Rs.3,22,82,224 and made an addition of Rs.25,82,578 to the total income of the assessee. 7. Being aggrieved, the assessee preferred an appeal before the learned CIT(A). 8. After considering the assessee's submission and Assessing Officer's order and TPO's findings, the CIT(A) confirmed the Assessing Officer's action. While confirming the Assessing Officer's action, the learned CIT(A) has observed that the assessee has not shown the 8 per cent mark up though services were rendered by the assessee and the department has clearly discharged its burden to show that this was not a cost sharing arrangement but this was actually the services rendered by the assessee company. In this view of the matter, the learned CIT(A), therefore, had taken a view that 8 per cen....
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....that no real income had accrued nor received by the assessee, and the Assessing Officer has made the addition only on notional basis. He further submitted that reimbursement of expenses are not liable to tax as no profit element is involved therein. 11. The learned DR, on the other hand, supported the reasoning and the basis given by the authorities below in making the addition of mark up of 8 per cent on cost of Rs.3,22,82,224 incurred by the assessee on behalf of BGLNG. He, therefore, supported the orders of authorities below. 12. We have considered the rival contentions of both the parties and perused relevant material on record. 13. It is not in dispute that the assessee company made payments of various expenses on behalf of BGLNG. The assessee has claimed that assessee facilitated disbursement of various amounts on behalf of BGLNG out of advances made by the BG group. It is the assessee's case that it is merely a cost sharing arrangement between assessee and its affiliates. The assessee has not filed any separate agreement with BGLNG to support its case. However, on the other hand, the Assessing Officer has taken a view that the payments were made....
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....ther it was in connection with some services rendered by the assessee company to its affiliates. The conclusion arrived at by the Assessing Officer that all the services rendered by the assessee company come under the purview of services rendered is made without examining and verifying the nature and purpose of the expenses disbursed by the assessee company. In order to decide as to whether it was merely a cost sharing arrangement or the payments were made in the course of rendering services by the assessee to affiliates need to be decided after examining the various aspects of the matter and various services undertaken by the assessee vis-a-vis the nature and purpose of the alleged payment made for and on behalf of BGLNG by the assessee. The terms and conditions of the service agreement dated 23rd August, 2002 between the assessee and BG Asia Pacific Holdings Pte. Ltd. (Singapore) need to be examined in the light of nature of expenses disbursed by the assessee. Therefore, we find it fit and proper to restore the matter back to the file of the Assessing Officer for further examination and verification so that the real nature of the transaction may be ascertained and determined havi....
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....account of farewell given to certain directors and employees and expenses incurred on cricket match. The fact that amount has actually been incurred by the assessee is not in dispute. Nowadays in the business world, arranging farewell parties and dinners and arranging cricket match is common to advance the welfare activities amongst the staff. It is not in dispute that the assessee company is a big company with huge staff and incurring an amount of Rs.2,98,431 against the total services revenue of Rs.17,83,17,199 is not at all on higher side. It is well settled that expenditure incurred by the company on making gifts to employees and hosting dinner at a farewell party is purely on commercial consideration and of business expediency to maintain healthy relationship between the company and its staff. We, therefore, hold that the disallowance of Rs.2,98,431 incurred by the assessee on farewell parties and cricket match cannot be said to be non-business in nature. We, therefore, allow the assessee's claim of expenses and delete the addition. 20. Last ground No. 4 is against CIT(A)'s order in upholding the action of the Assessing Officer in disallowing the expenses of Rs.68,37....
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....Officer that assessee had incurred expenses amounting to Rs.2,60,94,655 on behalf of BG LNG Pipavav Pvt. Ltd. (in short 'BGLNG') and the same were spent out of the advances made by BG Asia Pacific Holdings Pte. Ltd. (Singapore) (in short 'BGAPH'). The assessee company did not provide any mark up of 8 per cent on the aforesaid amount of Rs.2,60,94,655 on the ground that assessee had merely facilitated the payments without there being any services rendered by the assessee company. However, Assessing Officer has taken a view that these expenses were incurred in connection with services rendered by the assessee and, therefore, assessee should have booked mark up of 8 per cent as income in its books of account as so booked in the case of amount received against the services rendered. The Assessing Officer, therefore, made an addition of Rs.20,87,572 being 8 per cent of Rs.2,60,94,655. 29. On an appeal, CIT(A) confirmed the Assessing Officer's action after following the CIT(A)'s order passed in assessment year 2002-03. 30. Hence, the assessee is in appeal before us. 31. We have heard both the parties and perused the material on record. 32. An ident....