TaxTMI 
TaxTMI 
2015 (5) TMI 645
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....ngth price at nil; 3. erred in disallowing depreciation of Rs. 3,62,441/- on software by alleging that payment for use of computer software of Rs. 11,73,864/- is not at arm's length. 4. making addition of Rs. 5,50,441/- on account of reimbursement of travel expenses of personnel of AE." 2. Ground no. 1 is regarding transfer pricing adjustment on account of allocation of expenses for receipt of technical services from AE. 3 The assessee is a subsidiary of PERI (GmbH) Germany, the assessee is engaged in providing formwork and scaffolding material to companies engaged in the construction business. The assessee imports the formwork and scaffolding material for resale in India. The assessee has shown payment of Rs. 2,24,848/-towards cost allocation to AE. In its TP study report, the assessee stated that the costs are allocated to the assessee on a time spent basis. The assessee also claimed that PERI Germany allocates these expenses to all group entities on the basis of time spent by its employees on each entity. In support of its claim, the assessee produced copies of invoices raised by PERI Germany to other group companies for providing the same services. Therefore, the assessee c....
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....ntion of the assessee and confirmed the adjustment proposed in the draft order on this account on similar reasoning as of the Assessing Officer/TPO. 5. Before us, the Ld. Authorized Representative of the assessee has submitted that the assessee was incorporated on 28th December 2006 and this was the fist full year business of the assessee. The assessee is providing formwork and scaffolding sytem to its clients engaged in the business of construction. The said services provided by the assessee to its clients need assistance at the site of the clients including the design/drawings of various construction activities. The ld. Authorized Representative has referred the invoices raised by the AE PERI (GmbH) Germany for rendering technical services for RCS table lift. He has also referred the design provided by its AE for specific technical work of RCS Lift to the Larsen & Toubro Ltd. (L&T). Thus the Ld. Authorized Representative has submitted that the design provided by the AE is highly technical work and it goes to prove that the AE has rendered the services to the assessee. He has further submitted that these technical services are very essential for execution of the work at the site,....
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....upported the orders of authorities below and submitted that the assessee has failed to discharge its onus of proving the need of the assessee in availing the alleged services from the AE, the benefit derived by the assessee out of the said activity and the basis of cost share and the actual cost incurred by the AE. In rejoinder, the Ld. Authorized Representative of the assessee has submitted that the assessee has produced all the relevant record and evidence to show the need of the assessee, the benefit of the assessee as well as the actual services rendered by the engineer of the AE which was inevitable for the business activity of the assessee. The allocation of the cost is based on the time spent by the engineers at the rate of 42 Euro per hour. The actual time spent by the engineer has been duly record in the invoices which also support the services rendered at the site of the clients. 7. We have considered the rival submissions and relevant material on record. It is relevant to take into consideration, for adjudication of the issue, that the assessee was incorporated on 28th Dec. 2006 and this was the first full year of business activity of the assessee, therefore, the asses....
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....ning the ALP of the expenditure by the TPO at nil is totally contrary to the facts as well as evidence produced by the assessee. The assessee has produced the invoices raised by the AE for providing the services which is based on the total number of hours spent by the engineers of the AE at the site of the clients of the assessee in providing the services. The TPO/Assessing Officer has not disputed the presence of the engineer in India for providing the services, the assessee even produced the record with regard to the actual work executed at the site of L&T Ltd then not accepting the claim of the assessee de hors the evidence, material, record and facts of the case is not justified. 7.2 Though the TPO/Assessing Officer has the power and jurisdiction to verify the price paid by the assessee at arm's length, however, instead of examining whether the price paid by the assessee is at arm's length, the TPO proceeded on the premise that the assessee was not in need of the services and the services was not actually availed by the assessee. When the assessee has produced the sufficient evidence that the said services was an inevitable part of the business activity of the assessee then th....
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.... Accordingly the TPO treated the ALP of the said payment at nil and proposed the adjustment of the entire amount of Rs. 45,28,743/-. The DRP confirmed the action of TPO/Assessing Officer. Before us, the Ld. Authorized Representative of the assessee has explained the facts and circumstances under which the project (Jana Priya) was initially awarded to the Malaysian AE and then was transferred to the assessee as per the group policy. He has further submitted that the payment of commission is only a reimbursement which was charged as per the original agreement for award of the project under which the Malaysian AE of the assessee was under obligation to pay 7.5% of the contract amount as commission. Since the project was transferred to the assessee therefore, the obligation was also transferred to the assessee and, accordingly, the assessee reimbursed the said amount to the AE. There is no element of any profit in the said payment as far as the AE is concerned, therefore, there is no question of any arm's length price when the payment was finally made to a third party. He has further submitted that initially the agent introduced M/s Jana Priya to PERI Malaysia for sale of PERI formwor....
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....dger account and submitted that the payment was made after deduction of tax at source. 10. On the other hand, the Ld. DR has submitted that no formal agreement between the agent and the assessee as well as the AE was produced by the assessee. The decision is taken by the Headquarter, therefore, this is an incidental expenditure shall be borne by the Headquarter and not by the assessee. In the absence of any terms of the agreement between the parties, the assessee was not under any obligation to pay the amount in question. He has further contended that the driver of the transaction is the parent company of the assessee and in the absence of any record to show prior dealing of the Malaysian AE with the agent, the assessee failed to prove the liability of paying such amount as a commission. No comparable to show the similar services rendered by the LTC Technical works and payment of such commission made by the Malaysian Entity was produced. He has relied upon the findings of TPO and DRP. 11. We have considered the rival submissions and relevant material on record. The assessee has produced all the records specifically all the correspondences between the PERI Malaysia and Jana Priya ....
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....ssion in question was clearly borne out from the correspondence between the PERI Malaysia and LTC Technical Works and that commission was to be paid in respect of the project Jana Priya secured through the agent. Thus the assessee has brought on record enough material to show that it was a contractual liability of its assessee with respect to the securing of the project Jana Priya and in the event of the said project was transferred to the assessee, the said liability was also stand transferred to the assessee along with the project. The assessee claimed that this is nothing but reimbursement of expenses which were to be paid by the Malaysian AE to the agent for securing the project. On principle, we do agree with the claim of the assessee that he said amount of commission was obligation of the AE (Malaysia) for securing the project and once the project was transferred to the assessee for execution and in turn the assessee has earned a handsome revenue from the said project then the liability of payment of commission was fastened on the assessee being a contractual obligation. Therefore, denial of the claim of the assessee is not justified which in total disregard of the evidence p....
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....or opening the designs and drawings sent by the AE. He has further submitted that the software AutoCAD was purchased by the PERI GmbH Germany. It was purchased with fresh licenses along with its subscription for its group companies. The subscription allows access to the autodesk software which enables quick creation of illustrative presentation of graphics. This was purchased by the parent company for various group companies and same was made available online on the website of the parent company for download and use. The assessee produced the record showing that the price charged by Autodesk Inc. from the parent company is recovered from the assessee. Thus the Ld. Authorized Representative has submitted that it is the pure reimbursement of the actual cost which was incurred by the parent company for the group companies. The assessee's business is to provide the formwork and scaffolding system for the companies engaged in the business of construction and, therefore, it is the constant need and requirement of the business activity of the assessee of having different source of drawings to be provided to the assessee which acts as source information to start with any project right from....
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....e assessee has produced the invoices raised by its parent company as cost of the software along with actual price paid by the parent company to the software provider. Once these two documents were produced by the assessee showing that the price paid by the assessee is nothing but the actual cost of the software purchased by parent company which was installed by the assessee. We find from the record that so far as the actual cost of software in question is concerned the assessee has produced the invoice raised by the software provider to parent company and the payment made by the parent company matches with the reimbursement of the actual cost of the software in question. Therefore, there is no element of any mark up or profit by the parent company of the assessee. It was a mere reimbursement of the cost of the software in question. So far the need and benefit of the software in question for the assessee's business activity is concerned, the assessee has brought on record how the software was useful for day to day business of the assessee as not only it is useful but it is inevitable for certain activities to have the access to the drawings provided by the clients which is used as s....
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....ferred the details of expenses at page 174 of the paper book and submitted that the details of travelling expenses clearly show that the payment was made by Mr. Stan Wojicierczk through his credit card. Even the expenses of the assessee's Managing Director Mr. Raj Lakhani was paid by Mr. Stan Wojicierczk, who was travelling along with Mr. Raj Lakhani. The cost was incurred by Mr. Stan Wojicierczk and the same was reimbursed to him as it was related to the business operations of the assessee. The Ld. Authorized Representative has then referred page 177 of the paper book and submitted that only 50% of the expenses were reimbursed which means only the expenses towards the stay and visit of assessee's own Managing Director which was incurred by Mr. Stan Wojicierczk, were reimbursed. He has referred the invoices of the hotel as well as payment details through credit card in support of his contention. 21. On the other hand, the Ld. DR has submitted that no explanation was furnished by the assessee before the TPO, therefore, in the absence of any evidence it was confirmed by D.R.P. He has relied upon the orders of authorities below. 22. We have considered the rival submissions and relev....