TaxTMI 
TaxTMI 
2017 (7) TMI 1001
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....n considering the arm's length price ('ALP'), of certain payments in the nature of cost contributions/ reimbursements (of Rs. 9,20,98,565 paid by the appellant) 3. That on the facts and in circumstances of the case and in law, the Ld. DRP has grossly erred in upholding enhancement of the appellant's returned income by Rs. 2,68,61,146 by considering the ALP of consultancy charges (of Rs. 2,68,61,146 reimbursed by the appellant) as Nil, thereby failing to appreciate that the appellant had not claimed a deduction in respect of the said charges in its return of income ('ROI') and consequently taxing the same amount twice in the hands of the appellant; 4. That on the facts and in circumstances of the case and in law, while confirming the addition of balance Rs. 6,52,37,419 /- the Ld. DRP has grossly erred in: 4.1 disregarding the ALP, as determined by the appellant in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules'); 4.2. not taking into cognizance the Appellant's notification submitted before the Hon'ble DRP that tax has already been deducted and deposited by the appellant on ....
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....analysis that the assessee did not prove the details of the services received by it and the benefits it had obtained from the intra group services. It did not prove whether the services for which the cost contribution were made constituted intra group services and that the assessee even failed to furnish the basic critical data like total cost incurred by the AEs and the details of allocation keys used for allocation uncontrolled CUP, its claim in transfer pricing report that cost allocation was benchmarked on the basis of the CUP method was a false statement. The TPO specifically determined the assessee's claim with respect of each item of the services received from AEs and found that in the absence of any evidence laid by the assessee for allocation of expenses amounting to Rs. 1,72,63,160/- the AEs were not required to charge cost to the assessee and the arm's length price of this international transaction was taken at zero. Thereafter, the TPO proceeded to examine the assessee's claim for reimbursement of expenses of Rs. 7,48,35,405/- on account of reimbursement of salary, consultancy charges and cross charges claimed by the assessee. The TPO examined the assessee's claim in re....
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.... contribution share paid to AEs which were not held at arm's length by TPO/AO/DRP. 6. The Ld. AR submitted that reimbursement of actual expenses incurred by AEs for on and on behalf of assessee towards third parties was on cost to cost basis without any mark up and these reimbursements are in nature of salary cost of two key employee seconded by AEs to the assesse, insurance premium, hotel, travel expenses, freight and clearing & forwarding charges. The Ld. AR referred pages 181-184 from the Paper Book wherein explanation to the nature of reimbursement was given to TPO by the assessee. From pages 200-201 of the Paper Book are further explanation to Ld. TPO explaining the nature of reimbursements. The Ld. AR further pointed out Page no. 104-106 of appeal set and page no. 187-191 of the Paper Book which are the details of reimbursement paid with narrations explaining the nature. 7. The Ld. AR submitted that consultancy charges reimbursement aggregating to Rs. 2,68,61,146 (1,86,54,494+82,08,652) which is part of Rs. 7,48,35,405, in fact stood disallowed by the assessee in the computation and therefore the present disallowance is nothing but duplicate disallowance. Page no. 104-1....
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.... salary was demonstrated to be at arm's length by applying CUP. Page No. 111-112, 118-119 of appeal set are detailed submissions to DRP explaining about the salary paid to expatriates and that no service has been received from AEs in this regard. 9. The Ld. AR pointed out the comments of the TPO while disallowing the reimbursement of salary. The TPO commented that in absence of any evidence with respect of any benefit received by the assessee from the rendering of above services, and also in the absence of the services getting benchmarked, it is held that the arm's length price of the international transactions relating to payment of salary to expatriate employees is NIL. The Ld. AR further submitted that the assessee in its TP report has benchmarked the reimbursement by applying CUP method and therefore, the statement made by the TPO is without any basis. The Ld. AR emphasized that in respect of the salary expenses paid to the AEs, the assessee has not received any service from its AEs. The services have been received from the employees based in India and it is only for administrative convenience that their salaries were paid outside India by the AEs, which were subsequently re....
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....compelling necessity to incur such expenditure". In this regard, the Ld. AR submitted the recent judgment of Dresser- Rand India Pvt. Ltd. Vs ACIT [ITA No.8753/Mum/2010]. In the said judgment, the ITAT held that it is not for the revenue officers to question assessee's wisdom in doing so. The TPO was only going much beyond his powers in questioning commercial wisdom of assessees decision to take benefit of expertise of Dresser Rand US, but also beyond the powers of the AO. 11. The Ld. AR further submitted order of EKL Appliances Ltd. (I.T.A. Nos. 1068/2011 & I.T.A. Nos. 1070/2011) the Hon'ble HC of Delhi which clearly laid down this principle: "The position emerging from the above decisions is that it is not necessary for the assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity. It is also not necessary for the assessee to show that any expenditure by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in and of the subsequent years. The only condition is that the expenditure should have been incurred "wholly and exclusively" for the purpose of business and ....
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....pies of invoices/debit notes from EFFEM Thailand and Master Foods CP showing this charge on cost to cost basis. 14. As relates to the issue of maintenance of NIR equipment amounting to Rs. 10,77,931, the Ld. AR submitted that the Assessee had installed Near Infra-Red (NIR) equipment in its manufacturing facility which is specialized equipment used by the food industry to assess the quality of raw material of finished good and such equipment is for cost optimization and maintenance of same quality standard of the manufactured products. This charge represents the nominal charge in respect of remote technical support. Further explanation in respect of Global NIR Support Group is provided below. NIR support activities for Mars India plant covered by cross charges: (i) Commissioning of instrument at the site. (ii) Required re-training visit(s) (iii) Access to the developed Routine operator training tools (iv) RINA &ISI scan licenses (v) NIR server support activities (vi) All required software updates (vii) NIR lamps( 2 per year) (viii) Development of identification libraries for raw materials and finished product....
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....ut between personnel of Mars India and the office of the Regional Presidents as per which it is evident that the strategy based support was received by Mars India over the years. It demonstrates that Mr. Peter Bruehl (Regional President) has been a regular supporter for the Mars Indian subcontinent and takes part in meetings regularly. The Ld. AR referred pages 472-475 of the paper book. The Ld. AR further pointed out that this payment was made in pursuance of the cost sharing agreement entered into by the assessee, which specifies the relevant costs to be allocated and the allocation basis for the same. The ld. AR further submitted that the cost base for this charge includes all the relevant costs incurred in the provisions of these services, e.g., SW&B (salary, wages and benefits), travel expenses, office sundries, meetings and conferences, consultancy fees and other expenses. As per the requirements of the agreement, only a part of the costs incurred in respect of this activity was allocated to Mars India, based on the proportion of sales value of all products sold by Mars India during the year. Sample debit notes which have been issued by the AE on a periodical basis was attach....
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....cation of expenses attached at pages 569-586 of the paper-book. The balance amount (which represent less than 7% of total recharges) are towards reimbursements of travel expense, training expenses, payment towards research expenses, Employee compensation and benefit survey expenses related cross charges etc. The same are referred at Pages 187 to 191 of the paper-book. Thus the Ld. AR submitted that the recharges paid by the assessee are commensurate with the benefits received by the assessee, considering the nature of the functions performed by the AE and costs allocations charged to the assessee in lieu thereof. The Ld. AR also pointed out the comments of the TPO while disallowing the cost recharges paid by the assessee. The TPO commented that the alleged services have not been benchmarked under any of the five methods in the TP report. However, as stated above, the assessee in its TP report has benchmarked the cost recharges by applying Comparable Uncontrolled Price Method and therefore, the statement made by the TPO is without any basis. The Ld. AR submitted that however, the TPO failed to appreciate to above and ignored the arguments/documents submitted by the assessee while de....
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....olled transaction while applying the CUP method. The TPO has not even considered the availability of any possible internal CUP for the transaction nor provided comparable uncontrolled prices and agreements relying on which, the IPO determined the arm's length price as NIL. No enterprise would perform such functions without charging a price for the same. Therefore, the Ld. AR submitted that the adjustments undertaken by the TPO based on application of CUP as determined by the TPO suffers from non-compliance of the provisions of Rule 10B and the arms's length price has been determined merely based on presumptions. Accordingly, the addition made by the TPO/AO in contravention of the provisions of Rule 1 OB ought to be deleted as per the Ld. AR. 19. From the above submissions the Ld. AR submitted that the AO be directed to grant relief to the assessee as through its documentation and details/information provided in assessment proceedings, it has amply demonstrated that it is compliant with the arm's length principles as embodied in the Indian TP Regulations. 20. During the hearing while demonstrating all the evidences by the Ld. AR, the Ld. DR pointed out that these evidences sub....