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TaxTMI 
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2019 (3) TMI 1458
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....olly and exclusively for purposes of business and are allowable. The appellant pleads that the AO's action is not justified. 3. The issue raised in the present appeal is against disallowance of Management Fees of Rs. 2,62,24,684/- paid by assessee to its holding company IMC Inc, USA on the ground that the assessee had failed to prove that any benefit had accrued from the expenses. 4. Briefly, in the facts of the case, the assessee for the year under consideration had filed return of income declaring total loss of Rs. 1.66 crores and book loss of Rs. 2.20 crores. The assessee company was incorporated on 27.04.2005 and was engaged in the business of IT Enabled Services. During the course of assessment proceedings, the assessee was asked as to why Management Fees paid of Rs. 3.23 crores should not be disallowed. In respect of Management Fees of Rs. 3.23 crores, the assessee pointed out that it had reimbursed various costs incurred by associated enterprises which were directly related to its business and there was no profit margin markup in respect of said expenses. Reference was made to Annexure - E to transfer pricing documentation, wherein the details of project based services....
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....Officer. The CIT(A) did not accept the plea of assessee as in the initial years, no such Management Fees was reimbursed by the assessee to its associated enterprises. The assessee claimed that in the initial years, no such payment was being made as the parent company was supporting the operations of assessee. However, where no expenditure was claimed in the preceding years, despite showing profits of around 37%, then the CIT(A) observed that the claim made for the first time in the year, where the company reported losses instead of profits was not acceptable. If the intention of parent company was to support the startup, then no such claim should be made in the year of loss. Further, the CIT(A) noted that sum of Rs. 2.62 crores was shown as outstanding as on 31.03.2010 under the head 'Sundry Creditors' in the Balance Sheet. The CIT(A) was of the view that in case it was genuine payment, then the periodical payments or adjustments against receivables for the services should have been made by the assessee. Further, invoice numbers were continuous series from GS-001 to GS-0011 commencing from April, 2009 to March, 2010. The CIT(A) was of the view that this clearly showed the intention....
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....in Eaton Fluid Power Ltd. Vs. ACIT (2018) 92 taxmann.com 158 (Pune - Trib.) for the proposition that the Assessing Officer cannot sit in the judgment of business module of assessee and its intention to avail or not to avail any services from its associated enterprises. Further, reliance was placed on the ratio laid down by Pune Bench of Tribunal in Emerson Climate Technologies (India) Ltd. Vs. DCIT (2018) 90 taxmann.com 125 (Pune - Trib.) 8. The learned Departmental Representative for the Revenue placing reliance on the order of CIT(A) pointed out that no evidence of rendering services by the associated enterprises to the assessee were filed and hence, the disallowance. 9. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is against claim of deduction of management fees paid by the assessee to its holding company IMC Inc, USA. The assessee though, was established in 2005-06 but no management fees were being paid by the assessee to its associated enterprise till last year. It was only during the year under consideration, the assessee had booked management fees expenses of Rs. 3.32 crores. The said expenditure included salary p....
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....l.CIT (supra) to hold whether the benefits derived by the assessee, in view of the evidences in respect of management service charges and client coordination fees, cannot be found fault with. 11. The Pune Bench of Tribunal in Emerson Climate Technologies (India) Limited Vs. DCIT (supra) applying the said ratio had decided the issue of allowability of support service charges paid to associated enterprises and had held as under:- "23. The next stand of the TPO is two-fold; as to what benefits have been received by the assessee against the said support services and intricacy value of services given by the associated enterprises. The said aspect is linked to the issue of whether there is any need for services and in the absence of its establishing the same, whether the TPO / Assessing Officer is correct in determining the arm's length price of transactions at Nil. The assessee had entered into an agreement with its associated enterprises for availing the services because of business benefits arising from such an understanding. Law does not require the assessee to demonstrate the need for availing the services. The assessee is best person to arrange its affairs to conduct the b....
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....nessman is the best judge to come to decision as to whether it needs the said support services or not. Secondly, once such a decision has been taken by the businessman and it provides the evidence of services received by it from its associated enterprises, then the TPO cannot question the same by commenting upon the nature of services provided, where in any case, information is hyper technical. First of all, where the TPO has referred to the services provided and pointed out defects in the services provided, the first step that services have been provided stands established. Once the same is established by way of assessee producing several evidences before the TPO, which were in the form of contemporaneous data, then the TPO is precluded from commenting upon the same and holding that the assessee had not received any services and also there was no need for making any payments for such services, as the services provided were not upto the mark. In any case, the perusal of various evidences filed by the assessee i.e. contemporaneous data available on record shows that it is highly technical and the same has been used by the assessee for carrying on its business activities, such eviden....
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....h are the details which were available from month to month and the amounts in each month vary. The objection of authorities below in this regard was that though invoices have been raised but the same were serially numbered and also that the amounts were due to be paid at the close of the year. We find no merit in the stand of authorities below. It is an understanding between the parties, which has to be looked into and the expenses have to be allowed on accrual basis specially where the assessee is following mercantile system of accounting. Merely because the amounts were due at the close of the year, would not disentitle the assessee from claiming the said expenditure. 14. Now, coming to the next aspect of the disallowance of assessee on the ground whether any services were availed or not. The assessee in this regard has furnished additional evidence before the CIT(A), copies of which are placed at pages 79 to 173 of Paper Book. The said evidence is in the form of various emails exchanged between employees of the assessee and personnel of holding company. We have gone through the said evidence and we are of the view that the assessee had established its case of availment of said ....
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....ts had been received by the assessee against the said support services and whether there was any need for services and held as under:- "29. Now, coming to the issue of transfer pricing adjustment made by TPO on account of services availed by the assessee from its associated enterprises and taking the value of said international transactions at Nil. In the first instance, we hold that TPO cannot sit in the judgment of business module of assessee and its intention to avail or not to avail any services from its associated enterprises. The role of TPO is to determine the arm's length price of international transactions undertaken by the assessee and whether the same is at arm's length price when compared with similar transactions undertaken by external entities or internal comparables...... 30. The second aspect which needs to be considered in the present case is the services availed by assessee from its associated enterprises. The assessee is a group concern of worldwide Eaton group of companies and the intention to avail the said services is to carry out his business on worldwide platform. The total turnover of assessee for the year was Rs. 173 crores and the services ava....