2020 (9) TMI 487

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..... Transfer Pricing Officer ('TPO') to the Appellant's income by issuing an order without appreciation of facts and law; Transfer Pricing grounds of appeal 2. The Ld. AO/Ld. TPO and the Hon'ble DRP erred both on facts and in law in confirming the addition of Rs. 7.98,52,317 on account of transfer pricing to the income of the Appellant by holding that its international transaction relating to reimbursement of expenses (hereinafter referred to as 'expat support services') to its Associated Enterprise ('AE') does not satisfy the arm's length principle envisaged under the Income tax Act, 1961 ('the Act'). While determining the Arm's Length Price ('ALP') of the said transaction to be NIL, the Ld. TPO erred in: 2.1. questioning the commercial / business wisdom of the Appellant for undertaking the said transaction; 2.2. disregarding sound TP principles and judicial pronouncements in India in undertaking the said judgment; 2.3. disregarding the fact that the transaction pertains to reimbursement of expenses and not provision of services by the AE; 2.4. holding that the expat support services are incidental and duplicative in nature and h....

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....nalty proceedings under section 271(1)(c) of the Act." 2. Ground No. 1 is general in nature and therefore same is dismissed. 3. Ground No. 9 is with respect to chargeability of interest u/s 234D and withdrawal of interest u/s 244A of the act. It is consequential in nature and therefore dismissed. 4. Ground number 10 is against the initiation of penalty proceedings u/s 271(1)(c) of the Act, which is premature, hence dismissed. 5. Ground number 2 to 6 are related to the transfer pricing adjustment. 6. Brief facts of the case shows that assessee was incorporated on 24th of April 2007 as an indirectly wholly owned subsidiary of Walmart stores Inc. USA. It is engaged in providing various types of consultancy services and assistance to domestic Indian entities i.e. Walmart India Private Limited and an unrelated entity Bharti Retail Limited. The services rendered by the appellant were in connection with development, operation and management of wholesale business, retail business and related operations. Assessee filed its return of income on 27/11/2012 declaring income of Rs. 43,445,360. The ld Assessing Officer noted that assessee has entered into international transacti....

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....ked this international transaction on the basis of internal CUP . However, as the assessee has rendered the services to the associated enterprise using the services of these expat employees its domestic clients , which were remunerated at cost +10% markup basis. 9. The learned transfer pricing officer proposed an addition of Rs. 79,852,317/- by determining the arm's-length price of the international transaction of reimbursement of salaries of employees at Rs. Nil. The main reason for doing so was that the benchmarking approach followed by the assessee using internal CUP method is flawed, since the salary payments to employees is itself a controlled transaction. The TPO was also of the view that there was no business or commercial need for availing such services, they have not resulted in any economic and commercial benefit to the assessee, the benefit is only incidental and therefore in nature of shareholder service, no third party would have availed such services in similar manner under similar circumstances and the services received by the assessee from expat employees are nothing but a duplication of services for the reason that similar services have been provided by the pare....

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....llowance u/s 14A of Rs. 50,288/- were retained. Therefore, on these two adjustments the assessee has preferred an appeal before us. 11. The learned Authorised representative submitted a detailed chart and the written submission on the issue stating that for Assessment Year 2009-10 the coordinate bench has set aside the issue on identical facts and circumstances back to the file of the learned transfer pricing officer and in the set-aside proceedings the learned transfer pricing officer deleted the entire transfer pricing adjustment on account of reimbursement of expenses and held that the services of the expats were neither duplicative in nature no in the nature of shareholder services. It was also held that these services do not result in erosion of tax base in India. It is further stated that identical issue arose before the coordinate bench for Assessment Year 2011-12 when the learned CIT(A) deleted the above addition and revenue approached the coordinate bench. The coordinate bench upheld the order of the learned CIT(A). For Assessment Year 2011-12 it was submitted that ITAT deleted the entire adjustment made by the TPO. For assessment year 2013-14 the coordinate bench has s....

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....arned assessing officer is not sustainable. 14. On the issue of the transfer pricing adjustment, the learned departmental representative vehemently supported the orders of the learned Transfer Pricing Officer and the learned Dispute Resolution Panel. He submitted that assessee has failed to demonstrate that the services were needed, the services were duplicative in nature and they are in fact shareholder services. In fact his arguments were similar to the arguments of the lower authorities. 15. With respect to the disallowance u/s 14A with Rule 8D of the Income Tax Rules, he submitted that the learned assessing officer has correctly applied the provisions of Rule 8D and disallowed the sum as per the method provided therein. He submitted that assessee has earned substantial dividend income and therefore the disallowance u/s 14A is mandatory. He submitted that assessee has not disallowed any sum and has also not demonstrated that how it has not incurred any expenditure for earning of exempt income. It was further stated that investment in mutual funds does involve certain efforts of the human resources as well as certain administrative expenditure, therefore, there are eleme....