TaxTMI 
TaxTMI 
2019 (2) TMI 1873
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.... of the Income Tax Act, 1961 ('the Act') dated 15 January 2014 (received on 23 January 2014) passed by the learned Deputy Commissioner of Income Tax ('AO') incorporating the directions of the Dispute Resolution Panel ('DRP') for the aforesaid assessment year on the following grounds: 1. The order passed by the Ld. AO passed under section 143(3) read with Section 144C(13) making an upward adjustment of Rs. 8,94,34,417/- to the income of the Appellant is erroneous and bad in law on the facts and circumstances of the case. 2. The Ld. AO / Transfer Pricing Officer ('TPO') erred in making, and the Hon'ble DRP erred in confirming, the disallowance in respect of the administrative expenses amounting to Rs. 7,49,11,250/- and concluding its Arm's Length Price ('ALP') at Nil without appreciating the facts and circumstance of the case. 3. The Ld. AO erred in not considering the reliefs provided by the Hon'ble DRP, in favour of the Appellant, in respect of the following additions proposed to be made to the Arm's length price by the Ld. TPO Sr. No. Description of the expenditure Amount (in Rs.) 1 Freight liabi....
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....neral commodities by air or sea. By virtue of the aforesaid arrangement the assessee had the benefit of using the overall UTi Network outside India. Apart therefrom, the group companies were bound to use the assesses services for their operations in India. As per the aforesaid arrangement, if some freight was required to be transported by a customer from overseas to India then such transaction was to be referred to as an "Import transaction" and if it was to be transported by a customer from India to overseas then the same was to be referred to as an "Export transaction". The fee that was earned from a customer was reduced by the cost of transportation and the balance amount (hereinafter referred to as "Spread") was shared by the exporting and the importing entity, as under: Origination place UT India UTi group entity India 67% 33% Overseas 33% 67% 4. During the course of the assessment proceedings the A.O made a reference under Sec. 92CA(1) of the I.T Act to the Addl. CIT, Transfer Pricing Office-(II) (5), Mumbai (for short "TPO‟) for determining the Arms Length Price (for short "ALP‟) of the international transa....
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....proceedings in order to support some of the items of expenditure viz. (i). Infonet Communication Cost; (ii). ABN Amro L/C Charges; (iii). Stock Compensation Cost; and (iv). RSU Cost, had placed on record copies of the invoices that were raised by the AE viz. UTi Network Inc. However, it was observed by the TPO that the assessee had neither supported the above items of expenditure with specific invoices/debit notes from the AEs pointing out the complete details with dates, quantity etc., nor had furnished any justification for the expenses that were claimed to have been incurred by the AEs on its behalf. Apart therefrom, the TPO observed that as was discernible from the records, the assessee regularly on a month to month basis was without any justification/reason paying at a uniform rate certain amounts to UTiNetwork Inc. It was further observed by the TPO that the assessee had also failed to prove that the payments made to its AE viz. UTi-Network Inc. were towards reimbursement of expenses which had actually been incurred by the A.E on behalf of the assessee. On the basis of his aforesaid observations it was concluded by the TPO that in the absence of a cost sharing agreement and c....
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....ransaction of reimbursement of expenses of Rs. 8,49,19,010/- by the assessee to its A.Es at Nil. 6. The A.O after receiving the order passed by the TPO under Sec. 92CA(3), dated 29.11.2012, therein vide his "draft order‟ passed under Sec. 143(3), dated 01.03.2013 made an upward adjustment of Rs. 8,94,19,010/- to the ALP in relation to the international transactions entered into by the assessee company with its AEs during the year under consideration. 7. Aggrieved, the assessee filed its objections with the Dispute Resolution Panel-III, Mumbai (hereinafter referred to as "DRP‟). The DRP in the course of the proceedings deliberated upon the expenses which the assessee had claimed to have reimbursed to its AEs during the year under consideration. The DRP was of the view that certain expenses viz. (i) Freight Transport Insurance Cost (Rs. 65,88,039/-); (ii) Infonet Communication Cost (Rs. 5,17,328/-); (iii) ABN Amro Bank L/C Charges(Rs. 28,79,323/-); (iv) Stock Compensation cost (Rs. 16,65,641/-) ; RSU Cost (Rs. 21,76,281/-); and (v) Legal Expenses (Rs. 6,81,146/-) were clearly in the nature of reimbursement of the cost of expenses which were incurred by the AEs on be....
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.... entered into an agreement with its AE viz. UTiNetworks Inc. for provision of various services viz. (i) Global Leadership; (ii) Finance Leadership and transformation; (iii) Global Operations Services; (iv) Group Audit Services;(v) Sales and Marketing Services; (vi) Information Technologies Services; (vii) Global Process services; and (viii) Global Counsel Services. The ld. A.R submitted that as per the agreement with its AE the "Spread" (i.e. fees after being reduced by the cost of transportation) was to be shared between the entities, as under: Origination place UT India UTi group entity India 67% 33% Overseas 33% 67% It was averred by the ld. A.R that though the assessee had in the course of the proceedings before the TPO furnished an explanation regarding description of services, type of services received and benefits which were derived by the assessee by availing such services, alongwith the details of the costs incurred and the basis of the allocation of such costs with supporting documentary evidence, however, he had wrongly observed that the assessee had failed to justify with proper justification and concrete evidence the benefits/services that....
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....t it had during the year under consideration availed all the 8 services mentioned in the "Service agreement" with its AE viz. UTi-USA and had thus satisfied the "benefit test‟, therefore, on the said count too no adverse inferences in respect of the reimbursement of the administrative expenses at cost by the assessee to the said AE was liable to be drawn. It was further submitted by the ld. A.R that the TPO/DRP had drawn adverse inferences on the basis of misconceived and erroneous facts. The ld. A.R rebutted the observation of the TPO/DRP that now when as per the business model of the assessee there was revenue sharing having regard to the functions that the respective group entities would undertake, hence there was no justification for any further reimbursement of cost towards administrative expenses or management fee or anything of that kind by the assessee to its AE. It was submitted by the ld. A.R that the lower authorities had failed to appreciate that the assessee was not sharing gross receipts but only "Spread" i.e. the gross receipts minus cost of transportation. Apart therefrom, it was submitted by her that the entities with whom the "Spread" was shared were not the....
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....trative expenses of Rs. 7,49,11,250/- which was claimed by the assessee to have been reimbursed to its AE i.e. UTi- USA. 12. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. The assessee had on 01.01.2008 entered into a "Service agreement" with its AE i.e UTi-USA for certain intra-group services to improve the operational efficiency of its business operations in India. As per the "agreement‟ the assesses share of allocated costs and expenses (collectively referred to as "Service fees") which during the subsistence of the agreement were to be worked out by the AE i.e UTi-USA on the basis of a predetermined allocation key were to be reimbursed by the assessee every month to the said AE. In sum and substance, the assessee in terms of the "agreement‟ remained under a contractual obligation to reimburse the AE i.e UTi-USA on a monthly basis its share of costs and expenses that would be worked out as per the fixed allocation keys. On a perusal of the order of the TPO we find that he had failed to appreciate that the monthly payments made by the assessee were backed by its co....
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....ent‟ entered into by an assessee with its AE for a certain set of services the ALP of some of the services not availed by the assessee during the year cannot be taken at Nil. The assessee in the aforementioned case had entered into a retainer agreement with its AE to provide technical knowhow/consultancy in 12 fields for a consideration of Rs. 1.57 crores. During the year as the assessee had availed services of its AE in only three out of the twelve fields listed in the agreement, therefore, the TPO attributed the entire consideration of Rs. 1.57 crores to the three services which the assessee had availed and concluded that no consideration was payable in respect of the remaining nine services provided in the agreement. On the basis of his aforesaid observations the TPO determined the ALP of the three services on an adhoc basis at Rs. 40 lac and after taking the ALP of the remaining nine services at Nil made an adjustment of the balance amount of Rs. 1.17 crores, which resulted to an addition of the said amount to the taxable income of the assessee. On appeal, it was observed by the Tribunal that as per the agreement though the AE was under an obligation to provide technical ....
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....r Chapter X of the IT Act r.w Rule 10A to 10E of the Income-tax Rules, the jurisdiction of the TPO is specific and limited i.e to determine the ALP of an International transaction. It is not for the TPO to consider whether or not the expenditure incurred by the assessee passed the test of Sec. 37 of the IT Act and/or the genuineness of the expenditure. This exercise has to be done, if at all, by the A.O in exercise of his jurisdiction to determine the income of the assessee in accordance with the IT Act. Our aforesaid view is fortified by the judgment of the Hon‟ble High Court of Bombay in the case of Commissioner of Income-tax-1, Mumbai Vs. Lever India Exports Ltd. (2017) 78 taxmann.com 88 (Bom). We thus are of the considered view that the adoption of the ALP of the administrative expenses reimbursed by the assessee to its AE i.e UTiUSA at Nil by the TPO for the reason that the assessee had failed to satisfy the "benefit test‟ also fails on the said ground. 15. We may further observe that as averred by the ld. A.R the TPO in the assesses own case for the immediately succeeding year i.e. A.Y. 2010-11 had accepted that the reimbursement of the administrative expenses ....
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....dit of TDS of Rs. 3,92,54,979/- is concerned, we direct the A.O to consider the said claim of the assessee. The Ground of appeal No. 5 is allowed for statistical purposes. 18. The appeal of the assessee is allowed in terms of our aforesaid observations. ITA No. 1680/Mum/2014 A.Y. 2009-10 19. We shall now advert to the appeal of the revenue for AY. 2009-10. The revenue assailing the order passed by the A.O under Sec. 143(3) r.w.s. 144C(5) of the Income Tax Act, 1961 (for short "I.T. Act‟) has raised the following grounds of appeal before us: "(i) Whether on the facts and circumstances of the case and in law, the Hon'ble DRP erred in admitting additional evidence without giving an opportunity to the TPO to examine the same and offer his comments on the additional evidence." (ii) Whether on the facts and circumstances of the case and in law, the Hon'ble DRIP erred in holding that reimbursement of expenses on account of Freight liability and insurance expenses (Rs. 65,88,039), Infonet communication cost - Rs. 5,17,328/-, ABN Amro LC charges - Rs. 28,79,323/-, Legal Expenditure, Stock compensation - (Rs. 38,41,924/-) by the assessee to its AE ....