AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (11) TMI 681
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....eturned loss of (Rs. 18,87,50,293) based on the directions received from Hon'ble Dispute Resolution Panel ("DRP") partially upholding the adjustment to the transfer price proposed by the learned Transfer Pricing Officer (Ld TPO"). 2. That on facts and circumstances of the case and in law the Ld AO/ TPO erred in proposing and the Hon'ble DRP further erred in partially upholding a total adjustment of Rs 6,90,21,928 in respect of the international transactions pertaining to reimbursement of expenses to its Associated Enterprises ("AE/s"), alleging the same is not at arm's length in terms of the provisions of Sections 92C(1) and 92C(2) of the Act read with Rule 10D of the Income-tax Rules 1962 ("the Rules") 2.1 That on facts and circumstances of the case and in law the Ld AO/ TPO grossly erred in ignoring the facts while proposing the adjustment and the Hon'ble DRP further erred in upholding an adjustment of Rs. 4,90,78,826 in respect of the international transactions pertaining to reimbursement of expenses to its AE, alleging that the same pertains to earlier year and cannot be allowed in the year under consideration, there by determining the Arm's Length Price....
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....sed under Section 92CA(3) of the Act, proposed transfer pricing adjustment aggregating to INR 9,65,96,086/- consisting of the following: Sr. No. Particulars Amount (INR) 1 Reimbursement of Expenses to AEs [For Services not requested by the Assessee: (a)INR.4,90,78,826/- pertaining to Assessment Year 2007-08 and (b)INR.2,41,30,833/- pertaining to Assessment Year 2008-09, both, booked prior to execution of Inter-Corporate Agreement, dated 07.01.2008, made effective from 01.06.2006)] 7,32,09,659/- 2 Payment for Asset [IBM Server previously owned by AE] 1,91,46,116/- 3 Out of Pocket Expenses [not supported by Bills/documents] 42,40,116 Total 9,65,96,086/- 5. In addition to the above transfer pricing adjustments which were incorporated in the Draft Assessment Order, dated 18.11.2011, the Assessing Officer also proposed addition of INR 80,07,197/- on account of software expenses and addition of INR 24,855/- on account of difference in the information contained in Annual Information Return pertaining to contract receipt from Bajaj Electrical Ltd in the Draft Assessment Order. The Appellant filed objections to the aforesaid additions proposed in the Draft Assessmen....
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....precedents cited during the course of hearing. The grounds raised by the Appellant are taken up in seriatim hereinafter. Ground No. 1 & 2 7. Ground No. 1 and 2 are general in nature and therefore does not require adjudication. Ground No. 2.1 8. Ground No. 2.1 pertains to addition on account of transfer pricing adjustment of INR 4,90,78,826/- made in respect of reimbursement of expenses on the ground that the same pertained to Assessment Year 2007-08 (and not the relevant Assessment Year 2008-09), a period prior to the execution of the Inter-Corporate Agreement, dated 07.01.2008, and therefore, no deduction could be allowed in respect of the same. 9. We have considered the rival contentions and perused the material on record. On perusal of the revised computation of income for the Assessment Year 2008-09 (placed at page 274 to 276 of the paper-book) and the relevant extract of the tax audit report filed by the Appellant (placed as Annexure-2 to letter, dated 12.09.2011, placed at pages 126 to 193 of the paper book) it is clear that the Appellant had, while arriving at the aforesaid loss of INR 18,87,50,293/-, claimed deduction for only INR 2,46,19,542/- as per the provisions ....
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....of the Appellant during the financial year 2005-06 and sold to the Appellant during the financial year 2007-08. Accordingly, the TPO reduced the purchase price of the Asset by charging depreciation for the proportionate period for financial years 2005-06 (for half year), 2006-07 (for full year) and 2007-08 (for April to June 2007) for to arrive at Written Down Value (WDV) of the Asset at INR 59,80,081/- and thus, proposed upward transfer pricing adjustment of INR 1,91,46,311/- being excess purchase price paid by the Appellant to its AE for the purchase of the Asset which was incorporated in the draft assessment order, dated 18.11.2011, by the Assessing Officer. In the objections filed by the Appellant on this issue, the DRP granted relief to the Appellant and directed the TPO to re-calculate the ALP by reducing the purchase price of the Asset by the depreciation for financial year 2006-07 only. As per the directions of the DRP the WDV of the Asset was re-calculated at INR 1,00,50,557/-. Accordingly, in the Final Assessment Order, dated 30.10.2012, the addition was reduced to INR 1,50,75,835/- as against INR 1,91,46,311/- proposed in the Draft Assessment Order. Being aggrieved, the ....
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....e aforesaid conclusion. Whereas the DRP, despite accepting that the Asset was put to use in October, 2006 in India (which was before the aforesaid invoice date of 24.06.2007), concluded that the Asset was previously used by the AE of the Appellant. Given the fact that DRP has returned the finding that Asset was put to use in October 2006, the date of 24.06.2007 stated in the invoice cannot be the sole basis to conclude that the Asset was used outside India. As per invoice, dated 29.11.2005, raised by Redington (India) Ltd., the Asset was to be delivered in at Mumbai, in Maharashtra, India. Further, the Appellant has also placed on record (at page 227 to 231 of the paper-book) email correspondences, dated 11.10.2011, with the employees of Redington (India) Ltd. wherein it has been confirmed that the Asset was delivered in Mumbai. In view of the aforesaid, we find merit in the contention advanced on behalf of the Appellant in this regard and conclude that the Asset was a new asset that was used for the first time by the Appellant in India. Further, we note that the TPO has arrived at ALP by using CUP method by merely taking WDV of the Asset without considering any other factor. In th....
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.... (i) The price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified. (ii) Such price is adjusted to account for differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market. (iii) The adjusted price arrived at under sub-clause (ii) is taken to be an arm's length price in respect of the property transferred or services provided in the international transaction..... As rightly submitted the by the ld. Representative for the assessee, when the transaction was compared by taking CUP method as the most appropriate method, the price charged or paid by the assessee for the property transferred needs to be compared in a comparable uncontrolled transaction or a number of such transactions, as identified. Therefore, it is obligatory on the part of the TPO to identify the comparable transaction in the uncontrolled transaction for the purpose of determining the ALP. In this case, the TPO....
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....hase of such machinery by such assessee from the associated enterprises. The Tribunal held that the Transfer Pricing Officer was not justified in making transfer pricing addition merely by taking Written Down Value of machinery as the ALP. The relevant extract of the aforesaid decision of the Tribunal read as under: "19. However, the Assessing Officer ignored this material available on record and proceeded to determine the ALP basing on the written down value of the cranes as recorded in the books of the seller by applying the CUP method. Ld.DRP accepted the contention of the assessee that the written down value of cranes in the books of the associated enterprise of the assessee cannot be considered as ALP and is not derived from the transaction between enterprises other than associated enterprises. Further ld. DRP observed that it is nobody's case that an old asset cannot be sold at a price exceeding net book value. Having considered the decisions relied upon by the assessee in support of their contention that either the valuation done by the chartered engineer, or the value accepted by the custom authorities, or the value derived by DCF method could be considered for a dete....
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...., in brief, are that the Appellant had claimed deduction for payments of INR 1,95,10,810/- made by the Appellant to its AEs contending the same to be reimbursement of out of pocket expenses incurred by the AEs on behalf of the Appellant. Since, the Appellant could only furnished bills for INR 1,52,70,694/-, the TPO determined ALP of the balance out of pocket expenses of INR 42,40,116/- to be 'Nil' and proposed transfer pricing adjustment of INR 42,40,116/-, which was incorporated in the Draft Assessment Order. The Appellant filed objections before the DRP. However, the DRP declined to grant any relief to the Appellant holding that the Appellant was not able to justify the claim of expenditure by furnishing supporting bills/documents before the TPO. Since, the Appellant had failed to discharge the burden cast upon it, the aforesaid disallowance/adjustment of INR 42,40,116/- was unjustified. Accordingly, Assessing Officer made disallowance of the same in the Final Assessment Order, dated 30.10.2012. Being aggrieved, the Appellant has carried the issue in appeal before us. The Ld. Authorised Representative for the Appellant submitted that the relevant documents supporting out of pocke....
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....itors in the audit report and has certified the financial statements to be true and correct after carrying out verification on test check basis. Further, the TPO/Assessing Officer has not pointed out any defect/discrepancy in the bills/supporting documents furnished by the Appellant which constitute 78% of the out of pocket expenses reimbursed by the Appellant to its AE. The Appellant has not furnished bills/supporting documents for INR 42,40,116/- which constitute balance 22% out of pocket expenses reimbursed and only 3.5% [(42,40,116/11,85,22,998) x 100] of the total expenses reimbursed by the Appellant to its AEs for the relevant assessment year. In view of the aforesaid facts, we are inclined to accept the submission advanced by the Ld. Authorised Representative for the Appellant that the Appellant has substantially complied with the directions given by the Assessing Officer and therefore, in our view, the TPO/Assessing Officer was not justified in making additions of INR 42,40,116/-. Further, in our view, the TPO has also failed to determine the ALP of the transaction and has, in effect, made disallowance holding that the Appellant had failed to substantiate the claim. Accordi....
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....creased the amount of loss claimed by the corresponding depreciation amount and committed the computational error by reducing the loss claimed by the depreciation amount. We have perused the record and find merit in the submissions advanced by the Ld. Authorised Representative for the Appellant. We note that the Assessing Officer has after adding the additions/disallowance to the loss of INR 18,87,50,293/- declared by the Appellant arrived at reduced loss of INR 11,16,96,313/-. Though, in the computation table, the Assessing Officer has correctly stated that as under: (-) 11,16,96,313/- Less depreciation on software @ 60% 48,04,318/- The Assessing Officer has incorrectly added the depreciation amount of INR 48,04,318/- to arrive at incorrect figure of loss of INR 10,68,91,995/- instead of correct figure of INR 11,65,00,631/-. In view of the aforesaid, the Assessing Officer is directed to increase the amount of loss by the amount of by the depreciation amount of INR 48,04,318/-. Ground No. 5 raised by the Appellant is allowed. Ground No. 6 22. The Ld. Authorised Representative for the Appellant appearing before us submitted that the amount in dispute is only INR 24,85....
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.... filed before the Assessing Officer. He submitted that the aforesaid payments were incidental to the business of the Appellant. The services provided by expats helped the Appellant to establish efficient business structure. The aforesaid payments were to facilitate the business of the Appellant and were not in the nature of personal services rendered by the third party service provider to the employees of the Appellant. Per contra, the Ld. Departmental Representative referred to invoices (placed at page 75 to 81 of the paper-book) and submitted that the services were essentially for the benefit of the employees of the Appellant and not the Appellant. The Assessing Officer has returned a finding that during the assessment proceedings, the Appellant had failed to produce any evidence to show that this amount has been included in the hands of expats employees as perquisites as required by the provisions of 17(2)(iv) of the Act. Therefore, the Assessing Officer was justified in making the addition of INR.6,27,151/-. 25. We have considered the rival submissions and perused the material on record. The finding returned by the Assessing Officer that the amount of INR 6,27,151/- has not be....