TaxTMI 
TaxTMI 
2022 (12) TMI 200
X X X X Extracts X X X X
X X X X Extracts X X X X
....AEs. 3. The lower authorities failed to appreciate that the Appellant has earned a mark-up 19.45% on costs even if the reimbursements of expenses received from AEs were to be considered as the cost of base of the Appellant, therefore, an Arm's Length Price was recovered. 4. The learned Commissioner of Income Tax (Appeals) erred in relying on conjectures and surmises which were unjustified in the facts of the Appellant's case. 5. Having regard to the facts and circumstances of the case, the transfer pricing adjustment of Rs.20,49,93,848/- is unwarranted and needs to be deleted. 6. The lower authorities erred in reducing the loss of Chennai unit (Section 1OA unit) of Rs.6,45,94,565/- from the deduction under section 1OA allowable to the Appellant in respect of profits of other eligible units. The Appellant submits that the Assessing Officer he directed to set off the said loss against taxable business income. 7. The learned Commissioner of Income Tax (Appeals) erred in not following the decision of the Bombay High Court and the Mumbai Tribunal in the Appellant's own case oil issue indicated in Ground Nos.6 above. 8. The le....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Transfer Pricing Officer/ TPO) for determination of arm's length price of those transactions. 06. Assessee in form no. 3CEB reported following ten international transactions:- Sr. No. International Transaction Total value of transactions A.Y. 10-11 Method selected 1. Receipts for providing software services 20,682,507,653 TNMM 2. Licensing of intellectual Property 3,24,67,533 CUP 3. Payment of headquarters' fees under the service agreement 1,33,11,791 TNMM 4. Bank guarantee charges paid 3,680,456 TNMM 5. Payments of training charges to Cap Gemini group entities 4,33,17,856 TNMM 6. Allocation of various costs to Assessee 4,78,91,274 TNMM 7. Purchase of software and e-training licenses from overseas third party vendors under globally negotiated contract 12,788,843 TNMM 8. Professional fees paid to group entities 57,,285,144 TNMM 9. Reimbursement of expenses incurred by various Cap Gemini Entities on behalf of assessee 21,22,74,369 10. Reimbursement of out of pocket expenses incurred by Assessee on behalf of Cap Gemini Group entities 170,8,285,067 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Assessee did not file any objection before the learned DRP against the draft assessment order and therefore final assessment order under section 143(3) read with section 144C(13) of the Act was passed on 26th May, 2014. Learned Assessing Officer over and above the transfer pricing adjustment made following additions; i. Disallowance out of leave encashment expenditure of Rs.4,69,170/-. ii. Disallowance under section 14A of the Act of Rs.8,54,430/- iii. Addition on account of government grant of Rs.92,65,500/- iv. An addition of Rs.24,46,601/- on account of difference of income as per 26AS. v. Assessee has also claimed deduction under section 10A of the Act which was computed by the learned Assessing Officer at Rs.313,99,02,883/- against the claim made by the assessee of Rs.323,04,97,000/-. vi. Book profit of the assessee was also enhanced by disallowance under section 14A of the Act of Rs. 8,54,430/-. 010. The assessee aggrieved with the above order-preferred appeal before the learned CIT (A), who passed an order on 8 February 2016 allowing the appeal of the assessee partly. Therefore, the assessee is aggrieved with that orde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4 of the Paper Book wherein before learned TPO also the assessee explained the details of nature of expenditure. It was also contested that assessee has been incurring such out of pocket expenses on behalf of its Associated Enterprises for past several assessment year right from Assessment Year 2002-03 and such reimbursement are always at cost without any markup. The Revenue has always accepted the same at arm's length. This is for the first time the Revenue has held that assessee should have charged markup of 12% on out of pocket expenses. In view of this, before us, he submitted that [1] the adjustment is proposed in the form of markup on out of pocket expenses for the first time since Assessment Year 2002- 03. He referred to transfer pricing orders in case of the assessee for earlier years and submitted that even on the Principle of consistency the adjustment is unwarranted. He relied upon several judicial precedence. [2] That out of pocket expenses is incurred on behalf of its Associated Enterprises only for administrative convenience. These expenses are not incurred by the assessee for providing services and therefore it cannot add to the cost base for charging markup. [3] Rec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or certain units. The deduction was not claimed u/s 10 A in respect of Chennai units as there was a loss incurred of Rs. 64,594,565/-. The loss of that unit was set of against the normal taxable business income of the assessee for the year. He submitted that the Revenue authorities have reduced the loss of Chennai unit amounting to Rs.6,45,94,565/- from the deductions claimed by the assessee in respect of profits of other eligible units. He submitted that above issue is squarely covered in favour of the assessee by the decision of Hon'ble Supreme Court dated 16th December 2016 for Assessment Year 2005-06 in assessee's own case where the decision of the Hon'ble Bombay High Court is upheld. In view of this, he submitted that the loss of Chennai unit could not be reduced from the income eligible for deduction under section 10A of the Act. 015. Coming to ground no. 8 and 9 which are with respect to the computation of deduction under section 10A of the Act, where the Revenue authorities have held that data line cost[ Tele communication expenditure] amounting to Rs.146124486/- should be reduced from the export turnover of eligible units. He submitted that the above issue is co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e service agreement is placed. She referred to article 1 and article 2 of that agreement, and submitted that assessee should have charged 112% of its cost. The expenditure incurred by the assessee should also have been included for working out the markup on such services. She submitted that there is no difference between the cost incurred by the assessee for its Associated Enterprises and cost incurred by assessee on its own. With respect to the argument of the learned Authorized Representative that there is no value addition or additional function performed by the assessee for reimbursement of expenditure, she submitted that there is no requirement of any value added cost to be included as there is no distinction in the agreement and only cost is mentioned. He further referred to paragraph no. 2.4 of the order of the learned CIT (A) to support his contention. She submitted that merely because in earlier years a particular aspect is not examined, it could not be stated it cannot be examined during the subsequent years. He submitted that principle of res-judicata does not apply to income tax proceedings. 021. With respect to other grounds of appeal, she relied upon the order of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ket expenditure incurred by the assessee on behalf of its AE or expenditure incurred by the assessee 'for provision of the services'. If this expenditure is out-of-pocket expenditure, the assessee is justified in not charging any markup thereon. However if these expenditure are to be incurred 'for provision of services' to the associated enterprises then in that case the markup is required to be charged. The practice of the assessee is continuing for last several years and in past years, the learned transfer-pricing officer has accepted the argument of the assessee that no markup is required to be charged on these expenses. Assessee has produced before us the transfer pricing orders passed in case of assessee from assessment years 2002 - 2003 till 2009 - 10. In none of these orders, the learned TPO has held that the pass through cost or reimbursement incurred by the assessee should have been included in its cost base. On looking at the Master Service agreement, there is no clarity on the above aspect that what cost to be considered in cost base. However, it has been submitted by the assessee that it is operating margin from software development services 19.45%, even if the out-of-p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....come Tax (2010) 325 ITR 102. The issue also reached before the honourable Supreme Court in assessee's own case for assessment year 2005 - 06 in CA number 8498 of 2013 [known as CIT V Yokogawa India Limited][391 ITR 274] wherein it was decided in favour of the assessee. The learned departmental representative could not controvert the above fact. In view of this ground number 6 and 7 of the appeal are allowed and the learned assessing officer is directed to allow the loss of Chennai unit accordingly. 025. Ground number 8 and 9 are with respect to the question whether the telecommunication expenses of eligible units amounting to Rs 1,46,12,448/- should be reduced from the export turnover of the eligible unit. The assessee has claimed that the above issue is also covered in favour of the assessee by the decision of the honourable Bombay High Court and the coordinate benches in assessee's own case for several years. We find that the honourable Bombay High Court in ITA number 2501 of 2011 dated 30 April 2014 in paragraph number 5 - 7 has considered the above issue. The honourable High Court in paragraph number 7 leaving aside the wider controversy or a larger question held that assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h deduction shall be allowed from the total turnover in the same proportion as well. The same principle of interpretation as followed in the case of expenses of freight, telecommunication etc., would apply to expenses on technical services provided outside India, otherwise the formula of calculation would be futile. 027. Therefore, in view of the above decision of the honourable Supreme Court we direct the learned assessing officer to give the treatment to the expenditure while computing export turnover and the total turnover of the eligible unit. Accordingly, ground number 10, 11 and ground number 14 of the appeal are allowed. 028. Ground number 12 of the appeal is with respect to the addition of Rs. 2,446,601/- made by the learned assessing officer for the reason that during the course of the assessment proceeding the assessee was provided by the AIR/CIB details and asked to reconcile the same with the entries in the books of accounts. The AO found that there is credit card payment of Rs. 2,401,929/- to access bank Ltd. The assessee has denied having entered into any such transaction stating that the credit cardholder appearing in the AR report Mr. Basu was assessee's emplo....