TaxTMI 
TaxTMI 
2022 (12) TMI 278
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....ioner of Income Tax - 15(3)(1), erred in determining ALP of reimbursements expenses paid to AEs at Rs. Nil, by rejecting the contention of the Appellant that the reimbursement of expenses are paid on actual basis without any mark-up and further erred in rejecting the CUP method followed, without applying any method himself. 4. The learned Deputy Commissioner of Income Tax-15(3)(1), erred in disallowing provision for costs incurred on completed contracts amounting to Rs.1,12,70,129/-. 5. The learned Deputy Commissioner of Income Tax 15(3)(1) erred in not considering that the provisions were made as per the regular method of accounting followed by the appellant. 6. The learned Deputy Commissioner of Income Tax - 15(3)(1) erred in not deleting provisions for costs on completed contracts amounting to Rs 1,19,70,371/- which has been disallowed in earlier assessment years and were utilized/written back in the current year. 7. The learned Deputy Commissioner of Income Tax-15(3)(1) erred in not allowing deduction of an amount of Rs.7,73,11,821/-, in respect of contracts accounted under "Percentage of Completion" (POC) Method, following his own method of accounting adopted by hi....
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....fertiliser and related industries. For the year under consideration, assessee filed its return of income on 25/11/2011, declaring total income of Rs.73,03,21,069. During the year under consideration, assessee entered into following international transactions with its associated enterprises: Sl. No. Transaction F.Y. 2010-11 Method 1 Purchase of equipments and its part 438958240 TNMM 2 Provision of Engineering service (Received) 415695135 TNMM 3 Availing of Engineering service (Received) 194056575 TNMM 4 Availing of Deputation of Personnel (Payment) 9787046 TNMM 5 Availing of Email Services (Payment) 938407 TNMM 6 Royalty 11514563 TNMM 7 Availing of software licenses (Payment) 18152538 TNMM 8 Availing of guarantee 6160800 TNMM 9 IT Support services 22445815 10 Purchase of Book 5914 11 Deputation of Personnel (received) &nb....
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....t of which no income or expense arises in the hands of the assessee. The learned AR further submitted that all back-to-back invoices are available and part of the paper book and since direct comparable transaction in terms of cost paid to the third party was available, this transaction was benchmarked by applying CUP method. 9. On the other hand, learned Departmental Representative ('learned DR') vehemently relied upon the orders passed by the lower authorities. 10. We have considered the rival submissions and perused the material available on record. During the year under consideration, assessee reimbursed expenditures in the nature of salary, software expenses, telephone, travel, insurance, courier charges, training expenses, accommodation other expenses to the associated enterprise for the cost incurred on behalf of the assessee. Such reimbursement was made by the assessee without paying any markup on the cost. The TPO as well as the learned DRP treated the arm's length price of this transaction at NIL on the basis that assessee has failed to justify/prove rendition, necessity and benefit of this expenditure. The learned DRP termed it as 'benefit test' and the 'willingness to ....
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....ch was conducted to find out the independent entity in a comparable transaction and the arm's length price of the international transaction was treated to be NIL. In the present case, no doubts about payments made by the assessee have been raised by the Assessing Officer under section 37 of the Act. Further, accrual of benefit to assessee or the commercial expediency of any expenditure incurred by the assessee cannot be the basis for disallowing the same, as held by Hon'ble Delhi High Court in the case of EKL Appliances Ltd. [2012] 345 ITR 241 (Del.). 12. We further find that Hon'ble jurisdictional High Court in CIT v/s Lever India Exports Ltd. [2017] 246 Taxmann 133 (Bombay), observed as under: "7. We note that the Tribunal has recorded the fact that the respondent assessee has launched new products which involved huge advertisement expenditure. The sharing of such expenditure by the respondent assessee is a strategy to develop its business. This results in improving the brand image of the products, resulting in higher profit to the respondent assessee due to higher sales Further, it must be emphasized that the TPO's jurisdiction was to only determine the ALP of an Internat....
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....alue of international transaction of 'Reimbursement of Expenses' to be NIL, in the present case. Accordingly, grounds no. 1 to 3 raised in assessee's appeal are allowed. 15. The issue arising in grounds no. 4 and 5, raised in assessee's appeal, is pertaining to disallowance of provision for costs incurred on completed contracts. 16. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the course of assessment proceedings, it was observed that assessee has, inter-alia, made a provision for costs on completed contracts of Rs. 1,12,70,129. Accordingly, assessee was asked to furnish details and justification for claim of provision in the profit and loss account for the year under consideration. In reply, assessee submitted that as the contract reaches substantial completion, the assessee recognises total revenue and total contractual profits taking into account committed cost which are crystallised based on the expert advice of the engineering/Project departments of the company and the discussion with the client and punch list provided by the client. The assessee further submitted that at this stage, the final acceptance of the client is sti....
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....e the probable future expenditure of an ongoing project or scheme. If it recognises income from such project in that year, it will have to make some reasonable provisions for the expenditure to be incurred in subsequent year Provision will vary from project to project and from year to year. It would also depend on stage of completion of the project. For that purpose assessee will have to rely on earlier years' experience and report of the technical personnel Question of provisions for warranty was discussed at length by the Hon'ble Apex Court in the matter of Rotork Controls India P. Ltd.(314 ITR 62) We are aware that warranty cannot be equated with provisions made for the projects to be completed by an assessee, but the principle laid down by the Hon'ble Court are applicable to the case under consideration Provision after all is only an estimation of probable expenditure to be incurred after the end of a particular year. Besides, in our opinion travelling cost of the engineers and technical staff, testing cost, supplies of replacement spares, site related costs, cost of completion of punch list work, cost of modification for uncompleted projects has to be considered wh....
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.... appeal Reversing his order we decide first effective ground of appeal (ground no. 1-3) in favour of the assessee." 20. Similarly, the coordinate bench of the Tribunal in assessee's own case for subsequent assessment years i.e. 2006-07, 2007-08 and 2009-10, in ITA No. 1691/Mum./2012, ITA no. 1904/Mum./2012 and ITA no. 1245/Mum./2014, respectively, decided similar issue in favour of the assessee. The learned Departmental Representative could not show us any reason to deviate from the aforesaid orders and no change in facts and law was alleged in the relevant assessment year. The issue arising in the present case is recurring in nature and has been decided in favour of the assessee by the decision of the coordinate bench of the Tribunal for preceding assessment years. Thus, respectfully following the orders passed by the coordinate bench of the Tribunal in assessee's own case cited (supra), we uphold the plea of the assessee and delete the impugned disallowance of provision for costs incurred on completed contracts. Accordingly, grounds no. 4 and 5 raised in assessee's appeal are allowed. 21. The issue arising in grounds no.9 and 10, raised in assessee's appeal, pertains to taxabi....