TaxTMI 
TaxTMI 
2022 (11) TMI 1341
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....f the Act pertaining to the Assessment Year 2009-10. 3. The Appellant has raised the following grounds of appeal: 1. Based on the facts and circumstances of the case and in law the Ld. AO/Learned Transfer Pricing Officer (Ld. TPO") erred in proposing and the Hon'ble Dispute Resolution Panel ("DRP") further erred in upholding the transfer pricing adjustment of Rs.59.90,822 pertaining to reimbursement of expenses paid/ received by the appellant to/from its Associated Enterprise (AE) 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. Based on the facts and circumstances of the case and in law the Ld. AO/TPO /DRP grossly erred in ignoring the facts and materiality of third party invoices submitted to the Ld. AO/ TPO and in adjusting an amount of Rs.54,67,445 towards payment of reimbursement of out of pocket expenses to its AE and Rs.5,23,377 towards receipt of reimbursement of out of pocket expenses from its AE. 3. Based on the facts and circumstances of the case and in law the Ld. AO/ DRP erred in not considering the third party invoices amounting....
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....(ALP) of the international transactions. The TPO, vide order, dated 22.01.2013 passed under Section 92CA(3) of the Act, proposed transfer pricing adjustment aggregating to INR 59,90,822/- consisting of the following: Sr. No. Particulars Amount (INR) 1 Reimbursement of Out of Pocket Expenses to AE [For non-submission of third party invoices pertaining to travelling, accommodation, mobile expenses etc. incurred by Woolworths, Australia on behalf of the Appellant] 70,92,807/- 2 Recovery of Expenses [Lack of supporting third party invoice /documents] 5,23,377/- Total 59,90,822/- 6. In addition to the above transfer pricing adjustments, the Assessing Officer also proposed corporate tax additions/disallowances in the Draft Assessment Order, dated 22.03.2013. The Appellant filed objections the Draft Assessment Order, dated 22.03.2013, before DRP which were disposed off by the DRP, vide order dated 26.12.2013. The Assessing Officer passed the Final Assessment Order, dated 08.01.2014, on the basis of the aforesaid order/directions of DRP making the disallowances/additions and computing the income of the Appellant as under: Profits & Gains of Business or Professi....
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....owance for expenses never claimed as deduction in the return of income. Per contra, the contention of the Ld. Departmental Representative is that the Appellant has failed to submit third party invoices and therefore, disallowance INR.5,23,377/- was justified. 13. In our view, one way to look at the transfer pricing adjustment of INR.5,23,377/- is that the recoveries of INR.5,23,377/- made by the Appellant from its AEs were not matched with the corresponding expenses claimed to have been incurred and therefore, the aforesaid amount represented income in the hands of the appellant. However, on perusal of order passed by TPO and DRP, we note that this is not the case set up by the Revenue. Both, TPO and DRP have simply cited non-submission of third party invoices as the reason for making the transfer pricing adjustment treating the same at par with the reimbursement of out-of-pocket expenditure incurred despite the Appellant taking a position that deduction for INR.12,66,950/- was never claimed in the return of income which fact has not been challenged/controverted by the Revenue during appellate proceedings before us. Further, the third party invoices of INR 743,575/- submitted duri....
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....80% of the out of pocket expenses. He submitted that the Assessing Officer was not justified in insisting upon the Appellant to furnish 100% of the bills/supporting documents in support of claim for deduction of out of pocket expenses. In view of the aforesaid, he prayed that the addition of INR 54,67,445/- be deleted. 17. Per contra, the Ld. Departmental Representative submitted that the TPO had asked for the bills/supporting vouchers in relation to third party expenses claimed to have been incurred by the Appellant and which the Appellant had, admittedly, failed to furnish. Therefore, the transfer pricing adjustment of INR 54,67,445/- was justified. 18. We have heard the rival submissions and perused the material on record. It is factually correct that the Assessing Officer had vide Remand Report, dated 21.10.2013, conveyed his consent for admission of additional evidence in the form of third-party invoices aggregating to INR 27,22,692/- and requested the DRP to decide the issue on merits. However, the remand report was not considered by DRP. Thus, from the total out of pocket expenses of INR 70,92,807/- expenses of INR 16,25,362 (constituting around 22% of the aforesaid expens....
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....cordingly, the Appellant is entitled to claim of depreciation in respect of Software Expenses of INR 80,07,197/- disallowed during the Assessment Year 2008-09 as capital in nature as per the provisions of the Act. Accordingly, the Assessing Officer is directed to allow depreciation at the rate of 60% in respect of aforesaid Software Expenses of INR 80,07,197/- for the Assessment Year 2009-10. Ground No. 6 raised by the Appellant is allowed. Ground No. 7 24. Ground No. 7 pertains to addition of INR 81,800/- made by the Assessing Officer on account of mismatch of AIR details. The Ld. Authorised Representative for the Appellant stated that the Appellant does not wish to pursue this ground on account of given the small amount involved. Accordingly, this ground is disposed off as being not pressed. Ground No. 8 & 9 25. Ground No. 8 & 9 pertains to disallowance of INR 3,16,53,132/- made under Section 40(a)(iii) of the Act. The Ld. Authorised Representative for the Appellant stated that deduction for the aforesaid amount has been allowed in the Assessment Year 2010-11 and therefore, Appellant does not wish to pursue this ground. Accordingly, Ground No. 8 and 9 are disposed off as be....
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....of the case and in law, the Ld. AO erred in not granting depreciation @ 60% on software expenditure of Rs.80,07,197 and Rs.74,71,642 considered as capital expenditure in AY 2008-09 and AY 2009-10 respectively. 7. Disallowance of lease rental a. Based on the facts and circumstances of the case and in law, the Ld. AO, relying on the directions of the DRP, erred in not allowing lease rent payments of Rs.1,00,59,112 on the ground that the same was capital expenditure. b. Without prejudice to the above, the learned AO erred in not allowing depreciation on the principal payment of lease rental treated as capital in nature 8. Based on the facts and circumstances of the case and in law, the Ld. AO, relying on the directions of the DRP, erred in not allowing the write off of negative balance of creditors amounting to Rs.2,60,035 claimed as bad debts. 9. Based on the facts and in the circumstances of the case and in law, the Ld. AO erred in not granting deduction of expenditure amounting to Rs.3,16,53,132 while computing income of the appellant inspite of deciding the said issue in favour of the appellant in the aforesaid assessment order. 10. Based on the facts and circumstances....
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.... rentals amounting to INR 1,00,56,108/- 31. Being aggrieved, the Appellant is in appeal before us challenging the Final Assessment Order, dated 27.02.2015, on the grounds reproduced in paragraph 27 above which are taken up in seriatim hereinafter. Ground No. 1 32. Ground No. 1 is general in nature and therefore does not require adjudication. Ground No. 2 33. Ground No. 2 is directed against the transfer pricing adjustment of INR 15,37,812/- pertaining to reimbursement of the out of pocket expenses. 34. The relevant facts for the adjudication of the issue, in brief, are that the Appellant had claimed deduction for payments of INR 62,90,123/- 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. The Appellant submitted third-party invoices for INR 47,252,311/-. The TPO, after granting benefit in respect of the same, proposed transfer pricing adjustment of INR 15,37,812 taking ALP of the balance out-of-pocket expenses of INR 15,37,812/- as "Nil". The aforesaid transfer pricing adjustment was incorporated in the Draft Assessment Order. The Appellant filed objections before the DRP on th....
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....hed 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. Accordingly, in view of the aforesaid, we delete the addition of INR 42,40,116/-. Ground No. 2.3 raised by the Appellant is allowed." 36. The facts in the Assessment Year 2010-11 are identical to those in the Assessment Year 2008-09 with only difference being that for ....
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....he third party contractor (M/s. Telstra Corporation Limited) showed that the report was prepared on 10.10.2006 and the services were availed for the previous year ending 31.03.2007. The expenses did not pertaining to the previous year 2009-2010 relevant to the Assessment Year 2010-2011. Thus, the TPO proposed transfer pricing adjustment of INR.24,69,193/- determining the arms length price of this transaction as "Nil". The aforesaid transfer pricing adjustment was incorporated by the Assessing Officer in the Draft Assessment order. The Objections filed by the Appellant against Draft Assessment Order on this issued were dismissed resulting in addition of INR.24,69,193/- on account of the said transfer pricing adjustment. Being aggrieved the Appellant has carried the issue in appeal before us. 39. Learned Authorised Representative for Appellant appearing before us submitted that the findings returned by the TPO/Assessing Officer are factually correct. Taking us through the Project Closure Report issued by M/s. Telstra Corporation Limited (placed at pg 128 to 134 of the paper-book as Annexure 10 and Annexure 11 to submission dated 25.11.2013 filed by the Appellant before the TPO) he s....
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....wish to press this Ground of appeal and is satisfied with the grant of depreciation at the rate of 60% in respect of the aforesaid expenses. Accordingly, Ground No. 5 raised in the appeal is dismissed as not pressed. The Assessing Officer is directed to allow deprecation in respect of the aforesaid amount at the rate of 60% as per law. Ground No. 6 43. Ground No. 6 pertains to claim of depreciation in respect of Software Expenses of INR 80,07,197/- and INR 74,71,642/- (INR 1,06,73,775/- Less INR 32,02,133/-) disallowed during the Assessment Year 2008-09 and Assessment Year 2009-10, respectively, as being capital in nature. 44. The Ld. Authorised Representative for the Appellant appearing before us submitted that the aforesaid expenses were disallowed during the Assessment Year 2008-09 and 2009-10 on the ground that the same were capital in nature and depreciation @ 60% was allowed in respect of the same. By way of present ground, the Appellant is claiming consequential depreciation in respect of the aforesaid software expenses for the Assessment Year 2008-09 and 2009-10. 45. We note that the Appellant had not pressed the ground relating to disallowance of aforesaid software ex....
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....orrect understanding of facts. He vehemently contended that the Appellant had placed on record, the Lease Agreement which was not in the nature of a finance lease. 50. We have heard the rival contention and perused the material on record. We note that the Appellant is in the business of wholesale cash and carry and it has taken warehouse on lease from DHL. Some of the relevant clauses of the Lease Agreement are as under: Definitions:: Management Services" means the management of the facility and resources to achieve the Service as outlined in Schedule 4, reporting as outlined in schedule 5 and day to day operations to the Standard Operating Procedures as detailed in schedule 7. xx xx "Service" means the service with respect to Goods that Provider is to provide in the Territory under this agreement as described in schedule 3, and as may be amended in writing by Woolworths India and Provider from time to time. xx xx 2. Provisions of services and equipment 2.1 Provider provides Services: During the Term, Provider shall, subject to and in accordance with this agreement, provide the Service in the Territory to Woolworths India with respect to Goods, as and whe....
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....etails of the premises admeasuring 100,000/- Square Feet to be provided to the Appellant. Schedule 2 provides description of service charges which includes monthly warehouse charge of INR 6,25,000/- 52. We have perused the orders passed by the Assessing Officer and DRP on this issue. The Appellant had itself contended before the authorities that the Lease Agreement was in the nature of finance lease and therefore, the discussion proceeds on that premise. 53. It is admitted position that lease payment of INR 1,00,59,112/- were made by the Appellant to DHL and had also claimed deduction for the same in the computation of taxable income. In appellate proceedings before us, it has been contended that on behalf of the Appellant that the warehouse not been taken on finance lease and the aforesaid amount is allowable as revenue deduction under Section 37(1) of the Act having been incurred wholly and exclusively for the purpose of business. However, we note that in cash flow statement lease rent paid on finance lease of INR 1,00,59,111/- has been shown under the head "cash flow from the financing activity" . Under Schedule 15 - "Operating and Administrative Expenses forming part of finan....