AI Drafter 
TaxTMI 
TaxTMI 
2020 (6) TMI 827
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....es of the case and in law the DRP was justified in rejecting the primacy of functions performed by the assessee and basing its decision on the ground that the risks were minimal in the case of the assessee? 3. Whether in the facts and circumstances of the case and in law the DRP was justified in stating that no intangibles were created of the supply chain and human intangibles when these intangibles have been specifically acknowledged by their incorporation in the explanation (ii) to section 92B of the Income Tax Act, 1961? 4. Whether in the facts and circumstances of the case and in law the DRP was justified in rejecting the TPO's analysis without going into the agreements the assessee has entered into with AE? 5. Whether in the facts and circumstances of the case and in law the case and in law the DRP was justified in rejecting the use of FOB in the cost base when it is the relevant cost base for determining the ALP of the international transaction of the assessee with its AEs? 6. Whether in the facts and circumstances of the case and in law the DRP was justified in directing acceptance of a PLI that does not include cost of goods among expense....
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.... 16. That the appellant craves leave to add, alter, amend or forgo any ground(s) of appeal either before or at the time of hearing of the appeal. 2.1 In the appeal filed by the assessee, it has raised the following grounds of appeal: 1. That on the facts and circumstances of the case, the learned AO/DRP has erred, both on facts and in law in making/upholding a disallowance of an amount of Rs. 26,93,754/- on account of expenditure on staff welfare expenses. 2. That on the facts and circumstances of the case and in law, the AO/DRP erred in charging interest u/s 234B & 234C of the Act. 3. That on facts and in law the orders passed by the AO/DRP are bad in law and void ab-initio. That the appellant prays for leave to add, alter, amend and/or vary the ground(s) of appeal at or before the time of hearing. 3.0 Ground Nos.1 to 7 in the appeal filed by the Revenue are regarding the transfer pricing adjustment deleted by the Ld. DRP vide its order dated 14.12.2015. During the course of the hearing, it was informed that the assessee has entered into Advance Pricing Agreement (APA) dated 19.12.2014 in terms of provisions of section 92CC of t....
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....3,63,487/- on account of expenditure incurred by the assessee on Club Membership for its employees. The AO disallowed the expenditure holding that the same has not been incurred wholly and exclusively for the purpose of the business. The Ld. DRP has directed to delete the disallowance holding that this Club Membership expenditure incurred by the assessee for its employees has been considered as perquisite in the hands of the employees as salary income and tax has been paid thereon. 3.5.1 It was contended by the Learned DR that Club Membership expenditure is a personal expenditure and cannot be considered to be an expenditure incurred wholly and exclusively for the purpose of the business of the assessee. 3.5.2 The Learned AR submitted that the expenditure incurred by the employer on its employees is an expenditure wholly and exclusively for the purpose of business of the assessee. These employees are working for the assessee and any benefit extended to such employees whether in cash or kind is in consideration for the services rendered by such employees. Further, the assessee has considered such payment as perquisites in the hands of the employee and deducted tax from the emp....
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.... on the ground that the TPO has not examined the above payment from the point of allow ability under section 37(1) of the Income Tax Act, 1961 for which inquiry can only be made by the AO. The Ld. DRP has deleted the above addition. Aggrieved by the order of the DRP, the Revenue has raised this ground in its appeal. 3.6.1 The Learned DR placed reliance on the order passed by the AO in support of this ground. 3.6.2 The Learned AR placed reliance on the order passed by the Ld. DRP. It was submitted that assessee has provided all the evidences in support of the services availed by it and all the agreements along with the supporting documents were submitted. The observation of the AO that the assessee has not submitted the details regarding the actual services availed and evidences is factually incorrect. The Learned AR referred to the documents placed in the Paper Book in support thereof. 3.6.3 On going through the facts, we note that the assessee has entered into agreements for availing various management services from its Associated Enterprises (AE) i.e. Mitsui & Co. Ltd. Japan & Mitsui Asia Pacific located at Singapore. During the Assessment Year under consideration, it pa....
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....d administration, etc. (pages 32 to 39 of the paper book). In the above respects we went through the email exchanged between the officials of the AEs and those of the A'. The correspondences centered on the following aspects of work:- 1) Holding the Seminars to educate the Staff on the importance of Anti-competition laws and practices, global enforcement, case studies, anti-trust, cartel conduct, price fixing, refusal to deal, misuse of market power, predatory pricing, exclusive dealing/third line forcing, resale price maintenance relating to anti-competition. 2) Trainings 3) Seeking guidance from the officials regarding item classification for various commodities. Upon an analysis of the evidence filed as above by A', it was noticed by us that the agreement under sub-articles 1 to 5 of Article 2 provided the basis of remuneration in consideration of the services rendered by the AEs to the A' on page 37 & 38 of the paper book 1. Having regard to all the above details the Panel feels inclined to allow the claim of the A'" 3.6.5 As regards the issue of allow ability of expenditure under section 37(1), from the facts, it is evident that assessee ....
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....tted copies of the bills in support of the expenditure incurred. These details were in the form of Hotel Bills, Dining Charges, Medicines, Packing Charges, and Shifting Charges. The Ld. DRP, considering these facts, restricted the disallowance to 20% of the total disallowance of Rs. 1,39,68,770/- i.e. Rs. 26,93,754/-. Revenue is in appeal against the relief given of Rs. 1,12,75,015/- and the assessee is in appeal against the disallowance of Rs. 26,93,754/- upheld by the Ld. DRP. 3.7.2 It was submitted by the Learned AR that the AO has made an ad-hoc disallowance. The assessee has been maintaining regular books of accounts. The same have been audited both under the Companies Act as well as under Section 44AB of the Income Tax Act and there is no adverse observation about any personal expenditure. It was submitted that it is a case of a company and the expenditure incurred on the staff welfare of the nature as specified in the details is an expenditure allowable under section 37(1) and cannot be considered as personal expenditure. It was submitted that complete details were filed and same has been taken note by the Ld. DRP in its findings. The Learned AR invited our atte....
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....te of the nature of expenditure while making this observation. In respect of group insurance for employees, the invoice will be in the name of the company. Similarly, invoices issued by the Hotels for hosting events will be in the name of the company not in the name of the employees who have participated at such year-end functions. The invoices on account of shifting expenses, social security reimbursement state the name of employees. These invoices confirm that assessee has incurred the expenditure. Merely not mentioning the name of the employees cannot be a ground to disallow the same considering the fact that it is a case of a company. In the case of a firm or a proprietorship concern, there could have been a doubt whether such expenditures have been incurred on the employees or on the Partners/Proprietors. Further, ad-hoc disallowance is otherwise not sustainable. However, the AO, in the Assessment Order, has stated that the assessee has failed to discharge its onus by producing details and complete evidences in support thereof. Though, the assessee has filed the details before the Ld. DRP along with the supporting evidences, apparently the same has not been examined by the Ld.....
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....view of this finding recorded by the ITAT and in the absence of PE of Mitsui & Co. Japan, there was no requirement to deduct tax at source. It was further contended by the Learned AR that even if there is a PE, off-shore supplies are not taxable in India. It was submitted that the AO has failed to appreciate that purchases from Japan are not at all attributable to any operations undertaken in India as has been held by the Hon'ble Supreme Court in its judgment in the case of Ishikawajima-Harima Heavy Industries Ltd. vs. DCIT (288 ITR 408) wherein it has been held by the Hon'ble Supreme Court that even where there exists a Permanent Establishment in India, the off shore supplies still cannot be subjected to tax in India if they are not related to the activities performed by the PE in India. The Learned AR further contended that even otherwise no disallowance can be made in view of non-discrimination clause in the Treaty. The Learned AR invited our attention to Article 24 of India Japan Double Taxation Avoidance Agreement (DTAA) which contains a detailed stipulation on the non-discriminatory agreement between India & Japan Governments. It was submitted that as per Article 24(3), any p....