TaxTMI 
TaxTMI 
2026 (6) TMI 1136
X X X X Extracts X X X X
X X X X Extracts X X X X
....return of income on 15.02.2021 declaring income of Rs. 25,83,13,030/-. The return was processed u/s 143(1) of the Act on 24.12.2021 at income of Rs. 28,43,42,060/-. The case was selected for complete scrutiny under CASS for following reasons: - i. Stock Valuation ii. Double Taxation Relief u/s 90/91 iii. Default in TDS & Disallowance for such Default iv. Default in TDS v. Imports vi. Refund Claim vii. ICDS Compliance and Adjustment viii. Credit of Brought Forward TDS ix. Foreign Outward Remittance x. International Transactions 3. Notice u/s 143(2) of the Act dated 29.06.2021, notices u/s 142(1) of the Act dated 03.12.2021, 21.07.2023, reminder letter dated 01.08.2023 and show cause notice dated 21.08.2023 were issued. Ld. AO made reference u/s 92CA(3) of the Act to the Transfer Pricing Officer ("TPO"). The TPO vide order dated 15.06.2023 made an adjustment to the income of appellant Rs. 1,36,723/- on account of delayed realization of invoices. Ld. AO passed draft assessment order dated 06.09.2023 proposing a corporate tax adjustment on account of non-deduction of TDS and reimbursement of ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re and there are no technical services that are being rendered. 2.3 That the Ld. DRP/ Ld. AO have erred In law in disregarding the Supreme Court decision in the case of A.P. Moller Maersk A S [2017] 78 taxmann.com 287 (SC) wherein Hon'ble Court held that when a common facility of using Maersk Net System is provided to all the agents across the countries to carry out their work using the said system, then no technical services are being provided by the assessee to the agents, and by no stretch of Imagination, payments made by the agents can be treated as Fee for Technical Services. 2.4 The Ld. DRP/ Ld. AO have erred on the facts and circumstances of the case and in law, having failed to appreciate the fact that reimbursement of expenses is not 'Income' per se in the hands of the recipient in absence of any profit element and accordingly is not chargeable to tax in India. 2.4.1 That the Ld. DRP/ Ld. AO have erred in law in disregarding the Supreme Court decisions in the case of GE India Technology, Transmission Corporation and A.P. Moller Maersk A.S., which have held that in the absence of income element, there is no requirement to withhold taxe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rsement of INR 14,66,142 is bad in law 4.1 That the Ld. DRP/ Ld. AO have erred on the facts and circumstances of the case and in law, in treating the reimbursement of actual expenses made by the Appellant towards travel expenditure to Overseas group companies as FTS and disallowing the same under section 40(a)(i) of the Act. 4.2 That the Ld. DRP/ Ld. AO have erred in not appreciating that travel reimbursement expenses such as air/train tickets, hotel charges etc. for conducting meetings, conference or seminars etc. abroad does not tantamount to rendering of 'managerial, technical and consultancy services' as defined in FTS under the provisions of the Income Tax Act and DTAA. 4.2.1 The Ld. DRP/ Ld. AO erred in not appreciating that there is no requirement to deduct TDS on airfare charges, hotel charges, etc. even under the domestic Law (CBDT Circular 5/2002 dated 30 July 2002) 4.3 That the Ld. DRP/ Ld. AO have erred on the facts and circumstances of the case and in law, having failed to appreciate the fact that reimbursement of expenses is not 'Income' per se in the hands of the recipient in absence of any profit element and accord....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ost-to-cost reimbursements to its group affiliates on account of * Reimbursement for IT Cost & Software support expenses * Reimbursement for Salary expenses * Reimbursement for Travel expenses 7.1 The assessee tabulated the details of reimbursement made to related parties during A.Y. 2020-21 as under: - Name of the entity IT infrastructure and Software cost Reimbursement Salary Reimbursement Travel Reimbursement Total Horiba Limited, Japan 42,14,619 1,07,15,690 2,75,443 1,52,05,752 Horiba Techno Services Co Ltd Japan - - 6,78,115 6,78,115 Horiba ABX SAS France - 11,36,895 5,12,584 16,49,479 TOTAL 42,14,619 1,18,52,585 14,66,142 1,75,33,346 7.2 The same issue is already allowed in favour of appellant in preceding and subsequent years by the AO, which is hereunder: - Assessment Years Assessment Order Notice Submissions AY 2018-19 Refer Page 417-418 of Paper book Refer Page 421-423 of Paper book Refer Page 419-420 of Paper book AY 2022-23 Refer Page 408-416 of Paper book AY 2023-24 Refer Annexure A for Draft assessment orde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nfrastructure and Software cost 409,851 639,367 75 1001073928 25-Mar-20 IT infrastructure and Software cost 61,055 87,309 79 SAP agreement dated November 1. 2014 between Horiba Ltd, Japan 1005018260 21-Dec-19 IT infrastructure and Software cost 56,212 86,567 80 1003752685 25-Sep-19 IT infrastructure and Software cost 32,970 50,114 81 and the Appellant. (Refer page 76- 1002402302 24-Jun-19 IT infrastructure and Software cost 30,363 47,367 82 78 of Paper book). Total 4,214,620 7.4 It is evident from the invoices that actual cost of the IT infrastructure Cost & Software is being allocated to various Horiba group affiliates (including the Appellant) without any mark-up based on the mechanism agreed in the agreement (for e.g. number of users, license numbers etc). 7.5 The cost is being charged on a per-user basis which itself substantiates that the allocation has been done on basis of actual expenditure incurred by dividing it with total number of users (employees) in the entire Horiba group (Horiba overseas entities ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....'ble Court held that no technical services are being provided by the Appellant to the agents. Only a common facility of using Maersk Net System is provided to all the agents across the countries to carry out their work using the said system. Hon'ble Court mentioned that once above are accepted, by no stretch of imagination, payments made by the agents can be treated as fee for technical service. It is in the nature of reimbursement of cost whereby the three agents paid their proportionate share of the expenses incurred on these said systems and for maintaining those systems." 7.9 Hon'ble Court also mentioned that the Appellant have even submitted before the Ld. Transfer Pricing Officer that these payments were reimbursement in the hands of the Appellant and the reimbursement was accepted as such at arm's length. Once the character of the payment is found to be reimbursement of the expenses, it cannot be income chargeable to tax. In support of above arguments, the Court relied upon its earlier decisions in the case of CIT v. Kotak Securities Ltd. [2016] 383 ITR 1/239 Taxman 139/67 taxmann.com 356 (SC) wherein it has categorically held that use of facility does ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to them overseas by Related parties for administrative convenience. Subsequently, such other part paid is recharged by the Appellant without any mark-up. Both the parts of the salaries are taken in account by the Appellant for the purpose of tax deduction at source for these employees and therefore, there is no amount of income which remains untaxed in India. 7.14 Since taxes on the salaries of seconded employees have been duly deducted and deposited under Section 192 of the Act as Income under the head "salaries" and thus, any reimbursement of such payment, cannot be taxed again under Section 195 of the Act. The same has been held in plethora of judicial precedents discussed hereunder: * In the case of Advics Co. Ltd. [2024] 165 taxmann.com 716 (Delhi - Trib.), it was held that employee salary reimbursement to Japanese company is not liable to tax withholding: "....the Indian AEs have duly deducted tax under section 192 and deposited the same into the Government account for the salaries paid to the expats in India as well as abroad (remitted solely for administrative convenience). The expats have offered the entire salary income to tax in their respective ret....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by overseas entity outside India Amount in INR) Salary paid by Assessee in India (Amount in INR) Total Salary (Amount in INR) Total Salary as per Form 16 (Amount in INR) Documentary evidence Mr. Kohei Araki 5,683,372 Q2: 4,97,978 Q3: 25,47,066 Q4: 26,38,328 3,874,639 4,126,824 8,001,463 8,001,463 - Form 16 -invitation letter by Horiba India -Employment Letter -Offer letter of employment (Refer Page 89-95 of Paper book) Mr. Kenta Ogawa 3,297,024 2,127,619 2,610,983 4,738,602 4,738,602 - Form 16 -invitation letter by Horiba India -Employment Letter Offer letter of employment (Refer Page 96-105 of Paper book) Mr. Takeshi Kato 5,096,239 3,287,417 4,101,726 7,389,143 7,389,143 - Form 16 invitation letter by Horiba India - Employment Letter (Refer Page 106-114 of Paper book) Mr. Akimori Shigeta 2,003,963 1,176,646 1,614,787 2,791,433 2,791,433 - Form 16 -invitation letter by Horiba India. -Employment Letter (Refer Page 115-121 of Paper book) Total 1 6,080,598 10,466,321 12,454,320 2 2,920,641 22,920,641 The above table demonstrat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on to undertake the arrangements. The said travel reimbursement was a mere repayment of what has already been spent and was not a reward or compensation for services rendered. 7.20 The reimbursement of travel charges by the Appellant would not be tantamount to rendering of technical, professional or consultancy services. Accordingly, such costs reimbursed cannot be classified as fees for technical services under the provisions of the Act. Detailed breakup of travel expenses is as under: Company Name Date Classification RPT classification Amount (in INR) Amount in FC Currency Invoice Ref # Horiba Japan Ltd 26-Mar-20 Travel - Lodging Reim of exp incurred 50,350 72,000 JPY 1 Horiba Japan Ltd 17-Dec-19 Travel - Lodging Reim of exp incurred 5,844 9.000 JPY 2 Horiba Japan Ltd 26-Sep-19 Travel - Lodging Reim of exp incurred 12,783 19.430 JPY 3 Horiba Japan Ltd 19-Aug-19 Travel - Lodging Reim of exp incurred 185,313 274,263 JPY 4 Horiba Japan Ltd 21-Jun-19 Travel - Lodging Reim of exp incurred 21,154 33.000 JPY 5 HORIBA Techno 30-Oct-19 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st-to-cost reimbursement of expenses to its parent company Horiba Japan, the purpose is to meet the requirements of global business by maintaining a uniformed/ common group information system for the entire Horiba group with maximum flexibility and speed. 9.1 The assessee had made salary reimbursement to qua employees for facilitating its operation in India. The employees seconded to India are recruited by the appellant in departments like sales department, accounting department, etc. They are normal and do not possess any specialized technical skills, and cannot be alleged that the employees were providing technical services on behalf of related entity. The appellant submitted detailed break up of amount reimbursed by the appellant to the overseas entity along with reconciliation of the same with Form 16 issued to the expats. The above position had been accepted by Ld. AO for assessment year 2022-23 wherein same nature of payments were examined. 9.2 Regarding reimbursement of travel expenses of Rs. 14,66,142/- detailed breakup of travel expenses were submitted. In copies of invoices raised by AE to appellant are at page no. 166 to 176 of paper book, copies of invoices raised....