2014 (11) TMI 291 - AT - Income Tax

Transfer pricing adjustment Determination of ALP CUP or TNMM- Held that - The assessee applied CUP as the most appropriate method for benchmarking the international transactions undertaken by it - what persuaded the TPO to observe departure in these two later years from the consistent stand taken by him in the immediately preceding four years up to A.Y. 2006-07 in following the CUP method, is not available on record - There may have been some change in the factual position necessitating the adoption of TNMM in these later years- the mere fact that the TPO adopted TNMM in a later year can be no ground to argue before the tribunal that the same method be followed in a preceding year, which stand has been specifically rejected by him in the instant years - the application of TNMM on this reason alone cannot be upheld, more specifically, when in the immediately preceding year, where the facts are admittedly similar, the tribunal has restored the matter to the TPO for de novo adjudication thus, as decided in assessee s own case for the earlier assessment year it has been held that the matter is remitted back to the TPO/AO for fresh adjudication Decided in favour of revenue. Renovation and maintenance expenses disallowed Held that - The sum was not towards any renovation of building, but, paid to a company, namely, Towerbase Services Pvt. Ltd., as maintenance charges for Vasant Vihar office on monthly basis - Month-wise details of such payment made aggregating to ₹ 25.20 lac were made available to the CIT(A), which were sent to the AO for comments - No objection was taken by the AO to the correctness of the nature of amount in the remand report the order of the CIT(A) in allowing deduction for the full amount, which was incurred for the maintenance of office on monthly basis is upheld Decided against revenue. ISO certification fee paid by the assessee deleted Held that - The payment of ISO certification fee is a routine expenditure incurred on annual basis - By no stretch of imagination it can be considered as amounting to acquisition of a capital asset or advantage of an enduring nature - thus, the order of the CIT(A) is upheld Decided against revenue.

Summary

Issues:
1. Deletion of addition of Rs. 50,10,463 on transfer pricing adjustment.
2. Deletion of addition of Rs. 5,04,072 on renovation and maintenance expenses.
3. Deletion of addition of Rs. 88,000 on ISO certification fee.

Transfer Pricing Adjustment Issue:
The appeal by the Revenue challenged the deletion of an addition of Rs. 50,10,463 made by the AO on transfer pricing adjustment for the assessment year 2003-04. The assessee benchmarked international transactions using the Comparable Uncontrolled Price (CUP) method. The TPO proposed a transfer pricing adjustment, which was upheld by the AO. The CIT(A) admitted an additional ground for the Transactional Net Margin Method (TNMM). The CIT(A) accepted TNMM as the most appropriate method based on the assessee's segmental accounts, leading to the deletion of the addition. However, the Tribunal found the application of TNMM questionable as the TPO had consistently applied the CUP method in previous years. The matter was remitted to the TPO/AO for fresh determination in line with the Tribunal's direction for the AY 2002-03.

Renovation and Maintenance Expenses Issue:
The appeal contested the deletion of an addition of Rs. 5,04,072 on renovation and maintenance expenses. The AO disallowed a portion of expenses claimed under 'Miscellaneous expenses', including renovation and maintenance expenses. The CIT(A) found that the expenses were maintenance charges paid to a company for the office. Detailed month-wise payments were provided, and as the AO did not object to the nature of the expenses, the CIT(A)'s decision to allow the deduction was upheld.

ISO Certification Fee Issue:
The appeal challenged the deletion of an addition of Rs. 88,000 on ISO certification fee. The AO treated the fee as a capital expenditure, subject to depreciation. However, the CIT(A) disagreed, considering the fee as routine expenditure and not an acquisition of a capital asset. The Tribunal upheld the CIT(A)'s decision, stating that the fee did not confer an enduring advantage and was an annual operational expense.

In conclusion, the appeal was partly allowed for statistical purposes, with the Tribunal remitting the transfer pricing adjustment issue back to the TPO/AO for fresh determination in accordance with previous directives.