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2016 (4) TMI 1447 - AT - Income TaxCharacterising of service end commission activities of the assessee company - Performing trading activity for its AE Japan or worked as a service provider? - HELD THAT:- As decided in assessee own case [2015 (8) TMI 922 - ITAT DELHI] determining the issue in favour of the assessee that the assessee company has performed routine, preparatory and ancillary activities in nature and have not created any intangibles as its role was limited to that of a routine coordination and support service provider. So, the ld. TPO/DRP have erred in recharacterizing the service end commission activities of the assessee company as equivalent to its trading segment. Inflation of total cost by TPO/DRP - The said value was recorded sale/purchase by the AEs and was never a cost to the assessee - HELD THAT:- In view of what has been discussed above and by following the order passed by the coordinate Bench in assessee’s own case on identical facts qua the AYs 2007-08 and 2008-09, we are of the considered view that the adjustment made by the AO in compliance to the order passed by TPO/DRP for benchmarking the international transaction qua AYs 200910 and 2010-11 is not sustainable in the eyes of law as (i) TPO/DRP have illegally and arbitrarily included the cost of sales incurred by the assessee company’s AE, for which the assessee company has rendered support services to work out the profit for determination of the ALP; (ii) Identical and similar issue has been decided by the Tribunal in case of Mitsubishi Corporation India P Ltd. [2014 (10) TMI 702 - ITAT DELHI] by following the judgment rendered in case of Li and Fung India Pvt. Ltd. [2014 (1) TMI 501 - DELHI HIGH COURT] and held that the TPO was not justified in re-characterizing the transaction as trading transaction and it has also been held that cost of sales incurred by the AE cannot be included to work out the profit for determination of the ALP; (iii) Nature of services rendered by the assessee company to its AE since 2003 are the same and it has been consistently benchmarking its international transaction relating to the business support services using TNMM as the most appropriate method as OP/TC as PLI, as has been used in the instant case; (iv) As has been discussed in the preceding paras and as has been held by the coordinate Bench of the Tribunal in assessee’s own case qua the AYs 2007-08 and 2008-09 that when the FOB value of the goods on which commission/ service income is earned amounting to Rs. 4005.37 crores for AY 2009-10 and Rs. 5057 crores for AY 2010-11 is not to be added to the cost base of the assessee’s international transaction, the assessee’s international transactions computed by using TNMM as the most appropriate method and PLI selected is GP/OC i.e. berry ratio, the international transaction in question are at arm’s length; (v) Comparables chosen by the TPO to determine the arm’s length price of the international transaction entered into by the assessee company are not correct one because all the comparables are of trading company and not of support services provider as in the case of assessee company. Decided in favour of the assessee. Disallowance u/s 14A - HELD THAT:- By applying the law laid down in judgment cited as Cheminvest [2015 (9) TMI 238 - DELHI HIGH COURT] in the similar facts and circumstances of the case, when assessee has not earned any exempt income during the years under consideration, as is evident from the documents lying i.e. profit & loss account and audited balance-sheet, section 14A would not be applicable in the instant case. Hence, the disallowance confirmed by the DRP is not sustainable in the eyes of law. Disallowance of expenditure on account of leased rent, staff welfare and commission income adjustment relates to prior period - AR contended that the assessee had in fact never claimed the said amount as deduction in the return of income - HELD THAT:- A perusal of the audited profit & loss account statement apparently shows that assessee has never claimed prior period expenses during the year under consideration in Income-tax return and as such, the question of disallowing the same does not arise. So, we hereby decide this ground in favour of the assessee. Addition u/s 37 (1) - expenditure on account of payment of service fee paid abroad - expenditure has not been incurred wholly and exclusively for the purpose of business and on the ground that the assessee has merely submitted copies of the agreement of the assessee with the aforesaid companies and no evidence is available on the file - HELD THAT:- Keeping in view the fact that in the succeeding year, AY 2011-12, the DRP has decided this issue in favour of the assessee and deleted the entire addition of service fee paid to the same parties to whom this fee was paid. So in view of the matter, this issue is required to be restored to the AO to decide afresh in the light of the order dated 14.12.2015 passed by DRP qua AY 2011-12 in assessee’s own case after providing an opportunity of being heard to the assessee. Consequently, this ground is determined in favour of the assessee. Expenditure on logistic and warehousing support service - Addition u/s 37 (1) on the ground that the same has not been incurred wholly and exclusively for the purpose of business and the assessee has failed to offer any justification for making the aforesaid payment on account of commercial expediency nor the assessee has furnished copy of agreement with M/s. Panasonic India Pvt. Ltd. and nor placed on record detailed computation of losses - HELD THAT:- AR, contention, that the amount in question has been incurred under terms of the outsourcing agreement with respective agencies, and placed on record the copy of agreement, lying at pages 7 onwards of the paper book has been overlooked by the AO as well as DRP and as such, we are of the considered view that this issue is also required to be restored to the AO to decide afresh after providing an opportunity of being heard to the assessee to adduce evidence in this regard. So, this ground is also determined in favour of the assessee. TDS u/s 195 - Purchase from PE in India - HELD THAT:- Undisputedly, this issue is covered by the order passed by the DRP in assessee’s own case qua AY 2011-12 as held that no TDS is applicable u/s 195 on offshore supplies. When the assessee company has no PE in India it is not liable to deduct tax at source. So in the light of the facts and circumstances of the case and the fact that this issue has been decided by the ld. DRP qua the subsequent AY 2011-12 in favour of the assessee, this issue is also restored to the AO to determine afresh.
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