2017 (4) TMI 1190 - AT - Income Tax

TPA - rejecting the economic analysis conducted by the assessee for the determination of the Arm's Length Price ( 'ALP') in connection with the transactions pertaining to Management Service and Unit charges (‘MSU Charges') and General & Administrative Expenses ('G& A') - Held that:- For the year before us the assessee has submitted 11 papaerbooks. According to paper book no 5 assessee has demonstrated the nature of the services in relation to general and administrative expenses . In paper book no 6 assessee has submitted the details of recovery of expenses details of payment made of management unit charges by the assessee. Paper book no 7 , 8, 10, 11 and 12 contains the details of the benefit received by the assessee on receipt of services with respect to general and administrative expenses, showing the time sheets of individual fro time writing cost etc. and details of third party costs. Paper book no 9 contains the details of list of application to which the assessee’s employees have access to show that the assets are used by the assessee. The Ld DR could not point out on any infirmity in the above submission of the assessee with respect to satisfaction of need, benefit, duplicity, or shareholder’s activity test. We do not find any reason to deviate from our finding as the facts and circumstances leading to the dispute are identical. In view of this we dismiss ground No. 1, 2 and 3 of the appeal of the revenue.

Adjustment on account of loan transaction - Held that:- In the present case the Ld. assessing officer has assumed the rate of interest @ 12.5 % without any basis but merely on assumptions and presumptions. Furthermore the Ld. Dispute Resolution Panel has also held that the refund amount of the assessee was wrongly adjusted and only actual amount of interest received from the Department by the associated enterprise shall be retained as an addition. We also do not approve the finding of the Ld. Dispute Resolution Panel and we failed to understand what relationship the amount of interest on refund received by the associated enterprise have with the amount of arms length price of the interest on loans given by the assessee to the associated enterprise. In fact the interest on refund given by the revenue to the AE is statutory interest rates, which cannot be used for benchmarking of loan between two business concerns. Thus we set aside this ground of appeal of the revenue back to the file of the Ld. Transfer Pricing Officer to determine arm’s length price of interest in one of the prescribed method and in accordance with the provisions of section 92C of the income tax act. Further we have perused the decisions relied upon by the Ld. authorized representative stating that there is no international transaction in absence of existence of some tangible material. As we have already held that in the present case the parties are acting in concert with its associated enterprise and there is a liquidation of the assets of the assessee for paying the tax liability of the associated enterprise we do not find those decisions can be applied to the facts of this case. In view of this ground No. 4 of the appeal of the revenue is allowed with above direction.

Addition on account of expenses claimed for club entrance and subscription fees for the employees of the company - Held that:- We are of the view that issue is identical to ground No. 5 of the appeal of the revenue for assessment year 2010 – 2011 wherein we have held that the Ld. Dispute Resolution Panel has correctly directed the Ld. assessing officer to delete the disallowance was respect to the club expenditure. For the same reasons and on the same logic we also hold that Ld. Dispute Resolution Panel has correctly directed the Ld. Transfer Pricing Officer/Ld. assessing officer to delete the disallowance with respect to the club expenditure - Decided against revenue

Claim of the expenditure as deduction in the year in which the expenditure become infructuous - Held that:- In the case of Joshi Technologies International Inc. v. UOI,[2015 (5) TMI 521 - SUPREME COURT] it was held that Where the production sharing contract entered into between the assessee with Ministry of Petroleum and Natural Gas did not incorporate clause for granting benefits under section 42 of the Act, it cannot be said the failure to incorporate the same in the contract was not inadvertently omitted and, therefore, assessee was not entitle for deduction under section 42 of the Act . So first of all it is mandatory that these expenditure are mention in the PSC, then only the question of its allowability arises in any assessment year u/s 42 of the act. It is also mentioned in the orders of lower authorities that the assessee has not made claim in respect of said expenditure when the expenditure become infructuous i.e. in FY 2011-12 being the year in which the area was surrendered prior to commercial production. From the above observation it is apparent that that the claim of the assessee falls in section 42(1)(a) when the expenditure becomes infructuous. Apparently, such expenditure became infructuous in Assessment Year 2011-12. In view of this the ld Assessing Officer as well as the ld Dispute Resolution Panel has correctly held that the assessee is not entitled for deduction therefore, in this year i.e. AY 2009-10, the claim of the assessee cannot be accepted.

Adjusting the appellant’s refund with the demand of AE which is not an international transaction - Held that:- While deciding ground No. 4 of the appeal of the revenue we have already held that above transaction is an international transaction under section 92B of the income tax act and therefore arm’s length price of such transaction is required to be determined in accordance with the provisions of section 92C of the income tax act and set aside the issue to the file of the Ld. Transfer Pricing Officer. Therefore accordingly we dismiss this ground of appeal of the assessee.