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2019 (8) TMI 988 - AT - Income TaxTP adjustment - rejection of cost allocation as per the master service agreement of the assessee between various segments - business of the company is divided into 3 statements and in the master service agreement the assessee is providing services on cost +12% mark up - HELD THAT:- Assessee has failed to substantiate its cost base. Further the learned AO also appropriated on ad hoc basis 50% of the total indirect cost of ₹ 270490602/– of non-MSA segment as cost incurred by the assessee for MSA segment. Even otherwise such percentage also does not have any sanctity. It is the primary duty of the assessee to substantiate the cost base of its revenue model before the AO completely. When the assessee has failed to substantiate 68% of non salary cost and 83% of salary cost before the lower authorities, we are unable to agree with the argument of the learned authorised representative that cost base of the assessee for deriving the revenue from associated enterprises is correct. We set aside the whole issue back to the file of the learned AO, with a direction to the assessee to substantiate it cost base with respect to the segment, which has been challenged by special auditor and the learned AO to derive at the correct income of the assessee - ground number 2 of the appeal of the assessee is set aside to the file of the learned AO with a direction to pass a draft assessment order after incorporating all the arguments of the assessee so that assessee gets an opportunity to file objections before DRP. Foreign exchange cost incurred on salaries of the expat employees - according to AO should have been charged with a markup of 12 % thereon - HELD THAT:- No infirmity in the order of the learned DRP in their direction to the AO to include the same for working out the correct revenue of the assessee. Admittedly even before us the assessee did not show any clauses in the agreement, which even remotely suggest that only “operating cost”, are to be charged to the AE. According to us the assessee is to be reimbursed on “cost” plus basis with 12% mark up. In the agreement there is no reference to exclusion of any foreign exchange loss or gain or same is not to be considered as “ cost”. It was not denied that the expat of salary was not related to the impugned segment and also foreign exchange loss was also on account of the salary payment. We also agree with the finding of the ld DRP with respect to applicability of safe Harbour rule. Naturally assessee has not opted for it and so cannot claim so. Further in many judicial precedents, the Forex gain and loss were held to be operating income/ loss. In view of this we do not find any infirmity in the order of the learned assessing officer. Decided against assessee Addition on account of non charging of the markup on support service charges billed to AGNS - HELD THAT:- The issue squarely covered in favour of the assessee in assessee’s own case for earlier years by the order of the coordinate bench, therefore we have no reason to deviate from the same and accordingly respectfully following the decision of coordinate bench, ground number 5 of the appeal of the assessee is allowed. Disallowance of the year under accrual is on account of excess provisioning, non-submission of the supporting documents or non-deduction of TDS thereon u/s 40 (a) - HELD THAT:- With respect to the year and accrual is the issue squarely covered in favour of the assessee by the decision of the coordinate bench in assessee’s own case for assessment year 2010 – 11 wherein on identical facts and circumstances the addition was deleted. Similar is the decision for assessment year 11 – 12 and 12 – 13. In view of this we do not find any reason to deviate from the same and respectfully following the same we hold that the disallowance made by the learned assessing officer on account of year and accrual is not sustainable in law. With respect to the issue of tax deduction at source on the year and accrual is the issue has been decided in in the sister concern of the assessee for assessment year 2010 – 11 [2017 (9) TMI 1153 - ITAT DELHI] wherein identical disallowance has been deleted. Therefore respectfully following the decision of the coordinate bench we also hold that no such disallowance can be made for non deduction of tax at source when the year and provisioning are made by the assessee which are reversed on the 1st day of the subsequent year. Non-grant of full credit in respect of the TDS - HELD THAT:- We direct the learned AO to verify and grant the credit of the tax deduction at source to the assessee, as claimed, if the certificates are in proper form. The learned AO may examine them and allow the credit in accordance with the law. Accordingly, ground number 7 of the appeal of the assessee is allowed.
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