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2022 (4) TMI 1126 - AT - Income TaxTP adjustment made in respect of international transaction on provision of non-binding investment advisory services by the assessee - Comparable selection - HELD THAT:- We are inclined to agree to the arguments advanced by the ld. AR that if all the 15 comparables chosen by the ld. TPO are rejected ; IDC India Ltd and ICRA Management Consultancy Services Ltd., are included, the assessee’s margin would be well within the tolerance band of +/-5% of the comparables’ margin. Accordingly, the assessee’s margin would be well within the tolerance band of +/-5% with the comparables margin as stated by the ld. AR. Accordingly, there would be no need for making any adjustment to arm’s length price in respect of provision of non-binding investment advisory services. The ld. TPO is hereby directed to delete the addition made in this regard. In any case, we find that the ld. TPO grossly erred in taking entity level TNMM for the purpose of benchmarking instead of confining himself only to international transaction carried out with the AEs. The entire evidences in this regard were duly submitted by the assessee before us together with the workings thereon. Hence, the observations of the ld. TPO that the details were not made available by the assessee which warranted him to resort to entity level benchmarking is factually incorrect. Accordingly, the grounds raised by the assessee are allowed. Transfer pricing adjustment towards cost of allocation towards central and regional support services and being 50% towards software development and other IT services - HELD THAT:- It could be safely concluded that assessee had indeed availed the aforesaid services and derived benefits thereon by incurring the cost paid to AE on the basis of cost allocation based on cost allocation case depending on actual usage without any mark-up thereon. Hence, the assessee duly discharged its onus of justifying the claim of expenses paid to its AE towards cost allocation of software development and other IT services. In any case, the ld. TPO ought not to have disallowed 50% of the said expenditure on an adhoc basis. The ld. TPO is duty bound to determine the ALP of an international transaction only by following any of the five prescribed methods provided in Rule 10B of the Income Tax Rules and not otherwise. AE had charged certain costs on the assessee based on appropriate cost allocation key. In these circumstances, it could not be said that assessee had not provided any documentary services to support its claim of payment of cost allocation charges to its AE for availing various services as detailed hereinabove. In any case as stated supra, the ld. TPO had merely determined the ALP of this international transaction at Rs.Nil without benchmarking the same by using any of the prescribed methods provided in Section 92C read with Rule 10B of the Income tax Rules. Reliance again is placed on the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. Johnson & Johnson Ltd.[2017 (3) TMI 1520 - BOMBAY HIGH COURT]. Accordingly, we direct the ld. TPO to delete the transfer pricing adjustment made in respect of cost allocation towards central and regional support services. The ground No.2 raised by the Revenue is hereby dismissed. Disallowance of prior period expenses - HELD THAT:- From the evidences, it is evident that the said expenses have been crystallized during the year under consideration. It is not a case of the Revenue that these expenses were indeed claimed as deduction by the assessee in A.Y. 2006-07 itself. The genuinety of the expenditure together with its business purpose is not doubted by the Revenue. Hence, the same cannot be subject matter of disallowance merely on the ground that bills were dated prior to 31/03/2006 in respect of services rendered prior to 31/03/2006. Admittedly these invoices were received only during A.Y.2007-08 and the expenditure has been crystallized during the year. In these circumstances, the said expenditure cannot be disallowed. Accordingly, we direct the ld. AO to grant deduction for ₹ 10,00,972/-. AR during the course of arguments submitted that a sum of ₹ 50,205/- represent expenses inadvertently accounted in the A.Y.2007-08 which was rectified in A.Y.2007-08 as the same was already granted in A.Y.2006-07. Similarly, we find a sum of ₹ 50,205 was debited on 10/04/2006 as expenditure on payment basis and the same was reversed on 11/04.2006 and credited to the same business promotion account. However, proper explanation has not been granted by the assessee in this regard. Hence, the disallowance made by the ld. AO treating the same as prior period expenses is hereby confirmed.
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