2023 (12) TMI 634 - AT - Income Tax

TP Adjustment - Global Corporate Client Management Fees by the assessee to its associate enterprise - Partial adjustment in respect of international transaction upheld by TPO-DRP - TPO commented that the services received by the assessee towards GCC charges were not specific in nature for which any separate charge need to be paid by the assessee to its associate enterprise - DRP has restricted the disallowance to the extent of 50% of the amount received by the AE - HELD THAT - Since during the year under consideration also the TPO/DRP has not followed any method u/s 92(1) of the Act for making adjustment in respect of international transaction pertaining to payment of Global Client Management Fees and similar to the earlier year 2022 (4) TMI 1574 - ITAT MUMBAI the same was done merely on adhoc basis therefore following the decision of coordinate bench as referred above the TPO is directed to delete the impugned transfer pricing adjustment in respect of payment Global Client Management Fees. Therefore these ground of appeal of the assessee are allowed. Disallowance of Travelling and conveyance expenses - AO on analysis of excel format of ledger A/c of travelling and conveyance observed duplication in the claim of expenses under the head transportation thus disallowed 20% of expenses - HELD THAT - In the profit and loss account both the items have been separately debited and assessee claimed that it had not claimed same expenditure twice and both the expenditure were claimed under the respective head with different nature and purpose. After considering the material placed on record we consider that the assessing officer has only mentioned in respect of duplication of expenses under the head transportation without giving any reference of such expenses already claimed by the assessee under the head travelling expenses. Therefore we direct the AO to decide this issue afresh after verification/examination of the specific supporting detail maintained by the assessee in respect of claim of expenditure separately made in travelling and transportation head. Therefore this ground of appeal of the assessee is allowed for statistical purposes. Disallowance of miscellaneous expenses - AO after analyses of the material submitted by the assessee observed that assessee has claimed expenses of capital nature under the head miscellaneous expenses thus disallowed 20% of expenses - HELD THAT - We find that assessing officer has made adhoc disallowance without specifically referring the exact amount of capital expenditure debited to the profit and loss account. Therefore we restore this issue to the file of the assessing officer for deciding afresh to determine the exact amount of expenditure of the nature of capital expenditure after verification of relevant documentary evidences maintained by the assessee. Therefore this ground of appeal is allowed for statistical purposes. Short grant of TDS credit tax - This ground of appeal of the assessee is restored to the file of the assessing officer for deciding after verification of the relevant supporting material to be furnished by the assessee. Therefore this ground of appeal is allowed for statistical purpose

Summary

Issues Involved:
1. Assessment of Total Income
2. Transfer Pricing Adjustment
3. Reference to Transfer Pricing Officer (TPO)
4. Benchmarking Analysis
5. Determination of Arm's Length Price (ALP)
6. Scope of TPO
7. Availing of Services/Benefit Test/Commercial Rational
8. Nature of Services
9. Method for Benchmarking International Transaction
10. Disallowance of Travelling Expenses
11. Disallowance of Miscellaneous Expenses
12. Invocation of Section 14A
13. Short Grant of TDS Credit Tax
14. Initiation of Penalty Proceedings

Summary:

Assessment of Total Income:
Ground No. 1 was dismissed as not pressed by the assessee.

Transfer Pricing Adjustment:
Grounds No. 2 to 10 pertained to the issue of payment of Global Corporate Client Management Fees (GCCM Fees) by the assessee to its associated enterprise (AE). The TPO disallowed part of the GCCM Fees, leading to an adjustment of Rs. 5,42,46,778. The ITAT directed the TPO to delete the transfer pricing adjustment as it was done on an ad-hoc basis without following any prescribed method under Section 92C(1) of the Act, following the decision of the coordinate bench for the assessment year 2013-14.

Reference to Transfer Pricing Officer (TPO):
The reference to the TPO under Section 92CA(1) was contested but ultimately the ITAT found that the adjustment was made without following the prescribed methods, leading to the deletion of the transfer pricing adjustment.

Benchmarking Analysis:
The ITAT found that the rejection of the benchmarking analysis and selection of the tested party by the TPO was not in accordance with the provisions of the Act and Rules.

Determination of Arm's Length Price (ALP):
The TPO's determination of ALP at 50% of the GCCM fees was found to be arbitrary and not based on any prescribed method, leading to the deletion of the adjustment.

Scope of TPO:
The TPO exceeded its jurisdiction by considering the benefit/availing of services as a condition for benchmarking the international transactions of GCCM services.

Availing of Services/Benefit Test/Commercial Rational:
The ITAT found that the TPO failed to appreciate the documentary evidence provided by the assessee to substantiate the receipt and benefit of GCCM services.

Nature of Services:
The TPO's finding that the GCCM services were in the nature of shareholder/duplicative/incidental services was not upheld by the ITAT.

Method for Benchmarking International Transaction:
The ITAT noted that the TPO did not select one of the prescribed methods under Rule 10B for benchmarking the international transactions.

Disallowance of Travelling Expenses:
Ground No. 11 concerned the disallowance of Rs. 54,18,179/- in travelling expenses. The ITAT directed the AO to verify and examine the specific supporting details maintained by the assessee and decide the issue afresh.

Disallowance of Miscellaneous Expenses:
Ground No. 12 involved the disallowance of Rs. 42,96,808/- in miscellaneous expenses. The ITAT restored the issue to the AO for verification and determination of the exact amount of capital expenditure.

Invocation of Section 14A:
Ground No. 13 was dismissed as not pressed by the assessee.

Short Grant of TDS Credit Tax:
Ground No. 14 was restored to the AO for verification of relevant supporting material.

Initiation of Penalty Proceedings:
Ground No. 15 was dismissed as not pressed by the assessee.

Conclusion:
The appeal of the assessee was partly allowed, with specific grounds being restored to the AO for fresh verification and decision. The ITAT directed the deletion of the transfer pricing adjustment made on an ad-hoc basis without following prescribed methods.