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2019 (1) TMI 107 - AT - Income Tax


Issues Involved:
1. Adjustment of ?1,45,06,572/- on account of disallowance of payment of management services and unit charges (MSU charges).
2. Disallowance of expenditure on account of time-writing charges amounting to ?14 lakhs.
3. Initiation of penalty under section 271(1)(c) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Adjustment of ?1,45,06,572/- on account of disallowance of payment of management services and unit charges (MSU charges):

The appellant company, a wholly-owned subsidiary of BG Asia Pacific Holdings Pvt Limited, reported several international transactions, including the payment of MSU charges to its associated enterprises (AEs). The Transfer Pricing Officer (TPO) rejected the Transactional Net Margin Method (TNMM) as the most appropriate method for benchmarking these charges, opting instead for the Comparable Uncontrolled Price (CUP) method. The TPO determined the Arm's Length Price (ALP) for these services to be NIL, leading to an upward adjustment of ?1,45,06,572/-. The Dispute Resolution Panel (DRP) upheld this adjustment, reasoning that the services were duplicative and not distinct from other support services for which payments had already been accepted. The assessee contended that the services were not duplicative and pointed to an agreement dated 15.12.2009 to support their claim. The tribunal, after reviewing the agreement and relevant documents, concluded that the payment for MSU charges was distinct and not duplicative. Consequently, the tribunal directed the deletion of the adjustment.

2. Disallowance of expenditure on account of time-writing charges amounting to ?14 lakhs:

The assessee had debited ?14,00,976/- under "other cost recharge," which was explained as a provision for 'time writing charges' based on the estimated time cost of employees from its sister concern, British Gas International Ltd. (BGIL). The Assessing Officer disallowed this expenditure, citing the lack of an invoice and a scientific basis for the provision. The DRP upheld the disallowance on the grounds that the payments were in the nature of Fees for Technical Services (FTS) and subject to Tax Deducted at Source (TDS) under section 195 of the Act. The tribunal, however, found that the services provided by BGIL were routine support services and did not qualify as FTS under Article 13 of the India-UK DTAA. Thus, there was no requirement for TDS, and the tribunal directed the deletion of the disallowance.

3. Initiation of penalty under section 271(1)(c) of the Income-tax Act, 1961:

The tribunal found this ground to be premature and dismissed it accordingly.

Conclusion:

The tribunal allowed the appeal partly, directing the deletion of the adjustment of ?1,45,06,572/- for MSU charges and the disallowance of ?14,00,976/- for time-writing charges, while dismissing the ground related to the initiation of penalty under section 271(1)(c) as premature. The order was pronounced in the open court on 31.12.2018.

 

 

 

 

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