TMI Blog2014 (12) TMI 927X X X X Extracts X X X X X X X X Extracts X X X X ..... d any benefit from payment of professional fees and if any benefit had derived, whether such payment is commensurate to comparable transaction has to be examined by the TPO – thus, the matter is remitted back to the AO/TPO for fresh consideration – Decided in favour of assessee. Expenses on interior of a lease hold premises disallowed – Held that:- Assessee has incurred a sum of ₹ 40,017,141/- on interiors of lease hold premises - majority of these expenditures are expended for major renovation and these expenses are clearly capital in nature – as decided in assessee’s own case, it has been held that prima facie the expenses were of capital in nature - Even if the premises were on lease, because of the provision to Explanation (i) to section 32 of the Act the expenditure of capital nature on the construction of any structure or doing of any work in or in relation to and by way of renovation or expansion or improvement to the building, it is to be assumed as if the said structure or work is a building owned by the assessee – the authority is justified in disallowing a sum of ₹ 4,00,17,141/- as capital expenditure and allowing depreciation on the same – Decided against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic Ltd. (RAAPL)(AE) were accepted to be at arm s length by the TPO. During the year, assessee had entered into services agreements with RAAPL for availing various administrative and support services. The assessee had to pay the Management fees to RAAPL which is equal to cost incurred by RAAPL on a mark-up of 5%. In the year under dispute, assessee had made a payment of ₹ 10,29,82,002/- to the AE (RAAPL), on account of administrative and support services. The assessee did not benchmark this transaction separately and aggregated it with other transactions using Transactional Net Margin Method (TNMM) to establish that all the transactions including payment of Management Fee were at arm s length. However, the TPO benchmarked it separately and held that the assessee was not able to prove (i) Services were actually received by it (ii) any benefits were derived by it from such services (iii) it could not furnish any evidence as to the cost benefit analysis vis- -vis other independent suppliers on such services (iv) no independent party would have made payment for such services in uncontrolled environment and, therefore, determined the Arm s length price of this transactions at NIL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, the panel is of the view that the assessee has not been establish that it derived direct and substantial benefit from such services and the assessee would not have availed such services had it be and independent enterprise. We are, therefore, in agreement with the conclusion drawn by the TPO that even if the services were rendered to the assessee, they were in the nature of duplicate services and independent enterprise would not have paid any separate consideration for such services. Accordingly, panel upholds the action of TPO, i.e., the ALP of such services shall be taken as NIL and the objection raised by the assessee is rejected. 9. Based on the direction of the DRP final assessment orders were passed u/s 143(3) r.w.s. 144C of the Act. 10. Aggrieved assessee in appeal before us. Both the sides agreed that the Transfer Pricing issue is to be restored to the AO/TPO for fresh consideration in the light of the judgment of the Hon ble Jurisdictional High Court of Delhi in the case of CIT-I Vs. Cushman and Wakefield (India) (P.) Ltd. reported in [2014] 46 taxmann.com 317 (Delhi). 11. We have heard rival submissions and perused the material on record. The Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... everal observations to the effect that, as evident from the analysis of financial performance, the assessee did not benefit, in terms of financial results, from these services. This analysis is also completely irrelevant, because whether a particular expense on services received actually benefits an Assessee in monetary terms or not even a consideration for its being allowed as a deduction in computation of income, and, by no stretch of logic, it can have any role in determining arm's length price of that service. When evaluating the arm's length price of a service, it is wholly irrelevant as to whether the assessee benefits from it or not; the real question which is to be determined in such cases is whether the price of this service is what an independent enterprise would have paid for the same. Similarly, whether the AE gave the same services to the assessee in the preceding years without any consideration or not is also irrelevant. The AE may have given the same service on gratuitous basis in the earlier period, but that does not mean that arm's length price of these services is 'nil'. The authorities below have been swayed by the considerations which are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s initially on the assessee to determine the arm's length price. Thus, the argument of the assessee that the Transfer Pricing Officer has exceeded his jurisdiction by disallowing certain expenditure, is against the facts. The Transfer Pricing Officer has not disallowed any expenditure. Only the arm's length price was determined. It was the Assessing Officer who computed the income by adopting the arm's length price decided by the Transfer Pricing Officer at nil . This is a slender yet crucial distinction that restricts the authority of the TPO. Whilst the report of the TPO in this case ultimately noted that the ALP was 'nil', since a comparable entity would pay 'nil' amount for these services, this Court noted that remarks concerning, and the final decision relating to, benefit arising from these services are properly reserved for the AO. 36. In this case, the issue is whether an independent entity would have paid for such services. Importantly, in reaching this conclusion, neither the Revenue, nor this Court, must question the commercial wisdom of the assessee, or replace its own assessment of the commercial viability of the transaction. The ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NIL by holding that the assessee did not derive any benefit from services rendered by the AE. Therefore, keeping in view the dictum laid down by the judgment of the Hon ble Jurisdictional High Court, necessarily AO as to determine whether the assessee has derived any benefit from payment of professional fees and if any benefit had derived, whether such payment is commensurate to comparable transaction has to be examined by the TPO. For the above said purpose, the Transfer Pricing issue is restored to AO/TPO for de- novo consideration. It is ordered accordingly. Ground No.13 13. In this ground, assessee challenges disallowance of a sum of ₹ 40,017,141/- as capital expenditure. The amount was expended on interior of a lease hold premises. The DRP confirmed the AO draft assessment order by observing as under: (Para 1.3) We have considered the submissions made by the assessee and have perused the material on record. A perusal of the details of expenses filed by the assessee before the AO vide its letter dated 16.12.2011, which have been reproduced by the AO at page 3 and 4 of the assessment order, shows that the assessee had incurred major expenses on renovation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... listed out in the assessment order at Pages 3 4. On perusal of these details, we find that majority of these expenditures are expended for major renovation and these expenses are clearly capital in nature. In view of explanation 1 to Section 32 of the Act, if the said capital expenditure is incurred on a leasehold premises, the same can be capitalised and depreciation can be claimed. In identical factual situation, the Tribunal in assessee s own case for A.Ys. 2003-04, 2004-05 and 2006-07 had disallowed an expenditure of ₹ 17,33,360/-, ₹ 8,81,164/- and ₹ 51,20,21/- respectively. 15. The relevant finding of the Tribunal in assessee s own case for AY 2003-04 in ITA No. 2803/D/2007, is reproduced as under: (at Para 29) 29. We have heard the parties and considered the rival submissions. The assessee, after taking various premises on rent/lease in different places across the country, carried out substantial alternations and modifications in the said premises. Therefore, prima facie the expenses were of capital in nature. Even if the premises were on lease, because of the provision to Explanation (i) to section 32 of the Act the expenditure of capital nature ..... X X X X Extracts X X X X X X X X Extracts X X X X
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