TMI Blog2015 (5) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... by the engineer for providing the services. It is not a case of performing the composite activities of the assessee and AE by the common staff and then sharing the cost . The cost was incurred by the AE exclusively for providing the services to the assessee then the principle and test as contended by the Ld. DR would not be applicable. The assessee has also produced the comparative cost charged by the AE from other group concerns. In the absence of any contrary record brought by the TPO/Assessing Officer to show that the price paid by the assessee is not at arm’s length we allow the claim of the assessee. - Decided in favour of assesse. TP adjustment on account of commission for securing the contract in India - Held that:- On principle, we do agree with the claim of the assessee that he said amount of commission was obligation of the AE (Malaysia) for securing the project and once the project was transferred to the assessee for execution and in turn the assessee has earned a handsome revenue from the said project then the liability of payment of commission was fastened on the assessee being a contractual obligation. Therefore, denial of the claim of the assessee is not justified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tails were also furnished which show that the expenses were initially incurred by Mr. Stan Wojicierczk. Therefore, when the entire expenditure was incurred for hotel stay and travel of both Mr. Stan Wojicierczk and Mr. Raj Lakhani then reimbursement of 50% of the expenses does not involve any payment to the AE but it was reimbursement of expenses. Since the Assessing Officer/TPO has disallowed the claim and treated the ALP at nil for want of details and evidence, therefore, in the facts and circumstances of the case and in the interest of justice, we set aside this issue to the record of Assessing Officer/TPO to consider the evidence furnished by the assessee and then decide the same after giving an opportunity of hearing to the assessee. Decided in favour of assesse by way of remand. - ITA NO.7265/Mum/2012 - - - Dated:- 14-1-2015 - SHRI VIJAY PAL RAO AND SHRI N.K. BILLAIYA, JJ. For The Assessee : Shri M.P. Lohia and Shri Ankit Kochar For The Revenue : Shri N.K. Chand ORDER Per Vijay Pal Rao, JM This appeal by the assessee is directed against the assessment order passed u/s 143(3) r.w.s 144C(13) of the Income Tax Act., in pursuant to the directions of DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of the assessee. In response the assessee vide its letter dated 21st August 2011 submitted that in the TP study report, the auditor has explained the matter in detail in para 5.3 of the TP study with reference to the OECD guidelines. It was further submitted that the assessee company has undertaken to provide site support services to its customer at the time of sale and the said services provided at the site of customers are very technical in nature which requires depth knowledge and experience which the assessee company being at its initial stage does not have and as such used the services of experienced personnel of its AE. The TPO did not accept the contention and explanation of the assessee and held that the assessee has not furnished any agreement to prove that the services were requested by the assessee and were actually availed by the assessee. Even the cost to AE and basis of allocation was also not provided by the assessee to the satisfaction. Accordingly, the TPO held that the ALP of the transaction has to be determined at Rs. Nil. Consequently, the TPO proposed the adjustment of entire expenditure of ₹ 2,24,848/-. 4. The assessee challenged the action of TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided to the LTC Technical Works Malaysia. Thus the Ld. Authorized Representative has submitted that when the assessee was in its initial stage of business and required technical guidance the services were rendered by its AE s engineer Mr. Bernd Seibold who is an experienced design engineer in international formwork. The AE charged the assessee on the basis of hour spent by the engineer on the project. The assessee produced all the relevant documents/material to show the visits of engineer of the AE and the services provided at the site of the clients as well as invoices raised by the A.E. The TPO has determined the ALP of the services at nil by disregarding the evidence produced by the assessee of actual services rendered by the AE. 6. On the other hand, the Ld. DR has submitted that the first principle of cost share is the benefit derived by the entity sharing the cost from the originating entity which required and justified such payment entity. The cost sharing should be internally and externally cost of the originating entity and, therefore, it should be the actual cost. As per the benefit test the assessee was required to establish the benefit obtained from services of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is not the case of revenue that the services claimed to have been availed by the assessee from its AE through their experienced and expert design engineers, otherwise available with the assessee in its own organization. When the assessee was not having such an experienced design engineer to execute the technical services at the site of the clients then the said services which is inevitable for providing services by assessee to its clients was in any case has to be hired from outside. From the record and the design produced by the assessee, we find that the service of providing formwork and scaffolding system involves highly technical activity as well as drawings and designs with precise skills for actual execution of construction work. 7.1 The TPO has denied the claim of the assessee on the ground that the assessee failed to establish the need and actual avail of services from the AE. It is pertinent to note that when the services provided by the assessee to its clients involves highly technical services then the nature of business activity of the assessee itself demonstrates the requirement of technical design engineer in the field. As the assessee was not having such experi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neer for providing the services. It is not a case of performing the composite activities of the assessee and AE by the common staff and then sharing the cost . The cost was incurred by the AE exclusively for providing the services to the assessee then the principle and test as contended by the Ld. DR would not be applicable. The assessee has also produced the comparative cost charged by the AE from other group concerns. In the absence of any contrary record brought by the TPO/Assessing Officer to show that the price paid by the assessee is not at arm s length we allow the claim of the assessee. 8. Ground no. 2 is regarding TP adjustment on account of commission for securing the contract in India. 9. The assessee paid an amount of ₹ 45,28,743/- on account of sales commission to PERI Malaysia. The assessee claimed that it is a reimbursement of legal and professional fee for securing a contract in India. The assessee explained that earlier the project was awarded to PERI Malaysia however, PERI Malaysia could not conduct work in India after the assessee came into existence from 26.12.2006. The Project (Jana Priya) was handed over to assessee by PERI Malaysia . The TPO asked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the agreement for payment of commission to third party. Since the original agreement was between the Malaysian AE and the agent which was subsequently transferred to the assessee therefore, the assessee has reimbursed the said expenditure of payment of commission to the agent. The Ld. Authorized Representative has submitted that the assessee earned the revenue of approximately ₹ 7 crore from M/s Jana Priya out of its total revenue of ₹ 19.5 crores which constitute approximately 35% of the total revenue. The contract was initially secured by Malaysian AE prior to passing it to the assessee. The payment of commission to the agent was for his diligent efforts who identified the customers through its contacts and introduced the customer to the PERI Malaysia. Therefore, in the absence of the prior contract between the Janapriya and PERI Malaysia, the assessee would not have been able to generate such revenue from operation from the said project. He has referred the communication between LTC Technical works and PERI Malaysia to show that the project Janapriya was arranged by the agent LTC Technical Works. The terms of payments were also settled between the Janapriya and PER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to PERI Malaysia and, thereafter as per the group policy and the assessee was incorporated as Indian entity, the said project was transferred to the assessee for providing the services in the project of Jana Priya. The Assessing Officer admitted the fact that the assessee has generated ₹ 7 crore from this project about 35% of the total revenue of the assessee generated during the year. Therefore, this is not a case of non viable project was transferred by the AE to the assessee but project was very much revenue earning and the assessee has in fact earned a handsome revenue from the said project. The TPO has denied the claim of payment of commission on the ground that there was no justification of payment of the said commission because apart from the said commission the assessee has shown only 3,46,888/- being commission and brokerage paid during the year. Therefore, the TPO observed that for the remaining 65% turnover the assessee has incurred the expenses on account of commission and brokerage at only ₹ 3,46,888/-, the payment of ₹ 45,28,743 is not justified. It is pertinent to note that if the genuineness of the claim and documents produced by the assessee were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the verification of corresponding payment by the Malaysian AE to the agent namely LTC technical works. Accordingly, the Assessing Officer/TPO is directed to verify this fact from the record to be filed by the assessee and then consider the claim in the light of above observation. 12. Ground no. 3 is regarding disallowance of depreciation on software. 13. The assessee has shown reimbursement payment of an amount of ₹ 11,73,864/- on account of software. The assessee stated that the said software was electronically downloaded in the system. The payment was said to be made on actual cost. The assessee claimed that the software charges have been debited by the PERI Germany the parent company to the other group company at the same rate as have been charged from the assessee company. In support of the claim, the assessee filed the copy of E-mail in this respect. The TPO questioned that in the absence of any evidence of actual cost incurred by the parent company and the allocation of the same among AE why the ALP of the expenses should not be treated at nil. The TPO held that the AE did not require the said software and, therefore, the ALP of the software expenses was determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion whereas in the absence of the said software the assessee could not have received the drawings sent by the clients for the purpose of securing the work and execution of the same. He has referred the invoices raised by the parent company in respect of software in question as well as the price quotation of the software provider to the parent company and submitted that the reimbursement is only for the actual cost incurred by the parent company. He has also referred the invoices of the parent company raised to the other group companies at same price. Therefore, the Ld. Authorized Representative has submitted that the assessee produced all the relevant record and evidence to establish that the software in question was as per the need of the assessee and the amount in question is only reimbursement of actual cost. 15. On the other hand, the Ld. DR has submitted that the assessee has failed to pass the test of requirement as well as benefit from the said transaction. He has relied upon the orders of authorities below. 16. We have considered the rival submissions and relevant material on record. There is no dispute that the software in question is to enable the user of the soft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation by the DRP is only on the basis of assumptions by disregarding the relevant facts as well as the evidence brought on record by the assessee. Accordingly, we set aside the orders of authorities below on this issue and allow the claim of depreciation. 17. Ground no. 4 is regarding TP adjustment on account of Travel expenses of ₹ 6,30,175 out of which an amount of ₹ 5,50,441/- for the travel of PERI GmbH Staff in India and remaining ₹ 79,734/- is for travel of assessee s staff. 18. The T.P.O asked the assessee to show cause as to why the travel cost of staff of AE of the assessee should not be disallowed and the ALP be taken as nil on the reason that no evidence of service required by the assessee was produced. The TPO mentioned that no reply has been furnished till 20.10.2011. Accordingly, the TPO determined the ALP of ₹ 5,50,441/- towards the travel expenses of the AE s staff as nil and proposed adjustment of the said amount. 19. Before DRP the assessee submitted that Mr. Stan Wojicierczk, support manager, visited India to support the assessee in its initial stage of operation for providing support in setting up business activity, market su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd stay in hotels along with the assessee s Managing Director Mr. Raj Lakhani. Thus it is clear that the visit and stay of Mr. Stan Wojicierczk, in India was along with Managing Director of the assessee Mr. Raj Lakhani. The assessee furnished the complete details and vouchers in respect of the expenditure. Further the payment details were also furnished which show that the expenses were initially incurred by Mr. Stan Wojicierczk. Therefore, when the entire expenditure was incurred for hotel stay and travel of both Mr. Stan Wojicierczk and Mr. Raj Lakhani then reimbursement of 50% of the expenses does not involve any payment to the AE but it was reimbursement of expenses. Since the Assessing Officer/TPO has disallowed the claim and treated the ALP at nil for want of details and evidence, therefore, in the facts and circumstances of the case and in the interest of justice, we set aside this issue to the record of Assessing Officer/TPO to consider the evidence furnished by the assessee and then decide the same after giving an opportunity of hearing to the assessee. 23. In the result, the appeal of the assessee is partly allowed. Order pronoucned in the open court on this 14th da ..... X X X X Extracts X X X X X X X X Extracts X X X X
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