9911796707
TMI Blog2016 (8) TMI 1001X X X X Extracts X X X X X X X X Extracts X X X X ..... ing (i) the impugned arm's length price adjustment of Rs. 2,96,58,519; and (ii) the disallowance of reimbursement of recruitment expenses to the tune of Rs. 6,53,850. 3. So far the arm's length price adjustment of Rs. 2,96,58,519 is concerned, one of the fundamental issues that the learned counsel has raised is against rejection of segmental results by the TPO. It is contended that "the learned CIT(A) erred by not taking cognizance of the basic business model, functional responsibilities and risk profile of the appellant and its AE, and erred in rejecting the segmental approach followed by the appellant in benchmarking its international transactions". We will deal with this issue first. 4. In order to adjudicate on this plea, some basic f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e market and invites quotes from various service providers. The quotes for the services to be rendered are prepared by the AE, for their part of services, and the assessee, for its part of services- which are confined to the technical support services. Once these inputs are in place, a consolidated proposal is sent to the customer. It is in this background, according to the assessee, that there is no fixed overhead charged by the assessee and that the prices quoted by the assessee are as per their assessment of the market conditions. It is also stated that the quotes are issued on man month basis. Once the tender is awarded, the assessee and the AE enter into an agreement specifying the work to be performed by the assessee. So far as the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent entities engaged in business as independent service providers. This approach, however, did not find favour with the Transfer Pricing Officer. He was of the view that "there was no fundamental accounting basis for segregation of expenses into project expenses and overhead expenses (i.e. no project expenses) and calculation of adjusted OP/TC margin of the assessee". He also noted that "no income stream had been shown with respect to non-invoice expenses (overhead expenses)". As for the basis of allocation, it was explained by the assessee that "segregation of expenses into two segments was on actual basis". The TPO was of the view that as per transfer pricing report "main business of SCIPL (i.e. the assessee before us) is to act as advis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding administrative and overhead costs for the purpose of rendering such services". The TPO also noted that "The assessee has not furnished any evidence to prove that the so called 'non-invoice expenses' were not incurred to support logistic services provided to AE as per agreement" and that "no income stream gas been shown with respect to the non-invoice expenses" It was in this backdrop that the TPO rejected the segmental results and proceeded to take entire costs incurred by the company as operating cost, and compute operating profits accordingly. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. The assessee is not satisfied and is in second appeal before us. 6. We have heard the rival conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenses incurred by it, as an entrepreneur, for business development expenses, taking into account such business development expenses, for the purpose of computing operating profits from the business activity of providing these technical services in question, will make the assessee inherently incomparable. It is not even the case of the revenue that the assessee is a captive service provider forbidden from rendering such services to other entities. If that be the case, the idle capacity risk must also go to the AE, but then that is not the case here. It is also elementary that nobody can be expected to prove a negative. The TPO was, therefore, clearly in error in observing that the assessee could not prove that the expenses incurred b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eculiar facts, the approach of the assessee, in treating project work as separate profit centre, is justified. The plea of the assessee was, therefore, indeed well taken and we approve the same. With these observations, the matter goes back to the TPO for reexamination of the matter. As the matter is going back to the file of the TPO, and as it is uncontroverted stand of the assessee that in the event of this basic plea being accepted, all other issues, with respect to ALP determination, will be rendered infructuous and academic, we see no need to deal with other issues, on ALP determination, raised by the assessee. 8. That takes us to the second issue with respect to disallowance under section 40(a)(i). There is no dispute that this amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
