TMI Blog2017 (1) TMI 311X X X X Extracts X X X X X X X X Extracts X X X X ..... ces from its AEs in India, both support services and Corporate services and also considering the fact that the assessee was recovering the said cost with markup of 18.8%, there is no merit in the disallowance made under section 37(1) of the Act. Further, the transaction is deemed to have been accepted at Arm’s Length price where no such adjustment has been made by the Assessing Officer. The Assessing Officer in its order makes a remark that the assessee had not produced the order of TPO for assessment year 2011-12 to show that the cost allocation transactions were accepted at Arm’s Length. There is no merit in the said observation of the Assessing Officer as under the statute it is incumbent upon the Assessing Officer, if it thinks fit, to make a reference to the TPO under section 92C of the Act to benchmark the international transactions entered into by the assessee. The Assessing Officer in the present case has failed to make any such reference. Consequently, there is no merit in the observation of the Assessing Officer in this regard. Accordingly, we direct the Assessing Officer to allow the expenditure - Decided in favour of assessee - ITA No.415/PN/2015 - - - Dated:- 28-12-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or such corporate cost allocated as Nil . 5. That on the facts and circumstances of the case and in law, the AO/DRP have erred by failing to appreciate the submissions / evidences furnished by the Appellant, to establish the receipt of the above services and benefits received therefrom. 6. That on the facts and circumstances of the case and in law, the AO has erred in levying interest under section 234B of the Act. Each of the above grounds is independent and without prejudice to the other grounds of appeal preferred by the Appellant. 3. Ground of appeal No.1 raised by the assessee being general is dismissed. 4. The issue in grounds of appeal No.2 to 5 raised by the assessee is against cost allocation wherein the Assessing Officer/DRP had disallowed expenditure under section 37(1) of the Act towards cost allocated by the AEs. 5. Ground of appeal No.6 raised by the assessee is consequential, i.e., charging of interest under section 234B of the Act. 6. Briefly, in the facts of the case, the assessee is a Foreign company incorporated in Swtizerland with branch office in India. The branch office came into existence w.e.f. 09-06-2005 consequent to necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business. Further reliance was placed on the order of the DRP for assessment years 2008-09 and 2009-10 wherein similar disallowance was made. The TPO observed that for the year under consideration the facts were identical to the facts in assessment year 2009- 10. Another observation of the Assessing Officer was the assessee has not produced the order of TPO for assessment year 2011-12 wherein the cost allocation transactions are accepted as at Arm s Length. Accordingly, the Assessing Officer disallowed the support services availed from AEs worth ₹ 39,70,758/- and also corporate cost allocation of ₹ 1,03,29,514/-. The Assessing Officer also alternatively considered various aspects to examine whether the intra group services were at Arm s Length under Para 4.6 at pages 7 to 9 of the assessment order and concluded by holding that payment for intra group are being treated at arm s length only when it is proved substantially by the assessee that such services were actually received and further proving that such received services have benefitted it. The assessee filed objections before the DRP under section 144C(2) of the Act who rejected the objections of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He stressed that where the assessee was recovering the cost with mark-up and even after applying the transfer pricing adjustments, the same was higher than the comparables, there was no merit in any disallowance in the hands of the assessee. 10. The Authorised Representative for the assessee further referred to the directions of the DRP relating to assessment year 2012-13 wherein the DRP directed the Assessing Officer not to make any adjustment or disallowance on account of cost allocation of support services and corporate cost. He also pointed out that the Assessing Officer in assessment year 2012-13 had determined the ALP at Nil as in the present case. He further referred to the order of the Assessing Officer in assessment year 2014-015 wherein the Assessing Officer himself has accepted this proposition and has not made any disallowance of any expenditure under section 37(1) of the Act. 11. The Ld. Departmental Representative for the Revenue on the other hand placed reliance on the orders of the Assessing Officer/DRP. 12. We have heard the rival contentions and perused the record. In the facts of the present case before us, the assessee is a branch office of EIMG, Switze ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge payable by the Appellant to its AEs for receipt of support services (Refer pages 175 and 192 of the paper book) -Sample copies of invoices received by the Appellant from Eaton Limited UK (Refer pages 99 and 114 of the paper book) Total 39,70,458 13. We find certain specific expenditure was incurred on behalf of the assessee, cost of which was allocated by the AE to the assessee totaling to ₹ 33,67,455/- and the case of the assessee before the authorities below was that such cost allocated by the AEs is to be allowed as expenditure in the hands of the assessee. The details of the expenditure are as under: Associated Enterprise Nature of expense Allocation Key Amount (INR) Submissions filed before the Assessing Officer/DRP Depreciation INR 40 per square foot of occupancy 11,44,016 -Copy of the TP study report benchmarkin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being compensated on cost plus 18.8% mark-up; where the entire cost incurred by the assessee has been remunerated with a mark-up which is being offered to tax by the assessee in year to year, there is no merit in the orders of Assessing Officer/DRP in making the aforesaid disallowance under section 37(1) of the Act. Where the cost debited by the assessee has been recovered from its principal with mark-up and taxed in the hands of the assessee, there is no loss to the Revenue and in any case the disallowance of the expenditure would lead to a situation wherein on one hand there is disallowance in the hands of the assessee and on the other hand the mark-up on the recovery of the said expenditure is taxed in the hands of the assessee. Such an anomaly cannot be upheld in the hands of the assessee. In any case the assessee has placed on record the evidence of support services being received from the AEs which are in the nature of back office accounting services and IT support services which enable the assessee to run its business in India. The assessee has no establishment in India and has only a branch office wherein it is utilizing the place of its AEs and is also using services for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 92 what has to be determined is the price of such expenditure and whether the same is at Arm s Length, then no adjustment is to be made to the price. The two provisions operate in different fields. 20. The first aspect to be addressed, vis- -vis the disallowance of expenditure is whether the same is disallowable under section 37(1) of the Act. The assessee is incurring similar expenditure and claiming the same as business expenditure in its hands from year to year. The assessee is also being reimbursed the said expenditure by its principal with mark-up of 18.8% in all the years preceding and also succeeding. The Assessing Officer while making the disallowance had referred to the order of the DRP in assessment year 2009-10. The assessee had carried the matter of disallowance made under section 37(1) of the Act to the Pune Bench of the Tribunal and the Tribunal in Eaton Industries Manufacturing Gmbh Vs. DCIT reported in 53 taxmann.com 394 (Pune-Trib.) relating to assessment year 2009-10 had remitted the matter back to the Assessing Officer, since the assessee had neither produced the basis of allocation nor produced the documentary evidence for receipt o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while carrying out the assessment proceedings for assessment year 2014-15 did not make any disallowance under section 37(1) of the Act on account of any allocation of cost. 23. The assessee had debited total cost incurred during the year at ₹ 6,58,82,666/- which is evident from the profit and loss account placed at page 130 of the paper book. The assessee claims that this ₹ 6.58 crores include service tax refund of ₹ 16,12,402/- which form part of other income and was accordingly shown as other income while recognizing the revenue for the year including the exchange difference gain (net). He pointed out that the mark-up of 18.8% at ₹ 6,42,70,263/- worked out to ₹ 1,20,82,809/- and the total cost plus mark-up at ₹ 7,63,53,162/- has been shown as sale of services. Our attention was drawn to the profit and loss account placed at page 130 of the paper book in this regard and we have verified the same. The profit before tax has been determined in the hands of the assessee at ₹ 1,24,07,532/-. In the entirety of the fact and evidences produced by the assessee in respect of its claim of receipt of services from its AEs in India, both support se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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