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2017 (5) TMI 310 - DELHI HIGH COURT

2017 (5) TMI 310 - DELHI HIGH COURT - [2017] 394 ITR 473 - Direction issued by the ITAT to exclude the reimbursement cost while calculating the operating cost for determining the Armís Length Price (ĎALPí) of the international transaction involving the Assessee during the AY in question - Held that:- In the present case, as is evident from the passage extracted hereinbefore from the impugned order of the ITAT, after the examination of the agreement the ITAT came to a definite factual conclusion .....

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ecific plea to the effect that the said factual finding is perverse, the Court cannot, at the instance of a general plea of perversity, entertain such a ground of appeal by the Revenue. No substantial question law arises - ITA 266/2017 - Dated:- 3-5-2017 - S. MURALIDHAR & CHANDER SHEKHAR JJ. Appellant Through: Mr. Dileep Shivpuri, Sr. Standing Counsel with Mr. Sanjay Kumar, Advocate. Respondent Through: Mr. G.C. Srivastava, Advocate with Mr. Daksh S. Bhardwaj, Mr. Anubhav Jain, Advocates O R .....

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alculating the operating cost for determining the Arm s Length Price ( ALP ) of the international transaction involving the Assessee during the AY in question. 3. The Assessee is a wholly-owned subsidiary of CPA Mauritius Ltd. which in turn is a subsidiary of CPA Jersey. It offers a comprehensive range of legal support services to its Associated Enterprises ( AEs ) as well as to independent third party customers. During the AY in consideration, the Assessee earned a margin of 36.08% on cost. 4. .....

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m its AEs ₹ 13,67,95,724/- as cost recharge on account of spare capacity . The Assessee did not route this amount to its profit and loss account as it was only a reimbursement. The stand of the TPO, on the other hand, was that the Assessee had not placed any evidence in support of the claim that the expenditure was towards maintenance of spare capacity at the instance of the AEs. The Dispute Resolution Panel ( DRP ) held that the ALP of the receipts from the AEs should include all the cost .....

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bursed by the AE. 7. It was demonstrated before the ITAT with reference to the agreement between the Assessee and the AE that there were two kinds of reimbursements. One was towards the cost of the service which had a markup and to that extent had been accounted for in working out the ALP in the transfer pricing study; the other was the reimbursement towards the cost of infrastructure on which there was no mark-up. It is this reimbursement towards the cost of infrastructure on which there was no .....

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nd there is no mark-up in the reimbursements. Even though these transactions are considered as international transactions for the purposes of transfer pricing, since there is no mark up on these reimbursements, it was the assessee s submission that these transactions are to be excluded for working out the operative margins. The assessee relied on the decision of the coordinate Hyderabad B Bench of the ITAT in HSBC Electronic Data Processing India Ltd. v. ACIT in ITA No.1624/Hyd./2010 for this pr .....

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tioned reimbursement costs while working out the operating costs. 10. The central plank of the submission of Mr. Dileep Shivpuri, the learned Senior Standing Counsel for the Revenue is that the ITAT overlooked the binding precedent of this Court in Commissioner of Income Tax-I v. Cushman and Wakefield (India) (P.) Ltd. (2014) 367 ITR 730 (Del) where, in similar circumstances, this Court had agreed with the Revenue and remanded the matter to the TPO for re-determination of the transfer pricing ad .....

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ture and cost of services on which there was a mark-up. Ultimately, each case will have to turn on the peculiar facts considering the clauses of the agreement and the arrangement between the Indian entity and its AE. There can be no parallels drawn where the terms of the agreement would by themselves be different. 12. In the present case, as is evident from the passage extracted hereinbefore from the impugned order of the ITAT, after the examination of the agreement the ITAT came to a definite f .....

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