TMI Blog2018 (3) TMI 302X X X X Extracts X X X X X X X X Extracts X X X X ..... s and the income from such services has been offered for tax and accepted by the TPO. Also, post-sale of the project, the Assessee Company has charged to TBSL towards provision of project management services which has also been offered for tax and accepted by the Department. Since the income earned through these expats has been accepted by the TPO and the local expenditure also against the said income has been allowed, only the foreign component which was disbursed in Australia for convenience of such expats cannot be disallowed. These factual aspects where never rebutted by the TPO/AO. The CIT(A) has taken cognizance of all these factors and given a detailed findings in respect thereof. There is no need to interfere with the finding of the CIT(A). All the three appeals filed by the Revenue are identical. Therefore, all the appeals are dismissed. - I.T.A .No. 5535/DEL/2012, I.T.A .No. 5536/DEL/2012 And I.T.A .No. 5537/DEL/2012 - - - Dated:- 1-3-2018 - SHRI R. K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER For The Appellant : Sh. Ronak Dashi, CA For The Respondent : Sh. Kumar Parnav, Sr. DR ORDER PER SUCHITRA KAMBLE, JM These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s concerned, the same was reimbursed to the AE for salary disbursed by the AE in Australia and air ticket, visa charges, etc. incurred by the AE in respect of employees seconded to the assessee Company. Since the Assessee Company reimbursed such cost to its Holding Company on actual basis without any markup and charging of any markup would only result in reduction of the profits of the assessee, the same is considered to be at arm s length in view of section 92(3) of the Act. During A.Y. 2005-06, the assessee Company had undertaken to set up a project relating to steel coating facility and to manufacture building products for Indian building and construction industry. However, due to commercial constraints, the assessee Company, in A.Y. 2006-07, sold the said project to Tata BlueScope Steel Limited [ TBSL (formerly known as BlueScope Steel Building Solutions Private Limited)] which is a joint venture company between Tata Steel Limited and BlueScope Steel Limited, Australia. The sale of the project enabled the assessee Company to recover the cost of the project from TBSL in the form of lump sum consideration of ₹ 7,50,00,000/-at the time of sale and recurrent project manageme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrangement. During the year under consideration, nothing was charged by the AE to the assessee Company towards payroll management services. The AO after giving an opportunity to the assessee Company, confirmed the action of the TPO and made the addition of ₹ 2,32,67,567/- to the total income towards reimbursement of salary cost. 4. Being aggrieved by the assessee filed appeal before the CIT(A). the CIT(A) allowed the appeal of the assessee. 5. The Ld. AR submitted that the assessee company employed expats seconded by the Australian AE and the assessee company is engaged in providing business support services to AE and project management services to TBSL through such expatriate employees. The Ld. AR further submits that the role of the expats in providing such services along with their professional qualification was duly submitted before the TPO and the said fact was also acknowledged by the TPO in his order. The Ld. AR submitted that the following facts cannot be disputed: (1) employees were seconded by the AE to the assessee company (2) Assessee company was paying them salary. While the Indian component of expat s salary is not disputed only the foreign com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee company which was not disputed by the Revenue Department. The Ld. AR further submits that the employee cost of these expats comprises of the local expenditure and the foreign component which was disbursed by the AE in Australia for convenience purposes and subsequently, reimbursed by the assessee company to its AE. The TPO allowed the local expenditure. However, he determined the ALP of the foreign component as NIL. The assessee company did not make any arrangement to drain out the money from India and it cannot be said that the liability of such expats was of TBSL as the company had developed the project and the income on sale and corresponding project and management income was accounted for the in the books of the assessee company. The assessee company was under contractual obligation to provide such services as per the agreement dated December 1st 2005. The TPO cannot rewrite the terms of any commercial agreement and cannot step into the shoes of the assessee to determine the exigencies of the expenditure to the incurred by the assesse as per the submissions of the Ld. AR. 8. The Ld. AR submits that no Pay Roll Management Services were rendered by the AE to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evident that these six expatriate employees are employees of AE and not of assessee who might be working on the project (sold by the assessee to the JV in the earlier financial year) on behalf of the AE. Since they are not employees of the assessee hence there is no question of paying any Salary to them. This fact has not been appreciated by the CIT(A). 10. The Ld. DR further submits that the CIT(A) erroneously held that cost base in the calculation of mark-up of 7.5% pertaining to the business support services comprised of the salaries paid to the expatriate employees and since no adverse view was taken by the TPO in case of business support services hence no such TP adjustment can be made in case of reimbursement of salaries. The assessee itself has submitted that out of total payment of salaries of ₹ 2,32,67,567/- made to the six expatriate employees payment of only ₹ 47,86,261/- (refer pg no. 6 of the TPO s order) pertained to the provision of business support services and balance, i.e. ₹ 1,84,81,306/-, pertained to provision of technical services to the JV. The Ld. DR further submitted that the TPO has excluded salary to expats while benchmarking t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,06,60,615 - ₹ 47,86,261). 12. The Ld. DR further submits that assuming that the entire cost of the assessee is only on account of employee cost (ignoring the huge establishment expenses which is more than 50% of the salary expenses), the payment on account of salaries made to the Indian employees for providing business support services is ₹ 1,58,74,354/-. Since total payment to Indian employees is ₹ 3,59,92,339/- hence payment made to Indian employees for providing technical services to the JV is ₹ 2,01,17,985/-. The Assessee has received service income from JV amounting to ₹ 2,99,26,552/-. Thus, if it is accepted that the expatriate employees are providing services to the JV as well then the assessee has paid salaries of ₹ 3,85,99,291/- (Rs.2,01,17,985/- paid to Indian employees + ₹ 1,84,81,306/- paid to expatriate employees) to earn service income of ₹ 2,99,26,552/- in spite of the fact that the assessee is billing the JV on the basis of provision of manpower. The above analysis has been done without accounting for the huge Establishment Expenses of ₹ 3,04,38,634/-. If these costs are also proportioned then the diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. We have heard both the parties and perused the material available on record. The assessee Company has rendered business support services to its AE and project management services to TBSL through its employees and also derived income by rendering such services, which has been offered for tax. The role of the assessee Company post-sale of the project was to provide ongoing project and business consultancy services to TBSL to ensure that the development of the project is not stalled resulting into increased costs. The Business Support Services Agreement, Payroll Management Services Agreement, Agreement between the assessee Company and TBSL, TDS returns, Form 16 issued by the assessee to expats, etc. was before Revenue authorities. From the records it can be seen that the expats were the seconded employees of the assessee Company and not of its overseas AE. These expats were responsible for providing business support services to the AE as well as project management services to TBSL. Thus, there is no need to allow local expenditure of these expats and denying the foreign component of salary disbursed by the AE in Australia by the TPO/AO. The Assessee Company had earned income o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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