TMI Blog2018 (6) TMI 506X X X X Extracts X X X X X X X X Extracts X X X X ..... share the employee cost with other sister concerns on cost to cost basis. Accordingly, the addition of markup should be deleted. For the limited purpose of verification of transaction whether the transactions are routed through books, it is remitted to the AO. - Decided in favour of assessee for statistical purposes. - ITA No. 1582/Hyd/2017 And C.O. No. 37/Hyd/2017 - - - Dated:- 8-6-2018 - SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER For The Revenue : Shri M.H. Naik For The Assessee : Shri R. Vijayaraghavan ORDER PER S. RIFAUR RAHMAN, A.M.: This appeal is preferred by the revenue against the order of the learned Commissioner of Income-tax(Appeals) - 5, Hyderabad dated 27/07/2016 for AY 2012-13 and the assessee also filed C.O. against the said order of CIT(A). 2. Briefly the facts of the case are that the assessee is engaged in research and analytical testing of pharmacopeia and other related processes. It filed its return of income on 30/11/2012 declaring an income of ₹ 2,87,95,190/-. The AO made an adjustment of ₹ 7,00,457/- u/s 92CA(3). He also disallowed lease premium paid of ₹ 1,77,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Park IKP. As per the terms of the lease deed, IKP had leased out vacant land for a period of 33 years, for which one time consideration, which was referred to as lease premium, of ₹ 68,87,500/- was paid by the company. Further, an annual lease rental varying from ₹ 10,985/- to ₹ 2,55,125/- had been agreed between both the parties. When the AO asked the assessee as to why the said lease premium cannot be treated as capital expenditure, the AR of the assessee submitted that the lease premium was paid for acquiring the land on lease and the lease of land is solely for the purpose of the business of the company. Further, he submitted that the lease premium was paid as an advance rent which is non-refundable in nature and, therefore, the lease premium is allowable as business expenditure in the year of payment. Rejecting the submissions of the assessee, the AO held that the amount paid being in the nature of onetime payment for acquiring lease rights for 33 years, i.e. rights over asset of enduring nature, the payment was capital in nature. Following his decision in AY 2010-11, the AO disallowed the said amount treating the same as capital in nature. On appeal, the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds upon the facts of each case. In the given case, the Hon ble Gujarat High Court has considered the facts which are similar to the facts of the assessee and adjudicated it as revenue in nature. We relied on the above ratio and adjudicated in the assessee s own case in AY 2010- 11, which is extracted as under: 10. With regard to ground No. 3, CIT(A) had not followed the decision of the jurisdictional High Court in the case of Mrs. G. Seetha Kamraj Vs. CIT, we find from the record that in the present case, the assessee had entered into an agreement with ICICI Knowledge Park for lease of vacant land for 33 years for an annual lease amount varying from ₹ 16,901/- to ₹ 1,47,298/-. The assessee had also paid a one time consideration as lease premium of ₹ 99,03,750/-. In the present case, the assessee had paid the above sum as lease premium and claiming the same as revenue expenditure . Whereas in the case referred by the revenue in the ground is distinct from the present case as the assessee (Mrs. G. Seetha Kamraj) took on lease for 99 years a building from her husband and as per terms of the lease, assessee paid ₹ 5000 as premium for obtaining the lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench in AY 2010-11, we uphold the order of the CIT(A) in deleting the disallowance made by the AO towards lease premium paid by the assessee following the order of ITAT in AY 2010-11 and dismiss the grounds raised by the revenue. As the issue under consideration is materially identical to that of AY 2011-12, following the decision therein, we uphold the order of CIT(A) and dismiss the grounds raised by the revenue in this regard. 7. In the result, appeal of the revenue is dismissed. C.O. No. 05/Hyd/2017 8. In C.O. the assessee has raised the following objections: Transfer pricing adjustment on account of reimbursement of expenses received from Associated Enterprises ( AEs ) 1 . That on the facts and circumstance of the case and in law, the learned Commissioner of Incometax (Appeals) _ 5 ( CIT(A) ] erred, both in facts and in law, in confirming the transfer pricing adjustment of ₹ 700,457 with respect to reimbursements received from its AEs. 2. That on the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the ad-hoc mark-up of 10% on salary recharged to the AEs, as applied by the learned AO / TPO whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of aggregation of transactions and determining arm s length price under TNMM. Accordingly, TPO computed the arm s length prices as under: Reimbursement received ₹ 70,04,568 Arm s length price of reimbursement @10% ₹ 77,05,025 Adjustment on reimbursement ₹ 7,00,457 The TPO, thus, concluded that the arm s length price of reimbursements received was ₹ 77,05,025/- and the shortfall of ₹ 7,00,457- was treated as adjustment u/s 92CA of the Act and the total income of the assessee enhanced accordingly u/s 92CA(3) of the Act. 10. Aggrieved by the order of TPO/AO, the assessee carried the matter in appeal before the CIT(A) and contended that reimbursements received by the Assessee cannot be construed as operational in nature as alleged by the Ld. TPO. The reimbursements received by the Assessee were not connected to the principal transactions of providing services to AE and therefore, cannot be considered as part of services rendered by the Assessee to the AE. He submitted that it merely acted as an intermediary/facilitator in the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recharged the apportioned salary and other direct expenses of Dr. Srini incurred by USP India to respective USP affiliates on a cost to cost basis. 11.1 TPO has suggested that 10% mark up should be applied. The same was upheld by the ld. CIT(A) by observing that the receipt of reimbursement has not been routed through books of account. Since the ld. CIT(A) has found that the transaction was not routed through the books, we are inclined to remit this case back to the file of AO with a direction to verify the transaction. In case, the transactions are not routed through the books, the action of TPO may be sustained. Otherwise, it is normal practice in the multinational companies to utilize the expertise of the various executives in the group companies. In this case, Dr. Srini Srinivasan was employed in USP India and his expertise in the management of construction, recruitment, capital procurements, budgeting etc., were utilized by the other sister concerns. Certain portion of his CTC was charged to the other sister concerns. The concept of utilizing the expertise with other independent companies are not heard of in the market nor encouraged in the normal business. Since there a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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