TMI Blog2019 (8) TMI 699X X X X Extracts X X X X X X X X Extracts X X X X ..... ited such regional office expenses to its P L account, the same formed part of the cost base which was charged to the AE along with a mark-up and the same was offered to tax in AY 2009-10. Thus in the impugned assessment year the assessee-company claimed a deduction for the regional office expenses and at the same time correspondingly offered to tax the amount recovered from AE towards such regional office expenses plus the mark-up - we direct the AO to delete the disallowance of ₹ 15,612,766/- made towards transfer pricing adjustment. Thus the 1st ground of appeal is allowed. Ad-hoc basis 25% of foreign travel expenses - HELD THAT:- It is found that in response to the query raised by the AO, the assessee vide submission dated 22.02.2013 had filed the details with respect to foreign travel expenses incurred by it. After receipt of the above details, the AO could have made inquiry and verified the contentions of the assessee. He has not done so. Without finding any fault in the details submitted by the assessee, the AO has resorted to an ad-hoc disallowance @ 25% of the foreign travel expenses. As the disallowance made by the AO is not based on any inquiry or evidence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee-company would be 15.75% and the said international transaction would meet arm s length criteria. As we have allowed the 1st ground of appeal which relates to the reduction of reversal/written back of the regional office expenses from the cost base, the additional grounds of appeal becomes academic in nature. Disallowing expenses on foreign travel including the accommodation and meals expenses on an ad-hoc basis - HELD THAT:- During the AY 2010-11, the assessee has claimed expenses amounting to ₹ 54,43,579/- on account of foreign travel, accommodation and meals, air fare other miscellaneous expenses etc. On the same reasons on the basis of which disallowance was made for AY 2009-10, the AO made a disallowance of ₹ 13,60,895/- (25% of ₹ 54,43,579/-) in AY 2010-11. It is found that similar details as for AY 2009-10 were filed by the assessee before the AO for AY 2010-11. Facts being identical, we follow our decision for AY 2009-10 mentioned at para 3.5 hereinabove and delete the ad-hoc disallowance of ₹ 13,60,895/- made by the AO and allow the 2nd ground of appeal. Depreciation on leased motor cars - HELD THAT:- We find that in the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. Also, it is engaged in the business of rendering marketing support services to its overseas associated enterprises ( AE ) in connection with trade finance and loan provided by AE to its customers in India. It filed its return of income for the assessment year (AY) 2009-10 on 30.09.2009 declaring total income of ₹ 17,84,52,414/-. In the transfer pricing study report ( TP Report ), the assessee determined the arm s length price (ALP) of its international transaction by selecting Transaction Net Margin Method (TNMM) as the most appropriate method, and Operating Profit/Total Cost ( OP/TC ) as the Profit Level Indicator ( PLI ). A reference u/s 92CA(1) of the Act was made by the Assessing Officer (AO) to the Transfer Pricing Officer (TPO) for determination of arm s length price (ALP). The TPO issued a notice u/s 92CA(2) to the assessee for furnishing necessary evidence in support of the ALP. It is noted by the TPO that in the impugned assessment year the assessee has entered into the following international transactions : S.N. Nature of Transactions Value (in Rs.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocument or any other inter-company invoices were produced during the transfer pricing proceedings by the assessee. Also the assessee has not produced any justification whatsoever for raising of this invoice by the AE during the year under consideration. As per the TPO, it is an admitted fact by the assessee that ₹ 15,612,766/- was not payable to the AE for any corresponding services or benefit. Therefore, the TPO observed that the ALP of the transaction is to be determined. By observing that no corresponding services have been rendered by the AE for which the assessee has debited the profit and loss account (P L account) for ₹ 15,612,766/-, the TPO determined the ALP as Nil . Accordingly, the TPO required the AO to make an adjustment of the above amount to the total income of the assessee. The AO passed his order in line with the ALP so determined by the TPO. 2.2 In appeal, the Ld. CIT(A) held that : The appellant has not submitted any report of the country of the AE in respect of the cost of such services and as such even the allocation is not authenticated in terms of their actual cost in the open market, leave asid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P L account, the same formed part of the cost base which was charged to the AE along with a mark-up and the same was offered to tax in AY 2009-10. In this regard, reference was made to the return of income for the AY 2009-10. Thus it is stated by him that for AY 2009-10, it can be seen that the assessee-company claimed a deduction for the regional office expenses and at the same time correspondingly offered to tax the amount recovered from its AE towards such regional expense offices plus the mark-up. Therefore, it is stated that the above addition made by the AO be deleted. 2.4 On the other hand, the Ld. DR submits that as the assessee had not filed documents normally issued in connection with various transactions under the accounting practices followed and also as it failed to submit evidence demonstrating the receipt of services, their quantification, their actual costs etc., the Ld. CIT(A) has rightly confirmed the adjustment made by the TPO/AO. 2.5 We have heard the rival submissions and perused the relevant materials on record. We observe that the assessee vide reply dated 19.09.2013 filed before the TPO ledger extracts of the expenses paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who accompanied the person in whose respect the expenses of foreign trip have been debited. In response to it, as recorded by the AO, the assessee furnished part details of foreign travel but details related to the duration of the visit were not submitted. Further, the assessee did not mention whether any family member accompanied the person or not on the trip. As recorded by the AO, the assessee did not provide any detail about the work performed during such trips, which would have substantiated that the expenditure was incurred wholly and exclusively for the purpose of business. Therefore, observing that part of the expenses were incurred for non-business purposes, the AO made ad disallowance of 25% of ₹ 17,24,495/- and it comes to ₹ 4,31,124/-. 3.2 In appeal, the Ld. CIT(A) held that : i. The appellant contended that it had submitted the details of foreign travel expenses to the AO. However, as mentioned in assessment order that in its letter dated 22/2/2013 only part details were submitted. Details of foreign travel called for by AO such as the duration of visit, -whether family member accompanied the person or not on the trip mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ails with respect to foreign travel expenses incurred by it, which has been extracted at para 4.3 hereinabove. After receipt of the above details, the AO could have made inquiry and verified the contentions of the assessee. He has not done so. Without finding any fault in the details submitted by the assessee, the AO has resorted to an ad-hoc disallowance @ 25% of the foreign travel expenses. As the disallowance made by the AO is not based on any inquiry or evidence, we delete the addition of ₹ 4,31,124/- and allow the 2nd ground of appeal. 4. The 3rd ground of appeal On the facts and circumstances of the case, the AO erred by not considering the direction of the Ld. CIT(A) to decide on the pending rectification application filed by the Appellant under Section 154 of the Act. In the assessment order passed for assessment year 2005-06, expenditure of ₹ 57,74251 on severance payments allowed by the AO in five equal instalments u/s 35DDA of the Act. The rectification application was filed by the Appellant (dated 4 May 2013) claiming deduction for ₹ 11,54,850 the year under appeal, being 1/5thof total expenditure of 57,74,251 on sever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant to the assessment year 2010-11. The same was reflected in the assessee s P L account under the head other income-provision written back . This is evident from the income tax return for AY 2010-11. Thus, the regional expenditure of ₹ 15,028,260/- which was included in the cost base and recovered by the assessee along with a mark-up from its AE for AY 2009-10, was reduced by it from its cost base to arrive at the cost plus mark-up recoverable from AE for AY 2010-11. The TPO did not consider the reversal of regional office expenses amounting to ₹ 15,028,260/- while computing the OP/TC margin workings of the assessee for AY 2010-11. This resulted in revising the assessee s OP/TC margins from 15.75% to 8.50%. The Ld. counsel submits that the TPO s stand resulted in assessee being incorrectly taxed for the same amount in AY 2009-10 as well as AY 2010-11 i.e. (i) not deducting ₹ 15,028,260/- from the cost base of AY 2010-11 would mean that this amount plus mark-up would be taxed again, this amount had already been taxed in AY 2009-10 and (ii) further, the assessee has voluntarily reversed the deduction (₹ 15,028,260 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion amount of ₹ 4,27,16,385/- to the operating cost of ₹ 219,19,46,556/-. Also while computing the transfer pricing adjustment, the TPO added the amount of provision to the operating revenue of ₹ 234,26,60,885/- ( Page 493 of the paper book). The Tribunal in the case of Sony India Private Ltd. reported in (2009) 315 ITR (80) 150 (Del.) (Paras 146 to 149) held that provisions written back should not be excluded from the P L account when computing the operating profit. The learned counsel for the assessee ITA No.1129/Bang/2011 Page 10 of 49 therefore submitted that its net margin should be taken as 9% and not 6.88% as computed by the TPO. Similarly, the additions made by the TPO to the operating cost while computing the arm s length price and to the operating revenue when computing the adjustment is erroneous. Therefore in computing the arm s length price as well as any adjustment, the assessee s operating revenue would still be ₹ 234,26,60,885/- and operating cost would be ₹ 214,92,30,171/-. 10. To the above submissions, the ld. DR could not make any counter submissions. 11. We are of the view that the submissions ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has claimed expenses amounting to ₹ 54,43,579/- on account of foreign travel, accommodation and meals, air fare other miscellaneous expenses etc. On the same reasons on the basis of which disallowance was made for AY 2009-10, the AO made a disallowance of ₹ 13,60,895/- (25% of ₹ 54,43,579/-) in AY 2010-11. It is found that similar details as for AY 2009-10 were filed by the assessee before the AO for AY 2010-11. Facts being identical, we follow our decision for AY 2009-10 mentioned at para 3.5 hereinabove and delete the ad-hoc disallowance of ₹ 13,60,895/- made by the AO and allow the 2nd ground of appeal. 8. The 3rd ground of appeal the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the AO of erroneously disallowing an amount of ₹ 4,71,375 by considering the same as depreciation on leased motor cars without taking cognizance of the fact that the depreciation claimed by the Appellant in its return of income is in respect of vehicles owned by the Appellant. 8.1 During the course of the assessment proceedings, the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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