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TMI Blog2020 (8) TMI 172X X X X Extracts X X X X X X X X Extracts X X X X ..... rm's length price of the Appellant's international transaction of payment of regional administration and regional coordination cost allocation at Nil instead of Rs. 2,83,61,859/- as determined by the Appellant. 3. determining the arm's length price of the Appellant's international transaction of payment of information technology cost allocation at Rs. 50,00,000/- instead of Rs. 260,06,610/- as determined by the Appellant. 4. deeming an adjustment of Rs. 15,20,688 on account of late recovery of expenses from associated enterprises. 5. disallowing the foreign travel expenses of Rs. 7,41,721. 6. erred in not granting credit of Tax Deducted at Source of Rs. 1,91,87,629 pertaining to income offered to tax in AY 2008-09. 3. Briefly stated, the facts of the case are that the appellant filed its return of income for the assessment year (AY) 2008-09 on 29.09.2008 declaring total taxable income of Rs. 32,11,98,407/-. The appellant is a wholly owned subsidiary of BCG Holding Corporation, USA ('BCG Hold Co.'). It commenced its operations from May 2000. The appellant, like the group worldwide is mainly into strategy consulting. It is also engaged in the business of renderin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... license to the appellant vide a technology licensing and assistance agreement dated 01.01.2005 in consideration for royalty @ USD 2750 per employee per annum which has resulted in the payment of aforesaid amount of Rs. 1.62 crore during the year. However, the TPO was not convinced with the above submission of the assessee and made an adjustment of the entire amount, considering the value of the transactions to be Nil. While making the disallowance, the TPO has stated that the software had been installed many years ago and its shelf life had expired. The AO following the direction of the DRP made an adjustment of Rs. 1,62,74,359/-. The 2nd adjustment made by the TPO is towards regional cost allocation. The facts are that BCG Hong Kong is the hub for providing regional training, administration and co-ordination assistance to each of the BCG entities in the Asia Pacific Region (within which BCG India falls) so that the activities of those entities are synchronized with worldwide policies of BCG and quality and ethical standards set by BCG are adhered to, thus enabling the provision of seamless services to all clients. The appellant has executed regional cost allocation agreement dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n would like to spend for the purpose. The TPO treated Rs. 50,00,000/- as ALP for availing the above services under the head information technology. Thus he made an adjustment of balance amount of Rs. 2,10,06,610/-. The AO following the order of the DRP made an addition of Rs. 2,10,06,610/-. 5. Before us, the Ld. counsel for the appellant submits that the TPO is required to determine ALP in accordance with one of the prescribed methods, whereas in the instance case, he has failed to do so. In this regard, reliance is placed by him on the judgment of the Hon'ble Bombay High Court in CIT v. Lever India Exports Ltd. (ITA No. 1306, 1307, 1349 of 2014), CIT v. Merek Ltd. (ITA No. 272 of 2014), CIT v. Kodak India Pvt. Ltd. (ITA No. 15 of 2014, CIT v. Johnson and Johnson Ltd. (ITA No. 1291 of 2014). Further, reliance is placed by him on the order of the Tribunal in ACIT v. Netafim Irrigation India Pvt. Ltd. (ITA No. 3668/Mum/2008 & ITA No. 4837/Mum/2009), Elkem South Asia Pvt. Ltd. v. DCIT (ITA No. 1070/Mum/2014), Durovalves India Pvt. Ltd. v. ACIT (ITA No. 2483/PN/2012), DCIT v. Kodak Graphic Communication (I) Pvt. Ltd. (ITA No. 6762/Mum/2012), Howden Insurance Brokers India Pvt. Ltd. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... listed in the agreement. The TPO, therefore, proceeded to hold that the entire consideration of Rs. 1.57 crore is attributable to the 3 technical services which the respondent-assessee availed of and held that no consideration was payable in respect of 9 services provided for in the agreement. Thus the entire payment of Rs. 1.57 crore was attributable only to the 3 services availed out of the 12 listed out in the agreement. It further held that only Rs. 40 lacs could be considered as ALP attributable to 3 services and made adjustment of Rs. 1.17 crore resulting in its addition to the taxable income. In appeal, the CIT(A) upheld addition of Rs. 1.17 crores made and taxable income consequent to the adjustment made on account of technical knowhow/consultancy agreement. On further appeal, the Tribunal upheld the submissions of the respondent-assessee and recorded further the fact that no transfer pricing exercise was done by the AO/TPO to determine the value of the services received by the respondent-assessee in respect of the 3 services which it had availed from its AE before holding that the ALP in this case is Rs. 40 lacs. The Tribunal further held that "consideration payable for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus, not entertained." In M/s Kodak India Pvt. Ltd. (supra), the above position of law is reiterated by the Hon'ble Bombay High Court. As mentioned earlier, we notice that the TPO/AO has arrived at the ALP by not adopting any of the methods prescribed u/s 92C of the Act in respect of (i) payment of license fees for time and billing software, (ii) payment of regional administration and regional co-ordination cost allocation and (iii) payment of information technology cost allocation. In view of the above factual scenario, we are of the considered view that the ratio laid down by the Hon'ble Bombay High Court in Lever India Exports Ltd.; Merck Ltd.; Johnson & Johnson Ltd. and Kodak India Pvt .Ltd. mentioned hereinabove is squarely applicable to the facts of the case. Therefore, following the same, we allow the 1st, 2nd and 3rd ground of appeal. 8. The 4th ground of appeal relates to adjustment of Rs. 15,20,688/- on account of late recovery of expenses from AEs. From the details filed by the appellant, the TPO observed that out of the total receivable reimbursements from AEs of Rs. 3,64,95,404/-, it has recovered Rs. 1,78,74,722/- in the month of April 2008 i.e. one month afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to bring out adequate evidence to justify its claim of business expediency, the AO made a disallowance of the above amount by relying on the decision of the Hon'ble Gujarat High Court in Shahibag Entrepreneurs Ltd. 215 ITR 810. 12. The Ld. counsel submits that in the given case the spouses have accompanied only at the request of the BCG Holdco, organizing the meet and fringe benefit tax has been paid on these expenses. It is stated that the employees were invited along with their spouses to the meet to ensure sufficient networking and bonding within the personnel of the entire group. Thus it is stated that the appellant is a corporate entity and incurs such expenses on its employees which it finds expedient from a business and employee morale perspective. On the other hand, the Ld. DR submits that the addition of Rs. 7,41,721/- made by the AO which is based on facts of the case be affirmed. 13. We have heard the rival submissions and perused the relevant materials on record. Admittedly, in the instant case, these expenses have been incurred in connection with the spouses of the employees who accompanied them to the Worldwide Officers Meet. As recorded by the AO, the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of lockdown". Hon'ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, "It is also clarified that while calculating time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly", and also observed that "arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020". The Hon'ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that "while calculating the time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly". Viewed thus, the exception to 90 day time limit for pronouncement of orders inherent in Rule 34(5)(c) clearly comes into play in the present case. 16. In the result, the appeal filed by the assessee is partly allowed. Order pronounced under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice bo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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