9911796707
TMI Blog2017 (12) TMI 1832X X X X Extracts X X X X X X X X Extracts X X X X ..... r on account of reimbursement of repair charges." 4. The brief facts are that assessee-company is a subsidiary of a foreign enterprise, Silicon Graphics Inc. USA (SGI). It is a reseller of silicon products and it imports computer hardware and software from its AE and sells it to its customers in India. The assessee also undertakes warranty and post warranty maintenance services for SGI products in India and in addition to that, it also provides consultancy to its AE. The Assessing Officer from the perusal of the Form 3CEB noted that assessee has made payment of Rs. 81,49,561/- to its AE on account of reimbursement of repair charges. The assessee was required to explain the nature of such reimbursement and also to produce documentary evidence in support of its claim. In response the assessee had stated as under:- "This represents the actual cost of spare parts required by the assessee to render repair services of hardware machines of its customers. It is respectfully submitted that the assessee company requires spare parts for rendering repair services of hardware machines of its customers under the terms of independent contracts entered by the assessee with its customers. For pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arent entity on a cost to cost basis without any mark up charged by the parent entity as clearly provided in the agreement (supra). Since the said payment was purely on account of 'reimbursement' and in any case it was in respect of purchase/ sale transaction undertaken with theparent entity based in USA who does not has a Permanent Establishment ('PE') inIndia therefore no tax was deducted at source on the said accrual to the parent entity. Vide letter dated 15.12.10, the Assessing Officer had sought clarification with respect to the said payment by the assessee in respect of which the assessee had duly vide its submission dated 20.12.10 (supra) submitted the copy of agreement entered with its parent entity regarding the payment of said 'reimbursement' charges (supra) and also the complete voucher wise and month wise payment details. Thereafter no further information / clarification was sought by the AO from the assessee which is clearly evident from the assessment records even though vide the said submission dated 20.12.10 (supra) the assessee had particularly expressed its willingness to provide any other clarification etc on the issue as may be required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & Robotics; iv. Annexure P: Annual Maintenance contract (AMC) with Ushodaya Enterprises Limited. Your good self is free to undertaken any verification in this regard on the aforesaid documents enclosed and / or seek a remand report from the AO and the assessee will provide due support in this regard. There is a serious fallacy in the understanding framed by AO to the effect that in the said transaction being essentially a cost reimbursement arrangement the withholding tax provisions will apply. It is a well settled law as laid down in several decisions including decisions from Jurisdictional High Court; Jurisdictional Tribunal and in various other cases that the withholding tax requirement does not applies where the payment made to a non-resident is essentially in the nature of a cost reimbursement as in the present case. A very direct support is drawn in this regard from the following decisions: i. Decision of Delhi High Court in the case of Van Oord ACZ India (P) Ltd. Vs. CIT 323 ITR 130 (Del.) (copy enclosed): Held that the requirement of TDS does not arises when payment to a non-resident is only in the nature of a reimbursement; ii. Decision of Special Bench of ITAT in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny services provided to the AE. Thus, he held that no TDS would be deductible on the amount of purchase of spare parts and accordingly, deleted the said addition. 6. Before us the learned Senior DR, submitted that the allegation of the Assessing Officer was that assessee could not produce the supporting vouchers and bills for reimbursement of spare cost. Apart from that, assessee has not furnished the details of parties to whom it rendered the repair services and in absence of these details, he has made the addition. Ld. CIT (A) has not given any proper finding while deleting the said addition on the specific reasons given by the Assessing Officer. 7. Before us the learned counsel for the assessee, submitted that in this case it cannot be disputed that payment of Rs. 81,49,561/- has been made to the parent entity on account of actual costs of purchase of spare parts which was required by the assessee company for rendering repair services under the terms of independent contracts entered by the assessee with its customers in India. As per the agreement with the parent entity for the purchase of the spare parts, the assessee was required to pay the actual cost to its AE and no addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement on principal to principal basis. It is not the case of the Revenue that there is some element of markup or margin on cost to cost reimbursement of purchases made by the assessee from its AE. In any case, whether such arrangement is at arm's length or not is not a subject matter of dispute before us, as it a matter of separate transfer pricing proceedings under Chapter-X. Once it is pure reimbursement of actual cost of purchase, then ostensibly there is no requirement of tax deduction at source or withholding of tax while making the payment to non-resident which is not in the nature of income to the non-resident India. It is not the case of the Revenue that there is an element of income which is chargeable to tax in the hands of the non-resident on account of purchase transaction of spare parts and once that is so, then no withholding of tax is required, which proposition has been upheld in various judgments as cited by the learned counsel including that of the Hon'ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd. vs. CIT (supra). 9. So far as the issue that assessee has not furnished any bill/vouchers invoices for the purchase or assessee could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the foreign entity, so much so that, for the year under consideration the auditors have expressed doubts about the status of the company. The Assessing Officer observed that buying parts from its parent entity for which no markup is charged and payment is made at cost has resulted into negative net worth of Rs. 282.56 millions and had also shown carried forward loss of Rs. 40.12 crores. The Assessing Officer perused certain sample copies of contracts entered by the assessee with various parties and noted that the order is for maintenance of SGI work station and servers. Thus, assessee is only performing necessarily functions to promote sales of its AE in India and hence, assessee is functioning like an agent of SGI (USA), not only for its business but also to support sales for the parent entity and therefore, such an expenditure cannot be allowed u/s.37(1). However, he proceeded to make an adhoc disallowance of 50% of personnel expenses and other expenses and worked out the disallowance at Rs. 10,54,76,381/- on the ground that same can be attributed to the expenditure incurred for AE. 13. Before the ld. CIT (A), assessee had submitted that it has never been the case of the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranty and post warranty services and provides consultancy services. The AO should have at least divided the business of the appellant into what the appellant was doing as an agent for its parent company and with it was doing independently. The appellant has stated that as far as the foreign entity was concerned there were two aspects. One, the parent company was making sales of computers directly to clients in India and the appellant was providing logistic support, Two, the Indian Company was providing maintenance services to the customers and for that purpose buying spare parts from the foreign entity. The total revenue earned from the foreign entity as per the appellant was in the range of 18%. The AO has not been able to specify which part of expenditure incurred by the appellant would be incurred wholly and exclusively for the business of the foreign entity. Before me, the appellant has shown that the expenditure has been incurred in +s business. What would be relevant is whether the foreign entity has earned revenue because of the presence of the appellant in India. The expenses corresponding to that part could have been disallowed. The addition of Rs. 10,54,76,381/- is ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational transactions undertaken by the assessee with its AE. In none of the years including the impugned Assessment Years it has been brought on record before us that, such transfer pricing analysis undertaken by the assessee has ever been disturbed or there is any adjustment on account of ALP. The Assessing Officer's case is that the assessee has been making persistent loss and therefore, it can be presumed that the cost/expenditure of the foreign entity for carrying out its activity in India is directly or indirectly is loaded or borne by the assessee and therefore, he has proceeded to make some adhoc disallowance of 50% of administrative and personnel expenses. Such a premise for adopting adhocism or making the addition in such a manner is definitely divorced from the facts and settled judicial norm or any authority of law. The assessee had duly demonstrated not only before the Assessing Officer and also before the ld. CIT(A), that out of the total revenue earned by the assessee of Rs. 13,86,13,293/- only amount of Rs. 2,59,09,985/- pertains to the transaction with the AE as per the following details:- Marketing support fees received Rs. 24,261,335 from SGI Inc Technical s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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