TMI Blog2022 (11) TMI 681X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the relevant previous year does not arise. Accordingly, Ground No. 2.1 raised by the Appellant is allowed and addition is deleted. TP adjustment - upward adjustment of ALP of transaction of purchase of asset - HELD THAT:- In the case before us, the TPO has determined ALP by computing WDV of the Asset without making any effort to identify a comparable transaction or the price paid by third party. Further, while doing so the TPO has taken depreciation rate of 60% as per the provisions of the Act without considering any other factor(s). Therefore, we delete the transfer pricing addition - Ground No. 2.2 raised by the Appellant is allowed. Addition of reimbursement of out of pocket expenses by the Appellant to its AE - HELD THAT:- TPO/AO has not pointed out any defect/discrepancy in the bills/supporting documents furnished by the Appellant which constitute 78% of the out of pocket expenses reimbursed by the Appellant to its AE. The Appellant has not furnished bills/supporting documents which constitute balance 22% out of pocket expenses reimbursed and only 3.5% of the total expenses reimbursed by the Appellant to its AEs for the relevant assessment year. In view of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 144C of the Income Tax Act, 1961 [hereinafter referred to as 'the Act ], as per directions issued by Dispute Resolution Panel-II, (hereinafter referred to as 'the DRP ) under Section 144C(5) of the Act pertaining to the Assessment Year 2008-09. 2. Appellant has raised following grounds of appeal: ― 1. That on facts and circumstances of the case and in law the Ld AO erred in assessing the loss of the Appellant under the normal provisions of the Act at (Rs. 10,68.91,995) against returned loss of (Rs. 18,87,50,293) based on the directions received from Hon'ble Dispute Resolution Panel ( DRP ) partially upholding the adjustment to the transfer price proposed by the learned Transfer Pricing Officer (Ld TPO ). 2. That on facts and circumstances of the case and in law the Ld AO/ TPO erred in proposing and the Hon'ble DRP further erred in partially upholding a total adjustment of Rs 6,90,21,928 in respect of the international transactions pertaining to reimbursement of expenses to its Associated Enterprises ( AE/s ), alleging the same is not at arm's length in terms of the provisions of Sections 92C(1) and 92C(2) of the Act read with Rule 10D of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 89/- which was revised on 29.03.2010 declaring loss of INR 18,87,50,293/-. 4. The case of the Appellant was selected for scrutiny. During the assessment proceedings, the Assessing Officer noted that the Appellant has entered into international transactions with its Associated Enterprises (AEs) and therefore, a reference was made under Section 92CA(1) to the Transfer Pricing Officer (TPO) for the determination of Arm s Length Price (ALP) of the international transactions. The TPO, vide order, dated 28.10.2011 passed under Section 92CA(3) of the Act, proposed transfer pricing adjustment aggregating to INR 9,65,96,086/- consisting of the following: Sr. No. Particulars Amount (INR) 1 Reimbursement of Expenses to AEs [For Services not requested by the Assessee: (a)INR.4,90,78,826/- pertaining to Assessment Year 2007-08 and (b)INR.2,41,30,833/- pertaining to Assessment Year 2008-09, both, booked prior to execution of Inter-Corporate Agreement, dated 07.01.2008, made effective from 01.06.2006)] 7,32,09,659/- 2 Payment for Asset [IBM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce as discussed above i) Addition on account of adjustment u/s 92CA(1) 9,65.96,086 Less : Relief as discussed above a) On a/c of reimbursement of expenditure for AY 2008-09 [INR 2,41,30,833 INR 6,27,151/-] 2,35,03,682 b) On a/c of purchase price of asset 40,70,476 ii) Software expenses 80,07,197 iii) Different in AIR 24,855 7,70,53,980 (-) 11,16,96,313 Less Depreciation on software exp. Capitalized @ 60% 48,04,318 Total taxable income (-) 10,68,91,995 6. Being aggrieved, the Appellant is now in appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er-book) dealing with related parties disclosures, the reimbursement made to the related parties for the Assessment Year 2008-09 was INR 3,98,09,317/- as opposed to INR 7,87,13,678/- for the Assessment Year 2007-08. Thus, it clear that the aforesaid amount of INR 7,87,13,678/- was not debited to the Profit Loss Account for the Assessment Year 2008-09. Since the deduction for the aforesaid amount was not claimed by the Appellant while computing taxable income for the Assessment Year 2008-09, the question of making the disallowance or addition of the same during the relevant previous year does not arise. Accordingly, Ground No. 2.1 raised by the Appellant is allowed and addition of INR 4,90,78,826/- is deleted. Ground No. 2.2 10. Ground No. 2.2 pertains to addition on account of transfer pricing adjustment of INR 1,50,75,835/- made in the Final Assessment Order, dated 30.10.2012, on account of upward adjustment of ALP of transaction of purchase of asset. 11. The facts relevant for adjudication of the issue before us, in brief, are that According to the TPO the Appellant had purchased IBM Server (hereinafter referred to as 'the Asset ) for INR 2,51,26,392/- from its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Circle-22(1), New Delhi Vs. Sarens Heavy Lift (I) (P) Ltd. [2018] 93 taxmann.com 431 (Delhi-Trib.) the Tribunal has held that the WDV of asset cannot be the determining factor to decide ALP under Comparable Uncontrolled Price (CUP) Method. Per contra, the Ld. Departmental Representative relied upon the orders passed by the TPO and DRP. 13. We have heard the rival submissions and perused the material on record. As per invoice, dated 24.06.2007, raised by Redington (India) Ltd. on Woolworths Ltd., Australia, the place of delivery is stated to be Mumbai, Maharashtra. Vide letter, dated 16.11.2011, (placed at page 279 to 297 of the paper-book at page 285/286), the Appellant had explained to the Assessing Officer that at the time of purchase of the Asset the company was not incorporated and could not operate its bank account and/or make payments to the third party vendor. Therefore, the purchase of the Asset was made by the Appellant s AE on behalf of the Appellant. The Asset was delivered in completely knockdown condition in India and was put to use for the first time in India in 2006. In support of the aforesaid facts the Appellant had placed reliance on Annexure - 4 to Form 3CD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er without identifying any transaction, has simply taken the written down value of the machinery. No doubt, every machinery used for manufacturing activity would naturally depreciate its value on passage of time. Even though a statutory deduction was provided under the Income-tax Act and the Companies Act, the price of the machinery has to be compared with comparable machinery in the uncontrolled market. Such an exercise was not done by the TPO and the Assessing Officer. Therefore, the DRP found that adopting written down value as ALP under the CUP method is not justified. Therefore, the downward adjustment made by the TPO to the extent of Rs. 2,53,43,940/- was rightly found to be not warranted by the DRP. 4. We have considered the rival submissions on either side and also perused the material available on record. We have carefully gone through the provisions of Rule 10B of the Income-tax Rules, 1962. Rule 10B(1) provides method for determination of Arm's Length Price in Comparable Uncontrolled Price method. For the purpose of convenience, we reproduce below Rule 10B(1): 10B(1) For the purpose of sub-section (2) of section 92C, the arm's length price in relation to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was put to use in the manufacturing activity. When the machinery was sold, the buyer of the machinery would naturally look for the efficiency and life of the machinery after the purchase. Therefore, the written down value may be one of the factor to be taken into consideration for determining the value of the machinery. However, in view of the specific provision in Rule 10B(1)(a) of the Income-tax Rules, written down value cannot be a determining factor to decide the ALP. The value of the machinery has to be compared with identified transaction in the uncontrolled market. Since such an exercise was not done by the TPO, this Tribunal is of the considered opinion that the DRP has rightly found that the sale price between the two parties cannot be merely on the basis of the written down value. Therefore, the DRP has rightly found that adopting written down value as ALP under the CUP method is not justified. Hence, this Tribunal do not find any reason to interfere with the order of the lower authority. Accordingly, the same is confirmed. (Emphasis Supplied) 14. Similarly, in the case of ACIT, Central Circle-22(1), New Delhi Vs. Sarens Heavy Lift (I) (P) Ltd. (supra) the Tribunal de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke a different view in view of the said legal position. 21. We, therefore, are of the opinion that the impugned directions given by the ld. DRP do not suffer an illegal infirmity so as to invite the interference of this tribunal in this appeal. With this view of the matter we find the grounds of appeal are devoid of merits and the appeal is liable to be dismissed. Consequently while upholding the directions given by the ld. DRP, we dismiss the appeal of the Revenue. In view of the dismissal of the appeal, cross objection preferred by the assessee becomes in fructuous and therefore, the Cross Objection is also dismissed. 15. In the case before us, the TPO has determined ALP by computing WDV of the Asset without making any effort to identify a comparable transaction or the price paid by third party. Further, while doing so the TPO has taken depreciation rate of 60% as per the provisions of the Act without considering any other factor(s). Therefore, respectfully following the above decision of the Tribunal, we delete the transfer pricing addition of INR 1,50,75,835/-. Ground No. 2.2 raised by the Appellant is allowed. Ground No. 2.3 16. Ground No. 2.3 pertains to addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pporting vouchers in relation to the expenses which the Appellant has, admittedly failed to furnish and therefore, the Assessing Officer was justified in making the addition of INR 42,40,116/-. 18. We have heard the rival submissions and perused the material on record. While we are not inclined to accept the contention advanced on behalf of the Appellant that an assessee cannot be directed to produce bills/supporting documents pertaining to entire amount of expenses claimed as deduction, we are also alive to the possible burden an assessee would be subjected to during the assessment proceedings in case such a direction is issued to the assessee. However, in cases where the bills and/or supporting documents called for during the assessment proceedings are not furnished, or have been furnished but the same are not found to be sufficient or satisfactory by the assessing officer, the assessing officer would, in our view, be justified in calling for any/all details and/or bills supporting documents as the Assessing Officer may deem fit. We note that the Appellant is under obligation to maintain proper books of accounts including voucher and documents to support the claim of expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 2.2 and 2.3 hereinabove, we have deleted the additions made in respect of the aforesaid expenses. Accordingly, we remand this issue back to the file of Assessing Officer for verification/re-computation, keeping in view our findings in relation to Ground No. 2.2 2.3 above, as well as the contentions of the Appellant. In view of the aforesaid, Ground No. 3 is allowed for statistical purposes. Ground No. 4 5 20. Ground No. 4 pertains to disallowance of IT Connectivity Charges and Software Expenses aggregating to INR 80,07,197/-. The Ld. Authorised Representative for the Appellant appearing before us submitted that the aforesaid expenses were disallowed on the ground that the same were capital in nature and depreciation @ 60% was allowed in respect of the same. The appellant does not wish to press this Ground of appeal. Accordingly, Ground No. 4 of the appeal is dismissed as not pressed. 21. Ground No. 5 pertains to computation of loss at INR 10,68,91,995/- instead of INR 11,65,00,631/-. The Ld. Authorised Representative for the Appellant submitted that while computing the total loss the Assessing Officer has committed computation error. The Assessing Officer has di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this regard required for verification of expenditure. In response to same the assessee made submission vide letter dated 09.10.2012. The submission made by the assessee was carefully perused and considered. This exercise revealed that out of expenses of Rs. 2,41,30,833/- the assessee made a payment of Rs. 6,27,151/- to M/s KPMG. On enquiry it has been noticed that this expenditure was mainly incurred by way of payment of professional fees to KPMG for rendition of services to expats. This act of the assessee tantamount of bearing the expenses of employees i.e. third party which cannot be considered for allowance especially in the light of the fact that the assessee at no point of time produced any evidence to show that this amount has been included in the hands of expats employees as perquisites as required by the provisions of 17(2)(iv) of the Income Tax Act, 1961. Therefore, the disallowance to the extent of Rs. 6,27,151/- is sustained. As a result, the addition to the extent of difference Rs. 2,35,03,682/- (2,41,30,833 6,27,151) stands deleted as the expenditure has been incurred wholly and exclusively for the purpose of business. 24. The Ld. Authorised Representative f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sa Application 1,42,343 4. Tax equalization reconciliation 57,546 5. Advice in respect of the changes to the taxation of stock options in India 55,568 Total 8,82,055 26. Out of the aforesaid expenses aggregating to INR 8,82,055/-, the Assessing Officer has disallowed INR 6,27,151/-. Having perused the material on record including invoices, we concur with the Assessing Officer to the extent of disallowance of INR 5,53,039/- being payments made by the Appellant for arrival/departure tax briefing for employees and tax returns for employees only. In our view, the aforesaid amount was not incurred wholly and exclusively for the benefit of the Appellant and was for the personal benefit of employees. The aforesaid amount has also not been taxed as prerequisite in the hands of the employees. Accordingly, disallowance of INR 5,53,039/- is confirmed while balance disallowance of INR 74,112/- is deleted. In view of the aforesaid, Ground No. 7 is partly allowed. Additional Grounds 27. The Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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