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2022 (3) TMI 1512 - AT - Income TaxTP adjustment - adjustment made towards cost contribution charges - HELD THAT - We notice that the coordinate bench of the Tribunal in the case of Ingersoll Rand India Ltd 2016 (4) TMI 202 - ITAT BANGALORE has considered the similar issue wherein Tribunal has held the appeal in favour of the assessee by deleting the DRP adjustment made towards cost contribution charges. As considered the submission of the Ld AR with respect to the cost contribution charges which is paid for cost allocation done by the group and that a similar cost is getting allocated to Ingersoll Rand India Ltd using the same allocation methodology. The contention of the Ld AR that the decision of the coordinate bench is applicable to the assessee s case has merits. Decided in favour of assessee. Treating cost construction charges as a separate class of transaction and applying CUP as the most appropriate method as against TNMM - Hon ble Tribunal while rendering the decision in the case of Ingersoll Rand India Ltd (supra) has also addressed the issue of adopting CUP as the most appropriate method for the cost contribution charges - In assessee s case the TPO has treated the cost contribution charges as a separate class of transaction quoting that there is no restriction that the TP should be done only at enterprise level and also on the basis that it is an intra group transaction. From the details of services and the benefits received from these services as submitted by the Ld AR, the payment made towards these charges are integral part of the core business of the assessee. Thus we are of the considered view that the TPO is not justified in applying CUP is the most appropriate method for computing the ALP treating the cost contribution charges as the most appropriate method. Disallowance made on non-production of invoices by the assessee - HELD THAT - The assessee has produced as additional evidence, in the form of invoice copies before the Tribunal. The additional evidence now produced go to the root of the issue of disallowance - Invoice copies submitted by the assessee and taken as additional evidences require thorough examination to check the genuineness of the expenses and the allowability thereon. Hence, we remand the matter back to the AO - Grounds raised allowed in favour of the assessee for statistical purposes.
Issues Involved:
1. Transfer Pricing (TP) adjustment on cost contribution charges. 2. Treating cost construction charges as a separate class of transaction and applying the Comparable Uncontrolled Price (CUP) Method. 3. Various disallowances made by the Assessing Officer (AO) on corporate tax expenses due to non-submission of supporting documents. Issue-wise Detailed Analysis: 1. Transfer Pricing (TP) Adjustment on Cost Contribution Charges: The primary contention by the assessee was regarding the TP adjustment made on cost contribution charges. The assessee, a subsidiary of Ingersoll Rand Plc., Ireland, had international transactions scrutinized, resulting in a TP adjustment of Rs.1,75,39,613/- by the Transfer Pricing Officer (TPO). The TPO considered cost contribution charges as a separate transaction and applied the CUP method, estimating that Rs.65,30,000/- was reasonable for services provided, thus making an adjustment of Rs.1,75,39,613/-. The Dispute Resolution Panel (DRP) confirmed the TP adjustments, stating that each international transaction's Arm's Length Price (ALP) must be determined separately, and TNMM at the entity level cannot justify the ALP of intra-group services. The DRP also noted the assessee's failure to demonstrate the genuineness of the expenses and the benefits received. The Tribunal, however, referenced a previous decision in the case of Ingersoll Rand India Ltd., where similar TP adjustments were deleted. The Tribunal held that the cost contribution charges were integral to the core business and should be benchmarked under TNMM, not CUP. Consequently, the Tribunal deleted the TP adjustment made by the TPO, ruling in favor of the assessee. 2. Treating Cost Construction Charges as a Separate Class of Transaction and Applying CUP Method: The TPO treated cost contribution charges as a separate class of transaction and applied the CUP method, which was contested by the assessee. The Tribunal, referencing the Ingersoll Rand India Ltd. case, noted that the TPO was not justified in applying the CUP method for computing the ALP of cost contribution charges. The Tribunal emphasized that the payment for these charges was an integral part of the business, and the TNMM method was appropriate. Thus, this issue was also resolved in favor of the assessee. 3. Various Disallowances on Corporate Tax Expenses: The AO made several disallowances on corporate tax expenses due to the non-submission of supporting documents, including: a) Depreciation on addition to fixed assets. b) Commission paid to dealers. c) Adhoc disallowance of staff expenses. d) Ad hoc disallowance of miscellaneous expenses. e) Disallowance of bad debts & advances written off. f) Adhoc disallowance of advertisement & promotion expenses. g) Adhoc disallowance of traveling expenses. h) Adhoc disallowance of repairs & maintenance expenses. i) Disallowance of provision for warranty. j) Disallowance of cost contribution expenses. k) Disallowance of legal & professional expenses. The AO's primary reason for these disallowances was the non-production of books of accounts, bills, and vouchers by the assessee. The DRP upheld the AO's order, citing the lack of bill submission. The assessee argued that the AO never specifically requested invoice copies. The Tribunal admitted additional evidence in the form of invoice copies submitted by the assessee, recognizing their importance in verifying the genuineness of the expenses. The Tribunal remanded the matter back to the AO for thorough examination of the invoices and directed the assessee to cooperate with the AO. The Tribunal allowed the grounds in favor of the assessee for statistical purposes, ensuring a reasonable opportunity for the assessee to be heard. Conclusion: The Tribunal ruled in favor of the assessee on the TP adjustment and the method applied for cost contribution charges. The corporate tax disallowances were remanded back to the AO for re-examination with the additional evidence provided. The appeal was allowed, and the order was pronounced on 24th March 2022.
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