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2020 (9) TMI 487 - AT - Income TaxTP Adjustment - reimbursement of the expenses paid by the assessee to its associated enterprise on account of the expats salary which is utilised by the assessee for providing services to the other parties and cost 10% markup is charged - HELD THAT - Services been duplicative in nature than absolutely independent customer i.e. Bharti Retail Ltd would not have obliged to pay anything for such services. Same are also not shareholder services since assessee would not have availed the services from its associated enterprise then it would have had to hire similarly experienced personnel from external sources. It was further held that assessee was the sole and absolute beneficiary of the services. For assessment year 2013-14 TPO has deleted the addition on account of determination of the arm s-length price of the similar services for that year. In view of the above facts, respectfully following the decision of the coordinate bench in assessee s own case for the earlier years, and subsequently when Transfer Pricing Officer himself has deleted the addition for subsequent year i.e. assessment year 2013-14 and for earlier years i.e. assessment year 2009-10 and 2010-11, we direct the learned Transfer Pricing Officer/AO to delete the addition and accordingly we allow ground No. 2-6 of the appeal. Disallowance u/s 14A with Rule 8D - HELD THAT - Assessee has earned a tax free income in the form of dividend of ₹ 746,786. Admittedly, the assessee has not disallowed any expenditure u/s 14 A. The claim of the assessee is that it has not incurred any expenditure for earning of the exempt income. Assessing Officer without recording of the any satisfaction with respect to the correctness of claim of the assessee, invoke the provisions of Section 14A and applied the computational methodology provided under Rule 8D of the Income Tax Rules. According to Section 14A(2)of the Act, the learned Assessing Officer should have recorded his satisfaction about the correctness of the claim of the assessee. If no such satisfaction is recorded, no disallowance can be made. In the present case admittedly Assessing Officer has not recorded any satisfaction as provided u/s 14A (2) , which is a mandatory requirement, we delete the disallowance u/s 14A.
Issues Involved:
1. Transfer Pricing Adjustment 2. Disallowance under Section 14A of the Income Tax Act 3. Chargeability of Interest under Section 234D and Withdrawal of Interest under Section 244A 4. Initiation of Penalty Proceedings under Section 271(1)(c) Detailed Analysis: 1. Transfer Pricing Adjustment: The primary issue was the addition of ?79,852,317 on account of transfer pricing related to reimbursement of expenses for 'expat support services' to the assessee's Associated Enterprise (AE). The Transfer Pricing Officer (TPO) determined the Arm’s Length Price (ALP) of this transaction to be NIL, raising several points: - The TPO questioned the commercial/business wisdom of the transaction. - The TPO disregarded the principles of transfer pricing and judicial pronouncements. - The TPO considered the services to be incidental, duplicative, and providing no economic benefit, categorizing them as shareholder services. - The TPO rejected the transfer pricing documentation and analysis provided by the assessee. - The TPO applied the Comparable Uncontrolled Price (CUP) method incorrectly. The assessee contended that the services were necessary for its business operations and were reimbursed on a cost-to-cost basis without markup. The appellant benchmarked the transaction using the internal CUP method, arguing that the services were not duplicative and provided substantial benefits. The ITAT referred to previous rulings in the assessee’s favor for similar issues in earlier assessment years (2009-10, 2011-12, and 2013-14), where the TPO had deleted the adjustments upon reassessment. The ITAT concluded that the facts and circumstances were consistent with those in prior years and directed the deletion of the addition of ?79,852,317, allowing grounds 2-6 of the appeal. 2. Disallowance under Section 14A of the Income Tax Act: The assessee challenged the disallowance of ?50,288 under Section 14A read with Rule 8D, which pertains to the expenditure incurred in relation to earning exempt income. The assessee argued that no expenditure was incurred for earning the exempt dividend income of ?746,786, and the investments were made from temporary surplus funds without employing any personnel. The ITAT noted that the Assessing Officer (AO) did not record any satisfaction regarding the correctness of the assessee’s claim, which is a mandatory requirement under Section 14A(2). The absence of such satisfaction invalidated the disallowance. Consequently, the ITAT allowed grounds 7-8 of the appeal and deleted the disallowance of ?50,288. 3. Chargeability of Interest under Section 234D and Withdrawal of Interest under Section 244A: Ground 9, concerning the chargeability of interest under Section 234D and the withdrawal of interest under Section 244A, was dismissed as it was deemed consequential in nature. 4. Initiation of Penalty Proceedings under Section 271(1)(c): Ground 10, related to the initiation of penalty proceedings under Section 271(1)(c), was dismissed as premature. Conclusion: The ITAT allowed the appeal of the assessee partly, directing the deletion of the transfer pricing adjustment and the disallowance under Section 14A. The other grounds were dismissed as either general, consequential, or premature. The order was pronounced in the open court on 11/09/2020.
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