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2017 (11) TMI 1881 - AT - Income TaxTP Adjustment - management fee for payment towards cost support services - direction of the DRP suggesting nil adjustment on account of payment of management fee to its AE - TPO has suggested ALP adjustment treating service charges fees at nil on the ground that the assessee-company failed to prove receipt of actual services as well as justification for payment of such fees - HELD THAT - In the present case, the assessee-company had not filed any evidence before lower authorities or before this Tribunal to substantiate receipt of services from AE. Therefore, the ratio of the decision in the case of the assessee for the assessment year 2009-10 is squarely applicable wherein this Tribunal had refused to remand the matter to the file of the AO for fresh consideration We are unable to remand the present assessment order to the file of the AO for de novo examination as no case was made out by the assessee-firm that it was prevented by sufficient reasonable cause from filing necessary evidence in support of receipt of actual services from the AE. Simply because in earlier years the issue was remanded back to lower authorities, remand cannot be ordered in the present year without valid reason in the light of the decisions cited supra. Needless to mention that each year is an independent and separate assessment year and the principle of res-judicata is not applicable.Therefore, we do not find any merit in the submissions made by the learned counsel for the assessee for remand of the matter to the file of the TPO for de novo examination. Interest income as part of eligible profits of the undertaking for purposes of computation of deduction u/s 10A - HELD THAT - The direction of the DRP is in consonance with the decision in the case of CIT vs. Motorola India Electronics (P) Ltd 2014 (1) TMI 1235 - KARNATAKA HIGH COURT Therefore, we do not find any reason to differ with the direction of the DRP. Ground of appeal in this regard is dismissed. Reduce expenditure incurred in foreign currency on travel and telecommunication to be reduced from both export turnover as well as total turnover - HELD THAT - This direction is line with the decision of the Hon ble jurisdictional High Court in the case of CIT vs. Tata Elxsi 2011 (8) TMI 782 - KARNATAKA HIGH COURT . We do not find any merit in the ground of appeal filed by the revenue and are accordingly dismissed.
Issues Involved:
1. Justification of payment of management technical support and professional fee (intra-group services). 2. Consideration of interest income in eligible profits for deduction under Section 10A. 3. Reduction of expenses on telecommunication, internet, freight, insurance, and foreign exchange loss from both export turnover and total turnover for Section 10A deduction. Issue-wise Detailed Analysis: 1. Justification of Payment of Management Technical Support and Professional Fee (Intra-group Services): The core issue was whether the payment made by the respondent-assessee for management technical support and professional fee to its Associated Enterprise (AE) was justified and at arm's length. The Transfer Pricing Officer (TPO) had called upon the respondent-assessee to furnish extensive documentation to verify the necessity and actual receipt of the services for which the payments were made. The TPO concluded that the respondent-assessee failed to provide adequate evidence to prove the receipt of services and the necessity of such payments, thus suggesting an arm's length price (ALP) adjustment treating the service charges fees at nil. The Dispute Resolution Panel (DRP), however, held that the TPO's treatment of the ALP for the management fee at 'nil' was erroneous. The DRP noted that the TPO did not consider the specific business model of the taxpayer and the fact that the management fee was factored into the hourly rates charged to the AE. The DRP emphasized that the differentiation between shareholder or stewardship activities was established and that the TPO's conclusions were somewhat short-sighted, particularly regarding the necessity of knowledge of the French language for obtaining contracts. The Tribunal, after hearing rival submissions, held that the onus lies on the assessee to prove receipt of services from AE. It was noted that the respondent-assessee had not filed any evidence before lower authorities or the Tribunal to substantiate receipt of services. The Tribunal cited several precedents, emphasizing that while the TPO cannot question the necessity of incurring expenditure, the assessee must prove the actual rendition of services. The Tribunal concluded that the respondent-assessee failed to discharge this onus and thus upheld the TPO's adjustment, rejecting the DRP's directions. 2. Consideration of Interest Income in Eligible Profits for Deduction Under Section 10A: The DRP directed the Assessing Officer (AO) to consider interest income as part of eligible profits for the computation of deduction under Section 10A. The Tribunal found this direction to be in consonance with the decision of the Hon'ble jurisdictional High Court in the case of CIT vs. Motorola India Electronics (P) Ltd. (265 CTR 94). Therefore, the Tribunal upheld the DRP's direction, dismissing the revenue's ground of appeal on this issue. 3. Reduction of Expenses on Telecommunication, Internet, Freight, Insurance, and Foreign Exchange Loss from Both Export Turnover and Total Turnover for Section 10A Deduction: The DRP directed the AO to reduce expenses incurred in foreign currency on travel and telecommunication from both export turnover and total turnover for the purpose of computing deduction under Section 10A. The Tribunal noted that this direction was in line with the decision of the Hon'ble jurisdictional High Court in the case of CIT vs. Tata Elxsi (349 ITR 98). Consequently, the Tribunal found no merit in the revenue's ground of appeal and dismissed it. Conclusion: The Tribunal partly allowed the appeal filed by the revenue, upholding the TPO's adjustment on the management fee issue while dismissing the revenue's grounds regarding the consideration of interest income and the reduction of expenses for Section 10A deduction. The order was pronounced in the open court on 20th November 2017.
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