2018 (6) TMI 1717 - AT - Income Tax

TP Adjustment - application of most appropriate transfer pricing method and the arm‟s length price - international transactions - HELD THAT - Functions performed, assets employed and risk undertaken by the assessee and its associated enterprises was found to be reasonable. Accordingly, we allow assessee to withdraw these grounds for the A.Y.2008-09 and 2009-10 in so far as these grounds are covered by the APA, the principle laid down in the APA for benchmarking analysis in respect of the international transactions being guidance value since there is no change in the said assessment years in the nature of international transactions. We also direct the Department to pass an order giving effect u/s.92 CD (5) of the Act in the A.Y. 2010-11 2011-12. Whereas for A.Y.2008-09 and A.Y.2009-10, we observe that the principles laid down in the APA for benchmarking/comparability analysis in respect of the international transactions shall have a guidance value since there is no change in the said Assessment Years in the nature of the international transactions, functional, Asset and Risk ( FAR‟) profile of the assessee and the AEs. We direct accordingly. Transfer pricing adjustment in respect of transactions pertaining to taxability of reimbursement of expenses and taxability of reimbursement for purchase of fixed assets - taxability of reimbursement for purchase of fixed assets - HELD THAT - As decided in own case 2018 (6) TMI 359 - ITAT MUMBAI Reimbursements paid being backed by third party invoices without any element of markup, cannot be benchmarked at NIL as done by TPO. Accordingly, we delete the addition so made by the AO. Short credit of taxes deducted at source - HELD THAT - AO is directed to give effect for short TDS credit granted to the assessee, after due verification. We direct accordingly.

Summary

Issues Involved:
1. Transfer Pricing Adjustment for Cross Border Executive Search Fee (Multi Country Execution Fee) and Payment of License Fee.
2. Taxability of Reimbursement of Expenses and Reimbursement for Purchase of Fixed Assets.
3. Short Credit of Taxes Deducted at Source.

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment for Cross Border Executive Search Fee (Multi Country Execution Fee) and Payment of License Fee:
The assessee, a subsidiary of Spencer Stuart International BV, engaged in high-end executive search services, contested the adjustments made by the Transfer Pricing Officer (TPO) regarding the payment of license fees and multi-country execution fees, which resulted in adjustments of ?2,38,10,137 and ?26,08,136 respectively. The Dispute Resolution Panel (DRP) confirmed these additions. The assessee argued that an Advance Pricing Agreement (APA) with the Central Board of Direct Tax (CBDT) covered these transactions for AY 2010-11 to AY 2013-14 and should serve as guidance for AY 2008-09 and AY 2009-10. The Tribunal agreed, allowing the withdrawal of grounds for AY 2008-09 and AY 2009-10, as the APA principles for benchmarking analysis applied, given no change in the nature of transactions or the Functional, Asset, and Risk (FAR) profile.

2. Taxability of Reimbursement of Expenses and Reimbursement for Purchase of Fixed Assets:
The assessee challenged the transfer pricing adjustment related to the taxability of reimbursements for expenses and fixed assets. The Tribunal found that the reimbursements to Spencer Stuart International BV (SSI BV) were for travel, stay, video conferencing, insurance, and fixed assets, supported by third-party invoices without any markup. The Tribunal referenced the Service Agreement, which distinguished between search services and other expenses. The Tribunal, following the precedent set by the Coordinate Bench and the Supreme Court in similar cases, concluded that such reimbursements, being pure cost-sharing arrangements without profit elements, do not constitute Fees for Technical Services (FTS) and are not taxable. Consequently, the additions made by the AO were deleted.

3. Short Credit of Taxes Deducted at Source:
The assessee claimed that the AO gave short credit for taxes deducted at source (TDS) while calculating the demand payable, failing to consider TDS certificates related to interest payments under section 244A of the Act. The Tribunal, referencing judicial pronouncements, directed the AO to grant the correct TDS credit based on the certificates issued, ensuring the taxpayer receives the appropriate credit for taxes deducted.

Conclusion:
The appeals were allowed in part, with directions to the Department to pass an order giving effect under section 92CD(5) for AY 2010-11 and AY 2011-12 and to grant the correct TDS credit after verification. The Tribunal emphasized the guidance value of the APA principles for benchmarking analysis in the relevant assessment years.