2019 (1) TMI 1951 - AT - Income Tax

TP Adjustment - applicability of MAP proceedings to non-US - applicability of percentage of same margin for remaining transaction - HELD THAT - As considered MAP proceedings and resolutions and the judicial decision and working procedure are in agreement with the submissions made by the learned AR on this issue for applicability of some margin be applied for remaining 16% of the transactions of the assessee and accordingly this ground of appeal of the assessee is allowed for statistical purposes. We direct the TPO accordingly. Lease on equipment being capital in nature - AR could not substantiate with any evidence that the transaction is non-financial lease and on perusal of the agreement as referred to by the assessee, it is in the nature of financial lease and even before us no evidence has been filed to substantiate that it is not a transfer of asset from the beginning to end of the period of lease. We found that the assessee, as per the financial lease agreement, has an option to purchase the asset on completion of term and on this aspect, AO has to consider. Therefore, we consider it appropriate to remit this issue to the AO for verification of financial lease agreement and also assessee shall file tripartite agreement in respect of lease. Reimbursement of salary expenses on employees - Assessee, as per audit accounts for the said accounting year referred at page 528, the managing director has been a signatory and the assessee undertakes to file Form No. 32 and Board Resolution to that effect. Further, after hearing for a long time, the learned DR has brought to the notice of the bench that this issue was referred to Special Bench whereas we, accept the decision of the special Bench in particular to this case - CIT(A) also made observations that the assessee has not substantiated before lower authorities about appointment of managing director with any evidence and further we are of the substantive opinion that the matter was referred to Special Bench, But the facts have not been verified by the AO in respect of managing director. Therefore, both the parties have agreed for the same and there is no loss of revenue to the department, if the matter is restored to the file of the AO for verification and examination and by that time we are of the considerable hope that the decision of the special bench also be available to the AO - we are of the substantive opinion that the matter is restored to the file of the AO as agreed by both the parties for verification and examination and the assessee shall co-operate in submitting information as expeditiously as possible. SAP implementation charges - We are of the opinion that when the project is not implemented and there is no expenditure claimed, such type of expenditure shall not be clubbed with revenue expenditure without matching concept of income and expenditure is applied. Therefore, the claim of the assessee on this aspect cannot be considered and we confirm the action of the CIT(A) on this ground and dismiss the ground of appeal. Non-deduction of TDS u/s 194J - Fee for providing internet / broadband facility - HELD THAT - Assessee has simply obtained broadband / Internet facility from the service provider M/s. Tata Indicom. It is not a case where a service contract has been entered into. The facility is open to all and sundry and any member of the public can avail of it. In such circumstances, the view of the AO that the nature of service rendered as an element of implicit contract is struck down and therefore, the addition cannot be sustained in first appeal.

Issues Involved:
1. Applicability of Mutual Agreement Procedure (MAP) proceedings to non-US transactions.
2. Treatment of lease expenses as capital or revenue in nature.
3. Disallowance of reimbursement of salary expenses.
4. Treatment of SAP implementation charges as capital or revenue expenditure.
5. Computation of deduction under Section 10A.
6. Non-deduction of TDS under Section 194J for bandwidth charges.
7. Exclusion of telecommunication, insurance, and foreign traveling expenses from export turnover.
8. Exclusion of comparable companies based on size and turnover for transfer pricing.

Detailed Analysis:

1. Applicability of MAP Proceedings to Non-US Transactions:
The assessee accepted the MAP resolution for US transactions and proposed applying the same margin to non-US transactions. The Tribunal referenced the decision in J.P. Morgan Services P. Ltd. and CGI Information System & Management Consultants Pvt. Ltd., concluding that the same margin should be applied to non-US transactions. The ground was allowed for statistical purposes, directing the TPO to apply the same margin.

2. Treatment of Lease Expenses:
The assessee claimed lease expenses as revenue expenditure, but the AO treated them as capital in nature. The Tribunal noted the lack of evidence to substantiate the claim that the lease was non-financial. The issue was remitted to the AO for verification of the financial lease agreement and tripartite agreement.

3. Disallowance of Reimbursement of Salary Expenses:
The assessee claimed reimbursement of salary expenses for its managing director, which was disallowed by the AO. The Tribunal noted that the CIT(A) had not verified the appointment of the managing director with evidence. The issue was remitted to the AO for verification and examination, considering the Special Bench's decision.

4. Treatment of SAP Implementation Charges:
The assessee claimed SAP implementation charges as revenue expenditure, arguing that the project was not implemented. The Tribunal held that since the project was not implemented, the expenses could not be considered revenue expenditure. The alternative ground for allowing depreciation was also dismissed, confirming the CIT(A)'s action.

5. Computation of Deduction under Section 10A:
The revenue challenged the exclusion of telecommunication, insurance, and foreign traveling expenses from both export and total turnover. The Tribunal upheld the CIT(A)'s decision, following the jurisdictional High Court's precedent in Tata Elxsi Ltd., dismissing the revenue's ground.

6. Non-Deduction of TDS under Section 194J:
The AO disallowed expenses for non-deduction of TDS on bandwidth charges, treating them as technical services. The CIT(A) ruled in favor of the assessee, stating that the services did not involve human interface and were not specific contractual services. The Tribunal affirmed the CIT(A)'s decision, dismissing the revenue's ground.

7. Exclusion of Telecommunication, Insurance, and Foreign Traveling Expenses:
The Tribunal agreed with the CIT(A) that these expenses should be excluded from both export and total turnover for computing deduction under Section 10A, following the High Court's decision in Tata Elxsi Ltd.

8. Exclusion of Comparable Companies Based on Size and Turnover:
The revenue's appeal on excluding comparable companies based on size and turnover for transfer pricing was deemed irrelevant due to the assessee's adoption of MAP. The Tribunal dismissed this ground.

Conclusion:
The assessee's appeal was partly allowed for statistical purposes, while the revenue's appeal was dismissed. The cross-objection filed by the assessee was also dismissed as infructuous. The Tribunal's order emphasized the need for verification and adherence to judicial precedents in addressing the issues raised.

← Previous Next →