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2021 (10) TMI 1322 - AT - Income TaxTransfer pricing adjustment - assessee had opted for MAP proceedings pursuant to Article 27 of Indo-UK DTAA with respect to transfer pricing adjustment from revenue earned by the assessee from its AEs located in UK - HELD THAT - Following the above order of the Tribunal in the case of J.P.Morgan Services Pvt. Ltd. 2015 (12) TMI 296 - ITAT MUMBAI we hold the margin adopted for UK transaction which constitutes almost 83% of the total revenue shall be adopted in other jurisdictional transactions as well. We noticed that the assessee had shown operating / net margin of 15.21% for ITE segments and 15.38% in SWD segments. Therefore in the facts of the given case we hold that no transfer pricing adjustment is required. Disallowance of reimbursement received - assessee had received certain amounts as reimbursement from its AEs towards expat salaries - A.O. decided the issue against the assessee by holding that the assessee has not placed any material on record to show its reimbursement of expenditure towards expat salary - HELD THAT - AO mentioned that as per provisions of section 144C(13) no further opportunity can be allowed to the assessee. The assessee has very elaborately detailed the nature of reimbursement expenses - The assessee has also furnished the details such as the reimbursement ledger along with sample invoices - The explanation of nature of reimbursements ledger copies of reimbursement of expenses sample invoices are also part of assessment records. Therefore the Assessing Officer s statement that the details are not available on record is not correct. Therefore we restore the issue to the files of the A.O. The A.O. is directed to examine the details which are placed on record such as the reimbursement ledger sample invoices etc. The A.O. shall also consider the submissions made before the Assessing Officer with regard to reimbursement / recovery of expenses. Disallowance of vehicle rental expenses - A.O. had disallowed vehicle lease rentals on the ground that payments were made towards purchase of vehicles - HELD THAT - As decided in own case 2017 (1) TMI 1673 - ITAT BANGALORE we allow the claim of the assessee regarding lease rentals as an allowable revenue expenditure. Deduction u/s 10A - Liabilities no longer required written back - HELD THAT - If the provisions for liabilities made in the last financial year is relatable to the business of the assessee and the same is written back during the year 2008-2009 it will increase the business income of the assessee. It was further directed by the DRP that such increase in income would be entitled for deduction u/s 10A I.T.Act. The A.O. however rejected the claim of the assessee by holding that the assessee has not placed any evidence on record. It was stated by the A.O. that as per the provisions of section 144C(13) of the I.T.Act no further opportunity can be allowed to the assessee. Therefore it is not correct on the part of the A.O. to state that no details are produced. Therefore we direct the A.O. to examine this issue afresh and also follow the dictum laid down by the judgments of the Hon ble jurisdictional High Court referred supra. It is ordered accordingly. Hence ground No.3 is allowed for statistical purposes. Short grant of TDS - HELD THAT - DRP in its order had directed the Assessing Officer to verify and give credit for the entire amount of TDS after due verification. On perusal of the final assessment order it is seen that the A.O. has not examined this issue. Therefore we restore the issue to the files of the A.O. The A.O. is directed to examine and give due credit of TDS. Directions to exclude certain expenditure both from the export turnover as well as from the total turnover while computing deduction u/s 10A - HELD THAT - The above issue is no longer res integra as it is settled by the judgment of the Hon ble Apex Court in the case of CIT v. HCL Technologies Ltd. 2018 (5) TMI 357 - SUPREME COURT wherein it was categorically held that when certain expenditure is excluded from the export turnover while calculating deduction u/s 10A of the I.T.Act the same needs to be excluded also from the total turnover.
Issues Involved:
1. Transfer Pricing Adjustment 2. Disallowance of Reimbursement Received 3. Disallowance of Vehicle Rental Expenses 4. Liabilities No Longer Required Written Back 5. Short Grant of TDS 6. Exclusion of Certain Expenditure from Export Turnover and Total Turnover while Computing Deduction u/s 10A Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment: The assessee raised an additional ground regarding the application of the arm's length price agreed between the Competent Authorities of UK and India to transactions with AEs in countries other than the UK. The Tribunal admitted this additional ground as it goes to the root of the issue. The assessee, a private limited company providing business process and IT services, faced a TP adjustment of Rs.26,59,09,540 by the TPO, later reduced to Rs.22,20,11,439 by the DRP. The assessee argued that certain companies should be excluded from the comparables list due to functional dissimilarity and turnover filter. The Tribunal agreed, adopting the MAP resolution rate of 15% for both SWD and ITE segments across all jurisdictions, as 83% of the total revenue was from UK transactions. This approach was supported by previous Tribunal decisions in similar cases. 2. Disallowance of Reimbursement Received: The assessee contended that the amount received as reimbursement for expat salaries was mistakenly disallowed by the A.O. as expenses due to non-deduction of tax at source. The Tribunal found that the details were on record and directed the A.O. to verify the reimbursement ledger and sample invoices, restoring the issue for re-examination. 3. Disallowance of Vehicle Rental Expenses: The assessee claimed deduction for lease rentals paid for vehicles used for business purposes. The A.O. disallowed this, deeming the vehicles were for personal use by employees. The Tribunal referred to its previous decision in the assessee’s case and other judicial precedents, allowing the lease rentals as revenue expenditure, thus allowing the assessee’s claim. 4. Liabilities No Longer Required Written Back: The assessee argued that any enhancement of income would be eligible for deduction u/s 10A, citing jurisdictional High Court judgments. The A.O. rejected the claim due to lack of evidence. The Tribunal found that relevant details were on record and directed the A.O. to re-examine the issue in light of the cited judgments. 5. Short Grant of TDS: The assessee claimed a shortfall in TDS credit. The DRP directed the A.O. to verify and give credit for the entire amount. The Tribunal noted that the A.O. had not examined this issue and restored it for verification and due credit. 6. Exclusion of Certain Expenditure from Export Turnover and Total Turnover while Computing Deduction u/s 10A: The Revenue challenged the DRP's direction to exclude certain expenditures from both export and total turnover. The Tribunal rejected this challenge, citing the Supreme Court judgment in CIT v. HCL Technologies Ltd., which held that such exclusions must be made from both turnovers. Conclusion: The Tribunal partly allowed the assessee's appeal, directing re-examination on certain issues and adopting the MAP resolution rate for TP adjustments. The Revenue's appeal was dismissed, affirming the DRP's directions and the Supreme Court's judgment on turnover exclusions.
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