2016 (10) TMI 424 - AT - Income Tax

Non deduction of tds - disallowance made for non monetary perquisites - Held that - We find that the assessee had paid income-tax in respect of salary paid to WJ as per the employment agreement, that it had suo motu made a disallowance for non-monetary perquisites, that WJ had offered the disputed amounts in his return of income. Considering the fact that WJ had paid the tax on the amount in question, we are of the opinion that the order of the FAA needs no interference whatsoever, upholding his order Ground No. 1 is decided against the AO. Deletion of club membership fee - Held that - After hearing the rival submissions we find that the Hon ble Apex Court, in the case of United Glass Mfg. Co. Ltd. (2012 (9) TMI 914 - SUPREME COURT ), has held that club membership fees incurred by an assessee is a business expenditure and has to be allowed as per provisions of section 37 of the Act. - Decided against AO Transfer pricing adjustment - selection of comparables - Held that - We find that the AO had made adjustment as the assessee had included loss making entities in the comparables list, that the FAA had ignored the fact that two of the five comparables were showing loss , that he emphasised on net worth of the company rather than the losses suffered by the companies, that both the companies were suffering losses for continuously three years . In our opinion the AO was justified in excluding the constant loss making entitles from the list of comparables. Therefore, reversing the order of the FAA Ground No. 3 is decided in favour of the AO.

Summary

Issues:
1. Disallowance of Income tax on expatriate salary
2. Deletion of club membership fee
3. Transfer Pricing (TP)

Issue 1: Disallowance of Income tax on expatriate salary

The Assessing Officer (AO) disallowed Income tax on expatriate salary amounting to ?43.24 lakhs. The First Appellate Authority (FAA) held that the tax borne by the company was in the nature of salary/employment cost and allowable as a deduction. The Departmental Representative (DR) supported the AO's order, citing section 10(e)(e) of the Act. However, the Authorized Representative (AR) argued that the tax had been offered for taxation by the expatriate. The tribunal found that the tax had been paid by the expatriate and upheld the FAA's decision, ruling against the AO.

Issue 2: Deletion of club membership fee

The AO disallowed a club membership fee of ?3.24 lakhs, considering it capital in nature. The FAA, relying on a High Court judgment, allowed the expenditure as wholly and exclusively for business purposes. The DR supported the AO's decision, while the AR cited a Supreme Court case to support the assessee's position. The tribunal, following the Supreme Court judgment, decided against the AO, upholding the FAA's decision.

Issue 3: Transfer Pricing (TP)

The AO questioned the Transfer Pricing study of the assessee's International Transactions (IT) with its Associate Enterprise (AE). The AO recalculated the Arm's Length Price (ALP) based on adjusted OP/TC ratios of comparable companies. The FAA disagreed with the AO, considering loss-making companies as comparables. The DR argued against including loss-making companies, while the AR supported the FAA's decision. The tribunal found that the AO was justified in excluding constant loss-making entities from comparables, reversing the FAA's decision in favor of the AO.

In conclusion, the tribunal partly allowed the AO's appeal, ruling on each issue in favor of either the AO or the assessee based on detailed analysis and legal interpretations.