2019 (3) TMI 483 - HC - Income Tax

TP Adjustment - CIT(A) findings on fact approved by ITAT - justification for the expenditure - Salaries paid to the assessee s Australian AE, were towards reimbursement of expenses - methodology with respect to the Comparable Uncontrolled Prices (CUP) method under Rule 10B - revenue contention that real beneficiary of the Australian entity s employees was not the JV but the AE - HELD THAT - This court is of the opinion that the view of the CIT (A) which also commanded itself to the ITAT was in the circumstances of the case justified. The CIT(A) noted correctly that the revenue nowhere could establish that its employee did not work in India and the AE has also compensated for the services of the employee on the roll of the assessee. The decision of the JV and the assessee clearly constituted a business or managerial decision which the revenue could not have, in the manner it did, interfered with holding that the employees of the AE were subjected to secondment, which resulted in non deductible expenditure. No substantial question of law arises.

Summary

Issues:
1. Condonation of delay in filing/re-filing appeals.
2. Assessment of salaries paid to Australian AE - reimbursement or unwarranted.

Condonation of Delay:
The appellant sought condonation of delay in filing/re-filing appeals, which was allowed by the court for reasons stated in the applications. The delay was condoned, and the applications were disposed of.

Assessment of Salaries Paid to Australian AE:
The main issue in the appeals was whether the salaries paid to the assessee's Australian AE were reimbursement of expenses or unwarranted. The Transfer Pricing Officer (TPO) held the salary expenses as unwarranted, but the Appellate Commissioner and ITAT ruled in favor of the assessee. The Revenue argued that the ITAT overlooked that the real beneficiary of the Australian entity's employees was the AE, not the JV. However, the court found that the CIT(A) correctly examined the position, considering the Comparable Uncontrolled Prices (CUP) method under Rule 10B.

The court noted that the employees were responsible for income from both the AE and JV, with salaries paid by the AE and reimbursed by the appellant. The AO's determination of NIL arm's length price for salary reimbursement using the CUP method was deemed unsustainable. The court also rejected the AO's argument of draining money from India, emphasizing that the TPO cannot judge the commercial decisions of the appellant. The court held that the TPO's decision was unjustifiable, directing the AO to delete the addition made in this regard.

The court agreed with the CIT(A) that the revenue failed to establish that the employees did not work in India and that the decision of the JV and the assessee was a business decision beyond the revenue's interference. Consequently, the court found no substantial question of law and dismissed the appeals filed by the appellant.