2021 (9) TMI 975 - AT - Income Tax

TP Adjustment - adjustment of outstanding receivables from AEs - HELD THAT - We find that the Tribunal in the case of assessee itself for Assessment Year 2010-11 2019 (7) TMI 1663 - ITAT DELHI interest of credit period granted by the company under normal trade practices was unjustly charged, having heard both the counsel, we are of the considered opinion that if working capital adjustment is granted, then no separate adjustment or interest receivables is required. We do not see any reason to deviate from the decision rendered in the earlier years. The Assessing Officer is directed accordingly. The Ground of appeal No.2 raised by the assessee is thus, allowed. TDS U/S 195 - reimbursement of relocation expenses form part of secondment contract - Addition u/s 40(a)(i) - Reference to make available clause in terms of India US DTAA - AO treated the same in the nature of FTS and thus chargeable to tax u/s 9(1)(vii) and Article 12(4) of the DTAA between India and USA - HELD THAT -.CIT(A) confirmed the view of the Assessing Officer by relying on the decision of Centrica Offshore Pvt.Ltd . 2014 (5) TMI 154 - DELHI HIGH COURT - As contended by assessee that as per India US DTAA, the make available clause is not satisfied in the present case. Therefore, the reimbursement cannot be characterized as FTS. We find that this aspect has not been examined by Ld.CIT(A), therefore, the finding of Ld.CIT(A) is set aside and this issue is restored to Ld.CIT(A) to decide it afresh after having considered the submissions of the assessee regarding make available clause in terms of India US DTAA. Thus, Ground No.3 raised in the assessee s appeal is partly allowed for statistical purposes. Allowability of education cess as a deduction u/s 37(1) - HELD THAT - Respectfully following the judgement of Hon ble Bombay High Court in the case of Sesa Goa Ltd. vs JCIT 2020 (3) TMI 347 - BOMBAY HIGH COURT we direct the Assessing Officer to delete the addition. Thus, additional grounds raised by the assessee are allowed. Allowability of working capital adjustment - HELD THAT - Since this issue, we have decided in favour of the assessee by following the judgement of Kusum Healthcare Pvt.Ltd 2017 (4) TMI 1254 - DELHI HIGH COURT and also the decision of Tribunal in earlier years. Therefore, we do not see any infirmity in the finding of Ld.CIT(A) and the same is hereby affirmed. Allowance of payment of travelling expenses - HELD THAT - Payment of travelling expenses to its own employee could not fall within the ambit of FTS.

Issues Involved:
1. Transfer Pricing Adjustment on Account of Outstanding Receivables from Associated Enterprise (AE).
2. Disallowance of Relocation Expenses under Section 40(a)(i).
3. Initiation of Penalty Proceedings under Section 271(1)(c).
4. Deduction in Respect of Education Cess under Section 37(1).

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment on Account of Outstanding Receivables from AE:

The assessee challenged the addition of ?10,73,12,034/- made by the Assessing Officer (AO) based on the Transfer Pricing Officer's (TPO) suggestion regarding outstanding receivables from AE. The CIT(A) upheld that the transaction of receivables is an international transaction under transfer pricing regulations, but directed the AO to allow working capital adjustment following the Delhi High Court’s decision in Kusum Healthcare Pvt. Ltd.

The Tribunal, referencing its own decisions in the assessee's prior years (ITA No.1426/Del/2015 and ITA No.355/Del/2016), held that if working capital adjustment is granted, no separate adjustment for interest on receivables is required. Thus, the Tribunal allowed the assessee’s appeal on this ground.

2. Disallowance of Relocation Expenses under Section 40(a)(i):

The AO disallowed ?3,92,81,738/- as relocation expenses reimbursed to AE, treating them as "Fees for Technical Services" (FTS) under Section 9(1)(vii) and Article 12(4) of the India-USA DTAA, relying on the Supreme Court’s decision in Centrica India Offshore Pvt. Ltd. The CIT(A) partly allowed the appeal, granting relief for expenses related to the assessee’s own employees but upheld the disallowance for employees seconded from AE.

The Tribunal noted that the CIT(A) did not examine whether the "make available" clause of the India-US DTAA was satisfied. The Tribunal remanded this issue back to the CIT(A) for fresh consideration, directing them to decide after considering the "make available" clause.

3. Initiation of Penalty Proceedings under Section 271(1)(c):

The assessee’s appeal on this ground was dismissed as premature since the penalty proceedings were not yet concluded.

4. Deduction in Respect of Education Cess under Section 37(1):

The assessee raised an additional ground for the deduction of education cess as an allowable expenditure under Section 37(1). The Tribunal admitted this ground, referencing the Supreme Court’s decision in National Thermal Power Corporation vs CIT. The Tribunal, relying on the Rajasthan High Court’s decision in CIT vs Chambal Fertilizers & Chemicals and the Bombay High Court’s decision in Sesa Goa Ltd. vs JCIT, directed the AO to allow the deduction of education cess.

Revenue’s Appeals:

The Revenue’s appeals (ITA Nos. 4487, 2834 & 3148/Del/2018) contested the CIT(A)’s decision to allow working capital adjustment and the deduction of travelling expenses for the assessee’s own employees. The Tribunal dismissed these appeals, affirming the CIT(A)’s decisions based on consistent Tribunal and High Court precedents.

Cross Objections by Assessee:

The assessee’s cross-objections (Nos. 125 & 126/Del/2018) were dismissed as the issues raised were already addressed in the main appeals.

Conclusion:

The Tribunal partly allowed the assessee’s appeals for statistical purposes, dismissed the Revenue’s appeals, and dismissed the cross-objections filed by the assessee.

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