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2022 (7) TMI 1293 - AT - Income TaxTP Adjustment to the licence fees paid for time and billing software - assessee has adopted CUP method to benchmark this transaction by taking AE as tested party - HELD THAT - It is admitted that in the transfer pricing study report, where all the international transactions of the assessee have been aggregated and have been benchmarked applying CUP as the most appropriate method. AO/TPO has rejected the benchmarking made by the assessee in the transfer pricing study report for the reason that the assessee has not provided complete details of the cost incurred by the AE for the impugned transactions. We are of the considered opinion that the TPO should have determined the ALP of the impugned international transactions by applying anyone of the prescribed methods, but the TPO has failed to do so. Determination of arm's length price at Nil in grounds 1 2 and at Rs. 50 lakhs on ad hoc basis in ground 3 is contrary to the provisions of the Act. Resultantly, the benchmarking done by the assessee is more acceptable and the transactions of the assessee with its AE for the services availed is held to be at arm's length. Disallowance of foreign travel expenses - HELD THAT - As evident that the foreign travel expenses for the family of the employees disallowed by the Assessing Officer pertains to the family members of the employees, who are other than the employees of the assessee. Admittedly, the assessee had no supporting evidences to substantiate its claim. Following the decision of the co-ordinate bench of this Tribunal, we direct the AO to verify the claim of the assessee that if fringe benefit tax has been paid by the assessee, in order to allow the claim and thereby pass consequential orders as per the provisions of the Act.
Issues Involved:
1. Adjustment of arm's length price (ALP) for payment of license fees for time and billing software. 2. Adjustment of ALP for payment of regional administration, regional coordination, and worldwide training cost allocation. 3. Adjustment of ALP for payment of information technology cost allocation. 4. Disallowance of foreign travel expenses. 5. Short-granting of TDS credit. 6. Charging of interest under section 234D. 7. Initiation of penalty proceedings under section 271(1)(c). Detailed Analysis: Issue 1: Adjustment of ALP for Payment of License Fees for Time and Billing Software The assessee paid Rs. 2,31,54,274 as a license fee to BCG Holding Corporation, USA, and adopted the Comparable Uncontrolled Price (CUP) method to benchmark this transaction. The TPO determined the ALP at Nil, rejecting the comparables provided by the assessee, including agreements with QUIKCAT Inc., Postal Software Inc., and Oracle, due to reasons such as undated agreements and differences in transaction nature. The DRP upheld the TPO's decision. The Tribunal noted that the TPO did not adopt any prescribed method for determining the ALP and failed to consider the CUP method used by the assessee. The Tribunal found the benchmarking done by the assessee more acceptable and allowed the ground in favor of the assessee. Issue 2: Adjustment of ALP for Payment of Regional Administration, Regional Coordination, and Worldwide Training Cost Allocation The AO/TPO determined the ALP for this transaction at Nil instead of Rs. 4,21,32,081 as claimed by the assessee, citing insufficient supporting evidence. The DRP upheld this decision. The Tribunal observed that the TPO did not use any prescribed method to determine the ALP and failed to consider the CUP method adopted by the assessee. The Tribunal allowed the ground in favor of the assessee, accepting the benchmarking done by the assessee. Issue 3: Adjustment of ALP for Payment of Information Technology Cost Allocation The TPO made an ad hoc adjustment, determining the ALP at Rs. 50,00,000 instead of Rs. 4,29,27,940 as claimed by the assessee, arguing that the cost allocation was excessive. The DRP upheld this decision. The Tribunal noted that the TPO did not adopt any prescribed method for determining the ALP and disregarded the CUP method used by the assessee. The Tribunal found the benchmarking done by the assessee more acceptable and allowed the ground in favor of the assessee. Issue 4: Disallowance of Foreign Travel Expenses The AO disallowed Rs. 15,85,847 incurred on foreign travel expenses for family members of employees, citing lack of supporting evidence to prove business purpose. The DRP upheld this decision. The Tribunal directed the AO to verify if fringe benefit tax was paid by the assessee for these expenses and to allow the claim accordingly, following the decision of the co-ordinate bench in the assessee's own case for A.Y. 2008-09. Issue 5: Short-granting of TDS Credit The assessee claimed a short-granting of TDS credit by Rs. 4,10,94,623. This ground was not pressed before the Tribunal and was dismissed. Issue 6: Charging of Interest under Section 234D The assessee challenged the charging of interest under section 234D. This ground was not pressed before the Tribunal and was dismissed. Issue 7: Initiation of Penalty Proceedings under Section 271(1)(c) The assessee challenged the initiation of penalty proceedings under section 271(1)(c). The Tribunal found this ground premature and dismissed it. Conclusion: The Tribunal partly allowed the appeal, accepting the assessee's benchmarking for the ALP adjustments in grounds 1 to 3 and directing verification of fringe benefit tax payment for foreign travel expenses in ground 4. Grounds 5, 6, and 7 were dismissed.
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