2024 (4) TMI 132 - AT - Income Tax

TP adjustment - margin computation for provision of services to the AEs by the assessee - AR submitted that for the assessment year 2020-21, while computing the operating margin on cost for rendering of the same engineering and other related services, the learned TPO considered only the segmental operating margin on cost, but not at the entity level - HELD THAT - We are of the considered opinion that the details furnished by the assessee in respect of margin computation for provision of services to the AEs by the assessee, vide Annexure-A to the submissions made before the TPO on 08/01/2021 deserves consideration and for such purpose, we restore the issue to the file of the AO/ TPO, who will consider the same and take a fresh look on this issue, after affording an opportunity to the assessee. Ground raised treated as allowed for statistical purpose. Adjustment towards reimbursement of expatriates salary, bonus and the provident fund costs - AR submits that the copy of the deputation agreement is now available with them and they are ready to furnish the same and therefore an opportunity may be granted to the assessee to produce such agreement before the authorities and get the matter disposed of on merits - HELD THAT - As in view of the fact that the earlier issue was restored to the file of the learned AO/TPO, we deem it just and proper to restore this issue also to the file of the learned AO/learned TPO with a direction to the assessee to produce all the requisite documents sought by the TPO on the earlier occasion and cooperate with the proceedings. Ground is accordingly treated as allowed for statistical purpose. Disallowance of miscellaneous expenditure considering the same as prior period expenses and also capital in nature - According to the assessee, for the purpose of construction of a temporary site office, the assessee entered into a service contract and incurred an expenditure on account of site mobilization work subcontracted and submitted the invoices - HELD THAT -We find force in the argument of the learned AR and since this matter requires verification at the end of the learned AO/learned TPO, this issue is also restored to the file of the learned AO/learned TPO to verify the invoices and take a view as to the nature of this expenditure. Loss on projects - assessee submitted that it is following the Accounting Standard-7-Construction Contract describes and lays out the accounting treatment in respect of the revenue and costs in relation to a construction contract and it has to be used in for the accounting of construction contracts in the financial statements of the contractors - HELD THAT - We deem it just and necessary to give an opportunity to the assessee to take such a plea before the learned DRP and to have the facts verified by the learned DRP in the light of ICDS-III. For this purpose, we restore this issue to the file of the learned DRP and the assessee will make all the submissions relating to this aspect to the learned DRP. Appeal of the assessee is treated as allowed for statistical purposes

Summary

Issues Involved:
1. Transfer Pricing Adjustments (Ground No. 5)
2. Reimbursement of Expatriates' Salary, Bonus, and Provident Fund Costs (Ground No. 6)
3. Disallowance of Miscellaneous Expenditure (Grounds No. 8 and 9)
4. Provision for Loss on Projects (Ground No. 10)

Summary of Judgment:

1. Transfer Pricing Adjustments (Ground No. 5):
The assessee argued that the learned TPO should restrict or proportionate transfer pricing adjustments to international transactions with AEs only, specifically for engineering services and receipt of technical advisory services. The learned AR cited various case laws asserting that adjustments should be limited to international transactions and not at the entity level. The Tribunal found merit in the assessee's argument, noting that the assessee had provided detailed margin computations for AE transactions, which were not considered by the authorities. The Tribunal restored the issue to the file of the learned AO/learned TPO for fresh consideration, directing them to consider the segmental data provided by the assessee.

2. Reimbursement of Expatriates' Salary, Bonus, and Provident Fund Costs (Ground No. 6):
The assessee contended that these expenses were incurred for administrative convenience and should be reimbursed by the AE. The learned TPO and DRP had rejected the claim due to the lack of documentary evidence. The assessee now possesses the necessary documents and requested an opportunity to present them. The Tribunal restored this issue to the file of the learned AO/learned TPO, directing the assessee to provide all requisite documents for proper adjudication.

3. Disallowance of Miscellaneous Expenditure (Grounds No. 8 and 9):
The assessee argued that the expenditure of Rs. 1,09,86,866/- was related to the current year and not prior period expenses, supported by invoices dated within the relevant financial year. The Tribunal found the argument plausible and restored the issue to the file of the learned AO/learned TPO for verification of the invoices and determination of the nature of the expenditure.

4. Provision for Loss on Projects (Ground No. 10):
The assessee claimed a provision for loss on a project under Accounting Standard 7-Construction Contract, which the learned AO disallowed. The assessee referred to para 22.2 of ICDS-III, which was not considered by the learned DRP. The Tribunal restored this issue to the file of the learned DRP, directing the assessee to present all relevant submissions and documents for proper examination in light of ICDS-III.

Conclusion:
The appeal of the assessee is treated as allowed for statistical purposes, with all contested issues restored to the respective authorities for fresh consideration and verification.