2014 (10) TMI 462 - AT - Income Tax

Computation of ALP Services availed are intra-group services or not Held that - As decided in assessee s own case for the earlier assessment year, it has been held that same Agreements and identical activities and nature of evidences relied and it is not the case of the Revenue that there is any material change in any fact circumstance as undisputedly the agreements remain the same - the assessee is engaged in the business of rendering services in connection with the acquisition, sales and lease of real estate property and other services such as advisory and research, facility management, project management, etc. in the real estate sector - it cannot be said that there is complete absence of evidence submitted by the assessee in respect of services obtained by it from the Mr. Royden Braganza in respect of the revenue earned by the assessee - the observations of the TPO that there is no documentary evidence furnished by the assessee is contrary to record - observations of TPO are not correct - The assessee has been shown to have earned substantial revenues from IBM and that cannot be the result of only incidental benefit received by the assessee from old business relationship between the holding company of the assessee and IBM - without examining any of such details, it cannot be said that the revenue earned by the assessee was only on account of incidental benefit - There is a force in the claim of the assessee that to enable it to earn the revenue from IBM, it was necessary to provide the services to IBM outside India. If such services are provided by the employees of the assessee company, then, it has to incur the cost of its employee who has to travel to the destination and that would result in extra expenditure - if those services are outsourced to the independent party, then also there would be some element of profit to be charged by the said independent party - it cannot be said that there is absence of evidence submitted by the assessee and it will be incorrect to say that the assessee did not furnish evidence to support its contention that it has reimbursed the cost in respect of revenues earned by it on account of services rendered by CWHK - All the details have been furnished on record - The reasons given for upholding the adjustment to arm s length price are same as have been given in respect of CWS - the TPO is directed to make the adjustment Decided in favour of assessee. Referral fee paid to associates - Amount represented the Appellant s income diverted to the group concerns or not Held that - As decided in assessee s own case for the earlier assessment year, it has been held that the disallowance of referral fee is made only on the ground that the assessee was not required to incur it and there was no evidence placed on record to prove the same - The assessee had submitted ample evidence to support the expenditure and it was shows that such expenditure is incurred with respect to revenue earned by the assessee on property transaction referred to the assessee by its associate enterprises - the expenditure incurred by the assessee in respect of transaction referred by AE s was much less than the similar expenditure incurred vis- -vis the independent parties - Such contention was also placed before TPO. No adverse material whatsoever has been brought on record to show that either the evidence submitted by the assessee in this respect was incorrect or the contention of the assessee that expenditure relating to transaction entered into with AE s were less costly was incorrect - Therefore, even on merits there is no justification in upholding the disallowance - the sustenance of addition is not justified Decided in favour of assessee. Unrealized service tax disallowed u/s 43B or not Held that - No doubt legally the issue is in assessee s favour however facts need verification - The arguments of the revenue cannot be out rightly brushed aside and considering the prayer made in the peculiar facts and circumstances has to be accepted as this aspect has never been verified as findings arrived at have been necessarily confined to how the issue has been argued before different forums thus, the matter is to be remitted back to the AO for fresh adjudication Decided in favour of assessee.

Summary

Issues Involved:
1. Re-computation of the arm's length price of transactions.
2. Disallowance of referral fee paid to associates.
3. Disallowance of unrealized service tax under section 43B.
4. Initiation of penalty proceedings under section 271(1)(c).

Detailed Analysis:

Issue 1: Re-computation of the Arm's Length Price of Transactions
The assessee contested the AO's decision to re-compute the arm's length price (ALP) of transactions and to hold that the services availed were not intra-group services, resulting in an addition of Rs. 2,10,93,290/- to the income. The Tribunal noted that the Co-ordinate Bench had considered identical issues in the assessee's own case for the previous assessment year. The Tribunal found that the agreements and the nature of services rendered were the same as in the previous year. The TPO had concluded that the services were incidental and did not meet the criteria for intra-group services, thus determining the ALP to be nil. However, the Tribunal, following the precedent, allowed the assessee's appeal, noting that the revenue had not demonstrated any material change in facts or circumstances.

Issue 2: Disallowance of Referral Fee Paid to Associates
The AO disallowed the referral fee of Rs. 3,40,96,056/- paid to group entities, alleging that the amount represented income diverted to group concerns and no benefit was derived by the assessee. The Tribunal noted that the Co-ordinate Bench had previously addressed identical issues, where it was concluded that the AO did not have the jurisdiction to re-examine the transaction if the TPO did not propose an adjustment. On merits, the Tribunal found that the assessee had provided ample evidence to support the expenditure, showing that the costs incurred were less than those for similar services from independent parties. Thus, the Tribunal deleted the addition, following the precedent.

Issue 3: Disallowance of Unrealized Service Tax under Section 43B
The AO disallowed an amount of Rs. 2,63,60,439/- under section 43B, stating that the service tax was not paid before filing the return and was not routed through the Profit & Loss Account. The Tribunal noted that the issue was covered in favor of the assessee by the Jurisdictional High Court's decision in CIT v. Noble & Hewitt (I) (P.) Ltd., where it was held that if the amount is not debited to the P&L Account, the disallowance under section 43B would not arise. However, the Tribunal directed the AO to verify the facts and provide necessary relief if maintainable, thus restoring the issue to the AO for verification.

Issue 4: Initiation of Penalty Proceedings under Section 271(1)(c)
The Tribunal did not specifically address this issue in detail as the primary focus was on the substantive additions and disallowances contested by the assessee. However, given the Tribunal's decisions on the substantive issues, the initiation of penalty proceedings would likely be impacted accordingly.

Conclusion:
The Tribunal allowed the assessee's appeal on the re-computation of ALP and disallowance of referral fees, following precedents from previous years. The issue of disallowance under section 43B was restored to the AO for verification. The appeal was partly allowed for statistical purposes.