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2015 (5) TMI 645 - AT - Income TaxTransfer pricing adjustment - allocation of expenses for receipt of technical services from AE - Held that - Though the TPO/Assessing Officer has the power and jurisdiction to verify the price paid by the assessee at arm s length, however, instead of examining whether the price paid by the assessee is at arm s length, the TPO proceeded on the premise that the assessee was not in need of the services and the services was not actually availed by the assessee. When the assessee has produced the sufficient evidence that the said services was an inevitable part of the business activity of the assessee then the action of the TPO is not sustainable. Accordingly, we set aside the orders of authorities below qua this issue. Since the assessee has produced the invoices which is based on the per hour charges actually spent by the engineer for providing the services to the assessee, therefore, the test of cost sharing arrangement between the assessee and AE as contended by Ld. DR are not at all relevant on this point because the assessee was charged specifically for the hours spent by the engineer for providing the services. It is not a case of performing the composite activities of the assessee and AE by the common staff and then sharing the cost . The cost was incurred by the AE exclusively for providing the services to the assessee then the principle and test as contended by the Ld. DR would not be applicable. The assessee has also produced the comparative cost charged by the AE from other group concerns. In the absence of any contrary record brought by the TPO/Assessing Officer to show that the price paid by the assessee is not at arm s length we allow the claim of the assessee. - Decided in favour of assesse. TP adjustment on account of commission for securing the contract in India - Held that - On principle, we do agree with the claim of the assessee that he said amount of commission was obligation of the AE (Malaysia) for securing the project and once the project was transferred to the assessee for execution and in turn the assessee has earned a handsome revenue from the said project then the liability of payment of commission was fastened on the assessee being a contractual obligation. Therefore, denial of the claim of the assessee is not justified which in total disregard of the evidence produced by the assessee. The assessee has also produced the evidence of actual payment of amount in question after deduction of TDS. The only question which remains unanswered is whether the amount in question was in turn paid by the Malaysian AE to the agent. The assessee has not produced any evidence in this respect that the amount was finally paid to the third party being LTC technical works. Hence he accept the claim of the assessee subject to the verification of corresponding payment by the Malaysian AE to the agent namely LTC technical works. Accordingly, the Assessing Officer/TPO is directed to verify this fact from the record to be filed by the assessee and then consider the claim in the light of above observation - Decided in favour of assesse for statistical purposes. Disallowance of depreciation on software - Held that - There is no element of any mark up or profit by the parent company of the assessee. It was a mere reimbursement of the cost of the software in question. So far the need and benefit of the software in question for the assessee s business activity is concerned, the assessee has brought on record how the software was useful for day to day business of the assessee as not only it is useful but it is inevitable for certain activities to have the access to the drawings provided by the clients which is used as source information by the assessee to start with the project. It is pertinent to note that without knowing the details of the project, the assessee could not even participate in the tender. Therefore, the software which enables the assessee to open the graphics/design and drawings of the projects is very much essential for day to day business activity of the assessee. Thus, we are of the view that the disallowance of depreciation by the DRP is only on the basis of assumptions by disregarding the relevant facts as well as the evidence brought on record by the assessee. Accordingly, we set aside the orders of authorities below on this issue and allow the claim of depreciation. - Decided in favour of assesse. TP adjustment on account of Travel expenses - Held that - Visit and stay of Mr. Stan Wojicierczk, in India was along with Managing Director of the assessee Mr. Raj Lakhani. The assessee furnished the complete details and vouchers in respect of the expenditure. Further the payment details were also furnished which show that the expenses were initially incurred by Mr. Stan Wojicierczk. Therefore, when the entire expenditure was incurred for hotel stay and travel of both Mr. Stan Wojicierczk and Mr. Raj Lakhani then reimbursement of 50% of the expenses does not involve any payment to the AE but it was reimbursement of expenses. Since the Assessing Officer/TPO has disallowed the claim and treated the ALP at nil for want of details and evidence, therefore, in the facts and circumstances of the case and in the interest of justice, we set aside this issue to the record of Assessing Officer/TPO to consider the evidence furnished by the assessee and then decide the same after giving an opportunity of hearing to the assessee. Decided in favour of assesse by way of remand.
Issues Involved:
1. Transfer pricing adjustment on account of allocation of expenses for receipt of technical services from AE. 2. Transfer pricing adjustment on account of commission for securing the contract in India. 3. Disallowance of depreciation on software. 4. Transfer pricing adjustment on account of reimbursement of travel expenses of personnel of AE. Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment on Account of Allocation of Expenses for Receipt of Technical Services from AE: The assessee, a subsidiary of PERI (GmbH) Germany, is involved in providing formwork and scaffolding material to construction companies. The assessee paid Rs. 2,24,848 towards cost allocation to AE for technical services. The TPO questioned the necessity and actual availing of these services, determining the ALP at nil due to lack of sufficient evidence from the assessee. The DRP upheld this adjustment. However, the tribunal found that the services were essential and inevitable for the assessee's business, given its initial stage and lack of in-house expertise. The tribunal noted that the assessee provided sufficient evidence, including invoices and design documents, proving the services were rendered. Consequently, the tribunal set aside the TPO's adjustment, recognizing the cost allocation based on the hours spent by AE's engineers as justified. 2. Transfer Pricing Adjustment on Account of Commission for Securing the Contract in India: The assessee paid Rs. 45,28,743 as commission to PERI Malaysia, claiming it as a reimbursement for securing a contract in India. The TPO and DRP treated the ALP of this payment as nil, questioning the necessity and justification of the commission. The tribunal noted that the project was initially awarded to PERI Malaysia and later transferred to the assessee, with the commission being part of the original agreement. The tribunal acknowledged the significant revenue generated from this project and found the payment of commission justified as a contractual obligation transferred along with the project. However, the tribunal directed the Assessing Officer/TPO to verify if the commission was indeed paid to the third party, LTC Technical Works, before allowing the claim. 3. Disallowance of Depreciation on Software: The assessee claimed Rs. 11,73,864 for software, which was capitalized, and depreciation of Rs. 3,62,441 was claimed. The TPO determined the ALP of the software expenses at nil, questioning the necessity of the software. The DRP upheld the disallowance of depreciation. The tribunal found that the software was essential for the assessee's business, enabling it to access design and drawing files necessary for its operations. The tribunal noted that the software cost was a mere reimbursement of the actual cost incurred by the parent company without any markup. Consequently, the tribunal allowed the claim of depreciation, setting aside the orders of the authorities below. 4. Transfer Pricing Adjustment on Account of Reimbursement of Travel Expenses of Personnel of AE: The assessee claimed Rs. 6,30,175 for travel expenses, including Rs. 5,50,441 for the travel of PERI GmbH staff in India. The TPO determined the ALP of these expenses at nil due to lack of evidence. The DRP confirmed this adjustment. The tribunal found that the expenses were incurred for business-related travel and stay of both the AE's staff and the assessee's Managing Director. The tribunal noted that the assessee provided detailed evidence, including invoices and payment details. The tribunal set aside this issue to the Assessing Officer/TPO for reconsideration, directing them to examine the evidence furnished by the assessee and decide accordingly. Conclusion: The tribunal partly allowed the appeal, setting aside the adjustments made by the TPO/DRP on various grounds and directing further verification where necessary. The tribunal emphasized the importance of considering the business necessity and actual evidence provided by the assessee in determining the arm's length price of the transactions.
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