2015 (10) TMI 161 - AT - Income Tax

Inclusion of reimbursement of expenses for the purpose of computing commission income - Held that - As decided by the Tribunal in assessee s case for A.Y. 2007-08 if the Schedule A categorically provides that commission is not to be computed on the sale orders which requires the procurement of local content by the assessee, then on such procurement of equipments by the assessee, commission cannot be imputed, because it is the reimbursement of the cost of local equipments procured. Further, it appears that this relevant piece of document which is also a part of Distribution and Representation Agreement , has not been examined by the Assessing Officer. Therefore, for the purpose of verification and examining of the content of this Schedule, we restore the matter back to the file of AO, to adjudicate this issue afresh in light of the aforesaid document, because it changes the entire colour of the conclusion drawn by the AO. - Decided in favour of assessee for statistical purpose Addition on account of attribution of profits to Permanent Establishment - Held that - As decided by the Tribunal in assessee s case for A.Y. 2007-08 the assessee branch, does not constitute PE of Varian-Italy and, therefore, the addition being 10% of gross made by Varian Italy to its customer in India, cannot be taxed in the hands of the assessee. - Decided in favour of assessee. Transfer Pricing adjustment - Held that - The assessee has used allocation key of employee head account. The expenses like rent, depreciation, electricity, insurance charges, office maintenance and other miscellaneous expenses have no co-relation with the number of employees. On the contrary, these expenses have a direct bearing to the revenue generation. As per Rule 10-B(1) of the Act, determination of ALP u/s 92CA(2) of the Act, the ALP in relation to an international transaction has to be determined by the most appropriate method. In our considered opinion, the method adopted by the TPO is slightly better than the method adopted by the assessee. More so when the allocation by the assessee is not supported by any certificate from the management. Considering the nature of expenses in totality, we do not find any merit in the case of the assessee. Adjustment of Transfer pricing is accordingly confirmed - Decided against assessee. Short credit of TDS - Held that - We restore this matter to the file of the A.O. The A.O. is directed to verify the detail and allow proper credit of TDS to the assessee. - Decided in favour of assessee for statistical purpose

Summary

Issues:
1. Addition of reimbursement of expenses for computing commission income.
2. Attribution of profits to Permanent Establishment.
3. Transfer Pricing adjustment.
4. Short credit of TDS.
5. Levy of interest under section 234B.

Issue 1 - Addition of Reimbursement of Expenses for Computing Commission Income:
The appellant contested the addition of &8377; 44,22,168 as reimbursement of expenses for computing commission income. The Tribunal referred to a previous decision in the appellant's case for A.Y. 2007-08 and directed the matter back to the AO for fresh adjudication based on relevant documents. Following the previous findings, the Tribunal allowed Ground No. 1 for statistical purposes.

Issue 2 - Attribution of Profits to Permanent Establishment:
The appellant challenged the addition of &8377; 24,46,542 for attribution of profits to Permanent Establishment. The Tribunal relied on a previous decision for A.Y. 2007-08 and held that the appellant branch does not constitute a Permanent Establishment of Varian-Italy. Ground No. 2 was allowed based on the previous findings.

Issue 3 - Transfer Pricing Adjustment:
The Transfer Pricing adjustment of &8377; 87,34,979 was disputed by the appellant. The TPO rejected the allocation based on employee headcount ratio and made the adjustment based on gross profit turnover. The Tribunal upheld the TPO's decision, stating that the method adopted was more appropriate as per Rule 10-B(1) of the Act. The adjustment was confirmed, and Ground No. 3 was dismissed.

Issue 4 - Short Credit of TDS:
The matter of short credit of TDS amounting to &8377; 2,95,335 was directed back to the AO for verification and proper credit allowance to the appellant. Ground No. 4 was allowed for statistical purposes.

Issue 5 - Levy of Interest under Section 234B:
The Tribunal directed the AO to levy interest under section 234B of the Act as per legal provisions. The appeal by the appellant was allowed in part for statistical purposes, with the order pronounced on 26th September 2014.