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2018 (7) TMI 1090 - AT - Income TaxDisallowance of reimbursement of expenses incurred by assessee on behalf of its AE pertaining to travel cost, marketing cost etc. - Held that - Assessee has paid for the cost incurred and that these amounts were charged to AE as reimbursements for actual cost incurred by assessee. We do not find any infirmity in the directions issued by DRP and direct Ld.TPO to compute the adjustment if any by considering actual reimbursement received from AE and actual cost incurred by assessee in operating income/expenditure. Assessee shall file all the requisite bills raised by upon AE relating to reimbursement of the expenses, along with vouchers/bills, proving details of total expenditure incurred by assessee, on behalf of AE. Ld.TPO shall then verify the same. In the event it is found to be reimbursements on actual, no adjustments are called for. AO shall allow the claim of assessee to the extent it is reimbursements of expenditure incurred by assessee on behalf of AE. Selection of comparable - Held that - Assessee is a wholly owned subsidiary of Inductis LLC. It provides IT enabled back-office research and data analytics services to Exl Group Companies (which includes Inductis companies as well) thus companies functionally dissimlar with that of assessee need to be deselected. Disallowance under section 14 A read with rule 8D - Held that - Under such circumstances respectfully following the decision of Hon ble Delhi High Court in the case of Cheminvest Ltd versus CIT (2015 (9) TMI 238 - DELHI HIGH COURT) in our considered opinion Section 14 A cannot be invoked as assessee do not have exempt income for the year under consideration and the disallowance deserves to be deleted.
Issues Involved:
1. Non-compliance with Dispute Resolution Panel (DRP) directions. 2. Transfer Pricing adjustments and computation of Arm's Length Price (ALP). 3. Disallowance of reimbursement of expenses. 4. Interest on outstanding receivables. 5. Inclusion/exclusion of comparables in Transfer Pricing analysis. 6. Disallowance under section 14A of the Income Tax Act. Detailed Analysis: Issue 1: Non-compliance with DRP Directions The assessee contended that the Assessing Officer (AO) and Transfer Pricing Officer (TPO) did not follow certain directions of the DRP while determining the income. However, the Tribunal noted that the AO and TPO were directed to exclude certain companies from the final set of comparables and recompute the transfer pricing adjustment. The Tribunal found that the directions were not properly implemented, leading to the appeal. Issue 2: Transfer Pricing Adjustments and Computation of ALP The Tribunal addressed various grounds related to transfer pricing adjustments: - Depreciation Adjustment (Ground 2.1): Not pressed by the assessee. - Incorrect Profit Level Indicator (Ground 2.2): Not pressed by the assessee. - Reimbursement of Expenses (Ground 2.3): The Tribunal directed the TPO to compute adjustments by considering actual reimbursements received from the Associated Enterprise (AE) and the actual cost incurred by the assessee. - Interest on Receivables (Ground 2.4, 5-9): The Tribunal set aside the issue to the AO/TPO for fresh consideration in light of the Delhi Tribunal's decision in the assessee's own case for the previous assessment year, emphasizing that the assessee is a debt-free company and no interest on receivables should be charged. Issue 3: Disallowance of Reimbursement of Expenses The Tribunal noted that the assessee incurred expenses on behalf of its AE, which were reimbursed at actual cost. The TPO had made adjustments considering these reimbursements as part of the operating income/expenditure. The Tribunal directed the TPO to verify the actual reimbursements and allow the claim to the extent it is reimbursement of expenditure incurred by the assessee. Issue 4: Interest on Outstanding Receivables The Tribunal observed that the TPO re-characterized outstanding receivables as short-term loans and computed interest. The Tribunal referred to its previous decision and the Delhi High Court's judgment, emphasizing that the assessee, being a debt-free company, should not be charged interest on receivables. The matter was remitted to the AO/TPO for fresh consideration. Issue 5: Inclusion/Exclusion of Comparables in Transfer Pricing Analysis The Tribunal addressed the inclusion/exclusion of specific comparables: - Accentia Technologies Ltd: Excluded due to its diversified activities and lack of segmental results. - TCS E-Serve Ltd: Excluded due to its high-level foreign expenditure and abnormal profits. - R Systems International Ltd: Included despite a different financial year ending, as functional dissimilarity was not established. - Informed Technologies India Ltd: Excluded due to its knowledge-based back-office processing services, which differ from the assessee's services. Issue 6: Disallowance under Section 14A of the Income Tax Act The Tribunal noted that the assessee did not earn any exempt income during the year and investments were in a foreign subsidiary, income from which is not exempt in India. Following the Delhi High Court's decision in Cheminvest Ltd. vs. CIT, the Tribunal held that Section 14A cannot be invoked if no exempt income is received or receivable during the relevant year. The disallowance was deleted. Conclusion: The appeal was partly allowed, with directions for fresh consideration on certain issues and deletion of disallowance under Section 14A. The Tribunal emphasized compliance with DRP directions and proper verification of reimbursements and comparables in transfer pricing analysis.
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