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2020 (8) TMI 172 - AT - Income TaxTP Adjustment - ALP of the payment has been determined by using CUP as a method for benchmarking and for this purpose, the price of a similar software module licensed by Oracle Corporation was used as a comparable uncontrolled price - HELD THAT - We notice that the TPO/AO has arrived at the ALP by not adopting any of the methods prescribed u/s 92C of the Act in respect of (i) payment of license fees for time and billing software, (ii) payment of regional administration and regional co-ordination cost allocation and (iii) payment of information technology cost allocation. In view of the above factual scenario, we are of the considered view that the ratio laid down by the Hon ble Bombay High Court in Lever India Exports Ltd.; Merck Ltd. 2017 (2) TMI 120 - BOMBAY HIGH COURT , Johnson Johnson Ltd. and Kodak India Pvt .Ltd. 2017 (4) TMI 1281 - BOMBAY HIGH COURT is squarely applicable to the facts of the case. Therefore, following the same, we allow the 1st, 2nd and 3rd ground of appeal. Adjustment on account of late recovery of expenses from AEs - HELD THAT - We are of the considered view that there is merit in the above contentions of the Ld. counsel. Having considered the facts as apparent from record, we restore the matter to the file of the AO/TPO to decide the above issue as per the stand of the Department in subsequent years i.e. from AY 2009-10 onwards. Disallowance of foreign travel expenses - HELD THAT - Admittedly, in the instant case, these expenses have been incurred in connection with the spouses of the employees who accompanied them to the Worldwide Officers Meet. As recorded by the AO, the appellant has failed to produce any supporting evidence to justify its claim of business expediency. As no supporting evidence has been filed before us, we confirm the disallowance.
Issues Involved:
1. Determination of arm's-length price (ALP) for international transactions. 2. Adjustment for late recovery of expenses from associated enterprises (AEs). 3. Disallowance of foreign travel expenses. 4. Credit for Tax Deducted at Source (TDS). Detailed Analysis: 1. Determination of Arm's-Length Price (ALP) for International Transactions: The appellant challenged the AO's adjustments to the ALP of several international transactions, including payments for license fees, regional administration, and information technology costs. - License Fees for Time and Billing Software: The appellant paid ?1,62,74,359 to BCG Holding Corporation, USA, using the Comparable Uncontrolled Price (CUP) method for benchmarking. The TPO disallowed the entire amount, deeming the software's value to be nil, arguing that the software's shelf life had expired. The AO followed the DRP's direction, making the adjustment. - Regional Administration and Coordination Costs: The appellant paid ?2,83,61,859 to BCG Hong Kong for regional training and administrative assistance. The TPO disallowed the entire amount, citing a lack of supporting evidence and justification for the services received. The AO, following the DRP's direction, restricted the disallowance to ?2,90,49,984. - Information Technology Costs: The appellant paid ?2,60,06,610 to its parent company for IT cost allocation. The TPO found the cost allocation unfair and only allowed ?50,00,000, disallowing the balance amount of ?2,10,06,610. The AO followed the DRP's direction in making the addition. The Tribunal found that the TPO did not adopt any prescribed methods under Section 92C of the Act for determining the ALP. Citing precedents from the Bombay High Court, the Tribunal held that the TPO's ad-hoc determination of ALP was unsustainable. Consequently, the Tribunal allowed the appellant's grounds of appeal on these adjustments. 2. Adjustment for Late Recovery of Expenses from AEs: The TPO observed delays in the recovery of reimbursements from AEs and calculated an adjustment by charging interest at 12.25%, amounting to ?15,20,688. The AO followed the TPO's order. The Tribunal noted the DRP's observation that the adjustment lacked validity as there was no evidence that the appellant charged interest on delayed payments to AEs. The Tribunal restored the matter to the AO/TPO to decide the issue in line with the Department's stand in subsequent years, starting from AY 2009-10. 3. Disallowance of Foreign Travel Expenses: The AO disallowed ?7,41,721 claimed by the appellant for foreign travel expenses incurred for non-employees, citing a lack of evidence for business expediency. The AO relied on the Gujarat High Court's decision in Shahibag Entrepreneurs Ltd. The appellant argued that the expenses were incurred at the request of BCG Holdco for a meet, and fringe benefit tax was paid on these expenses. The Tribunal upheld the AO's disallowance due to the appellant's failure to provide supporting evidence. However, it directed the AO to verify the appellant's claim regarding the payment of fringe benefit tax and make a consequential order. 4. Credit for Tax Deducted at Source (TDS): The appellant did not press this ground of appeal, and it was dismissed. Procedural Issue: The Tribunal acknowledged the delay in pronouncing the order due to the COVID-19 pandemic and the resulting lockdowns, citing the Supreme Court and Bombay High Court's orders extending the limitation period. The Tribunal deemed the delay justified under Rule 34(5)(c). Conclusion: The appeal was partly allowed, with the Tribunal granting relief on the ALP adjustments and remanding the issue of late recovery of expenses to the AO/TPO for reconsideration. The disallowance of foreign travel expenses was upheld, subject to verification of fringe benefit tax payment. The ground related to TDS credit was dismissed as not pressed.
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