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2020 (8) TMI 353 - AT - Income TaxTP Adjustment - addition on account of Arm's Length Price - comparable selection - application of TNMM or RPM or CUP - HELD THAT - We find the ld. CIT(A) has simply mentioned that he agrees with the submissions made by the appellant wherein it has highlighted various business and commercial reasons for non-applicability of TNMM method. He has not given any categorical finding that TNMM is not the most appropriate method under the facts and circumstances of the case. Assessee has not given full data for applicability of CUP as the most appropriate method. Assessee has not given full data for additives for application of CUP as the most appropriate method. So far as base oil is concerned, the assessee has given data for ₹ 21 crore whereas the total input is of ₹ 44.44 crores and, therefore, in absence of full details, CUP analysis could not have been done for the base oil. So far as trading segment is concerned, we find the assesseee for the first time has gone before the CIT(A) for segmental RPM for the trading segment. This was not there in the original study. Here is absolutely no complete analysis of the data. Various comparables selected by the TPO has not at all been considered by the CIT(A). Further, we are of the opinion that if RPM is approved, then, the TPO should be given opportunity for analysis of cost base of comparables, segmental details and benchmarking process. So far as service fee is concerned, the assessee has to first prove that the foreign AE is the least complex party and relevant data should be available in public domain or the assessee should give full details.Nothing is coming out of record regarding the submission of the details. Initial years of transfer pricing proceedings, we deem it proper to restore the issue to the file of the AO/TPO for deciding the issue afresh and in accordance with the law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. Ground of appeal No. 1 by the Revenue is accordingly allowed for statistical purposes. Expenditure on foreign travel - Allowable business expenditure - AO disallowed being 20% of such expenditure on the ground that the assessee did not establish that the amount in question was an expenditure laid out wholly and exclusively for the purpose of business - CIT(A) deleted the addition on the ground that the employee of the assessee provided an undertaking that foreign travel expenditure is towards the business purpose only and the same had also been approved by the senior to whom the relevant employee reports to - HELD THAT - As decided in own case 2009 (4) TMI 1032 - ITAT DELHI some of the emails were not furnished by the assessee but in view of the details furnished by the assessee, it cannot be said that the expenditure is not incurred or not allowable at all. On the facts and circumstances of the case, in our opinion, the Assessing Officer was justified in disallowing partial amount - Decided against assessee. TDS u/s 195 - Addition u/s 40(a)(i) - expenditure incurred in foreign currency for which no TDS has been deducted - CIT(A) deleted the addition on the ground that substantial amount of expenditure pertained to the year prior to the financial year 2003-04 and, therefore, the AO is not justified in disallowing the entire foreign exchange payment without identifying the payment pertaining to the actual accrual made during the year - HELD THAT - Even otherwise, the ld. CIT(A) has threadbare analysed each and every item and given justification for deletion of the same, the operative para of which has already been reproduced in the preceding paras. The ld. DR could not point out any error in the order of the CIT(A) on this issue so as to take a contrary decision. Since the ld. CIT(A) has given justifiable reasons for deleting the addition made by the AO, therefore, in absence of any contrary material brought to our notice by the ld. CIT-DR, the order of the CIT(A) on this issue is upheld and this ground raised by the Revenue is dismissed.
Issues Involved:
1. Deletion of disallowance on account of Arm's Length Price (ALP) adjustment. 2. Deletion of disallowance on account of foreign travel expenditure. 3. Deletion of disallowance under Section 40(a)(i) for non-deduction of TDS on foreign currency expenditure. Issue-wise Detailed Analysis: 1. Deletion of Disallowance on Account of Arm's Length Price (ALP) Adjustment: The Revenue challenged the deletion of ?17,40,08,078/- made by the Assessing Officer (AO) on account of ALP adjustment. The assessee, a subsidiary of Mobil Petroleum Company Inc., USA, engaged in manufacturing and trading lubricants in India, had entered into various international transactions with its Associated Enterprises (AEs). The Transfer Pricing Officer (TPO) analyzed these transactions and made adjustments using the Transactional Net Margin Method (TNMM), rejecting the assessee's use of the Cost Plus Method (CPM) and Comparable Uncontrolled Price (CUP) method. The Commissioner of Income Tax (Appeals) [CIT(A)] held that each international transaction should be evaluated separately. The CIT(A) found that the assessee's use of internal CUP for benchmarking the import of base oil was appropriate, as the prices charged by the AE to unrelated third parties were higher than those charged to the assessee. For the trading segment (import of lubricants), the CIT(A) accepted the use of the Resale Price Method (RPM), as the assessee merely resold the imported products without adding value. For the service fee, the CIT(A) accepted the use of TNMM with the foreign AE as the tested party, citing various judicial precedents. The Tribunal found that the CIT(A) had not given a categorical finding on the non-applicability of TNMM and noted that the assessee had not provided full data for CUP analysis. The Tribunal restored the issue to the AO/TPO for fresh examination, emphasizing the need for a complete analysis of data and comparables. 2. Deletion of Disallowance on Account of Foreign Travel Expenditure: The AO disallowed ?4,28,878/- out of ?21,44,386/- incurred on foreign travel, citing insufficient proof of business purpose. The CIT(A) deleted the addition, noting that the employees provided undertakings that the travel was for business purposes and approved by their seniors. The Tribunal upheld the AO's disallowance, referencing its decision in the assessee's case for the preceding year, where a similar disallowance was made and upheld. 3. Deletion of Disallowance Under Section 40(a)(i) for Non-Deduction of TDS on Foreign Currency Expenditure: The AO disallowed ?17,25,71,749/- incurred in foreign currency, citing non-deduction of TDS under Section 195. The CIT(A) found that a substantial portion of the expenditure pertained to prior years and provided detailed reasons for deleting the disallowance for each category of expense (professional fees, royalty, external allocations, salary, and other expenses). The Tribunal upheld the CIT(A)'s decision, noting the detailed analysis and justifiable reasons provided for the deletion. The CIT(A) had demonstrated that the payments were either not taxable in India under the relevant tax treaties or that TDS had already been deducted and paid. Conclusion: The Tribunal partially allowed the Revenue's appeal for statistical purposes, restoring the issue of ALP adjustment to the AO/TPO for fresh examination, while upholding the CIT(A)'s decisions on foreign travel expenditure and disallowance under Section 40(a)(i).
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