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2022 (5) TMI 35 - AT - Income TaxTP Adjustment - Disallowance of support service charges to ultimate holding company in absence of evidence of service availed - HELD THAT - We do not find any substance in the arguments advanced by the Ld. DR that the Ld. CIT(A) admitted evidence of Agreements without affording opportunity to the Ld. AO as the same were already on the records of the Ld. AO which he duly mentioned in his assessment order. We are also unable to convince ourselves that the Ld. TPO did not apply his mind to all the international transactions entered into by the assessee with its AEs while making adjustment under section 92C of the Act necessitating the Ld. AO to make additional impugned adjustment by resorting to the provision of section 37(1) section 40(a)(i) and section 40A(2) of the Act. Argument of the Ld. DR that section 92CA does not debar the Ld. AO to make adjustment over and above what adjustment is proposed by the Ld. TPO in his assessment order passed after the receipt by him of the Ld. TPO s order under section 92CA(3) - A bare reading of the above provision 92CA reveals that the AO may refer the computation of the ALP in relation to the international transaction with the previous approval of the Commissioner. Where a reference is made to the TPO he will allow the assessee to produce the evidence in support of the computation made by the assessee of the ALP of the international transaction. After hearing such evidence etc. and after taking into account all relevant materials the TPO shall pass an order in writing determining the ALP in accordance with Section 92C(3) and send a copy of his order to the AO and to the assessee. The decision of Bangalore Bench of Tribunal in Herbalife International India (P) Ltd. 2015 (10) TMI 2794 - ITAT BANGALORE applies with full force to the case at hand before us. The crux of the matter is that once the transaction is undisputedly subject matter of chapter X Special Provisions relating to Avoidance of Tax of the Act then other general provisions of the Act cannot be applied simultaneously. We therefore hold that the arguments of the Ld. DR is bereft of any legal substance.Perusal of the appellate order of the Ld. CIT(A) extracted in para 4 above reveals that the Ld. CIT(A) recorded his findings that the TPO considered all international transactions in his order and TP adjustment was only suggested to Employees Secondment and Business Restructuring and therefore these issue should not have been re-examined by the AO afresh. We entirely agree with above findings of the Ld. CIT(A). We are of the view that the Ld. CIT(A) has deleted the impugned addition made by the Ld. AO after recording cogent reasons backed by precedents. We therefore decline to interfere with the order of the Ld. CIT(A). Appeal of revenue dismissed. Disallowance of Support Service charges paid by the assessee to its ultimate holding company (EMCOR Group) and consequent addition to the income of the assessee - HELD THAT - Before us no new plea was taken by the Ld. DR. All his arguments in respect of the same addition have been dealt with by us earlier in our order of the preceding assessment year 2013-14. The submissions of the Ld. AR also remained the same. We have once more carefully perused the orders of the Ld. AO/CIT(A) and arrived at the same conclusion that the Ld. CIT(A) has recorded cogent reasons supported by the precedents with which we agree. Hence we endorse his findings and hold that the impugned disallowance/addition is not justified and the Ld. CIT(A) rightly deleted the impugned addition/disallowance. Accordingly the appeal of the Revenue for assessment year 2014-15 also fails.
Issues Involved:
1. Deletion of addition made by AO on account of disallowance of support service charges due to lack of evidence of service availed. 2. Examination of the arm's length price (ALP) of international transactions by the Transfer Pricing Officer (TPO). 3. Application of sections 37(1), 40(a)(i), and 40A(2) of the Income Tax Act. 4. Admissibility of evidence by CIT(A) without allowing AO to examine. 5. Consistency in disallowance of expenses in subsequent assessment years. Issue-wise Detailed Analysis: 1. Deletion of Addition by CIT(A): The Revenue challenged the deletion of an addition of ?3,11,06,565/- made by the AO on account of disallowance of support service charges. The AO disallowed these charges, arguing that the assessee failed to provide evidence that the expenditure was incurred for business purposes and that the services were actually rendered by the ultimate holding company, EMCOR Group. The CIT(A) deleted the addition, noting that the assessee provided detailed agreements, invoices, and debit notes supporting the expenses, which were considered revenue in nature under section 37(1) of the Act. The CIT(A) also referenced several judicial precedents supporting the allowability of such expenses as revenue expenditures. 2. Examination of ALP by TPO: The AO referred the international transactions to the TPO for determining the ALP. The TPO proposed adjustments for Employee Secondment and Business Restructuring but accepted other transactions without adjustments. The AO, however, made an additional adjustment of ?3,11,06,565/- over and above the TPO's proposed adjustment, which the CIT(A) later deleted. The Tribunal noted that the TPO's order is binding on the AO post-amendment to section 92CA(4) and that the AO should compute the total income in conformity with the ALP determined by the TPO. 3. Application of Sections 37(1), 40(a)(i), and 40A(2): The AO disallowed the expenses under sections 37(1), 40(a)(i), and 40A(2), arguing that the expenditure was not for business purposes and that the services were not rendered. The CIT(A) found that the expenses were indeed for business purposes and were revenue in nature. The Tribunal upheld the CIT(A)'s decision, noting that the TPO considered all international transactions and that the AO should not have re-examined these issues afresh. 4. Admissibility of Evidence by CIT(A): The Revenue argued that the CIT(A) admitted evidence (agreements) without allowing the AO to examine it. The Tribunal found no substance in this argument, noting that the agreements were already on the AO's record and mentioned in the assessment order. The Tribunal held that the CIT(A) deleted the addition after considering all details and documents already on record. 5. Consistency in Subsequent Assessment Years: For the assessment year 2014-15, the AO did not make a reference to the TPO and made an addition following the order of the preceding year. The CIT(A) deleted the disallowance of ?2,56,09,858/- for similar reasons as in the previous year, emphasizing the principle of consistency. The Tribunal upheld the CIT(A)'s decision, noting that the CIT(A) recorded cogent reasons supported by precedents. Conclusion: The Tribunal dismissed the appeals of the Revenue for both assessment years 2013-14 and 2014-15, upholding the CIT(A)'s deletion of the disallowances/additions made by the AO. The Tribunal emphasized that the AO should conform to the TPO's determination of ALP and that the CIT(A) rightly allowed the expenses as revenue in nature, supported by judicial precedents.
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