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2022 (12) TMI 278 - AT - Income TaxTP adjustment - reimbursement of expenses - HELD THAT - As in the present case, no search was conducted to find out the independent entity in a comparable transaction and the arm s length price of the international transaction was treated to be NIL. In the present case, no doubts about payments made by the assessee have been raised by the AO u/s 37 of the Act. Further, accrual of benefit to assessee or the commercial expediency of any expenditure incurred by the assessee cannot be the basis for disallowing the same, as held in the case of EKL Appliances Ltd. 2012 (4) TMI 346 - DELHI HIGH COURT Thus we are of the considered opinion that TPO as well as learned DRP were not justified in treating the value of international transaction of Reimbursement of Expenses to be NIL, in the present case. Accordingly, grounds raised in assessee s appeal are allowed. Disallowance of provision for costs incurred on completed contracts - HELD THAT - The issue arising in the present case is recurring in nature and has been decided in favour of the assessee by the decision of the coordinate bench of the Tribunal forpreceding assessment years. Thus, respectfully following the orders passed by the coordinate bench of the Tribunal in assessee s own case cited 2006 07, 2019 (4) TMI 873 - ITAT MUMBAI , 2007 08 2020 (7) TMI 189 - ITAT MUMBAI , 2009 10 2020 (8) TMI 842 - ITAT MUMBAI , we uphold the plea of the assessee and delete the impugned disallowance of provision for costs incurred on completed contracts. Accordingly, grounds raised in assessee s appeal are allowed. Taxability of excess of progress billings over accumulated costs incurred - HELD THAT - We find that the coordinate bench of the Tribunal in assessee s own case in Thyssenkrupp Industrial Solutions (India) Pvt. Ltd 2019 (4) TMI 873 - ITAT MUMBAI decided similar issue in favour of the assessee. DR could not show us any reason to deviate from the aforesaid orders and no change in facts and law was alleged in the relevant assessment year. The issue arising in the present case is recurring in nature and has been decided in favour of the assessee by the decision of the coordinate bench of the Tribunal for preceding assessment years. Thus, respectfully following the orders passed by the coordinate bench of the Tribunal in assessee s own case cited we uphold the plea of the assessee and delete the impugned addition - Decided in favour of assessee.
Issues Involved:
1. Transfer Pricing Adjustment for Reimbursement of Expenses 2. Disallowance of Provision for Costs Incurred on Completed Contracts 3. Taxability of Excess of Progress Billings Over Accumulated Costs Incurred 4. Non-pressed Grounds (6, 7, 8, 11, 12) 5. Levy of Interest under Sections 234B and 234C 6. Application for Admission of Additional Ground Detailed Analysis: 1. Transfer Pricing Adjustment for Reimbursement of Expenses: The assessee contested the addition of Rs. 3,70,02,253 made by the Deputy Commissioner of Income Tax on account of reimbursement of expenses, arguing that these were paid on an actual basis without any markup. The Transfer Pricing Officer (TPO) determined the arm's length price (ALP) of these reimbursements as NIL, citing the assessee's failure to establish the necessity and benefit of the services. The Dispute Resolution Panel (DRP) upheld this view, emphasizing the 'benefit test' and 'willingness to pay test'. However, the Tribunal noted that the TPO did not conduct any benchmarking analysis or search for comparable transactions. Citing precedents from the Delhi High Court and the jurisdictional High Court, the Tribunal held that the TPO's role is to determine the ALP, not to disallow expenses based on perceived benefits. Consequently, the Tribunal allowed the assessee's appeal on this ground. 2. Disallowance of Provision for Costs Incurred on Completed Contracts: The assessee argued that the provision for costs on completed contracts of Rs. 1,12,70,129 was made based on expert advice and internal documentation. The Assessing Officer disallowed this provision, treating it as an unascertained liability. The DRP upheld this disallowance. However, the Tribunal referred to its own decisions in the assessee's previous assessment years, where similar provisions were allowed. It emphasized that provisions for future expenses on ongoing projects are a recognized practice in the business world and should be allowed. Thus, the Tribunal deleted the disallowance and allowed the assessee's appeal on this ground. 3. Taxability of Excess of Progress Billings Over Accumulated Costs Incurred: The Assessing Officer treated the excess of progress billings over inventories amounting to Rs. 6,43,375 as income. The DRP upheld this decision. The Tribunal, however, referred to its earlier decisions in the assessee's own case, where it was held that the consistent method of accounting followed by the assessee should not be disturbed. As the revenue had accepted this method in previous years and no revenue leakage was established, the Tribunal deleted the addition and allowed the assessee's appeal on this ground. 4. Non-pressed Grounds (6, 7, 8, 11, 12): During the hearing, the assessee did not press grounds 6, 7, 8, 11, and 12. Consequently, these grounds were dismissed as not pressed. 5. Levy of Interest under Sections 234B and 234C: Ground 13 pertained to the levy of interest under sections 234B and 234C, which is consequential in nature. The Tribunal allowed this ground for statistical purposes. 6. Application for Admission of Additional Ground: The assessee filed an application for the admission of an additional ground of appeal but did not press it during the hearing. Therefore, the application was dismissed. Conclusion: The Tribunal partly allowed the appeal for statistical purposes, specifically allowing the grounds related to transfer pricing adjustment, disallowance of provision for costs, and taxability of excess progress billings. The non-pressed grounds were dismissed, and the levy of interest was allowed for statistical purposes. The application for an additional ground was dismissed. The order was pronounced on 22/07/2022.
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