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TMI Blog2017 (11) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... couraged in the normal business. Since there are no comparable cases in the market, and also it is the business decision of the assessee to share the employee cost with other sister concerns on cost to cost basis. Accordingly, the addition of markup should be deleted. For the limited purpose of verification of transaction whether the transactions are routed through books, it is remitted to the AO. Accordingly, ground raised in C.O. is allowed for statistical purposes. - ITA No. 1693/Hyd/2016 And C.O. No. 05/Hyd/2017 - - - Dated:- 27-10-2017 - SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER For The Revenue : Shri Bandi Ramakrishna For The Assessee : Shri R. Vijayaraghavan ORDER PER S. RIFAUR RAHMAN, A.M.: This appeal is preferred by the revenue against the order of the learned Commissioner of Income-tax(Appeals) - 5, Hyderabad dated 30/09/2016 for AY 2011-12. 2. Briefly the facts of the case are that the assessee is engaged in research and analytical testing of pharmacopeia and other related processes. It filed its return of income on 29/11/2011 declaring an income of ₹ 2,41,55,041 and offered book profit u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um, of ₹ 68,87,500/- was paid by the company. Further, an annual lease rental varying from ₹ 10,985/- to ₹ 2,55,125/- had been agreed between both the parties. When the AO asked the assessee as to why the said lease premium cannot be treated as capital expenditure, the AR of the assessee submitted that the lease premium was paid for acquiring the land on lease and the lease of land is solely for the purpose of the business of the company. Further, he submitted that the lease premium was paid as an advance rent which is non-refundable in nature and, therefore, the lease premium is allowable as business expenditure in the year of payment. Rejecting the submissions of the assessee, the AO held that the amount paid being in the nature of onetime payment for acquiring lease rights for 33 years, i.e. rights over asset of enduring nature, the payment was capital in nature. Following his decision in AY 2010-11, the AO disallowed the said amount treating the same as capital in nature. On appeal, the CIT(A) deleted the disallowance. 6.1 In ground No. 2, the revenue has raised that ld. CIT(A) has ignored the decision of Apex Court in the case of M/s Panbari Tea Ltd. (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue in nature. We relied on the above ratio and adjudicated in the assessee s own case in AY 2010-11, which is extracted as under: 10. With regard to ground No. 3, CIT(A) had not followed the decision of the jurisdictional High Court in the case of Mrs. G. Seetha Kamraj Vs. CIT, we find from the record that in the present case, the assessee had entered into an agreement with ICICI Knowledge Park for lease of vacant land for 33 years for an annual lease amount varying from ₹ 16,901/- to ₹ 1,47,298/-. The assessee had also paid a one time consideration as lease premium of ₹ 99,03,750/-. In the present case, the assessee had paid the above sum as lease premium and claiming the same as revenue expenditure, Whereas in the case referred by the revenue in the ground is distinct from the present case as the assessee (Mrs. G. Seetha Kamraj) took on lease for 99 years a building from her husband and as per terms of the lease, assessee paid ₹ 5000 as premium for obtaining the lease and was to pay monthly rent of ₹ 300/-. The lease had also a right to create sub-lease and she created a sub-lease in favour of 3rd party. The assessee received a lumpsum of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd dismiss the grounds raised by the revenue. 6.2 In the result, appeal of the revenue is dismissed. C.O. No. 05/Hyd/2017 7. In C.O. the assessee has raised the following objections: Transfer Pricing adjustment on account of reimbursement of expenses received from Associated Enterprises ('AEs') 1. That on the facts and circumstance of the case and in law, the learned Commissioner of Income-tax (Appeals) - 5 ['CIT(A)'] erred, both in facts and in law, in confirming the transfer pricing adjustment of ₹ 13,52,778 with respect to reimbursements received from its Associated Enterprises (AEs'). 2. That on the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the ad-hoc mark-up of 10% on salary recharged to the AEs, as applied by the learned AO/TPO while computing transfer pricing adjustment. 3. Without prejudice to the above grounds, the learned CIT(A) erred is rejecting, without cogent reasons, the judicial precedents relied upon by the Respondent. 4. The Respondent craves, to consider each of the above grounds of cross-objection without prejudice to each other and craves leave to add, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, concluded that the arm s length price of reimbursements received was ₹ 1,48,80,563/- and the shortfall of ₹ 13,52,778/- was treated as adjustment u/s 92CA of the Act and the total income of the assessee enhanced accordingly u/s 92CA(3) of the Act. 9. Aggrieved by the order of TPO/AO, the assessee carried the matter in appeal before the CIT(A) and contended that reimbursements received by the Assessee cannot be construed as operational in nature as alleged by the Ld. TPO. The reimbursements received by the Assessee were not connected to the principal transactions of providing services to AE and therefore, cannot be considered as part of services rendered by the Assessee to the AE. He submitted that it merely acted as an intermediary/facilitator in the entire transaction. Therefore, the Assessee submitted that it is a pure cost-to-cost reimbursement and hence application of mark-up is not proper in the instant case. In support of the Assessee s contention that reimbursements should be not subjected to mark-up, it relied on various case laws. 10. After considering the submissions of the assessee, the CIT(A) upheld the action of TPO by observing as below: Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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