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TMI Blog2019 (3) TMI 1458X X X X Extracts X X X X X X X X Extracts X X X X ..... ue to be paid at the close of the year. We find no merit in the stand of authorities below. It is an understanding between the parties, which has to be looked into and the expenses have to be allowed on accrual basis specially where the assessee is following mercantile system of accounting. Merely because the amounts were due at the close of the year, would not disentitle the assessee from claiming the said expenditure. coming to the next aspect of the disallowance of assessee on the ground whether any services were availed or not. The assessee in this regard has furnished additional evidence before the CIT(A), copies of which are placed at pages 79 to 173 of Paper Book. The said evidence is in the form of various emails exchanged between employees of the assessee and personnel of holding company. We have gone through the said evidence and we are of the view that the assessee had established its case of availment of said services. Following the same parity of reasoning in the case of Emerson Climate Technologies (India) Ltd. Vs. DCIT [2017 (12) TMI 1568 - ITAT PUNE] and EATON FLUID POWER LIMITED VERSUS THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-8, [2018 (6) TMI 1266 - ITAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o transfer pricing documentation, wherein the details of project based services rendered by associated enterprises were furnished. The assessee also referred to the details furnished of man hours spent by associated enterprises personnel on the activities of assessee. In part II of Appendix, the assessee claims to have filed functional activities performed by associated enterprises and percentage time spent for each of the activities by the associated enterprises towards business goals of assessee company. Further, the assessee furnished copy of agreement, sample invoices and basis for charges with respect to the aforesaid fees. It was stressed that this fees was reimbursed at actual and do not involve any profit margin markup. It was further explained that the year under consideration was the fifth year of operations. The activities and staff in India were supervised by a resident Director, who was responsible for India operations. The assessee s revenues were earned from software sales to customers located mainly in USA. Further, it was pointed out that in the initial years, with a view to support the startup expenses incurred by the promoters / associated enterprises on activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... encing from April, 2009 to March, 2010. The CIT(A) was of the view that this clearly showed the intention to book expenditure by way of Management Fees at the end of the year, by journal entries and claim loss under the head Income from business . The CIT(A) further observed that Even otherwise, the appellant has not demonstrated with credible evidences that the expenditure in question was incurred wholly and exclusively for the purpose of business of appellant or for the projects of appellant except furnishing copies of the above said invoices raised by IMC Inc. The CIT(A) thus, upheld the disallowance of Management Fees to the extent of ₹ 2.62 crores, claimed to have been reimbursed to the holding company IMC Inc, USA. 6. The assessee is in appeal against the order of CIT(A). 7. The learned Authorized Representative for the assessee pointed out that Management Fees of ₹ 2.62 crores paid by assessee to its holding company was disallowed by the Assessing Officer under section 37(1) of the Act, on the ground that no benefit arose to the company on payment of such Management Fees. It was pointed out that the Assessing Officer had allowed salary paid to Shri Rahul C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration, the assessee had booked management fees expenses of ₹ 3.32 crores. The said expenditure included salary paid to one Shri Rahul Chikto, who was helping in the operations of assessee company and the Assessing Officer allowed the claim to the extent of ₹ 61,32,462/-. The balance amount of ₹ 2.62 crores was paid to parent company. But the Assessing Officer was of the view that the amount paid was huge especially when the business of assessee resulted in losses during the year under consideration. Hence, he disallowed said sum of ₹ 2.62 crores. Another point which was raised by the authorities below was the benefit test that the said payment made by the assessee did not result in any accrual of any benefit to the assessee company. First of all, we shall address the issue of benefit test. The Tribunal in various cases has already addressed the issue and has pointed out that assessing authorities could not sit in the judgment of business module of assessee and its intention to avail or not to avail any services from its associated enterprises. The assessee is best person to decide whether it wants to avail such services and in such circumstances, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w does not require the assessee to demonstrate the need for availing the services. The assessee is best person to arrange its affairs to conduct the business in the manner it wants and Revenue cannot step into the shoes of businessman to decide what is necessary for the businessman and what is not. The TPO is not empowered to question the decision of assessee to avail support services from the associated enterprises. The decision taken by the assessee in the course of carrying on its business is commercial decision and the TPO cannot question such commercial wisdom of assessee s decision. The second linked issue which has been raised is that the assessee did not benefit from such support services where the assessee has shown losses during the year. 24. The Mumbai Bench of Tribunal in Dresser-Rand India (P) Ltd. Vs. Addl.CIT (supra) had held that We have further noticed that the TPO has made several observations to the effect that, as evident from the analysis of financial performance, the assessee did not benefit, in terms of financial results, from these services. This analysis is also completely irrelevant, because whether a particular expense on services received actually b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous data available on record shows that it is highly technical and the same has been used by the assessee for carrying on its business activities, such evidence cannot be brushed aside being not upto the mark. The TPO had referred to part of the data and drew conclusion, which is not warranted in any case. 13. Applying the said ratio to the facts of the present case, we first hold that the assessee as part of its agreement with its holding company, agreed to pay management fees and such payment of management fees cannot be brushed aside on the ground that no benefit has arisen to the assessee company for reaching such conclusion. The Assessing Officer had raised two fold objections that no such payment was made in earlier years and payment during the year has resulted in losses. The reason for non-payment in earlier years was that the holding company was supporting operations of the assessee, in order to allow the assessee to establish its business modules but on a later date, the parties agreed to reimbursement of services provided by associated enterprises by way of management fees. The basis for raising invoices by the holding company was the posting of labour time sheets f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee and personnel of holding company. We have gone through the said evidence and we are of the view that the assessee had established its case of availment of said services. The assessee had further filed account extract of the holding company IMC Inc, USA, (now M/s. Alyx Inc USA), placed at pages 174 to 176 of Paper Book, to point out that the amount due has been paid on 12.04.2010. Another evidence which has been relied upon by the assessee is the copy of Incurred Cost submission of IMC Inc USA furnished to US Authorities along with Certificate of Final Indirect Costs, calculation of O/H rate and supporting schedules for 2009 and 2010, which is placed at pages 1 to 19 of Paper Book-3. In support the assessee had placed on record the invoices for management fees raised by IMC Inc USA for December 2009 at pages 20 and 21 of Paper Book-3. 15. The Pune Bench of Tribunal in the case of Emerson Climate Technologies (India) Ltd. Vs. DCIT (supra) while deciding the issue of allowability of advisory support services had held as under:- 30. The next issue on which the arm's length price of international transactions was adopted at Nil was the observations of Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intention to avail the said services is to carry out his business on worldwide platform. The total turnover of assessee for the year was ₹ 173 crores and the services availed from associated enterprises were intermingled to the extent that the Tribunal in earlier years has directed that for benchmarking international transactions undertaken by the assessee, import of raw materials for manufacturing purpose and export of finished goods should be aggregated. The information technology services availed by the assessee also relate to aforesaid business carried on by the assessee and hence, we find merit in the plea of assessee in aggregating the same with other international transactions undertaken by the assessee with its associated enterprises. Accordingly, we hold so. In any case, the assessee in the reasons for filing additional evidence has pointed out that information was filed before the TPO along with agreement and certificate of Eaton China, but thereafter, no other query was raised by TPO or any clarification was sought in respect of information technology services availed. The assessee thus, was under the bonafide belief that the documents and explanation furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X
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