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TMI Blog2020 (8) TMI 172X X X X Extracts X X X X X X X X Extracts X X X X ..... ate recovery of expenses from AEs - HELD THAT:- We are of the considered view that there is merit in the above contentions of the Ld. counsel. Having considered the facts as apparent from record, we restore the matter to the file of the AO/TPO to decide the above issue as per the stand of the Department in subsequent years i.e. from AY 2009-10 onwards. Disallowance of foreign travel expenses - HELD THAT:- Admittedly, in the instant case, these expenses have been incurred in connection with the spouses of the employees who accompanied them to the Worldwide Officers Meet. As recorded by the AO, the appellant has failed to produce any supporting evidence to justify its claim of business expediency. As no supporting evidence has been filed before us, we confirm the disallowance. - ITA No. 7600/MUM/2012 - - - Dated:- 31-7-2020 - Shri Saktijit Dey (Judicial Member) And Shri N.K. Pradhan (Accountant Member) For the Assessee : Mr. Jehangir D. Mistri/Aditya Kastiya, AR For the Revenue : Mr. Michael Jerald, DR ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the assessee. The relevant assessment year is 2008-09. The appeal is directed against the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of expense received and paid. The appellant has adopted the Comparable Uncontrolled Price ( CUP ) method to determine the arm s length price (ALP) in respect of the above international transactions entered by it with its AEs. The Transfer Pricing Officer (TPO) has made an adjustment in respect of the following international transactions : International Transaction entered into with AEs Amount of adjustment (Rs.) Payment of License Fees for Time and Billing Software 16,274,359 Regional and Worldwide Training cost allocation 37,307,488 Information Technology Cost Allocation 21,006,610 Reimbursement of Expenses recovered 1,520,688 Total Transfer Pricing Adjustment 76,109,145 The AO passed an order u/s 143(3) r.w.s. 144C(13) making an adjustment of ₹ 6,78,51,641/- towards transfer pricing. In addition to the above transfer pricing adjustments, the AO made an addition of ₹ 7,41,721/- (foreign travel expenses) in the order u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endee, while the expenses incurred in connection with assisting in administrative methods are allocated based on the time spent on each entity for rendering such assistance. The TPO was not convinced with the above submission of the appellant on the ground that the claim is not fully supported by evidence. Further, the TPO noted that the appellant failed to produce complete details and explanation in respect of 26 personnel ; further failed to justify any other services received from BCG Hong Kong. Therefore, the TPO made an addition of ₹ 3,73,07,488/-. As per the direction of the DRP, the AO restricted the disallowance to ₹ 2,90,49,984/-. The 3rd adjustment made by the TPO is in respect of payment for information technology. During the year under consideration, the appellant has paid ₹ 2,60,06,610/- to the parent company in USA towards information technology cost allocation. The appellant submitted before the TPO that BCG Inc. acts as a hub for providing centralized network and project management and other aspects of information technology. It also submitted that BCG Inc. besides providing software application for use by the appellant, also provides global con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her hand, the Ld. Departmental Representative (DR) submits that the TPO has rightly arrived at the transfer pricing adjustments on the basis of documents/evidence available on record. It is stated that in respect of the 1st adjustment of payment of license fees, originally the appellant had submitted a copy of PWC report of 2001 with a letter from PWC that the valuation clearly applies for the current year; whereas after the query from the TPO, the appellant filed another report (May 2009). It was not explained to the TPO why the report prepared in May 2009 was not submitted in the first instance. Regarding the 2nd adjustment, the Ld. DR submits that as the appellant failed to file the complete supporting evidence, the AO has rightly made an addition of ₹ 2,90,49,984/-. Regarding the 3rd adjustment, the Ld. DR explains that the TPO has rightly made the allocation of ₹ 50,00,000/- and disallowed the balance of ₹ 2,10,06,610/-. 7. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. An examination of the order of the TPO made u/s 92CA(3) dated 20.10.2011 clearly indicates that wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that : Consequently, the finding of the Assessing Officer attributing nil value to nine of the services listed in the agreement which were not availed of by the Respondent- Assessee in the present facts was not justified. Moreover, not adopting one of the mandatorily prescribed methods to determine the ALP in respect of fees of technical services payable by the Respondent-Assessee to its AE, make the entire Transfer pricing Agreement unsustainable in law. In M/s Johnson Johnson Ltd . (supra), the Tribunal allowed the respondent-assessee s appeal before it by deleting the addition of ₹ 200.82 lacs being the transfer pricing adjustment on account of sales promotion and publicity expenses being payable by the respondent-assessee s parent M/s Johnson Johnson, USA. This on the ground that the TPO has, while holding that the parent company should share this expenditure on publicity and sales promotion as it benefits therefrom, as higher sales result in higher royalty, has not determined the ALP by following any of the methods prescribed u/s 92C(1) of the Act r.w. Rule 10B. On appeal by the revenue, the Hon ble Bombay High Court held that : (ii) The TPO is obliged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .12.2008, after a gap of 8 months. The TPO calculated an adjustment, by charging interest @ 12.25% which comes to ₹ 15,20,688/-. The AO has followed the order of the TPO. 9. Before us, the Ld. counsel submits that the observations of the DRP on this issue are as under:- As regards, the adjustments on reimbursement of expenses, the AO has accepted most of the reimbursement to make an adjustment only on account of interest not charged on recovery of expenses. This does not seem to be valid in principle as there is no discussion or evidence that the payment to be made to the AE is also charged interest on delay by the assessee. Since, expenses are recovered both ways, interest cannot be charged only on one side by the assessee from the AE. It is further explained that after the above mentioned observations, the DRP should have issued directions for deleting the adjustment. However, it is stated in the DRP's order that the adjustment of ₹ 15,20,688/- should be made. It appears that there is an inadvertent error in the DRP's order while issuing directions on this issue. In the subsequent year i.e. AY 2009-10, the DRP has deleted the adjustment. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustify its claim of business expediency. Because of lack of supporting evidence, the instant case is distinguishable from the general case laws. As no supporting evidence has been filed before us, we confirm the disallowance of ₹ 7,41,721/- made by the AO. However, we direct the AO to verify the claim of the appellant that fringe benefit tax has been paid on the above and make consequential order as per the provisions of the Act. 14. The 6th ground of appeal is dismissed as not pressed. 15. However, before we part with the matter, we must deal with one procedural issue as well. While hearing of these appeals was concluded on 06.03.2020, this order thereon is being pronounced today, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders. Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, a nationwide lockdown was imposed for 21 days to prevent the spread of Covid-19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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