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TMI Blog2020 (9) TMI 487X X X X Extracts X X X X X X X X Extracts X X X X ..... on for subsequent year i.e. assessment year 2013-14 and for earlier years i.e. assessment year 2009-10 and 2010-11, we direct the learned Transfer Pricing Officer/AO to delete the addition and accordingly we allow ground No. 2-6 of the appeal. Disallowance u/s 14A with Rule 8D - HELD THAT:- Assessee has earned a tax free income in the form of dividend of ₹ 746,786. Admittedly, the assessee has not disallowed any expenditure u/s 14 A. The claim of the assessee is that it has not incurred any expenditure for earning of the exempt income. Assessing Officer without recording of the any satisfaction with respect to the correctness of claim of the assessee, invoke the provisions of Section 14A and applied the computational methodology provided under Rule 8D of the Income Tax Rules. According to Section 14A(2)of the Act, the learned Assessing Officer should have recorded his satisfaction about the correctness of the claim of the assessee. If no such satisfaction is recorded, no disallowance can be made. In the present case admittedly Assessing Officer has not recorded any satisfaction as provided u/s 14A (2) , which is a mandatory requirement, we delete the disallowance u/s 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reholder services. 2.6. disregarding the documentary evidence submitted by the Appellant substantiating the functions performed by the expats and the benefits received by the Appellant. 3. That the Ld. AO/Ld. TPO and Hon ble DRP erred, on facts and circumstances of the case and in law, in re-determining the ALP of transaction relating to expat support services, assuming that no benefit has been conferred upon the Appellant from such payment. In doing so, 3.1. erred in rejecting the transfer pricing documentation and analysis of the Appellant. 3.2. erred in determining the ALP of the international transaction applying the CUP method prescribed under Rule 10B(i)(a) of the Income Tax Rules, 1962 (the Rules) 4. That on facts and law, the Ld. AO and the Hon ble DRP failed to appreciate that the independent third parties operating in similar industry had availed similar expat support services. 5. Without prejudice to the above contentions, the Ld. AO and the Hon ble DRP has erred on facts and in law by ignoring the fact that income earned by the expats has already been taxed in India and subsequent disbursal of post-tax salary does not lead to any tax base e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : serial number nature of international transaction amount methods applied for benchmarking by assessee arithmetic mean of comparable companies author metric mean of tested party 1 availing of technical services 8,03,08,259 transactional net margin method 11.09% 10% 2 rendering of technical services 1 91,30,581 transactional net margin method 10.25% 10% 3 reimbursement of expenses received 68,25,889 comparable uncontrolled Price 4 Reimbursement of expenses paid 7,98,52,317 Comparable uncontrolled Price 7. According to the transfer pricing study report by the assessee above transactions were stated to be at arm s-length. The learned Transfer Pricing Officer also did not object to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee from expat employees are nothing but a duplication of services for the reason that similar services have been provided by the parent entity for which technical service fee has been already paid by the assessee. Accordingly the learned Deputy Commissioner Of Income Tax, Transfer Pricing Officer 3(3)(2), New Delhi ( The LD TPO) passed an order u/s 92CA(3) of the Income Tax Act on 20th January 2016 proposing above adjustment. Consequently draft assessment order was proposed by the learned assessing officer on 4 March 2016 wherein above adjustment was included over and above other two corporate tax adjustments/ additions. The first corporate adjustment was proposed by the learned AO noting that assessee has earned dividend income of ₹ 746,786/- which has been claimed as exempt income, however , no expenditure has been allocated by the assessee for disallowance u/s 14A of the Act. The learned AO asked the assessee that why expenditure should not be disallowed under that Section applying the provisions of Rule 8D. The assessee submitted that it has not employed any person for earning of such income and further investment has been made out of temporary surplus f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the learned CIT(A). For Assessment Year 2011-12 it was submitted that ITAT deleted the entire adjustment made by the TPO. For assessment year 2013-14 the coordinate bench has set aside the issue to the file of the learned Assessing Officer as per direction given in the assessee s own case for assessment year 2009-10 and the learned Transfer Pricing Officer has deleted the entire transfer Pricing adjustment on account of reimbursement of expenses as the services of the expats were neither duplicative in nature nor the shareholder services. Therefore, it was submitted that the issue is squarely covered in favour of the assessee. 12. The learned Authorised Representative in spite of the above orders in favour of the assessee, substantiated the facts of the present year stating that the CUP method adopted by the appellant is the most appropriate method since the assessee reimbursed at exactly the same cost of these employees to its associated enterprises. It was further stated that it is the prerogative of the appellant as to how it wants to conduct its business and therefore the commercial or business wisdom questioned by the learned Transfer Pricing Officer is incorrect. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. It was further stated that investment in mutual funds does involve certain efforts of the human resources as well as certain administrative expenditure, therefore, there are elements of the expenditure which has been incurred by the assessee for the earning of the exempt income. He therefore submitted that there is no infirmity in the orders of the lower authorities in sustaining the disallowance u/s 14A ₹ 50,288 according to the method provided Under rule 8D. 16. We have carefully considered the rival contentions and perused the orders of the lower authorities. The only dispute with respect to the transfer pricing adjustment is with respect to the reimbursement of the expenses paid by the assessee of ₹ 79,852,317 to its associated enterprise on account of the expats salary which is utilised by the assessee for providing services to the other parties and cost +10% markup is charged. As stated by the learned authorised representative that identical issue arose in the case of the assessee for the earlier years and for all the years when the issue is set aside to the file of the learned transfer pricing officer, such adjustment has been deleted. The latest order o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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