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TMI Blog2019 (2) TMI 1873X X X X Extracts X X X X X X X X Extracts X X X X ..... istrative expenses reimbursed by the assessee to its AE i.e UTi-USA was to be taken at Nil. Whether the assessee was benefited by availing the services of the AE? - the said aspect does not fall with the realm of the TPO. In our considered view as per Chapter X of the IT Act r.w Rule 10A to 10E of the Income-tax Rules, the jurisdiction of the TPO is specific and limited i.e to determine the ALP of an International transaction. It is not for the TPO to consider whether or not the expenditure incurred by the assessee passed the test of Sec. 37 of the IT Act and/or the genuineness of the expenditure. This exercise has to be done, if at all, by the A.O in exercise of his jurisdiction to determine the income of the assessee in accordance with the IT Act - adoption of the ALP of the administrative expenses reimbursed by the assessee to its AE i.e UTiUSA at Nil by the TPO for the reason that the assessee had failed to satisfy the benefit test‟ also fails on the said ground. As averred by the ld. A.R the TPO in the assesses own case for the immediately succeeding year i.e. A.Y. 2010-11 had accepted that the reimbursement of the administrative expenses by the assessee to its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the revenue does not merit acceptance and dismissed. - ITA No. 1454/Mum/2014, ITA No. 1686/Mum/2014 - - - Dated:- 8-2-2019 - Shri G.S.Pannu, Vice President And Shri Ravish Sood, Judicial Member For the Appellant : Ms. Karishma R. Phatarphekar Shri Harsh Shah, A.Rs For the Respondent : Ms. Nilu Jaggi, D.R ORDER PER RAVISH SOOD, JM The present cross appeals filed by the assessee and the revenue are directed against the order passed by the A.O under Sec. 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (for short I.T. Act‟), dated 15.01.2014. As the aforementioned appeals are inextricably interwoven and interlinked, therefore, the same are being taken up and disposed off by way of a consolidated order. We shall first advert to the appeal filed by the assessee. The assessee assailing the order passed by the A.O under Sec. 143(3) r.w.s. 144C(13) has raised before us the following grounds of appeal: The Appellant objects to the order under section 143(3) r.w.s 144C (5) of the Income Tax Act, 1961 ('the Act') dated 15 January 2014 (received on 23 January 2014) passed by the learned Deputy Commissioner of Income Tax ('AO') ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n initiating penalty proceeding u/s 271(1)(c) of the Income Tax Act, 1961. The Appellant submits that each grounds of appeal are without prejudice to one another. The Appellant craves leave to add, to alter, amend, substitute and / or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal. 2. Briefly stated, the assessee company which is engaged in the business of logistics relating to freight forwarding by air and ocean, custom clearance and contract logistics etc. had e-filed its return of income for A.Y. 2009-10 on 30.09.2009, declaring total income at ₹ 10,21,12,976/-. Subsequently, the assessee filed a revised return of income on 19.03.2011, declaring income at ₹ 10,34,72,619/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the I.T. Act. Thereafter, the case of the assessee was selected for scrutiny assessment under Sec. 143(2). 3. Before adverting to the facts of the case it would be relevant and pertinent to briefly cull out the business model of the assessee. The assessee is a part of UT Worldwide group which is a world leader in international freig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 Purchase of fixed assets 1,45,813 CUP Accepted to be at ALP 5 Reimbursement of expenses (Paid/Payable) 8,94,19,012 At cost ALP determined as Nil Insofar, the reimbursement of expenses of ₹ 8,94,19,010/- by the assessee to its AEs viz. (i ). UT-Network Inc. ; and (ii). UTi-USA was concerned, it was submitted by the assessee that the same was relating to payments for expenses related to communication costs, freight insurance costs etc. that were incurred by the aforementioned AEs on behalf of the assessee for administrative convenience. It was submitted by the assessee that the said expenses were recovered by the AEs from the assessee on cost to cost basis without any mark-up. Apart therefrom, it was clarified by the assessee that the recovery of the aforesaid amounts by the AEs from the assessee did not involve availing of any services. The assessee furnished item-wise details of the expenses that were reimbursed by it to the AEs, as under: Sr. No. Description of the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een incurred by the A.E on behalf of the assessee. On the basis of his aforesaid observations it was concluded by the TPO that in the absence of a cost sharing agreement and concrete evidences the monthly remittances by the assessee to its A.E viz. UTi-Network Inc. could not be held to be at ALP. Insofar, payments made by the assessee to its other A.E viz. UTi-USA were concerned, it was observed by the TPO that the assessee was consistently making a monthly payment in the range of ₹ 53.49 lac to ₹ 64.04 lac from April, 2008 to March, 2009 to the said AE. It was observed by the TPO that the aforesaid payments made by the assessee to its AE viz. UTi-USA were more in the nature of a monthly fee rather than reimbursement of any actual cost that was incurred by the A.E on behalf of the assessee. The TPO observed that the assessee had neither justified with concrete evidence the benefit/services received from the AE nor had placed on record any agreement between the assessee and the UTi-USA in evidence of its contractual liability to pay such management fees for the services received from the said AE. Further, it was observed by the TPO that the assessee had also not establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation cost (₹ 16,65,641/-) ; RSU Cost (₹ 21,76,281/-); and (v) Legal Expenses (₹ 6,81,146/-) were clearly in the nature of reimbursement of the cost of expenses which were incurred by the AEs on behalf of the assessee. However, the DRP was not persuaded to subscribe to the claim of the assessee that it had reimbursed administrative expenses of ₹ 7,49,11,250/- to its AE viz. UTi-USA. The DRP while concluding as hereinabove, held a conviction that now when as per the business model of the assessee there was a revenue sharing at the gross receipt level having regard to the functions that the respective group entities would undertake, thus there was hardly any justification for any further reimbursement of cost toward administrative expenses or management fee or anything of that kind. Further, the DRP observed that the assessee was also not able to establish that because of payment of administrative expenses/management fees it had saved upon the corresponding cost of the management locally. Apart therefrom, the DRP was also of the view that the allocation of the expenses was not on the basis of the figure of services utilized and their commensurate cost. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices, type of services received and benefits which were derived by the assessee by availing such services, alongwith the details of the costs incurred and the basis of the allocation of such costs with supporting documentary evidence, however, he had wrongly observed that the assessee had failed to justify with proper justification and concrete evidence the benefits/services that were received by the assessee from the AE viz. UTi-USA and had taken the ALP of the aforesaid expenses of ₹ 7,49,11,250/- at Nil. Apart therefrom, it was submitted by the ld. A.R that the TPO had gravely erred in law by not adopting one of the mandatorily prescribed methods for determining the ALP of the administrative expenses that were reimbursed by the assessee to its AE i.e. UTi-USA. The ld. A.R submitted that as per the settled position of law transfer pricing adjustment made by the TPO without following one of the prescribed methods ought to be deleted. It was further submitted by the ld. A.R that the TPO in the present case had not even mentioned any method, leave aside using one for determining the ALP of the international transactions of the assessee during the year. In support of her afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses or management fee or anything of that kind by the assessee to its AE. It was submitted by the ld. A.R that the lower authorities had failed to appreciate that the assessee was not sharing gross receipts but only Spread i.e. the gross receipts minus cost of transportation. Apart therefrom, it was submitted by her that the entities with whom the Spread was shared were not the one to whom payment for intra-group services was being made. Rather, as submitted by the ld. A.R the lower authorities had failed to appreciate that the entity with whom the revenue was being shared and the entity rendering the centralized group services were different. Insofar, the observations of the lower authorities that the assessee had failed to establish the benefit/services which were received from the AE was concerned, it was submitted by the ld. A.R that as held by the Hon‟ble High Court Bombay in the case of CIT Vs. Merck Limited (2016) 389 ITR 70 (Bom) where an assessee had entered into an agreement which is akin to a retainer agreement with its AE, the fact as to whether services mentioned in the said agreement were utilized by the assessee would be of no relevance. It was submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum and substance, the assessee in terms of the agreement‟ remained under a contractual obligation to reimburse the AE i.e UTi-USA on a monthly basis its share of costs and expenses that would be worked out as per the fixed allocation keys. On a perusal of the order of the TPO we find that he had failed to appreciate that the monthly payments made by the assessee were backed by its contractual liability towards its AE i.e UTiUSA. Rather, the TPO in complete disregard of the agreement‟ had observed that there was no evidence of the liability accruing in hands of the assessee. It was also observed by him that the assessee had failed to justify the benefits/services that were received from the aforesaid AE alongwith the actual cost that was incurred by the AE on its behalf. In the backdrop of the aforesaid observations the ALP of the administrative expenses reimbursed by the assessee to its AE i.e UTi-USA was taken by the TPO at Nil. We further find that the DRP while upholding the view of the TPO observed that though the administrative expenses had been allocated based on the revenue/sales, but the assessee had failed to place on record the figure of the services utili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ALP of the three services on an adhoc basis at ₹ 40 lac and after taking the ALP of the remaining nine services at Nil made an adjustment of the balance amount of ₹ 1.17 crores, which resulted to an addition of the said amount to the taxable income of the assessee. On appeal, it was observed by the Tribunal that as per the agreement though the AE was under an obligation to provide technical assistance to the assessee in the 12 areas listed in the agreement which the assessee could avail at any time during the year as and when the need arose, but there was no obligation cast upon the assessee to obtain technical assistance in all the said 12 areas. It was observed by the Tribunal that as it was for the availability of the assistance in all the twelve areas that the consideration was paid, hence the determining of the ALP of the nine services not availed by the assessee could not be taken at Nil. We find that the Hon‟ble High Court after deliberating on the aforesaid observations of the Tribunal had approved the same and had concluded that the same were not found to be perverse. We find that the facts involved in the case of the assessee before us are governed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istrative expenses reimbursed by the assessee to its AE i.e UTiUSA at Nil by the TPO for the reason that the assessee had failed to satisfy the benefit test‟ also fails on the said ground. 15. We may further observe that as averred by the ld. A.R the TPO in the assesses own case for the immediately succeeding year i.e. A.Y. 2010-11 had accepted that the reimbursement of the administrative expenses by the assessee to its AE was at ALP. We find ourselves to be in agreement with the contention advanced by the ld. A.R that now when there is no shift in the facts of the case, thus it was not permissible for the TPO to have adopted an inconsistent approach and taken the ALP of the administrative expenses for the year under consideration at Nil. Our aforesaid view that the principle of consistency ought to be followed by the department is fortified by the judgments of Hon ble Supreme Court in the case of (i) Radhasoami Satsang Vs. CIT(1992) 193 ITR 321 (SC); and (ii) CIT Vs. Excel Industries Ltd. (2013) 219 Taxman 379 (SC). Further, a similar view had also been taken by the Hon ble High Court of Bombay in the case of Pr. CIT Vs. Quest Investments Advisors Pvt. ltd.(ITA No. 280 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comments on the additional evidence. (ii) Whether on the facts and circumstances of the case and in law, the Hon'ble DRIP erred in holding that reimbursement of expenses on account of Freight liability and insurance expenses (₹ 65,88,039), Infonet communication cost - ₹ 5,17,328/-, ABN Amro LC charges - ₹ 28,79,323/-, Legal Expenditure, Stock compensation - (₹ 38,41,924/-) by the assessee to its AE are arm's length by admitting additional evidence and without giving an opportunity to TPO to examine the same? . 2. The appellant prays that the order of the DRP on the above grounds be set aside and that of the A.O. be restored. 3. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary. 20. The ld. Departmental Representative (for short D.R‟) submitted that the DRP had erred in holding the reimbursement of expenses on account of (i). Freight liability and insurance expenses (₹ 65,88,039/-); (ii). Infonet Communications Cost (₹ 5,17,328/-) ; (iii). ABN Amro L/C Charges (₹ 28,79,323/-); and (iv) Legal Expenses, stock compensation (₹ 38,41,924/-) by the assessee to it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and obligates the panel to record its reason for such permission. However, the power of the DRP to suo motto call upon the eligible assessee to produce any document or examine any witness or file any affidavit is neither qualified by any restriction nor any obligation is cast upon the panel to afford any opportunity to the TPO to examine the same. We thus are of the considered view that in the backdrop of the aforesaid powers vested with the DRP to call upon the eligible assessee to produce any document or examine any witness or file any affidavit to enable it to issue proper directions, no infirmity arises from the order of the DRP in the case before us, who we find had on its own called for and considered certain documents in the course of the proceedings in order to enable it to issue proper directions. In our considered view as the admission of the documents by the DRP is well in conformity with the powers vested with the panel, hence the appeal of the revenue does not merit acceptance and is dismissed. The Grounds of appeal No. 1(i) (ii) raised by the revenue are dismissed. 23. The Grounds of appeal No. 2 3 being general are dismissed as not pressed. 24. The appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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