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TMI Blog2021 (7) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... t their findings that no material benefit has been received by the taxpayer and order is also not supported with any evidence to prove that taxpayer s business could be managed and operated by exclusion of various technical operating and strategic services extended by the AE to the taxpayer. So, in these circumstances, addition made by the TPO and confirmed by the ld. DRP for AY 2006-07 is ordered to be deleted. Addition u/s 40(a)(ia) - payment of salary to non-resident - global account management expenses - HELD THAT:- As decided in own case [ 2020 (12) TMI 723 - ITAT DELHI] we are of the considered view that the amount paid by the taxpayer to M/s. Expeditors International of Washington Inc. on account of global account management expenses cannot be treated as payment of salary to non-resident but it was in the nature of reimbursement of expenses which cannot be subjected to deduction for TDS, provision u/s 40(a) of the Act being not applicable. We are of the considered view that amount of expenses incurred by the taxpayer on account of VSAT charges cannot be treated as charges for consultancy or technical services and as such, cannot be subjected to deduction of tax under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical grounds are being disposed off by way of composite order to avoid the repetition of discussion. 2. Appellant, Expeditors International (India) Pvt. Ltd., the taxpayer' by filing the present appeal sought to set aside the impugned order dated 30.09.2010 passed by the Assessing Officer (AO) in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C of the Income-tax Act, 1961 (for short 'the Act') qua the assessment year 2006-07 on the grounds inter alia that :- "1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. Assessing Officer ("AO") is bad in law and void ab-initio. 2. That on facts and circumstances of the case and in law, the reference made by the Ld. AO suffers. from jurisdictional error as the Ld. AO did not record any reasons in the draft assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. Transfer Pricing Officer ("TPO") for computation of the arm's length price, as is required under section 92CA(I) of the Income Tax Act, 1961 ("Act"). 3. That on facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase and in law, the Ld. AO/Ld. DRP erred in disallowing the VSAT uplinking charges of ₹ 3,418,286 paid by the Appellant to its US based holding company u/s 40(a)(i) of the Act. 9. That on the facts and in the circumstances of the case and in law, the Ld. AO/Ld. DRP erred in allowing depreciation on UPS and printers @15% instead of 60%, as UPS and printers are integrated in to the computer system. 10 On the facts and circumstances of the case, the Ld. DRP has erred in not examining the validity of initiation of penalty proceedings u/s 271(1)(c)." 3. Appellant, Expeditors International (India) Pvt. Ltd. the taxpayer by filing the present appeal sought to set aside the impugned order dated 28.03.2012 passed by the ld. CIT (Appeals)-XX, New Delhi qua the assessment year 2007-08 on the ground that :- "1. That on the facts and circumstances of the case and in law, the Assessing Officer ought to have considered that the education cess paid on the income tax was an allowable deduction for computing total income given the fact that the same was not hit by the provisions of section 40(a}(ii) of the Act." 4. Appellant, DCIT, Circle 11 (1), New Delhi, the Revenue by filing the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rges) amounting to ₹ 25,50,215/- paid by the appellant. 2.1 That on the facts and circumstances of the case and in law, the Ld CIT(A) has erred in not providing an adequate opportunity to the appellant of being heard and explained before treating the lease line charges as royalty liable to tax, thereby violating the principles of natural justice. 2.2 (a) Without prejudice to the above, that on the facts and circumstances of the case and in law, the Ld CIT(A) has erred in treating the lease line connectivity charges (VSAT uplinking charges) amounting to ₹ 25,50,215/- as royalty in view of Explanation 6 to Section 9(l)(vi) of the Income Tax Act, 1961 ("the Act") without providing any reasons and without appreciating that the amendments in the Act cannot be read into the Indo-US DTAA. 2.2 (b) That on the facts and circumstances of the case and in law, the Ld CIT(A) has erred in treating the payment of lease line connectivity charges as liable for tax and therefore disallowing the expense u/s 40(a)(i) of the Income-tax Act, 1961('Act'). 3. That on the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in not considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uently, AO assessed total income of the taxpayer at ₹ 36,88,93,100/-, ₹ 55,24,85,671/- & ₹ 49,19,15,805/- for Assessment Years 2006-07, 2007-08 & 2008-09 respectively. 9. The taxpayer carried the matter before the ld. DRP by way of filing objections for AY 2006-07 which have not been accepted and upheld the order passed by TPO. The taxpayer in AYs 2007- 08 & 2008-09 carried the matter before the ld. CIT (A) by filing the appeals which have been partly allowed. Feeling aggrieved, the taxpayer as well as the Revenue have come up before the Tribunal by way of filing appeals/cross objections. 10. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the Revenue authorities below in the light of the facts and circumstances of the case. GROUNDS NO.1 & 2 OF ITA NO.5598/DEL/2010 (AY 2006-07) FILED BY THE TAXPAYER GROUND NO.1 & 5 OF ITA NO.1854/DEL/2014 (AY 2008-09) FILED BY THE TAXPAYER 11. Grounds No.1 & 2 of ITA No.5598/Del/2010 for Assessment Year 2006-07 and Grounds No.1 & 5 of ITA No.1854/Del/2014 for Assessment Year 2008-09 need no findings being general in nature and havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed by the TPO/DRP in AY 2006-07 contended that since no evidence has been brought on record by the taxpayer to render the alleged services in lieu of cost recharge or reimbursement were actually required and drew our attention towards para 6.3 (a), available at page 349 of the paper book volume 2 of AY 2006-07. He has further contended that since there is no evidence on record for rendition of services as alleged by the taxpayer, ld.TPO/DRP in AY 2006-07 has rightly determined the ALP of international transactions at nil. Ld. DR for the Revenue further contended that ld. CIT (A)s have erred in deleting the addition made by the ld. TPO in AYs 2007-08 & 2008-09. 16. We have perused the order passed by the coordinate Bench of the Tribunal in taxpayer's own case for AY 2005-06 (supra) in the light of the facts and circumstances of the cases at hand, which goes to prove that facts and the grounds raised by the taxpayer as well as the Revenue in their respective appeals are identical to the facts of taxpayer's own case decided in AY 2005- 06 (supra) and since then the taxpayer has not undergone any change in the business model. Coordinate Bench of the Tribunal in taxpayer's own case f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the order. Consequently, 1 do not find any evidence/analysis to hold that the arm's length price for the royalty transaction stands subsumed by the gross profit split on revenue received from logistics services on a predetermined basis. Based on the submissions and the facts presented by the Appellant, I am of the view that the services received by the Appellant from the Parent company in lieu of royalty are not covered within the revenue split for the logistics services with multiple group companies. I have been through all the submissions made by the Appellant as well as the TP Order in detail. The TPO has not provided any analysis or evidence in support of his finding that no material benefit has been received by the Appellant. The TPO has not analyzed the operations and the financials of the Appellant to substantiate his conclusion that the Appellant's business can be managed and operated in exclusion of the various technical, operating and strategic services extended by the US Parent or to show that this expense was not in the nature of expenditure entitled to be treated as business expenditure. The TPO has not disputed the business model of the Appellant. The TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles to determine the arm's length price. The order does not contain any analysis on the FAR, tested party selection or methods selected. In view of the foregoing, I uphold the arm's length nature of the royalty payment made by Expeditors India to Expeditors International Inc. This issue is decided in favour the Appellant. The addition made by the AO on this account, is accordingly, deleted." 11. Aggrieved by the order of CIT(A), Revenue is now before us. 12. Revenue is aggrieved by the deletion of addition made by the AO and in the additional ground the grievance of the Revenue is that the Transfer Pricing documentation and other additional evidences filed before the CIT(A) by assessee were never referred to AO/ TPO which is a violation of provision of Rule 46A of the I.T. Rules, 1962. 13. Before us, Learned DR submitted that CIT(A) while deciding the issue has considered the supplementary TNMM analysis submitted by the Assessee to him and that CIT(A) decided the issue in favour of the Assessee by relying on the supplementary TNMM analysis submitted by the Assessee. He further submitted that the aforesaid supplementary analysis was in the nature of additional eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the services received from its US parent company to whom the royalty was paid by the assessee. She has further given a finding that the TPO's conclusion that "when the Revenue was split on the basis of FAR analysis, then no further payment would have been made by the assessee. Therefore, I am holding that ALP of royalty payment as nil" was without any basis or analysis on record. She has further given a finding that no evidence or analysis was made by TPO to hold that the arm's length price for royalty transaction stands subsumed by the gross profit split on revenue received from logistics services on a predetermined basis. She has further given a finding that TPO has not providing any analysis or evidence to support his findings that no material benefit has been received by the assessee and no evidence has been brought on record to demonstrate that assessee's business could be managed and operated by exclusion of various technical, operating and strategic services extended by the AE to the assessee. She has further noted that assessee was following the same business model, the royalty paid since 2001 has been found to be on an arm's length basis and no adjustments were made i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been brought on record by the taxpayer to prove the rendition of services, is not tenable. 18. Furthermore, when we peruse page 411 of the paper book volume 3 of AY 2006-07 which is part of the submissions made by the taxpayer before the ld. DRP, it has come on record that all the services and activities rendered by the taxpayer have been duly explained. So, the contention raised by the ld. DR for the Revenue is not sustainable. 19. When we peruse the orders passed by the ld. CIT (A) for AYs 2007-08 & 2008-09 particularly paras 4.5 to 4.10 of AY 2007-08, it is proved on record that ld. CIT (A) by analyzing the entire evidence brought on record by the taxpayer, by following the order passed by his predecessor in AY 2005-06 which has further been upheld by the Tribunal, has deleted the impugned addition. 20. So, following the order passed by the coordinate Bench of the Tribunal in taxpayer's own case for AY 2005-06 (supra), we are of the considered view that ld. TPO/DRP have erred in treating the value of the transaction at nil by ignoring the entire evidence brought on record by the taxpayer without making any analysis or bringing on record evidence to support their findings tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RP on the ground that Revenue's SLP was pending before the Hon'ble Supreme Court. 22.1 However, in AYs 2007-08 & 2008-09, ld. CIT (A) by following the order passed by the Tribunal and confirmed by Hon'ble Delhi High Court for AYs 2001-02 & 2003-04 in taxpayer's own case deleted the addition on account of global account management expenses & lease line expenses. 23. Except for the fact that Revenue has challenged the order passed by Hon'ble Delhi High Court in favour of the taxpayer by way of SLP before Hon'ble Supreme Court, the ld. DR for the Revenue has nothing to say on this issue. We are of the considered view that merely because of the fact that decision rendered by Hon'ble High Court has been pending adjudication before Hon'ble Supreme Court by way of SLP, the order passed by Hon'ble High Court confirming the order of the Tribunal cannot be ignored. 24. Coordinate Bench of the Tribunal in taxpayer's own case for AY 2005-06 (supra) upheld the order passed by the ld. CIT (A) by following the order passed by the coordinate Bench of the Tribunal confirmed by Hon'ble Delhi High Court by returning following findings :- "23. We have heard the rival submissions and perused all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal of the Revenue is dismissed." 25. So, following the order passed by the coordinate Bench of the Tribunal in taxpayer's own case for AY 2005-06 (supra) and by following the order passed by the coordinate Bench of the Tribunal in AYs 2001-02 & 2003-04 confirmed by Hon'ble Delhi High Court, we are of the considered view that the amount paid by the taxpayer to M/s. Expeditors International of Washington Inc. on account of global account management expenses cannot be treated as payment of salary to non-resident but it was in the nature of reimbursement of expenses which cannot be subjected to deduction for TDS, provision u/s 40(a) of the Act being not applicable. 25.1 Likewise, we are of the considered view that amount of expenses incurred by the taxpayer on account of VSAT charges cannot be treated as charges for consultancy or technical services and as such, cannot be subjected to deduction of tax under section 40(a) of the Act. Consequently, order passed by the AO/DRP in AY 2006-07 is not sustainable, hence ordered to be set aside and addition made on account of global account management charges and VSAT charges are ordered to be deleted. 25.2 At the same time, we find no i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion claimed by the taxpayer on UPS, printer, etc. This issue is also no longer res integra because in taxpayer's own case for AY 2005-06 (supra) it has been decided in favour of the taxpayer by returning following findings :- "39. We have heard the rival submissions and perused all the materials available on record. The issue in the present ground is with respect to deleting the addition of ₹ 3,32,634/- on account of excess claim of depreciation on computer accessories. We find that identical issue of excess claim of depreciation arose in assessee's own case in A.Y. 2001-02, 2003-04 & 2004-05, wherein the Co-ordinate Bench of Tribunal has decided the issue in favour of the assessee. Before us, no distinguishing features in the facts of the case and that of the earlier years has been pointed out by the Revenue. Revenue has also not placed any material on record to demonstrate that the order of the tribunal in assessee's own case in earlier years has been set aside/overruled or stayed by higher judicial forum. In such a situation, we find no reason to interfere in the order of CIT(A). Thus the ground of appeal of the Revenue is dismissed." 30. Since facts of the case at ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complete adjudication of the controversy at hand, the application for additional ground is hereby allowed. 35. The taxpayer challenged the findings of the AO in not considering the Education Cess (EC) and Secondary & Higher Education Cess (SHEC) paid on income-tax as allowable deduction for computing the total income by ignoring the fact that the same was not hit by the provisions of section 40(a)(ii) of the Act and relied upon the judgment passed by Hon'ble Bombay High Court in case of Sesa Goa Ltd. vs. JCIT 117 taxman.com 96 (Bombay). 35.1 Hon'ble High Court in Sesa Goa Ltd. case (supra) held that education cess or any other cess is not included in clause (ii) of section 40(a) of the Act so there is no prohibition in claiming deduction of such amounts while computing the income of the assessee under the head 'profits & gains of business or profession'. Operative part of the aforesaid decision rendered by Hon'ble Bombay High Court is extracted for ready perusal as under :- "27. The CBDT Circular, is binding upon the authorities under the IT Act like Assessing Officer and the Appellate Authority. The CBDT Circular is quite consistent with the principles of interpretation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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