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TMI Blog2017 (12) TMI 1832X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's paper book which gives the description of the product; the purpose for which such product was purchased; month of purchase amount in US dollars; and conversion date as on debit date, etc. These details goes to show that the products have been imported from the AE for which assessee had made the payment on cost to cost basis. Thus, it cannot be held that the assessee has not imported or purchased the spare parts from its AE and once it is established that the spare parts have been imported, then, liability to pay for the cost of spare parts to its AE arises to the assessee. Further, to prove that assessee has utilized these costs, it has filed copies of AMCs with various parties in India on sample basis. Reasoning given by the Assessing Officer for making the addition on both the counts does not survive and accordingly, ground as raised by the Revenue is dismissed. Addition on account of expenses claimed in the P L account - HELD THAT:- As cost of expenditure on account of AE has been loaded by the assessee so as to suggest that the loss incurred by the assessee is attributable due to loading of the cost of the AE. In any case, once the transaction with the AE h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,561/- to its AE on account of reimbursement of repair charges. The assessee was required to explain the nature of such reimbursement and also to produce documentary evidence in support of its claim. In response the assessee had stated as under:- This represents the actual cost of spare parts required by the assessee to render repair services of hardware machines of its customers. It is respectfully submitted that the assessee company requires spare parts for rendering repair services of hardware machines of its customers under the terms of independent contracts entered by the assessee with its customers. For procuring the said spare parts the assessee has entered into agreement with its parent entity viz. Silicon Graphics Inc of USA to purchase the said spare parts from Silicon Graphics Inc of USA whereby the assessee will pay/reimburse the actual cost incurred by Silicon Graphics Inc USA in arranging the said spare parts and no additional mark up/fee will be payable to Silicon Graphics Inc USA in providing the said spare parts to the assessee. Copy of the said agreement is enclosed herewith as Annexure A for your perusal. Further, the voucher wise and month wise details of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id payment by the assessee in respect of which the assessee had duly vide its submission dated 20.12.10 (supra) submitted the copy of agreement entered with its parent entity regarding the payment of said 'reimbursement' charges (supra) and also the complete voucher wise and month wise payment details. Thereafter no further information / clarification was sought by the AO from the assessee which is clearly evident from the assessment records even though vide the said submission dated 20.12.10 (supra) the assessee had particularly expressed its willingness to provide any other clarification etc on the issue as may be required by the AO. 3.2 Assessee's submissions. It is respectfully submitted that the AO had in an utterly perverse manner and by framing an absolutely wrong understanding in law disallowed the said amount. It has been admitted by the AO himself that the assessee has duly furnished the agreement with the parent entity for the cost reimbursement arrangement (supra). The assessee had also furnished the month-wise payment summary (supra). Vide assessee's submission on record dated 20.12.10 (supra) it was specifically submitted that the assessee shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l decisions including decisions from Jurisdictional High Court; Jurisdictional Tribunal and in various other cases that the withholding tax requirement does not applies where the payment made to a non-resident is essentially in the nature of a cost reimbursement as in the present case. A very direct support is drawn in this regard from the following decisions: i. Decision of Delhi High Court in the case of Van Oord ACZ India (P) Ltd. Vs. CIT 323 ITR 130 (Del.) (copy enclosed): Held that the requirement of TDS does not arises when payment to a non-resident is only in the nature of a reimbursement; ii. Decision of Special Bench of ITAT in the case of Mahindra Mahindra Ltd. Vs DCIT (2009) 122 TTJ (Mum.)(SB)(577) (copy enclosed): Held in this decision of Special Bench as approved by Delhi High Court in the case of Van Oord (supra) that payment towards reimbursement of expenses to a non-resident not being in the nature of income, the requirement of withholding tax on such payment does not arises u/s 195 on the same; iii. Decision of Delhi High Court in the case of CIT Vs Industrial Engineering Projects Pvt. Ltd. Dated 20.08.92 2003-TIOL-247-HC-DEL. (copy enclosed): Held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not given any proper finding while deleting the said addition on the specific reasons given by the Assessing Officer. 7. Before us the learned counsel for the assessee, submitted that in this case it cannot be disputed that payment of ₹ 81,49,561/- has been made to the parent entity on account of actual costs of purchase of spare parts which was required by the assessee company for rendering repair services under the terms of independent contracts entered by the assessee with its customers in India. As per the agreement with the parent entity for the purchase of the spare parts, the assessee was required to pay the actual cost to its AE and no additional markup /fee was payable. He submitted that all these agreements were produced before the Assessing Officer and it was amply demonstrated that only the cost incurred for procuring the spare parts were given. So far as the allegation that assessee could not produce the details of parties to whom he rendered repair services, the same is not correct, because, assessee to show that it has carried out AMCs had filed various contracts with the parties in India on sample basis. The assessee was not required to deduct TDS on payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of tax while making the payment to non-resident which is not in the nature of income to the non-resident India. It is not the case of the Revenue that there is an element of income which is chargeable to tax in the hands of the non-resident on account of purchase transaction of spare parts and once that is so, then no withholding of tax is required, which proposition has been upheld in various judgments as cited by the learned counsel including that of the Hon'ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd. vs. CIT (supra). 9. So far as the issue that assessee has not furnished any bill/vouchers invoices for the purchase or assessee could not furnish details of parties to whom it had rendered repair services, we find that assessee had given the detail of the spare parts purchased from its AE, a copy of which is appearing at page 16 of the assessee's paper book which gives the description of the product; the purpose for which such product was purchased; month of purchase amount in US dollars; and conversion date as on debit date, etc. These details goes to show that the products have been imported from the AE for which assessee had made the paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and noted that the order is for maintenance of SGI work station and servers. Thus, assessee is only performing necessarily functions to promote sales of its AE in India and hence, assessee is functioning like an agent of SGI (USA), not only for its business but also to support sales for the parent entity and therefore, such an expenditure cannot be allowed u/s.37(1). However, he proceeded to make an adhoc disallowance of 50% of personnel expenses and other expenses and worked out the disallowance at ₹ 10,54,76,381/- on the ground that same can be attributed to the expenditure incurred for AE. 13. Before the ld. CIT (A), assessee had submitted that it has never been the case of the Revenue that assessee is economically dependent on SGI, USA or it constitutes Agency PE (Permanent Establishment) for US entity. Out of the total revenue only small portion of 16.80% comprises of transaction with AE and in support, various figures of revenue stream was given which has been incorporated at pages 2 and 3 of the Appellate order. It was further pointed out that the contracts entered with the customers in India are on principal to principal basis. The assessee is undertaking purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oreign entity was concerned there were two aspects. One, the parent company was making sales of computers directly to clients in India and the appellant was providing logistic support, Two, the Indian Company was providing maintenance services to the customers and for that purpose buying spare parts from the foreign entity. The total revenue earned from the foreign entity as per the appellant was in the range of 18%. The AO has not been able to specify which part of expenditure incurred by the appellant would be incurred wholly and exclusively for the business of the foreign entity. Before me, the appellant has shown that the expenditure has been incurred in +s business. What would be relevant is whether the foreign entity has earned revenue because of the presence of the appellant in India. The expenses corresponding to that part could have been disallowed. The addition of ₹ 10,54,76,381/- is therefore, deleted. This ground of appeal is ruled in favour of the appellant. 14. Before us the ld. D.R. strongly relied upon the order of the Assessing Officer and submitted that persistent loss coupled with the fact that assessee has been making reimbursement of cost without c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any adjustment on account of ALP. The Assessing Officer's case is that the assessee has been making persistent loss and therefore, it can be presumed that the cost/expenditure of the foreign entity for carrying out its activity in India is directly or indirectly is loaded or borne by the assessee and therefore, he has proceeded to make some adhoc disallowance of 50% of administrative and personnel expenses. Such a premise for adopting adhocism or making the addition in such a manner is definitely divorced from the facts and settled judicial norm or any authority of law. The assessee had duly demonstrated not only before the Assessing Officer and also before the ld. CIT(A), that out of the total revenue earned by the assessee of ₹ 13,86,13,293/- only amount of ₹ 2,59,09,985/- pertains to the transaction with the AE as per the following details:- Marketing support fees received ₹ 24,261,335 from SGI Inc Technical service fees ₹ 1,648,650 received from SGI Inc Total earnings from SGI Inc ₹ 25,909,985 15.1 Apart from that, it is seen that the total expenditure on account of AE as dealt in transfer pricing report was as under:- I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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