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TMI Blog2022 (12) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee. Therefore, the set of comparable selected by the assessee for computation of the arm s-length price deserves to be accepted as it has become final for the AY. On going through the same, we find that the computation of the margin considering the reimbursement as cost base is 19.45%, which is also accepted by the learned transfer-pricing officer. Therefore, there cannot be any dispute on the same. It is also fact that margin of the comparable companies selected by the assessee, which has become final, now is 8.69%. This argument was raised by assessee before the learned CIT-A however it was not at all considered. Therefore, we do not find any reason to sustain addition on account of adjustment of markup on pass through cost claimed by the assessee. Accordingly ground number 3 of the appeal of the assessee is allowed which deletes the transfer pricing adjustment - In view of this, ground treated as allowed. Loss incurred by eligible unit u/s 10 A set-off against the profits of other eligible units - HELD THAT:- We find that identical issue has been decided by the honourable Bombay High Court in the case of the assessee [ 2011 (5) TMI 509 - ITAT, MUMBAI] where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reminders also. In view of this we find that there is no infirmity in the direction of the learned CIT A to give opportunity to the assessee as well as direction to the learned assessing officer to verify the claim of the assessee from external sources. Naturally, if the assessee has not entered into such transaction, the learned AO should have examined the above claim of the assessee of consistent denial through external sources. The assessee has also given the name of employee whose credit card transactions are found with the bank. Further, with respect to another party also assessee denied having entered into any such transactions. In view of this, we direct the learned assessing officer to carry out detailed examination of the above transactions whether they have been entered into by the assessee or not. If it is found that assessee has not entered into such transactions, the additions deserve to be deleted. In the result ground of the appeal of the assessee is allowed. - ITA No. 4727/Mum/2016 - - - Dated:- 12-5-2022 - Shri Vikas Awasthy, JM And Shri Prashant Maharishi, AM For the Appellant : Shri M M Golvala, AR For the Respondent : Ms. Vatsalaa Jha, CIT DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies erred in reducing the expenses incurred by the following eligible units (section 10A units) in foreign exchange from the Export Turnover of the units: Eligible Unit Expenditure in foreign exchange (Rs.) Mumbai II 2,37,00,533/- Mumbai III 55,35,92,703/- Bangalore 21,72,73,668/- Pune II 10,24,86,513/- Hyderabad 7,99,83,267/- Total 97,70,36,684/- 11. The learned Commissioner of Income-tax (Appeals) erred in not following the order of the Mumbai Tribunal for Assessment Year 2009-10 on this very issue. 12. The learned Commissioner of Income-tax (Appeals) erred in not deleting Rs.24,46,601/- treated as unexplained expenditure on the basis of unreconciled AIR statement. The Appellant submits the addition is unjustified and requires to be deleted. 03. Vide application dated 28th September, 2019, the assessee further raised two additional grounds of appeal which are as under:- 13) Without prejud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Reimbursement of expenses incurred by various Cap Gemini Entities on behalf of assessee 21,22,74,369 10. Reimbursement of out of pocket expenses incurred by Assessee on behalf of Cap Gemini Group entities 170,8,285,067 07. The learned Transfer Pricing Officer accepted the arm s length price of all other transactions except Reimbursement of expenses incurred by various CapGemini Entities on behalf of assessee amounting to ₹170,82,85,067/-. The learned TPO noted that assessee company has provided software services to its various associated enterprise for an amount of ₹ 2,682,507,653/- . For providing the services, assessee has entered into a Master Service agreement with its associated enterprises on 1 April 2008. As per article 2 of the agreement, assessee is entitled to charge 112% of the total amount of cost. He also noted that for purposes of article 2 total amount of costs shall exclude those cost incurred on related projects performed by assessee directly for clients outside the group. Therefore, he directed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹323,04,97,000/-. vi. Book profit of the assessee was also enhanced by disallowance under section 14A of the Act of ₹ 8,54,430/-. 010. The assessee aggrieved with the above order-preferred appeal before the learned CIT (A), who passed an order on 8 February 2016 allowing the appeal of the assessee partly. Therefore, the assessee is aggrieved with that order and has preferred this appeal raising several grounds as per grounds of appeal. 011. The learned Authorized Representative submitted a chart covering all the grounds of appeal along with two case laws compilation one containing transfer pricing issue and second containing issue other than transfer pricing. As the transfer pricing study report filed by the assessee before the lower authorities was not available on record, the assessee filed the same at the direction of the coordinate bench by letter dated 17 February 2022. 012. Coming to ground no. 1 to 5 of the appeal, learned authorised representative submitted that the only issue involved in this appeal is that the reimbursement out of pocket expenses incurred by the assessee on behalf of the CapGemini Group entities amounting to ₹170,82,85,06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that even on the Principle of consistency the adjustment is unwarranted. He relied upon several judicial precedence. [2] That out of pocket expenses is incurred on behalf of its Associated Enterprises only for administrative convenience. These expenses are not incurred by the assessee for providing services and therefore it cannot add to the cost base for charging markup. [3] Recovery of out of pocket expenses on cost-to-cost basis from a customer is standard IT practices. Therefore, no markup on reimbursement of expenses should be charged. [4] assessee do not take any further functions, employ any further assets or carry further risk with respect to reimbursement of expenditure. Therefore, it cannot be considered for transfer pricing adjustment as reimbursement of expenditure on behalf of Associated Enterprises does not result into any value added services and therefore no markup is chargeable on the same. [5] The Para no. 2.93 and 7.36 of the OECD guidelines also supports the case of the assessee, which has a persuasive value. [6] That Master Service agreement entered between assessee and its associated enterprise for provision of software development services is broadly drafte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligible for deduction under section 10A of the Act. 015. Coming to ground no. 8 and 9 which are with respect to the computation of deduction under section 10A of the Act, where the Revenue authorities have held that data line cost[ Tele communication expenditure] amounting to ₹146124486/- should be reduced from the export turnover of eligible units. He submitted that the above issue is covered in favour of the assessee by the decision of Hon'ble Bombay High Court in assessee s own case vide its order dated 9th July 2014 for Assessment Year 2005-06. 016. Coming to ground no. 13, which is without prejudice to the exclusion of data line cost, assessee pressed that if the data line cost is excluded from export turnover same should also be reduced from the total turnover also relying on the decision of Hon'ble Supreme Court in case of CIT vs. HCL Technologies Limited 404 ITR 719. 017. Coming to ground no. 10 and 11, the learned Authorized Representative submitted that the expenditure in foreign exchange have been reduced from the export turnover of the eligible units amounting to ₹97,70,36,684/- despite the issue is squarely covered in favour of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to paragraph no. 2.4 of the order of the learned CIT (A) to support his contention. She submitted that merely because in earlier years a particular aspect is not examined, it could not be stated it cannot be examined during the subsequent years. He submitted that principle of res-judicata does not apply to income tax proceedings. 021. With respect to other grounds of appeal, she relied upon the order of the lower authorities. In rejoinder of the learned Authorized Representative once again reiterated the arguments advanced earlier. 022. We have carefully considered the rival contentions and perused the order of the lower authorities. We have also considered and perused the paper book filed by the assessee containing 271 pages as well as chart of the issues. The assessee has also relied on two case laws compilation [1] related to transfer pricing and [2] related to non-transfer pricing issues. We have also considered them. 023. The ground no. 1 to 5 of the appeal is with respect to the transfer pricing adjustment with respect to reimbursement of out of pocket expenses incurred by the assessee amounting to ₹170,82,85,067/- where the ld TPO has included in cost base of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e orders, the learned TPO has held that the pass through cost or reimbursement incurred by the assessee should have been included in its cost base. On looking at the Master Service agreement, there is no clarity on the above aspect that what cost to be considered in cost base. However, it has been submitted by the assessee that it is operating margin from software development services 19.45%, even if the out-of-pocket expenses incurred by the appellant on behalf of its associated enterprise are also treated as part of the cost base of the appellant. The margins so computed are also higher than the arithmetic mean of the margins of the comparable companies computed at 8.69% selected by the assessee. To examine this alternative argument it is necessary to examine the order passed by the learned transfer pricing Officer u/s 92CA (3) of the act that whether the learned transfer pricing officer has objected to the any of the comparable companies selected by the assessee. On going through the transfer pricing officer s order, we do not find that learned transfer-pricing officer has disputed any of the comparable selected by the assessee. Therefore, the set of comparable selected by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered in favour of the assessee by the decision of the honourable Bombay High Court and the coordinate benches in assessee s own case for several years. We find that the honourable Bombay High Court in ITA number 2501 of 2011 dated 30 April 2014 in paragraph number 5 7 has considered the above issue. The honourable High Court in paragraph number 7 leaving aside the wider controversy or a larger question held that assessee is in business of software development and the charges, which are claimed to have been incurred, are in relation to the business of software development within India. Therefore, there could not be said to be cost deductible from the export turnover for the purposes of Section 10 A of the act. Therefore, ground number 8 and 9 of the appeal of the assessee is allowed directing the learned assessing officer to not to reduce the above sum from the export turnover of the eligible units. This is also covering the additional ground raised by the assessee in ground number 13 wherein the equal treatment is required to be given to the above expenditure in view of the decision of the honourable Supreme Court in case of CIT versus HCL technologies Ltd 404 ITR 719. Accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reason that during the course of the assessment proceeding the assessee was provided by the AIR/CIB details and asked to reconcile the same with the entries in the books of accounts. The AO found that there is credit card payment of ₹ 2,401,929/ to access bank Ltd. The assessee has denied having entered into any such transaction stating that the credit cardholder appearing in the AR report Mr. Basu was assessee s employee and can t any does not have any credit card issued by that bank. Another payment of ₹ 44,672/ was also made to Rama international Pune, assessee also denied the same transaction. The learned assessing officer therefore made the above addition stating that assessee is not supported any documentary evidences to prove the fact that above transactions are not entered into by the assessee company. On appeal before the learned CIT A he set-aside this issue back to the file of the learned assessing officer with a direction that it is necessary that the AIR data be verified by the assessing officer as well as the assessee by crosschecking with the external sources. This was decided because of the reason that assessee was not given enough time to verif ..... X X X X Extracts X X X X X X X X Extracts X X X X
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