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TMI Blog2023 (2) TMI 1220X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of profit or mark up in the hands of the AE in incurring the day to day pocket expenses the same is not to be bench marked. In view of section 92(1) of the Act income arising from an international transaction is liable to be computed for the purpose of ALP as prescribed under section 92C - TPO has considered the ALP at 10% of expenses recovered on adhoc basis without conforming to the methods prescribed u/s 92C(1) - So in view of the matter and following the order passed by the co-ordinate Bench of the Tribunal adjustment made by the TPO/AO qua international transaction of reimbursement of expenses received by the assessee from its AE is not sustainable in the eyes of law, hence ordered to be deleted. Addition u/s 143(1) without issuing any notice to the assessee and this addition has also not found mention in the draft assessment order which is in violation of section 144C - AO disallowed an amount being the difference between the disallowance reported in section 37 in the income returned (in respect of CSR contribution) and tax audit report (in respect of loss on sale of fixed assets) - AO also disallowed an amount u/s 40(a)(ia) - HELD THAT:- During the course of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s laid down under section 144B of the Act read with various orders/ notifications/ circulars issued by Central Board of Direct Taxes in this regard and hence, the order is bad in law and therefore void-ab-initio. Transfer Pricing Grounds 2. erred in making a transfer pricing adjustment of Rs. 66,26,894 to the total incomes of the Appellant on the premise that the international transaction of recovery of reimbursement of expenses paid by Associated Enterprise (AE) to Appellant were not at arm's length; Reference made to the Transfer Pricing Officer 3. erred in referring the Appellant's case to the Learned Transfer Pricing Officer (TRO) under Section 92CA(1) of the act without satisfying the conditions specified therein Adjustment made to international transaction of comment of ass given by AE to Appellant 4. erred in making a transfer pricing adjustment of Rs. 66,26,894 in relation to the international transaction of reimbursement of expenses received by the Appellant from the AE disregarding the fact that these expenses were primarily the liability of the AE and were incurred initially by the Appellant only for administrative convenience; 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest under Section 234C of the Act 13. erred in erroneously computing interest under Section 234C at Rs. 1,99,842 as against Rs. 1,65,731; Penalty Proceedings 14. erred in initiating penalty proceedings under Section 274 read with section 270A of the Act. Each of the above ground of appeal is without prejudice to and independent of one another. The Appellant craves leave to add, alter, amend or delete the above ground of appeal at or before the time of hearing of the appeal, so as to enable the Hon'ble Income tax Appellate Tribunal to decide this appeal according to law. 2. Briefly stated facts necessary for consideration and adjudication of the issues at hand are: the assessee company is a wholly owned subsidiary of M/s. Ness Technology Inc, USA (Ness US). Ness group is one of the largest IT services solutions provider in Israel and it is a leading global information technology services firm. The assessee is an off shore-centric technology solutions group with four units in Bangalore, Mumbai and Hyderabad. The assessee has been providing software development services to its group entities. 3. During the year under consideration the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the matter before the Ld. DRP by way of filing objections challenging adjustment made by the AO on the basis of order passed by the Ld. TPO who has dismissed the objections filed by the assessee. Feeling aggrieved with the impugned order, the assessee has come up before the Tribunal by way of filing present appeal. 7. We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto. Grounds No.1, 2 3 8. During the course of argument the Ld. A.R. for the assessee has not pressed grounds No.1, 2 3 raised in this appeal, hence the same are dismissed. Grounds No.4, 6, 7 8 9. By raising grounds No.4 to 8 the assessee has challenged the TP adjustment of Rs. 66,26,894/- qua the international transaction of reimbursement of expenses received by the assessee from its AE. It is the case of the assessee that in case of reimbursement of aforesaid expenses there was no service/income element and expenses are reimbursed on cost to cost basis and the same are not expenses of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was canvassed by the assessee to substantiate that there was one to one corelation and that the entire exercise did not involve any element of profit or mark-up in the hands of the associated enterprises. The aforesaid material is placed at pages 518 to 612 of the Paper Book and which was also before the lower authorities. At the time of hearing, the Ld. Representative for the assessee had also referred to page 613 to 645 of the Paper Book, wherein are placed copies of assessee s arrangement with the associated enterprises and also the sample agreements between the associated enterprises and the ultimate clients, which prescribe that all impugned travel and related expenses are separately chargeable on a cost to cost basis. All this material clearly brings out a pertinent feature that in the entire transaction involving payment of expenditure by the assessee, its recovery from the associated enterprises, which-in turn recovers it from the end clients, there is no involvement of any profit-element in the hands of the associated enterprises. Therefore, it would be wrong on the part of the income tax authorities to take a position and infer notionally about recovery of mark-up or prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee s own case for A.Y. 2011-12 and in view of the fact that no such transfer pricing adjustment has been made by the Revenue qua the international transaction on recovery of expenses from A.Y. 2004-05 to A.Y. 2010-11, we are of the considered view that when ALP of the international transactions rendering services by the assessee to its AEs, for which it is to be compensated on cost + mark up basis have already been benchmarked separately, the day to day pocket expenses incurred by the assessee during rendering of such services are to be reimbursed on cost to cost basis. Incurring of such expenses has not been disputed by the Revenue Department. When there is no element of profit or mark up in the hands of the AE in incurring the day to day pocket expenses the same is not to be bench marked. 13. Moreover, in view of section 92(1) of the Act income arising from an international transaction is liable to be computed for the purpose of ALP as prescribed under section 92C of the Act. However, the Ld. TPO has considered the ALP at 10% of expenses recovered on adhoc basis without conforming to the methods prescribed under section 92C(1) of the Act. So in view of the matter and following ..... X X X X Extracts X X X X X X X X Extracts X X X X
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