| 2018-TII-INSTANT-ALL-542 | 13 March 2018 |
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FLASH NEWS India receives over USD 200 bn FDI between April, 2014 to Dec, 2017 TII BRIEF EU suspects VAT evasion in supply of yachtRBI CIRCULARS Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions Discontinuance of Letters of Undertaking (LoUs) and Letters of Comfort (LoCs) for Trade Credits CASE LAWS TIETO IT SERVICES INDIA PVT LTD Vs DCIT: PUNE ITAT (Dated: March 7, 2018) Income tax - ALP - allocation of expenses - forex gain - man hour basis - operating item - segmental account - software development services The assessee was engaged in the business of Telecom software development in domestic and European market. It had entered into international transactions with its AEs at Rs. 16,91,26,367/-. On reference made by AO and in view of the FAR analysis, the TPO proposed application of different filters and issued show cause notice to the assessee. The PLI working was also re-computed considering the Forex loss as non-operative. The second proposal of the TPO for working of PLI was to consider the same at entity level. The TPO further observed that the auditor in the audit report had not given segmental account as provided by the assessee with regard to its work with AEs and non-AEs. He was of the view that where the assessee had not followed any scientific method for allocation of expenses, the same could not be accepted. The first allocation of expenses on man hour basis, as per the TPO, was not correct, because it did not take into account the personnel who remained idle during the year. Secondly, while allocating the expenses on man hour basis, the TPO was of the view that the same requires that the work assigned by AEs and the work contracted by non AEs would be of similar skill set. The TPO also rejected the objection with reference to Forex gain being non-operative and also held that the same treatment was provided to the comparable, hence no merit in the objections of assessee. Finally he proposed an upward adjustment of Rs. 10,86,03,623/- to the international transactions relating to software development services of assessee. On appeal, the ITAT held that, Whether allocation of expenses in an international transaction on man hour basis, can be disregarded by TPO, when the same was accepted in Advance Pricing Agreements - NO: ITAT + the case of assessee is that, for preparing segmental details of AE segment, the assessee had applied man-hour basis which was accepted and where on providing segmental details and the same has been accepted even in APA proceedings, wherein APA had accepted man-hour allocation in the later years. Another aspect of the issue is that in the years preceding i.e. assessment year 2009-10 and in the succeeding years i.e. assessment years 2011-12 to 2014-15, no TP adjustment was made by the TPO and in some years, there is no TP reference at all. He stressed that in all the years, similar segmental profitability statement provided by the assessee was accepted by the Revenue authorities. In the totality of the facts and circumstances, it is held that while benchmarking international transactions of provision of services to Tieto Group companies by the assessee, the segmental details of AE segment need to be applied and not the results at entity level are to be applied. The assessee had applied a systematic manner of allocating the expenses to the AE segment i.e. on the basis of man-hour which is accepted method of allocation of cost. The same has also been applied under APA agreement signed by the assessee. Accordingly, the order of TPO in applying the margins at entity level, is rejected. Assessee's appeal partly allowed
PR CIT Vs INTERNATIONAL METRO CIVIL CONTRACTORS: BOMBAY HIGH COURT (Dated: March 7, 2017) Income tax - adhoc allocation of expenses - excessiveness of expenses - proper benchmarking During the course of the TP proceedings, the TPO noted that there was an agreement between the assessee and the 5 Joint Ventures, which permitted the JV partners to allocate its head office overhead expenses to the assessee to the extent of 8.5% of the turnover of assessee. The TPO disallowed the same on the ground that other expenses incurred by JV partners have been debited in the books of assessee on being separately computed. Therefore, there was no need to allocate overhead office expenses of JV partners on an adhoc basis to the assessee to the extent of 8.5% of the assessee's turnover. The assessment order was completed on the basis of the transfer pricing adjustment made in TPO's order by disallowing the above expenditure resulting in addition of Rs.19.45 lakhs. On appeal, both the FAA & the ITAT held that the TPO had not brought anything on record to indicate that debiting of overhead expenses were excessive on the basis of comparables i.e. no benchmarking of the expenses. On appeal, the HC held that, Whether allocation of overhead expenses between overseas joint venture partners, should not be disallowed, when it was not excessive - YES: HC + the impugned order of the Tribunal examined the agreement entertained into between the JV partners and the assessee. It found that the agreement provides for overhead office expenses of the respective JV partners being allocated to the assessee to the extent of 8.5% of its turnover. Further, the impugned order of the Tribunal also records the fact that the TPO has not benched mark the overhead office expenses debited to determine that it was in excess of comparable transactions. The impugned order on facts independently came to the same conclusion as the CIT(A) that the TPO was not correct in stating that the assessee had not furnished the details in support of his claim for allocation of overhead office expenses to the extent of 8.5%. This was found to be incorrect as the assessee has furnished the Certificate of Auditors of the JV partners indicating its overhead charges. The impugned order further records the fact that for the earlier Assessment Years 2004-2005 and 2005-06 on identical facts, the TPO did not challenge the claim of overhead expenses of the respondent's JV being debited with a cap of 8.5% of the turnover of the assessee. The issue urged by the Revenue is essentially one of finding of facts on which both the CIT(A) and the Tribunal have upheld the assessee's stand. Case deferred |
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