Dell International Services India Private Limited Vs JCIT (ITAT Bangalore)
The ld. DR submitted that during the assessment proceedings, the AO noted that expenditure incurred on account of travelling and conveyance was Rs. 13,49,73,565, whereas the amount debited to P&L account was Rs. 13,34,17,000 which resulted in excess payment of Rs. 15,56,565/-. The assessee failed to furnish any satisfactory explanation for the difference. Hence this expenditure of Rs. 15,56,565/- was rightly considered as unexplained expenditure u/s. 69C of the Act and added back.
The ld. AR submitted that the difference between amount debited as travelling & conveyance and the amount as per the party-wise break-up submitted amounting to Rs. 15,56,565 represents an amount initially debited under repairs and maintenance and subsequently reclassified under other heads of expense in the Profit and Loss account or amount subsequently reversed. The ld AR further submitted that the entire amount for which the break-up has been submitted is debited to the Profit and Loss account and accounted in the regular books of accounts, the same cannot be disallowed under Section 69C as the source for the said expenditure is automatically explained. Reliance was placed on CIT vs. Radhika Creations [Reported in [2011] 10 taxmann.com 138 (Delhi).
We have considered the rival submissions and perused the material on record. We notice that the assessee has submitted the party wise breakup of the expenses and has submitted that the difference in the amount as per breakup and the amount as per profit and loss account is due to the amounts being debited to other line items in the profit and loss account or subsequent reversal. The submission that the entire amount is debited to the Profit and Loss account and accounted in the regular books of accounts, the same cannot be disallowed under Section 69C has merits as the source for the said expenditure is automatically explained. In our considered view the DRP has rightly considered the submissions and deleted the additions and we see no reason to interfere with the same.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These cross appeals by the assessee and revenue are directed against final assessment order dated 29.01.2015 passed u/s 143(3) r.w.s. 144C of the Income-tax Act, 1961 [the Act]. The relevant assessment year is 2010-11.
2. The brief facts of the case are that the Assessee is engaged in the manufacture and trading of IT hardware products and provides technical and marketing support services to its Associate Enterprises (AEs). For the relevant assessment year 2010-11, the assessee had certain international transactions inter alia being purchase of stock in trade (trading segment), provision of technical and marketing support services to its AEs, reimbursement and recovery of expenses to/from its AEs. We shall discuss the functions performed under each of the segments while discussing the adjustment determined by the TPO.
3. In the TP study maintained for the year under consideration, the Assessee treated all the international transactions as being at arm’s During the year, the Assessee also recovered certain advertisement expenses from Intel USA (“Intel”) and Microsoft USA (“Microsoft”). Since the transactions were with unrelated parties, the assessee did not benchmark the same. During the course of assessment proceedings, reference was made to the Transfer Pricing Officer (TPO). The TPO passed an order dated 30.01.2014 under Section 92CA of the Income-tax Act, 1961 (“the Act”) determining a TP adjustment aggregating to Rs. 14,50,39,631/-, comprising of the following:
A. Adjustment determined by bifurcating the marketing and business support services segment into ITES segment (adjustment of Rs. 2,47,46,975/-) and MSS segment (adjustment of Rs. 2,75,92,656/-); and
B. Adjustment of Rs. 9,27,00,000/- determined in respect of the warranty expenses.
4. Pursuant to TP adjustment, a draft assessment order dated 03.20 14 was passed by the AO in which the aforesaid TP adjustments were incorporated. Further, the A.O. also made various additions / disallowance on corporate tax issue.
5. Aggrieved, the Assessee filed its objections before the DRP. The DRP vide its directions dated 30.12.2014, granted partial relief. Pursuant to the directions of the DRP, the AO passed the final assessment order dated 29.01.2015 in which the aggregate TP adjustment was reworked to Rs. 14,51,54,329/-. Aggrieved by the final assessment order, the Assessee has filed the IT(TP)A 562/Bang/2015 before Tribunal. To the extent the DRP granted relief to the Assessee, the Revenue too has filed an appeal [IT(TP)A No.400/Bang/2015]. We shall first adjudicate assessee’s appeal.
IT(TP)A No.562/Bang/2015 (Assessee’s appeal)
6. The assessee in the memorandum of appeal has raised 24 grounds. We will first adjudicate the transfer pricing grounds raised through ground no.14 to 24 which reads as follows
“14. The learned Joint Commissioner of Income Tax(LTU), Bangalore (“Assessing Officer” or “learned AO”) and the learned Additional Commissioner of Income Tax (Transfer Pricing-I), Bangalore (“Transfer Pricing Officer” or “learned TPO”) grossly erred in determining an adjustment to the Arm’s Length Price (“ALP”) of the Appellant’s international transactions with Associated Enterprises (“AEs”) of Rs. 14,51,54,329/,
15. The learned AO/ learned TPO erred in not following the directions given by the Hon’ble DRP while passing the final assessment order.
16. The learned AO / learned TPO / Hon’ble DRP erred in rejecting the Transfer Pricing (`TP’) documentation maintained by the Appellant on invoking provisions of sub-section (3) of 92C of the Act contending that the information or data used in the computation of the arm’s length price is not reliable or correct.
17. The learned AO / learned TPO / Hon’ble DRP erred in ignoring the analysis demonstrating the arm’s length nature of international transactions entered into by the Appellant in the Transfer pricing documentation and in the submission made before the TPO from time to time.
18. The learned AO / learned TPO / Hon’ble DRP erred in not considering the multiple year prior year financial data of comparable companies while determining the arm’s length price.
19. The learned AO / learned TPO / Hon’ble DRP erred in not considering provision of doubtful debts as non-operating item.
20. The learned AO / learned TPO / Hon’ble DRP erred in using data as at the time of assessment proceedings, instead of that available as on the date of preparing the TI documentation for comparable companies while determining arm’s length price.
21. Business Support Services
21.1 The learned AO / learned TPO / Hon’ble DRP erred in arbitrarily arriving at segmental profit/loss with respect to business support services segment and bifurcating it in technical support services and marketing support services.
21.2 The learned AO / learned TPO / Hon’ble DRP erred in analyzing the business support services segment and accordingly, erred in not appreciating the fact that the services cannot be segregated as the activities of the same are intertwined.
22. Technical Support Services
22.1 The learned AO / learned TPO / Hon’ble DRP erred in arbitrarily arriving at segmental profit wish respect of technical support services segment.
22.2 The learned AO / learned TPO / DRP erred in rejection of comparability analysis carried in the TP documentation and in conducting a fresh comparability analysis by introducing various filters in determining the arm’s length price.
22.3 The learned AO /learned TPO / Hon’ble DRP erred in not applying the turnover filter in selecting the comparable companies.
22.4 The learned AO / learned TPO / Hon’ble DRP erred in including companies that do not sat.4), the test of comparability. Specifically, the Appellant believes that the following companies selected as comparable by the learned AO/ learned TPO should be rejected:
