DCIT Vs Transocean Drilling Services (I) Pvt Ltd (ITAT Mumbai)
ITAT Mumbai held that when the transaction is in the reimbursement of expenses to AE, the third party cost incurred is a Comparable Uncontrolled Price (CUP) for the reimbursement. Accordingly, adjustment proposed is directed to be deleted.
Facts- The assessee company is engaged in the business of coordination / liaisoning services to the group companies. During the year under consideration, the assessee company has shown revenue from operations at Rs.6,54,08,130/- and other related income at Rs.29,78,840/-.
AO found that the assessee company had entered into Contractor Agreement with Oil and Natural Gas Corporation Ltd. (ONGC) for the hire of drilling rigs and had given a sub-contract of the same activity to its group company. A reference u/s 92CA(1) of the Act was made by the AO to the file of the TPO for determining the ALP of international transactions carried out by the assessee.
The assessee is an Indian company liable to income tax in India as per the provisions of the Act. The AE of the assessee is engaged in offshore drilling activities by deploying rigs and skilled personnel. The AEs operate as project offices in India and pay taxes in India under section 44BB of the Act @40% plus surcharge and cess on the income determined @10% of total receipts on a gross basis. On the contrary, the assessee is engaged in providing coordination / liaisoning services to AEs and remunerated the cost plus markup basis on its own cost.
The only dispute is that though the assessee has debited exchange loss of Rs.4,13,05,616/- in its profit and loss account, it had not claimed mark-up on that to the extent of 10% from its AE during the year under consideration on the ground that the same is actually not incurred and is merely notional exchange loss and that it had resulted due to restatement of the pending liability as on the balance sheet date to comply with Accounting Standard-11 issued by the Institute of Chartered Accountants of India (ICAI).
Further, TPO had observed that the assessee had reimbursed expenses to AE towards travel, accommodation, conveyance, communication charges, cargo costs, stock-based compensation, employee expenses, freight charges etc. without any markup.
Conclusion- We hold that assessee was duly justified in not adding mark-up of 10% on this exchange loss considering the fact that it is purely notional in nature in the peculiar facts and circumstances of the instant case.
Held that when the transaction is in the reimbursement of expenses to AE, the third party cost incurred is a CUP for reimbursement. Accordingly, the CUP method chosen by the assessee considering the nature of the transaction and degree of comparability as the Most Appropriate Method is hereby upheld.
We find that either way all these expenses have been duly included in the total expenses included by the assessee on which markup of 10% has been claimed by the assessee from its AE. Hence, the action of the TPO in determining the ALP of this transaction at ‘Nil’ is absolute without any basis and the adjustment proposed in the sum of Rs.19,94,336/- is hereby directed to be deleted.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal in ITA No.2988/Mum/2019 & Cross Objection in CO No.05/Mum/2021 for A.Y.2012-13 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-58, Mumbai in appeal No. CIT(A)-58,Mumbai/10222/2017-18 dated 19/02/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s.144C(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/03/2016 by the ld. Dy. Commissioner of Income Tax-15(3)(1), Mumbai (hereinafter referred to as ld. AO).
2. At the outset, we find that the cross objections preferred by the assessee is delayed by 279 days. We find that the cross objections has been preferred during the Covid period and in view of the relaxation granted by the Hon‟ble Supreme Court in light of Covid-19 pandemic, the delay in filing of cross objections is hereby condoned and the same is taken up for adjudication.
3. The ground Nos.1-6 raised by the assessee in cross objections are general in nature and does not require any specific adjudication as stated by the ld. AR before us.
3.1. The other grounds raised by the assessee in its cross objections would be dealt hereinafter while addressing the grounds raised by the Revenue.
4. The Revenue has raised the following grounds of appeal:-
