Cost-to-Cost Overseas Reimbursements Without Profit Element Not Taxable as FTS: ITAT Delhi

Horiba India Private Limited Vs Assessment Unit (ITAT Delhi)

The Income Tax Appellate Tribunal (ITAT), Delhi, allowed the assessee’s appeal against the final assessment order for Assessment Year 2020-21, which had made corporate tax additions of ₹1,75,33,346 and a transfer pricing adjustment of ₹1,36,723. The dispute primarily related to reimbursements made to overseas group entities towards IT infrastructure and software costs, salary expenses, and travel expenses, which the Assessing Officer had treated as Fees for Technical Services (FTS) and disallowed for non-deduction of tax at source under Section 40(a)(i).

The assessee submitted that during the relevant year it had reimbursed ₹42,14,619 towards IT infrastructure and software costs, ₹1,18,52,585 towards salary expenses, and ₹14,66,142 towards travel expenses to its overseas group entities, aggregating ₹1,75,33,346. It contended that all these payments were cost-to-cost reimbursements without any mark-up or profit element and, therefore, did not constitute income chargeable to tax in India. It further pointed out that similar reimbursements had been accepted by the Assessing Officer in preceding and subsequent assessment years.

Regarding IT infrastructure and software reimbursements, the assessee explained that its parent company incurred common expenses on servers, networks, software platforms and other IT infrastructure for the benefit of the entire group. These costs were allocated among group entities on a per-user basis in accordance with the relevant agreements and without any profit mark-up. According to the assessee, the payments represented reimbursement of actual expenditure incurred by the parent company on behalf of group entities and were not consideration for technical services. It relied upon agreements, invoices, allocation workings and judicial precedents, including the Supreme Court’s decision in A.P. Moller Maersk A/S, to contend that use of a common facility does not amount to rendering technical services and reimbursement of actual costs without any profit element is not taxable.

In relation to salary reimbursements, the assessee stated that certain employees were seconded to India for its business operations. While part of their salaries was paid in India, another part was paid overseas by group companies for administrative convenience and later reimbursed by the assessee without any mark-up. The assessee submitted that it was both the legal and economic employer of these employees, that tax had already been deducted under Section 192 on the entire salary, including the overseas component, and that the reimbursements did not give rise to any income in the hands of the overseas entities. It produced Form 16, employment documents and salary reconciliations in support of its claim and relied upon various Tribunal decisions holding that reimbursement of salary costs to overseas entities does not constitute Fees for Technical Services where tax has already been deducted as salary.

With respect to travel reimbursements, the assessee explained that its employees travelled abroad for meetings, conferences and training programmes. The related overseas entities initially incurred expenditure on travel, lodging and airfare only for logistical convenience and the assessee subsequently reimbursed the actual costs without any mark-up. It submitted invoices raised by associated enterprises together with third-party invoices and relied upon CBDT Circular No. 5/2002, contending that payments towards hotel charges and air tickets do not require deduction of tax at source. According to the assessee, these reimbursements merely repaid expenses already incurred and did not involve rendering of technical, managerial or consultancy services.

After examining the material on record, the Tribunal found that the assessee had furnished complete details of the reimbursements. It observed that the IT infrastructure expenses represented cost-to-cost reimbursement of common facilities maintained for the entire Horiba group. It also noted that the salary reimbursements related to employees seconded to India who performed normal business functions and whose salary income had already been subjected to tax deduction under Section 192. In respect of travel expenses, the Tribunal found that detailed invoices and supporting documents established that the payments were reimbursement of actual expenditure without any profit element. Holding that these payments were not chargeable to tax in India and, consequently, did not attract withholding under Section 40(a)(i), the Tribunal deleted the entire corporate tax addition of ₹1,75,33,346 and allowed Grounds 2 to 4 of the appeal.

FULL TEXT OF THE ORDER OF ITAT DELHI

The appeal filed by the assessee is against final assessment order dated 27.06.2024 passed by ld. Assessing Officer/ Assessment Unit (hereinafter referred to as “Ld. AO”) u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year (A.Y.) 2020-21.

2. Brief facts of case are that the assessee is a company engaged in business of trading and manufacturing of pollution of control equipment’s, environment analyzer, medical instruments, and provision of marketing support services in relation to engineering, installation, commissioning, and maintenance. The assessee filed return of income on 15.02.2021 declaring income of Rs. 25,83,13,030/-. The return was processed u/s 143(1) of the Act on 24.12.2021 at income of Rs. 28,43,42,060/-. The case was selected for complete scrutiny under CASS for following reasons: –

i. Stock Valuation

ii. Double Taxation Relief u/s 90/91

iii. Default in TDS & Disallowance for such Default

iv. Default in TDS

v. Imports

vi. Refund Claim

vii. ICDS Compliance and Adjustment

viii. Credit of Brought Forward TDS

ix. Foreign Outward Remittance

x. International Transactions

3. Notice u/s 143(2) of the Act dated 29.06.2021, notices u/s 142(1) of the Act dated 03.12.2021, 21.07.2023, reminder letter dated 01.08.2023 and show cause notice dated 21.08.2023 were issued. Ld. AO made reference u/s 92CA(3) of the Act to the Transfer Pricing Officer (“TPO”). The TPO vide order dated 15.06.2023 made an adjustment to the income of appellant Rs. 1,36,723/- on account of delayed realization of invoices. Ld. AO passed draft assessment order dated 06.09.2023 proposing a corporate tax adjustment on account of non-deduction of TDS and reimbursement of expenses of Rs. 1,75,33,346/- in addition to transfer pricing adjustment of Rs. 1,36,723/-.

4. Against draft assessment order, the assessee filed objection before Hon’ble Dispute Resolution Penal (“DRP”). The DRP pursuant to its direction dated 27.05.2024, disposed of the objections. Transfer Pricing adjustment was upheld with respect to corporate tax addition. Specifically, travel reimbursement, directed the AO to verify documents placed on record and allow credit for correct amount of TDS after due verification.

5. Ld. AO passed final assessment order dated 27.06.2024 wherein total income of assessee was assessed as under: –

6. Being aggrieved, appellant/assessee preferred present appeal on following grounds: –

“1. Grounds in General

1.1 On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer (A0) has passed the assessment order (‘order) on the basis of mere assumptions, surmises and conjectures, and without considering the detailed factual and legal submissions made by the Appellant during the course of proceedings under the Income-tax Act, 1961 (‘Act).

1.2 That the Ld. DRP/ Ld. AO erred both on facts of the case and in law, in computing income at Rs. 30,20,12,129 instead of Rs. 28,43,42,060 as computed u/s 143(1) of the Act.

Specific Grounds of Appeal

2. Disallowance of cost-to-cost reimbursement made to parent company on account of IT cost and common software facility amounting to INR 42,14,619 is bad in law

2.1 The Ld. DRP/ Ld. AO have erred on the facts and circumstances of the case and in law, in treating the reimbursement of actual expenses made by the Appellant to its parent company as Fees for Technical Services (‘FTS) and disallowing the same under section 40(a)(1) of the Act.

2.2 That Ld. DRP/ Ld. AO have erred in not appreciating that the payment towards IT infrastructure cost and SAP software system incurred by parent company cannot be classified as FTS under Article 12(4) of India-Japan Double Tax Avoidance Agreement (DTAA) since the nature of IT software systems is that of an automated nature and there are no technical services that are being rendered.

2.3 That the Ld. DRP/ Ld. AO have erred In law in disregarding the Supreme Court decision in the case of A.P. Moller Maersk A S [20171 78 taxmann.com 287 (SC) wherein Hon’ble Court held that when a common facility of using Maersk Net System is provided to all the agents across the countries to carry out their work using the said system, then no technical services are being provided by the assessee to the agents, and by no stretch of Imagination, payments made by the agents can be treated as Fee for Technical Services.

2.4 The Ld. DRP/ Ld. AO have erred on the facts and circumstances of the case and in law, having failed to appreciate the fact that reimbursement of expenses is not ‘Income’ per se in the hands of the recipient in absence of any profit element and accordingly is not chargeable to tax in India.

2.4.1 That the Ld. DRP/ Ld. AO have erred in law in disregarding the Supreme Court decisions in the case of GE India Technology, Transmission Corporation and A.P. Moller Maersk A.S., which have held that in the absence of income element, there is no requirement to withhold taxes u/s 195 of the Act.

3. Disallowance of cost-to-cost reimbursement made to related parties on account of Salary reimbursement of INR 1,18,52,585 is bad in law

3.1 The Ld. DRP/ Ld. AO have erred on the facts and circumstances of the case and in law, in treating the reimbursement of actual expenses made by the Appellant towards salary expenditure to group companies as FTS and disallowing the same under section 40(a)(i) of the Act.

3.1.1 That the Ld. DRP/ Ld. AO erred in alleging that overseas companies are providing services to Appellant, in the form of seconded employees ignoring the fact that seconded employees are legally and economically employed by the Appellant and there is no rendition of services by the Overseas Companies.

3.1.2 Without prejudice to above, the Ld. DRP/ Ld. AO erred in not appreciating that the seconded employees are involved in normal day to day working of the Appellant (sales department, accounting department etc.) and do not possess any specialised technical skills and therefore, by no stretch of imagination, the reimbursements made to Horiba Japan can be classified as FTS under the Act as well as DTAA.

3.2 Based on the facts and in the circumstances of the case and in law, the Ld. DRP/Ld. AO have factually and legally erred in not appreciating the fact that the Appellant had appropriately withheld taxes on the income chargeable to tax under the head ‘salaries’ under the provisions of section 192 of the Act and mere reimbursement of such salary cost by Appellant to Overseas group companies does not give rise to any income in hands of recipient Overseas Companies.

3.3 That the Ld. DRP/ Ld. AO have erred on the facts and circumstances of the case and in law, having failed to appreciate the fact that reimbursement of expenses is not ‘Income’ per se in the hands of the recipient in absence of any profit element and accordingly is not chargeable to tax in India

3.3.1 That the Ld. DRP/ Ld. AO have erred in law in disregarding the Supreme Court decisions in the case of GE India Technology, Transmission Corporation and A.P. Moller Maersk A.S., which have held that in the absence of income element, there is no requirement to withhold taxes u/s 195 of the Act.

4. Disallowance of cost-to-cost reimbursement made to related parties on account of Travel reimbursement of INR 14,66,142 is bad in law

4.1 That the Ld. DRP/ Ld. AO have erred on the facts and circumstances of the case and in law, in treating the reimbursement of actual expenses made by the Appellant towards travel expenditure to Overseas group companies as FTS and disallowing the same under section 40(a)N of the Act.

4.2 That the Ld. DRP/ Ld. AO have erred in not appreciating that travel reimbursement expenses such as air/train tickets, hotel charges etc. for conducting meetings, conference or seminars etc. abroad does not tantamount to rendering of ‘managerial, technical and consultancy services’ as defined in FTS under the provisions of the Income Tax Act and DTAA.

4.2.1 The Ld. DRP/ Ld. AO erred in not appreciating that there is no requirement to deduct TDS on airfare charges, hotel charges, etc. even under the domestic Law (CBDT Circular 5/2002 dated 30 July 2002)

4.3 That the Ld. DRP/ Ld. AO have erred on the facts and circumstances of the case and in law, having failed to appreciate the fact that reimbursement of expenses is not ‘Income’ per se in the hands of the recipient in absence of any profit element and accordingly is not chargeable to tax in India.

4.3.1 That the Ld. AO have erred on facts and circumstances of the case by holding that the Appellant has merely submitted a table without any supporting documents. Ld. AO failed to appreciate that the Appellant has duly furnished the copy of invoices on sample basis that were raised by third party on Horiba overseas entity and the related debit notes raised by Horiba overseas entity on Horiba India.

4.3.2 That the Ld. DRP/ Ld. AO have erred in law in disregarding the Supreme Court decisions in the case of GE India Technology, Transmission Corporation and A.P. Moller Maersk A.S., which have held that in the absence of income element, there is no requirement to withhold taxes u/s 195 of the Act.

5. Addition on account of transfer pricing adjustments amounting to INR 1,36,723 is grossly incorrect

5.1 That the Ld. DRP/ Ld. AO erred in making adjustment of INR 1,36,723/-u/s 92CA of the Act to the income of the Appellant on account of on account of delayed realization of invoices.

6. Initiation of penalty proceedings

6.1 That the Ld. AO erred in law in initiating penalty proceedings under section 270A of the Act for underreporting of income in consequence of misreporting.

7. Incorrect calculation of tax demand

7.1 That on the facts and circumstances of the case, Ld. AO has wrongly considered income of INR 33,42,69,086 while computing tax liability in the computation sheet instead of assessed taxable income of INR 30,20,12,129.

7.2 That on the facts and circumstances of the case and in law, the Appellant has not been granted full TDS credit of INR 4,07,74,540 and thus, leading to unnecessary tax burden on the Appellant.

7.3 That on the facts and circumstances of the case, Ld. AO has incorrectly calculated the amount of interest u/s 234C at INR 12,41,257.”

7. Ld. Authorized Representative for appellant/assessee submitted that Ground of appeal No. 1 is general. Grounds of appeal No. 2 to 4 are regarding corporate tax additions reimbursement to group affiliates on account of-

• IT cost and common software facility- INR 42,14,619
• Reimbursement for salary expenditure- INR 1,18,52,585
• Reimbursement for travelling expenses- INR 14,66,142

During the captioned assessment year, the assessee has made certain cost-to-cost reimbursements to its group affiliates on account of

• Reimbursement for IT Cost & Software support expenses
• Reimbursement for Salary expenses
• Reimbursement for Travel expenses

7.1 The assessee tabulated the details of reimbursement made to related parties during A.Y. 2020-21 as under: –

7.2 The same issue is already allowed in favour of appellant in preceding and subsequent years by the AO, which is hereunder: –

7.3 The payment towards IT infrastructure and software is a cost-to-cost reimbursement of expenses to its parent company (Horiba Japan) towards IT infrastructure equipment’s and software related expenses incurred by Horiba Japan on behalf of all of its group companies (including the assessee). This cost primarily relates to parent server, network etc. and other business-related software used for backup, centralizing the data management process and disaster management. The purpose of above arrangement is to meet the requirements of global business by maintaining a uniformed/ common group information system for the entire Horiba Group with maximum flexibility and speed. The Horiba group maintains this common platform for avoidance of unnecessary costs.

Breakup of IT infrastructure & Software cost:

7.4 It is evident from the invoices that actual cost of the IT infrastructure Cost & Software is being allocated to various Horiba group affiliates (including the Appellant) without any mark-up based on the mechanism agreed in the agreement (for e.g. number of users, license numbers etc).

7.5 The cost is being charged on a per-user basis which itself substantiates that the allocation has been done on basis of actual expenditure incurred by dividing it with total number of users (employees) in the entire Horiba group (Horiba overseas entities worldwide & Horiba India). The basis of allocation is ‘per-user’ because this cost is directly linked with no. of users using that IT infrastructure and software facility in the subsidiary company. There exists direct correlation between the actual expenses incurred by the Appellant and the “reimbursement” made

7.6 It is crucial to note that parent company had made the payment to third party(s) in respect of IT infrastructure Cost and software and later on the same was allocated to all the group entities (including the Appellant). These payments are not towards any rendition of services. It was purely in the nature of cost-to-cost reimbursement, ie, cost re-charge arising out of expenses incurred by one person on behalf of the other and not for provision of services. The cost against the same has been allocated to all the group entities (including the Appellant) on a pro-rata basis. The actual cost incurred was reimbursed by the Appellant to its associated enterprise. Accordingly, by no stretch of imagination, it can be held that the aforesaid reimbursement was in nature of fees for technical services under Article 12(4) of India Japan DTAA since there are no technical services that are being rendered.

7.7 Without prejudice to above, it is clearly evident from the submissions that the specific costs had been incurred by Horiba Japan for virtual server, rack server fee, rack power fee, NTTPC server fees, web access speed acceleration etc. By no stretch of imagination, it can be assumed that Horiba Japan had set-up and maintained the entire IT infrastructure ecosystem and providing ‘services’ of same. This allegation may be possible in case of an IT company but considering the nature of business of Horiba group (automotives, medical equipments, environmental analyzers etc), such an allegation is completely untenable.

7.8 Appellant submits that technical services denote services catering to the special needs of the person using them and not a facility provided to all. Therefore, mere use of facility provided by the parent company to the Appellant does not amount to any kind of technical services. In this regard, Appellant places reliance on the below case laws in support of its arguments –

“Hon’ble Supreme Court in the case of Director of Income-tax (IT)-I v. A.P. Moller Maersk A 5 [2017] 78 taxmann.com 287 (SC) wherein Hon’ble Court held that no technical services are being provided by the Appellant to the agents. Only a common facility of using Maersk Net System is provided to all the agents across the countries to carry out their work using the said system. Hon’ble Court mentioned that once above are accepted, by no stretch of imagination, payments made by the agents can be treated as fee for technical service. It is in the nature of reimbursement of cost whereby the three agents paid their proportionate share of the expenses incurred on these said systems and for maintaining those systems.”

7.9 Hon’ble Court also mentioned that the Appellant have even submitted before the Ld. Transfer Pricing Officer that these payments were reimbursement in the hands of the Appellant and the reimbursement was accepted as such at arm’s length. Once the character of the payment is found to be reimbursement of the expenses, it cannot be income chargeable to tax.

In support of above arguments, the Court relied upon its earlier decisions in the case of CIT v. Kotak Securities Ltd. [2016] 383 ITR 1/239 Taxman 139/67 taxmann.com 356 (SC) wherein it has categorically held that use of facility does not amount to technical services, as technical services denote services catering to the special needs of the person using them and not a facility provided to all.

The Apex court had also placed reliance on its earlier decision in case of CIT v. Bharti Cellular Ltd. [CIT v. Bharti Cellular Ltd., [2014] 6 SCC 401: (2011) 330 ITR 239).

7.10 Furthermore, arguments of the Appellant have been accepted by Ld. AO himself in the assessment order of AY 2022-23 wherein same nature of payments were examined. The Ld. AO stated that —

“The assessee submitted the cost working and allocation sheet which demonstrates the total cost and their pro rata division amongst the group entities. It can be seen that the cost allocated to Horiba India has been charged on cost-to-cost basis without any markup charged. The assessee further submitted copy of the debit note in this regard. The assessee further explained the rationale behind allocation of cost on “per user basis. Further, these transactions have been duly reported by the assessee in Form 3 CEB at arm’s length price. The assessee further placed reliance on the order of the hon’ble Supreme Court in case of Director of Income Tax Vs A. P. Moller Maersk, Considering the arguments and submissions of the assessee, the submissions are considered and placed on record.”

(Please refer page 413-414 of paper book)

7.11 The payments being made to a non-resident entity are in the nature of a cost-to-cost reimbursement with no profit element embedded, and accordingly, there would be no sum chargeable to tax under the Act. Therefore, there is no liability on the Appellant to withhold tax at source under section 40(a)(i) of the Act.

7.12 Re: Salary reimbursement of liNTR 1,18,52,585: it is submitted that the Appellant needed some employees for facilitating its operation in India and thus, at its request, related working of the ad certain personnel to the Appellant. The employees seconded to India are recruited by the Appellant in departments like sales department, accounting department, etc. They are involved in normal day-to-day working of the Appellant and do not possess any specialized technical skills, and it cannot be alleged that the employees were providing technical services on behalf of related entity.

7.13 The part of the salary to these employees is paid to them in India and the other part is paid to them overseas by Related parties for administrative convenience. Subsequently, such other part paid is recharged by the Appellant without any mark-up. Both the parts of the salaries are taken in account by the Appellant for the purpose of tax deduction at source for these employees and therefore, there is no amount of income which remains untaxed in India.

7.14 Since taxes on the salaries of seconded employees have been duly deducted and deposited under Section 192 of the Act as Income under the head “salaries” and thus, any reimbursement of such payment, cannot be taxed again under Section 195 of the Act. The same has been held in plethora of judicial precedents discussed hereunder:

• In the case of Advics Co. Ltd. [2024] 165 com 716 (Delhi – Trib.), it was held that employee salary reimbursement to Japanese company is not liable to tax withholding:

“….the Indian AEs have duly deducted tax under section 192 and deposited the same into the Government account for the salaries paid to the expats in India as well as abroad (remitted solely for administrative convenience). The expats have offered the entire salary income to tax in their respective returns of income filed under the relevant provisions of the Act which is supported by Form 16 issued to the expats by their respective employers i.e. Indian AEs. [Para 10.311

In the light of the above factual matrix and legal position, it is held that the impugned receipts are in the nature of employee salary reimbursement cost not having any element of income and not taxable in India as FTS under the provisions of the India-Japan DTAA. Consequently, the addition made on account of cross charge by the assessee from its Indian AEs is deleted. [Para 17]”

• In the case of Toshiba Energy System & Solutions Corporation [2025] 181 com 619 (Delhi – Trib.), Hon’ble ITAT ruled that the assessee in the instant case has been able to substantiate that the payments made by Indian entities to the assessee are quareimbursements of salary paid in Japan to the seconded employees for the services rendered in India by them. As is evident from FORM 16 available on record, tax under the Act has also been deducted on payment of salaries. Where the payments are made to employees as salaries, such payments cannot be recharacterized as FTS

• • AT & T Communication Services (India) (P.) v. Deputy Commissioner of Income-tax, Circle-3 (2), New Delhi [2019] 101 taxmann.com 105 (Delhi – Trib.)
  • Yamazen Machinery and Tools India (P.) v. ACIT [2023] 149 taxmann.com 96 (Delhi – Trib.)
  • Boeing India (P.) v. Assistant Commissioner of Income-tax, Circle-5(1), New Delhi [2020] 121 taxmann.com 276 (Delhi – Trib.)
  • AT & T Communication Services (India) (P.) v. Deputy Commissioner of Income-tax, Circle-3 (2), New Delhi [2019] 111 taxmann.com 201 (Delhi – Trib.) (28-03-2019)
  • Toyota Boshoku Automotive India (P.) [2022] 145 taxmann.com 141 (Bangalore – Trib.)
  • Marks & Spencer Reliance India (P.) [2013] 38 taxmann.com 190/[2014] 147 ITD 83
  • HCL Infosystems Ltd. [2005] 144 Taxman 492/274 ITR 261
  • Burt Hill Design (P.) Ltd. v. Dy. DIT (International Taxation) [2017]

7.15 In this regard, Appellant further submits detailed breakup of amount reimbursed by the Appellant to the overseas entity along with reconciliation of the same with Form 16 issued to the expats as under:

The above table demonstrates that the entire amount paid to employees (in India outside India) are taken in account by the assessee for the purpose of tax deduction at source for these employees and therefore, there is no amount of income which remains untaxed in India. Thus, any reimbursement of such payment, cannot be taxed again under section 195 of the Act. The same has been held in plethora of judicial precedents discussed above.

7.16 It is also submitted that Appellant is both legal and economic employer of seconded employees and therefore, such reimbursement does not constitute fees for technical services under Section 195 of the Act and the Appellant has, for the same reason, undertaken all tax compliances under Section 192 of the Act, for the salary reimbursed to India.

7.17 Since the payments being made to a non-resident entity are in the nature of a cost-to-cost reimbursement with no profit element embedded, there would be no sum chargeable to tax under the Act. Therefore, there is no liability on the Appellant to withhold tax at source under section 40(a)(i) of the Act. Mere reimbursement of salary by the Indian Company towards the salary cost does not give rise to any income in the hands of the recipient and thus is not liable to tax in India.

7.18 Furthermore, the arguments of the Appellant have been accepted by Ld. AO himself in the assessment order of AY 2022-23 wherein same nature of payments were examined. The Ld. AO stated that-

“On perusal of the submissions of the assesse, it is seen that the assessee has duly deducted the TDS on the salary payment made to the employees. It explained that the employees are on its payroll and TDS on the salary paid is duly deducted.”

(Refer page 414 of paper book)

7.19 Re: Travel expenses of MIR 14,66,143: the Appellant submitted that to conduct its business efficiently and effectively, the Appellant carries out various conferences, trainings, meetings, etc. abroad. The employees of Appellant travel abroad to attend these meetings/conferences. The expenses towards travel of employees was incurred by related parties and subsequently, the costs incurred by the related parties of the Appellant in respect of the employees of the Appellant is repaid to them on cost-to-cost basis Expenses are incurred by related entities only for the sake of logistical convenience since the related parties was in a better position to undertake the arrangements.

The said travel reimbursement was a mere repayment of what has already been spent and was not a reward or compensation for services rendered.

7.20 The reimbursement of travel charges by the Appellant would not be tantamount to rendering of technical, professional or consultancy services. Accordingly, such costs reimbursed cannot be classified as fees for technical services under the provisions of the Act.Detailed breakup of travel expenses is as under:

7.21 In support of above, following documents are enclosed:

• Copy of invoices raised by AE to Appellant in relation to travel expenses (Refer Page 161-176 of Paper book)
• Copy of invoices raised by AEs vis-à-vis invoices raised by 3rd parties in relation to travel expenses (Refer page 177-204 of Paper book)

7.22 CBDT Circular 5/2002 specifies that there is no requirement to withhold taxes on payments done towards hotel charges and purchase of tickets.

7.23 The expense towards travel of employees was incurred by related parties only due to logistical convenience since the related parties was in a better position to undertake the arrangements.

7.24 The payments being made to a non-resident entity are in the nature of a reimbursement with no profit element embedded, and accordingly, there would be no sum chargeable to tax under the Act.

8. Ld. Departmental Representative relied on impugned order.

9. From appraisal of record in light of aforesaid rival contention, it is crystal clear that corporate tax additions- reimbursement to group affiliates on account of IT cost and common software facility — INR 42,14,619, reimbursement for salary expenditure-INR 1,18,52,585 and reimbursement for travelling expenses — INR 14,66,142. The assessee has submitted cost-to-cost reimbursement to its group affiliates. The details are mentioned hereinabove. The appellant/assessee had made payments towards IT infrastructure and cost software is a cost-to-cost reimbursement of expenses to its parent company Horiba Japan, the purpose is to meet the requirements of global business by maintaining a uniformed/ common group information system for the entire Horiba group with maximum flexibility and speed.

9.1 The assessee had made salary reimbursement to qua employees for facilitating its operation in India. The employees seconded to India are recruited by the appellant in departments like sales department, accounting department, etc. They are normal and do not possess any specialized technical skills, and cannot be alleged that the employees were providing technical services on behalf of related entity. The appellant submitted detailed break up of amount reimbursed by the appellant to the overseas entity along with reconciliation of the same with Form 16 issued to the expats. The above position had been accepted by Ld. AO for assessment year 2022-23 wherein same nature of payments were examined.

9.2 Regarding reimbursement of travel expenses of Rs. 14,66,142/- detailed breakup of travel expenses were submitted. In copies of invoices raised by AE to appellant are at page no. 166 to 176 of paper book, copies of invoices raised by 3^rd parties are page No. 177 to 204 of paper book. The payments being made to non-resident entity are in nature of reimbursement with no profit element and there would be no some chargeable to tax need Act. So, there was no liability on assessee to withhold tax at source u/s 40(a)(i) of the Act. The additions under the corporate tax are deleted. Accordingly, Ground of Appeal Nos. 2 to 4 are accepted.

10. Ground of Appeal No. 5: Regarding addition of Rs. 1,36,723/- on account of Transfer Pricing adjustment. Ld. Authorized Representative for appellant/assessee submitted that adjustment made by Ld. TPO is formed by concluding that the six months’ USD LIBOR used by the assessee to calculating effective interest rate of 3.25% is basis the prevailing and readily available six months’ USD LIBOR as on a particular date closest to the date of filing of Form No. 3CEB. The advance pricing agreement(“APA”) for appellant neither stipulates a particular date when considering prevailing LIBOR for the purpose of effective interest rate for the purpose of interest, nor it support the methodology adopted by AO. Appellant in good faith relied upon the rate available in the public domain at a particular date offered the additional income to tax.

11. Departmental representative relied on final assessment order.

12. From examination of record in light of rival contention, it is crystal clear that Ld. TPO/DRP and AO made transfer pricing adjustment on account of interest on receivables amounting to Rs. 1,36,723/-. The advance pricing agreement for the assessee neither stipulates a particular date when considering the prevailing LIBOR for purpose of calculating the effective interest rate for the purpose of interest. The assessee in good faith relied upon the rate available in the public domain at a particular date and offered the additional income to tax. Therefore, the action of Ld. TPO in concluding that 6 months USD LIBOR rate taken by assessee is not correct is not just, fair and reasonable and deserves to be set aside. Accordingly, ground of appeal No. 5 is allowed.

13. Ground of appeal No. 6 and 7 being consequential are left open.

14. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 19.06.2026