Income Tax Appellate Tribunal - Mumbai
Peri India P.Ltd, Mumbai vs Assessee on 14 January, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL "K" BENCH, MUMBAI
BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND
SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
ITA NO.7265/Mum/2012
Assessment year: - 2008-09
PERI India Pvt. Ltd. Vs.` Deputy Commissioner of
717, Palm Springs, Income Tax,
Link Road, Range 8(2), Aayakar Bhavan,
Malad (W) M.K. Road,
Mumbai - 400 064. Mumbai - 400 020.
Appellant Respondent
Assessee By Shri M.P. Lohia and Shri Ankit Kochar
Revenue By Shri N.K. Chand
Date of hearing
25-11-2014
Date of pronouncement
14.01.2015
ORDER
Per Vijay Pal Rao, JM
This appeal by the assessee is directed against the assessment order passed u/s 143(3) r.w.s 144C(13) of the Income Tax Act., in pursuant to the directions of DRP dated 2.08.2012 passed u/s 144C(5) of the Act., for the A.Y. 2008-09. The assessee has raised following grounds:-
On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer/Transfer pricing officer (TPO) based on directions of DRP:
"1. erred in making addition of Rs. 2,24,848/- on account of allocation of expenses for receipt of technical services from associated enterprise ('AE') by computing arm's length price at nil;
2. erred in making addition of Rs. 45,28,743/- on account of commission in the nature of reimbursement of legal and PERI India Pvt. Ltd.
professional fees for securing contract in India paid by AE by treating the arm's length price at nil;
3. erred in disallowing depreciation of Rs. 3,62,441/- on software by alleging that payment for use of computer software of Rs. 11,73,864/- is not at arm's length.
4. making addition of Rs. 5,50,441/- on account of reimbursement of travel expenses of personnel of AE."
2. Ground no. 1 is regarding transfer pricing adjustment on account of allocation of expenses for receipt of technical services from AE.
3 The assessee is a subsidiary of PERI (GmbH) Germany, the assessee is engaged in providing formwork and scaffolding material to companies engaged in the construction business. The assessee imports the formwork and scaffolding material for resale in India. The assessee has shown payment of Rs. 2,24,848/-towards cost allocation to AE. In its TP study report, the assessee stated that the costs are allocated to the assessee on a time spent basis. The assessee also claimed that PERI Germany allocates these expenses to all group entities on the basis of time spent by its employees on each entity. In support of its claim, the assessee produced copies of invoices raised by PERI Germany to other group companies for providing the same services. Therefore, the assessee compared the invoices raised by the PERI Germany to other group companies with the cost allocated to the assessee. The TPO asked the assessee to show as to why the ALP of allocation of expenses should not be considered as nil as the assessee has not fulfilled the requirement for availing such services from the AE viz. the basis and data of allocation of expenses among other AEs worldwide, actual cost incurred and shown by the AE in its Books of Accounts, benefit and availing such services for
2|Page PERI India Pvt. Ltd.
the business of the assessee. In response the assessee vide its letter dated 21st August 2011 submitted that in the TP study report, the auditor has explained the matter in detail in para 5.3 of the TP study with reference to the OECD guidelines. It was further submitted that the assessee company has undertaken to provide site support services to its customer at the time of sale and the said services provided at the site of customers are very technical in nature which requires depth knowledge and experience which the assessee company being at its initial stage does not have and as such used the services of experienced personnel of its AE. The TPO did not accept the contention and explanation of the assessee and held that the assessee has not furnished any agreement to prove that the services were requested by the assessee and were actually availed by the assessee. Even the cost to AE and basis of allocation was also not provided by the assessee to the satisfaction. Accordingly, the TPO held that the ALP of the transaction has to be determined at Rs. Nil. Consequently, the TPO proposed the adjustment of entire expenditure of Rs. 2,24,848/-.
4. The assessee challenged the action of TPO/AO before the DRP by filing the objections against the draft assessment order and contended that the TPO failed to take into consideration the benefit received by the assessee. The assessee has produced the evidence in the form of invoices as well as the invoices in respect of the other companies regarding the same services to prove and establish the basis of allocation of cost being time spent. The services received by the assessee is technical in nature and since the assessee was new in the business and was not having the
3|Page PERI India Pvt. Ltd.
requisite expertise in the filed of this technical service, therefore, the assessee availed the services of technical experts of its AE. The DRP did not accept the contention of the assessee and confirmed the adjustment proposed in the draft order on this account on similar reasoning as of the Assessing Officer/TPO.
5. Before us, the Ld. Authorized Representative of the assessee has submitted that the assessee was incorporated on 28th December 2006 and this was the fist full year business of the assessee. The assessee is providing formwork and scaffolding sytem to its clients engaged in the business of construction. The said services provided by the assessee to its clients need assistance at the site of the clients including the design/drawings of various construction activities. The ld. Authorized Representative has referred the invoices raised by the AE PERI (GmbH) Germany for rendering technical services for RCS table lift. He has also referred the design provided by its AE for specific technical work of RCS Lift to the Larsen & Toubro Ltd. (L&T). Thus the Ld. Authorized Representative has submitted that the design provided by the AE is highly technical work and it goes to prove that the AE has rendered the services to the assessee. He has further submitted that these technical services are very essential for execution of the work at the site, therefore, without these technical services, the assessee's services to its clients is not possible. It is the part and parcel and also inevitable service in providing the formwork and scaffolding system to the clients engaged in the business of construction. He has referred the basis of cost allocated for these services as time hour basis and at the rate of 42 Euro per hour.
4|Page PERI India Pvt. Ltd.
The Ld. Authorized Representative has referred the similar services availed by the PERI formwork Malaysia and in turn provided to the LTC Technical Works Malaysia. Thus the Ld. Authorized Representative has submitted that when the assessee was in its initial stage of business and required technical guidance the services were rendered by its AE's engineer Mr. Bernd Seibold who is an experienced design engineer in international formwork. The AE charged the assessee on the basis of hour spent by the engineer on the project. The assessee produced all the relevant documents/material to show the visits of engineer of the AE and the services provided at the site of the clients as well as invoices raised by the A.E. The TPO has determined the ALP of the services at nil by disregarding the evidence produced by the assessee of actual services rendered by the AE.
6. On the other hand, the Ld. DR has submitted that the first principle of cost share is the benefit derived by the entity sharing the cost from the originating entity which required and justified such payment entity. The cost sharing should be internally and externally cost of the originating entity and, therefore, it should be the actual cost. As per the benefit test the assessee was required to establish the benefit obtained from services of the AE. He has further submitted that under the cost sharing agreement the assessee has to pass the evidence test by producing the documents of actual cost , services rendered and the need of the assessee. The assessee has not given the evidence of actual cost which was allocated by the AE and charged to the assessee but the assessee has given as general description without the requisite evidence
5|Page PERI India Pvt. Ltd.
despite the TPO specifically asked the assessee to produce the evidence. Therefore, the assessee failed to satisfy the various test under the cost sharing arrangement. In support of his contention he has relied upon the commentary of CA Pankil Sanghvi, on the subject of cost sharing arrangement. He has supported the orders of authorities below and submitted that the assessee has failed to discharge its onus of proving the need of the assessee in availing the alleged services from the AE, the benefit derived by the assessee out of the said activity and the basis of cost share and the actual cost incurred by the AE.
In rejoinder, the Ld. Authorized Representative of the assessee has submitted that the assessee has produced all the relevant record and evidence to show the need of the assessee, the benefit of the assessee as well as the actual services rendered by the engineer of the AE which was inevitable for the business activity of the assessee. The allocation of the cost is based on the time spent by the engineers at the rate of 42 Euro per hour. The actual time spent by the engineer has been duly record in the invoices which also support the services rendered at the site of the clients.
7. We have considered the rival submissions and relevant material on record. It is relevant to take into consideration, for adjudication of the issue, that the assessee was incorporated on 28th Dec. 2006 and this was the first full year of business activity of the assessee, therefore, the assessee was at its initial stage of its business of providing formwork and scaffolding system to the companies engaged in the construction
6|Page PERI India Pvt. Ltd.
business. The assessee imports the formwork and scaffolding system and then providing the services to its clients. The service activity of the assessee involves the technical work as well as the technical design in specific structures and construction activity. The assessee has produced the drawings regarding the work of RCF Lift at the site of L&T Ltd. It is not the case of revenue that the services claimed to have been availed by the assessee from its AE through their experienced and expert design engineers, otherwise available with the assessee in its own organization. When the assessee was not having such an experienced design engineer to execute the technical services at the site of the clients then the said services which is inevitable for providing services by assessee to its clients was in any case has to be hired from outside. From the record and the design produced by the assessee, we find that the service of providing formwork and scaffolding system involves highly technical activity as well as drawings and designs with precise skills for actual execution of construction work.
7.1 The TPO has denied the claim of the assessee on the ground that the assessee failed to establish the need and actual avail of services from the AE. It is pertinent to note that when the services provided by the assessee to its clients involves highly technical services then the nature of business activity of the assessee itself demonstrates the requirement of technical design engineer in the field. As the assessee was not having such experienced design engineers in its own organization then availing the services for performing the business activity is otherwise part and parcel of the business activity of the assessee. Thus, the mode and actual
7|Page PERI India Pvt. Ltd.
service availed by the assessee cannot be doubted keeping in view the nature of business activity and the peculiar fact that the assessee is at its initial stage of providing services that too by the import of the said system and then to provide to the clients. Therefore, when the assessee has produced the relevant record including the nature of work, the design of the work to be carried, the technical nature of the services and assessee's inability to execute such a service on its own then determining the ALP of the expenditure by the TPO at nil is totally contrary to the facts as well as evidence produced by the assessee. The assessee has produced the invoices raised by the AE for providing the services which is based on the total number of hours spent by the engineers of the AE at the site of the clients of the assessee in providing the services. The TPO/Assessing Officer has not disputed the presence of the engineer in India for providing the services, the assessee even produced the record with regard to the actual work executed at the site of L&T Ltd then not accepting the claim of the assessee de hors the evidence, material, record and facts of the case is not justified.
7.2 Though the TPO/Assessing Officer has the power and jurisdiction to verify the price paid by the assessee at arm's length, however, instead of examining whether the price paid by the assessee is at arm's length, the TPO proceeded on the premise that the assessee was not in need of the services and the services was not actually availed by the assessee. When the assessee has produced the sufficient evidence that the said services was an inevitable part of the business activity of the assessee then the action of the TPO is not sustainable. Accordingly, we set aside the orders of authorities below qua this issue. Since the assessee has produced the invoices which is based on the per hour charges actually
8|Page PERI India Pvt. Ltd.
spent by the engineer for providing the services to the assessee, therefore, the test of cost sharing arrangement between the assessee and AE as contended by Ld. DR are not at all relevant on this point because the assessee was charged specifically for the hours spent by the engineer for providing the services. It is not a case of performing the composite activities of the assessee and AE by the common staff and then sharing the cost . The cost was incurred by the AE exclusively for providing the services to the assessee then the principle and test as contended by the Ld. DR would not be applicable. The assessee has also produced the comparative cost charged by the AE from other group concerns. In the absence of any contrary record brought by the TPO/Assessing Officer to show that the price paid by the assessee is not at arm's length we allow the claim of the assessee.
8. Ground no. 2 is regarding TP adjustment on account of commission for securing the contract in India.
9. The assessee paid an amount of Rs. 45,28,743/- on account of sales commission to PERI Malaysia. The assessee claimed that it is a reimbursement of legal and professional fee for securing a contract in India. The assessee explained that earlier the project was awarded to PERI Malaysia however, PERI Malaysia could not conduct work in India after the assessee came into existence from 26.12.2006. The Project (Jana Priya) was handed over to assessee by PERI Malaysia . The TPO asked the assessee to show cause that ALP of transaction should not be treated as nil. The assessee submitted before the TPO that M/s LTC
9|Page PERI India Pvt. Ltd.
Technical Works SDN BHD has played a vital role in awarding the project (Jana Priya) to PERI Malyasia at 7.5% commission of contract value. Since this project was executed by the assessee in view of the group policy, the liability of the said commission was on the assessee, which was discharged by way of reimbursement. The T.P.O did not accept the contention of the assessee and was of the view that the PERI Malaysia was not entitled to execute work in India. It was not entitled to negotiate the terms of work. Therefore, the question of commission does not arise on such transaction. Accordingly the TPO treated the ALP of the said payment at nil and proposed the adjustment of the entire amount of Rs. 45,28,743/-. The DRP confirmed the action of TPO/Assessing Officer.
Before us, the Ld. Authorized Representative of the assessee has explained the facts and circumstances under which the project (Jana Priya) was initially awarded to the Malaysian AE and then was transferred to the assessee as per the group policy. He has further submitted that the payment of commission is only a reimbursement which was charged as per the original agreement for award of the project under which the Malaysian AE of the assessee was under
obligation to pay 7.5% of the contract amount as commission. Since the project was transferred to the assessee therefore, the obligation was also transferred to the assessee and, accordingly, the assessee reimbursed the said amount to the AE. There is no element of any profit in the said payment as far as the AE is concerned, therefore, there is no question of any arm's length price when the payment was finally made to
10 | P a g e PERI India Pvt. Ltd.
a third party. He has further submitted that initially the agent introduced M/s Jana Priya to PERI Malaysia for sale of PERI formwork. Before the incorporation of the assessee, PERI Malaysia used to execute the work in India. However, post incorporation of the assessee as per the group policy all peri projects in India were to be undertaken by the assessee and accordingly the PERI Malaysia transferred the said project of providing the services to assessee. He has refered the revenue earned by the assessee form the project and submitted that the payment in question is nothing but the obligation under the agreement for payment of commission to third party. Since the original agreement was between the Malaysian AE and the agent which was subsequently transferred to the assessee therefore, the assessee has reimbursed the said expenditure of payment of commission to the agent. The Ld. Authorized Representative has submitted that the assessee earned the revenue of approximately Rs. 7 crore from M/s Jana Priya out of its total revenue of Rs. 19.5 crores which constitute approximately 35% of the total revenue. The contract was initially secured by Malaysian AE prior to passing it to the assessee. The payment of commission to the agent was for his diligent efforts who identified the customers through its contacts and introduced the customer to the PERI Malaysia. Therefore, in the absence of the prior contract between the Janapriya and PERI Malaysia, the assessee would not have been able to generate such revenue from operation from the said project. He has referred the communication between LTC Technical works and PERI Malaysia to show that the project Janapriya was arranged by the agent LTC Technical Works. The terms of payments were also settled between the Janapriya and PERI Malaysia and after the settlement of the contract, terms of providing the 11 | P a g e PERI India Pvt. Ltd.
services of said project was transferred to the assessee. He has referred the contract dated 5.11.2007 between Janapriya and PERI Malaysia and submitted that the contract was secured by the PERI Malaysia through the agent and, therefore, the commission and brokerage as per the agreement between the PERI Malaysia and the agent became the liability of the assessee. He has further submitted that on transfer of the said contract to the assessee, the assessee agreed to pay the commission amount and accordingly it was reimbursed to the Malaysian AE. The payment was made through cheque after deduction of TDS. The ld. Authorized Representative referred the ledger account and submitted that the payment was made after deduction of tax at source.
10. On the other hand, the Ld. DR has submitted that no formal agreement between the agent and the assessee as well as the AE was produced by the assessee. The decision is taken by the Headquarter, therefore, this is an incidental expenditure shall be borne by the Headquarter and not by the assessee. In the absence of any terms of the agreement between the parties, the assessee was not under any obligation to pay the amount in question. He has further contended that the driver of the transaction is the parent company of the assessee and in the absence of any record to show prior dealing of the Malaysian AE with the agent, the assessee failed to prove the liability of paying such amount as a commission. No comparable to show the similar services rendered by the LTC Technical works and payment of such commission made by the Malaysian Entity was produced. He has relied upon the findings of TPO and DRP.
12 | P a g e PERI India Pvt. Ltd.
11. We have considered the rival submissions and relevant material on record. The assessee has produced all the records specifically all the correspondences between the PERI Malaysia and Jana Priya as well as between PERI Malaysia and LTC Technical works in respect of arrangement and awarding the project of Jana Priya. Apart from the correspondence, the assessee has also produced the agreement under which the work of providing services by the PERI Malaysia was awarded by the Jana Priya to the PERI Malaysia. Therefore, by producing the record and evidence, the assessee has discharged its onus to prove that the project in question was initially awarded to PERI Malaysia and, thereafter as per the group policy and the assessee was incorporated as Indian entity, the said project was transferred to the assessee for providing the services in the project of Jana Priya. The Assessing Officer admitted the fact that the assessee has generated Rs. 7 crore from this project about 35% of the total revenue of the assessee generated during the year. Therefore, this is not a case of non viable project was transferred by the AE to the assessee but project was very much revenue earning and the assessee has in fact earned a handsome revenue from the said project. The TPO has denied the claim of payment of commission on the ground that there was no justification of payment of the said commission because apart from the said commission the assessee has shown only 3,46,888/- being commission and brokerage paid during the year. Therefore, the TPO observed that for the remaining 65% turnover the assessee has incurred the expenses on account of commission and brokerage at only Rs. 3,46,888/-, the payment of Rs. 45,28,743 is not justified. It is pertinent to note that if the genuineness of the claim and documents produced by the assessee were doubted by the Assessing 13 | P a g e PERI India Pvt. Ltd.
Officer/TPO then an enquiry could have been conducted in this regard. The TPO has not disputed the agreement between the PERI Malaysia and LTC Technical Works for payment of the commission in lieu of securing the contract in the project Jana Priya . Though there was no direct contract between the assessee and the agent LTC technical services regarding the payment of commission, however, the assessee produced the correspondence between the PERI Malaysia and LTC Technical Works regarding the agreement for of such commission by Malaysian AE in lieu of securing the project in question. So far as the documents produced by the assessee are concerned they are sufficient to demonstrate that the obligation of payment of commission in question was clearly borne out from the correspondence between the PERI Malaysia and LTC Technical Works and that commission was to be paid in respect of the project Jana Priya secured through the agent. Thus the assessee has brought on record enough material to show that it was a contractual liability of its assessee with respect to the securing of the project Jana Priya and in the event of the said project was transferred to the assessee, the said liability was also stand transferred to the assessee along with the project. The assessee claimed that this is nothing but reimbursement of expenses which were to be paid by the Malaysian AE to the agent for securing the project. On principle, we do agree with the claim of the assessee that he said amount of commission was obligation of the AE (Malaysia) for securing the project and once the project was transferred to the assessee for execution and in turn the assessee has earned a handsome revenue from the said project then the liability of payment of commission was fastened on the assessee being a contractual obligation. Therefore, denial of the claim of the assessee is not justified 14 | P a g e PERI India Pvt. Ltd.
which in total disregard of the evidence produced by the assessee. The assessee has also produced the evidence of actual payment of amount in question after deduction of TDS. The only question which remains unanswered is whether the amount in question was in turn paid by the Malaysian AE to the agent. The assessee has not produced any evidence in this respect that the amount was finally paid to the third party being LTC technical works. Hence he accept the claim of the assessee subject to the verification of corresponding payment by the Malaysian AE to the agent namely LTC technical works. Accordingly, the Assessing Officer/TPO is directed to verify this fact from the record to be filed by the assessee and then consider the claim in the light of above observation.
12. Ground no. 3 is regarding disallowance of depreciation on software.
13. The assessee has shown reimbursement payment of an amount of Rs. 11,73,864/- on account of software. The assessee stated that the said software was electronically downloaded in the system. The payment was said to be made on actual cost. The assessee claimed that the software charges have been debited by the PERI Germany the parent company to the other group company at the same rate as have been charged from the assessee company. In support of the claim, the assessee filed the copy of E-mail in this respect. The TPO questioned that in the absence of any evidence of actual cost incurred by the parent company and the allocation of the same among AE why the ALP of the expenses 15 | P a g e PERI India Pvt. Ltd.
should not be treated at nil. The TPO held that the AE did not require the said software and, therefore, the ALP of the software expenses was determined at nil. Accordingly, the TPO proposed an adjustment of Rs. 11,73,864/-. The DRP though concur with the view of the TPO in determining the ALP at nil, it has only disallowed the depreciation on Rs. 3,62,441/- because the assessee has capitalized the said amount of Rs. 11,73,864/- and not claimed as revenue expenditure/deduction in the Profit & Loss account. Therefore, the DRP directed the Assessing Officer/TPO to verify the treatment given by the assessee to the claim cost of the software and in case it is not debited to the P&L account as revenue expenditure and was simply capitalized no further disallowance should be made.
14. Before us, the Ld. Authorized Representative has submitted that the software was very much required by the assessee for opening the designs and drawings sent by the AE. He has further submitted that the software AutoCAD was purchased by the PERI GmbH Germany. It was purchased with fresh licenses along with its subscription for its group companies. The subscription allows access to the autodesk software which enables quick creation of illustrative presentation of graphics. This was purchased by the parent company for various group companies and same was made available online on the website of the parent company for download and use. The assessee produced the record showing that the price charged by Autodesk Inc. from the parent company is recovered from the assessee. Thus the Ld. Authorized Representative has submitted that it is the pure reimbursement of the 16 | P a g e PERI India Pvt. Ltd.
actual cost which was incurred by the parent company for the group companies. The assessee's business is to provide the formwork and scaffolding system for the companies engaged in the business of construction and, therefore, it is the constant need and requirement of the business activity of the assessee of having different source of drawings to be provided to the assessee which acts as source information to start with any project right from tendering stage to execution. These drawings are created with the help of an auto CAD and to access the drawing file received from the client, the assessee requires AutoCAD platform. Therefore, the drawing was very much required and is an essence of business activity of the assessee. Without understanding the need and the business nature of the assessee the TPO has held that the assessee did not require the software in question whereas in the absence of the said software the assessee could not have received the drawings sent by the clients for the purpose of securing the work and execution of the same. He has referred the invoices raised by the parent company in respect of software in question as well as the price quotation of the software provider to the parent company and submitted that the reimbursement is only for the actual cost incurred by the parent company. He has also referred the invoices of the parent company raised to the other group companies at same price. Therefore, the Ld. Authorized Representative has submitted that the assessee produced all the relevant record and evidence to establish that the software in question was as per the need of the assessee and the amount in question is only reimbursement of actual cost.
17 | P a g e PERI India Pvt. Ltd.
15. On the other hand, the Ld. DR has submitted that the assessee has failed to pass the test of requirement as well as benefit from the said transaction. He has relied upon the orders of authorities below.
16. We have considered the rival submissions and relevant material on record. There is no dispute that the software in question is to enable the user of the software to open the file of graphics and particularly the design and drawings. The assessee explained before the authorities below that the software was required by the assessee to receive and open the drawings sent by its clients as a source information to start with any project right from tendering stage to the execution. These drawings are created with the help of software namely AutoCAD. In the absence of such software it is very difficult to access the drawing files, therefore, the software was very much needed and essence of the business activity of the assessee. Once the assessee has explained that how the software is useful for the business activity of the assessee then the question arises is whether the payment made by the assessee is at arm's length or not. The assessee has produced the invoices raised by its parent company as cost of the software along with actual price paid by the parent company to the software provider. Once these two documents were produced by the assessee showing that the price paid by the assessee is nothing but the actual cost of the software purchased by parent company which was installed by the assessee. We find from the record that so far as the actual cost of software in question is concerned the assessee has produced the invoice raised by the software provider to parent company and the payment made by the parent company matches 18 | P a g e PERI India Pvt. Ltd.
with the reimbursement of the actual cost of the software in question. Therefore, there is no element of any mark up or profit by the parent company of the assessee. It was a mere reimbursement of the cost of the software in question. So far the need and benefit of the software in question for the assessee's business activity is concerned, the assessee has brought on record how the software was useful for day to day business of the assessee as not only it is useful but it is inevitable for certain activities to have the access to the drawings provided by the clients which is used as source information by the assessee to start with the project. It is pertinent to note that without knowing the details of the project, the assessee could not even participate in the tender. Therefore, the software which enables the assessee to open the graphics/design and drawings of the projects is very much essential for day to day business activity of the assessee. Thus, we are of the view that the disallowance of depreciation by the DRP is only on the basis of assumptions by disregarding the relevant facts as well as the evidence brought on record by the assessee. Accordingly, we set aside the orders of authorities below on this issue and allow the claim of depreciation.
17. Ground no. 4 is regarding TP adjustment on account of Travel expenses of Rs. 6,30,175 out of which an amount of Rs. 5,50,441/- for the travel of PERI GmbH Staff in India and remaining Rs. 79,734/- is for travel of assessee's staff.
18. The T.P.O asked the assessee to show cause as to why the travel cost of staff of AE of the assessee should not be disallowed and the ALP 19 | P a g e PERI India Pvt. Ltd.
be taken as nil on the reason that no evidence of service required by the assessee was produced. The TPO mentioned that no reply has been furnished till 20.10.2011. Accordingly, the TPO determined the ALP of Rs. 5,50,441/- towards the travel expenses of the AE's staff as nil and proposed adjustment of the said amount.
19. Before DRP the assessee submitted that Mr. Stan Wojicierczk, support manager, visited India to support the assessee in its initial stage of operation for providing support in setting up business activity, market survey etc. Mr. Stan Wojicierczk provided support in setting up of business activity, market survey, strategy discussion etc. Therefore, the expenses were incurred towards travelling and hotel stay of Mr. Stan Wojicierczk. The assessee also submitted invoices of the hotels and travelling bills and claimed that the cost was incurred by Mr. Stan Wojicierczk which was reimbursed to him. The DRP did not accept the explanation of the assessee and confirmed the proposed adjustment made by the Assessing Officer/TPO on the ground that the assessee failed to establish the commercial expediency and business connection of the services availed.
20. Before us, the Ld. Authorized Representative of the assessee has submitted that the assessee has furnished al the relevant record before the TPO. He has referred the details of expenses at page 174 of the paper book and submitted that the details of travelling expenses clearly show that the payment was made by Mr. Stan Wojicierczk through his credit card. Even the expenses of the assessee's Managing Director Mr. Raj Lakhani was paid by Mr. Stan Wojicierczk, who was travelling along with 20 | P a g e PERI India Pvt. Ltd.
Mr. Raj Lakhani. The cost was incurred by Mr. Stan Wojicierczk and the same was reimbursed to him as it was related to the business operations of the assessee. The Ld. Authorized Representative has then referred page 177 of the paper book and submitted that only 50% of the expenses were reimbursed which means only the expenses towards the stay and visit of assessee's own Managing Director which was incurred by Mr. Stan Wojicierczk, were reimbursed. He has referred the invoices of the hotel as well as payment details through credit card in support of his contention.
21. On the other hand, the Ld. DR has submitted that no explanation was furnished by the assessee before the TPO, therefore, in the absence of any evidence it was confirmed by D.R.P. He has relied upon the orders of authorities below.
22. We have considered the rival submissions and relevant material on record. We find that the details of the expenditure are provided at page 177 of the paper book. The invoice of the expenditure are placed at page no. 175 to 203 of the paper book which also include the payment details through credit card. We find that most of the payments were made by Mr. Stan Wojicierczk, through his credit card and this payment was in respect of the travel and stay in hotels along with the assessee's Managing Director Mr. Raj Lakhani. Thus it is clear that the visit and stay of Mr. Stan Wojicierczk, in India was along with Managing Director of the assessee Mr. Raj Lakhani. The assessee furnished the complete details and vouchers in respect of the expenditure. Further the payment details 21 | P a g e PERI India Pvt. Ltd.
were also furnished which show that the expenses were initially incurred by Mr. Stan Wojicierczk. Therefore, when the entire expenditure was incurred for hotel stay and travel of both Mr. Stan Wojicierczk and Mr. Raj Lakhani then reimbursement of 50% of the expenses does not involve any payment to the AE but it was reimbursement of expenses. Since the Assessing Officer/TPO has disallowed the claim and treated the ALP at nil for want of details and evidence, therefore, in the facts and circumstances of the case and in the interest of justice, we set aside this issue to the record of Assessing Officer/TPO to consider the evidence furnished by the assessee and then decide the same after giving an opportunity of hearing to the assessee.
23. In the result, the appeal of the assessee is partly allowed.
Order pronoucned in the open court on this 14th day of January 2015
Sd/- Sd/-
(N.K. Billaiya) (Vijay Pal Rao)
ys[kk lnL;)
(Accountant Member/ys lnL; U;kf;d lnL;)
(Judicial Member/U;kf;d lnL;
Mumbai dated 14.01.2015
SKS Sr. P.S,
Copy to:
1. The Appellant
2. The Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. The DR, "K" Bench, ITAT, Mumbai
By Order
Assistant Registrar
Income Tax Appellate Tribunal,
Mumbai Benches, MUMBAI
22 | P a g e