ACIT, CIRCLE- 27(2), NEW DELHI vs. WM INDIA TECHNICAL AND CONSULTING SERVICES PVT. LTD., NEW DELHI

At the outset, the DR supported the order of the ld TPO.

The ld AR at the outset submitted that the issue involved in this appeal is covered by the decision of the ITAT in assessee’s own case for Assessment Year 2011-12, 2012-12 and 2013-14. Therefore, he submitted that the issue is squarely covered in favour of the assessee by preceding and subsequent years. He further placed a chart on record stating the details of the order of the coordinate bench in assessee’s own case.

We have carefully considered the rival contentions. The fact shows that during the impugned year certain employees were deployed by AE to assessee for carrying on its business from its associated enterprises. Those employees were under the employment of the assessee but for administrative convenience salary and related expenses were paid by the associated enterprises and subsequently same were reimbursed back to the assessee. There was no markup of such reimbursement. The assessee benchmarked this international transaction based on internal CUP method. Though the cost was reimbursed on cost-to-cost basis, the services were rendered by the assessee to its domestic entities, which was priced at cost plus 10% markup basis. The entire cost of expat employees was reimbursed to the associated enterprises was also included in the cost base of the assessee and charge to the domestic entities on cost plus 10% markup. The Page | 2 claim of the assessee is that entire cost of expat support services available by the assessee was incurred only for earning its own revenue. It is further claimed that the deployment of expat being revenue-generating activities, Assessee earned taxable income in India and salary paid to the expat was subject to tax deduction at source u/s 192 of the Act.

The LD TPO questioned the above international transaction holding that assessee has not derived any benefit and such services are in the nature of shareholder activities. Therefore, adjustment of Rs. 11,46,45,629/- was proposed by determining the Arm’s length price on this transaction of reimbursement of salaries of employees to be Nil. The ld TPO also held that benchmarking followed by the assessee using internal CUP is flawed, as salary payment to employees is itself a controlled transaction. He was also of the view that there was no business or commercial need for availing such services. It did not result in to any economic and commercial benefit to the assessee. Therefore, according to the LD TPO no third party would have paid such amount to its AE. He further held that the services received by the assessee from expat employees are nothing but a duplication of services because similar services have been provided by AE for which technical services fee has been paid. Thus, the ld TPO was of the view that the above transaction fails on need test, benefit test and is duplicative in nature as well as a shareholder services. The ld AO incorporated the above addition in the assessment order. Appeal against such order preferred by the assessee before the ld CIT (A). The ld CIT (A) deleted the above addition following the order of the coordinate bench in assessee’s own case for earlier years. The similar addition was made by the ld TPO in assessee’s own case for AY 2009-10 which travelled to ITAT. The ITAT set aside the whole matter to the file of the ld TPO to decide the issue afresh. Consequently, the ld TPO for the same assessment year in set aside proceedings held that in the light of the discussion made by him and after careful perusal of the submission of the assessee, no upward adjustment is proposed to the income of the assessee on the impugned transaction. Thus for that year the upward adjustment of Rs. 13,07,20,653/- was reduced to Nil. Further, in assessment order 2011-12 the coordinate bench following order of ITAT for Assessment Year 2009-10 as well as the appeal effect order of the ld TPO for AY 2009-10 deleted the addition. Subsequently, the similar issue by ITAT for Assessment Year 2012-13 dated 11.09.2020 was also decided in favour of the assessee for Assessment Year 2013-14 the tribunal vide order dated 13.10.2017 Page | 3