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Facts
The assessee, a subsidiary of an US company, engaged in lubricant manufacturing and trading, imported raw materials and received services from its Associated Enterprises (AEs). The Assessing Officer (AO) made substantial additions based on the Transfer Pricing Officer's (TPO) report concerning international transactions. The Commissioner of Income Tax (Appeals) partly allowed the assessee's appeal, deleting major transfer pricing adjustments and certain disallowances.
Held
The Tribunal upheld the deletion of the significant transfer pricing adjustment, citing consistency in accepting the assessee's methods in prior and subsequent years. For foreign travel expenses, a partial disallowance of 10% was deemed justified, partly allowing the Revenue's appeal. The disallowance under Section 40(a)(i) was deleted, following a coordinate bench's decision in the assessee's own case for a prior year.
Key Issues
Validity of transfer pricing adjustments made by the TPO and AO, justification for disallowance of foreign travel expenses, and applicability of Section 40(a)(i) for services rendered outside India.
Sections Cited
143(3), 250(6), 92CA, 40(a)(i)
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Income Tax Appellate Tribunal, DELHI BENCH ‘T’: NEW DELHI
Before: MS. MADHUMITA ROY & SHRI MANISH AGARWAL
O R D E R
PER MANISH AGARWAL, AM:
This appeal is filed by the Revenue against the order of Learned Commissioner of Income Tax (Appeals)-XX, New Delhi (‘Ld. CIT(A)’ in short) in Appeal No. 51/2008-09/CIT(A)-XX vide order dated 20.01.2012 passed u/s 250(6) of the Income Tax Act, 1961 (‘the Act’, in short) arising out of the order of AO dated 31.12.2008 passed u/s 143(3) of the Act for Assessment Year 2005-06.
Brief facts of the case are that the assessee is 100% subsidiary company of Mobil Petroleum Company Inc. USA and engaged in the business of manufacturing and trading of various range of lubricants in India. The assessee imports different grades of base oil and additives to manufacture lubricants for different applications
DCIT vs. M/s Exxon Mobil Lubricants Pvt. Ltd. in automotive industry and marine segments. The imports were made from Exxon Mobil Group entities only. Besides this, assessee received certain administrative, technical, professional and other support services from its associated enterprises (“AEs”). The return of income for the year under appeal was filed on 29.10.2005 declaring total loss of Rs. 20,68,46,690/-. The case was selected for scrutiny and notice u/s 143(2) of the Act was issued on 27.09.2006. Since the assessee is having international transaction with its AE thus the AO make a reference to TPO for determination of Arm’s Length Price (ALP’) u/s 92CA(3) of the Act of such transactions. The TPO vide its order dated 10.10.2008 proposed total adjustments of Rs.46,57,04,908/- on the value of imports of raw material under manufacturing segment and finished goods under trading segment and payments of services. Thereafter, the AO passed the final order wherein total addition of Rs.46,57,04,908/- as proposed by TPO were made. Besides this, disallowance out of various expenses were also made and, accordingly, total income of the assessee was assessed at Rs. 40,68,88,803/- against the declared loss of Rs. 20,68,46,690/-.
Against the said order, an appeal was preferred by the assessee before Ld. CIT(A), who partly allowed the appeal of the assessee and deleted the major addition made on account of transfer pricing adjustments as well as disallowance out of various expenses.
Aggrieved by the said order, the Revenue is in appeal before the Tribunal by taking following grounds of appeal:-
1. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.46,57,04,908/- made on account of arm’s length price.
DCIT vs. M/s Exxon Mobil Lubricants Pvt. Ltd.
2. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.5,00,000/- made on account of disallowance of foreign travel expenses.
3. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.14,40,82,192/- made on account of disallowance u/s 40(a)(i) of the Act.
4. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.
With respect to Ground of appeal No.1 relating to the deletion of addition of Rs. 46,57,04,908/- made by AO towards arm’s length price of international transaction with AE, the Ld. CIT-DR submits that with respect to the benchmarking under manufacturing segment of import of base oils, assessee had taken CUP method as most appropriate method (MAM), however TPO given very specific reasons for not accepting the CUP method. As per ld. CIT DR, TPO observed that out of total 70 transactions related to import of base oil, assessee has not able to provide comparable prices for 31 transactions and with respect to remaining transactions precise dates and value of import do not match so as justifying the CUP method. The Ld. CIT-DR submits that the Ld. CIT(A) has failed to consider this aspect and further failed to give any reasons as to why the foreign (AEs) was chosen such tested party. He, therefore, submits that the action of the Ld. CIT(A) in accepting the contention of the assessee with respect to the determination of arm’s length price of import of base oil is not correct and requested that matter be sent back to the file of AO for making details analysis of the comparable date provided by the assessee before ld. CIT(A).
6. Regarding import of additives, import of lubricants, sale of Marine Lubricants, marketing support services, assessee has taken Resale Price Method (RPM) as MAM. In this regard, ld. CIT-DR submits that TPO at page 10 &11 of its DCIT vs. M/s Exxon Mobil Lubricants Pvt. Ltd. order has given specific reasons as to why RPM should not be applied to these transactions and ld. CIT(A) has given no reasons as to why TNMM applied by the TPO is to be rejected. The Ld. CIT-DR submits that the Ld. CIT(A) has not discussed even the comparable chosen by the assessee in RPM and, therefore, he submits that the matter may be set aside to the file of the Ld. CIT(A) / TPO for determination of ALP after considering the fresh claim of the assessee. He prayed accordingly.
7. On the other hand, the Ld. AR for the assessee vehemently supported the orders of Ld. CIT(A) and submits that assessee has selected CUP method as MAM for determination of ALP of import of base oils and for other transactions RPM was selected for the reason that Indian entities is least complex and since all the imports were made from its AEs situated outside India. Ld. AR drew out attention to the fact that CUP method was accepted by the revenue in all the subsequent Assessment Years starting from 2007-08 till 2018-19. It is further submitted that in immediate preceding assessment year when this issue was remanded back by the coordinate bench of Tribunal to TPO for fresh consideration, the TPO in remand proceedings had accepted the computation of arm’s length price related to import of base oil under manufacturing segment by following CUP method and no adverse inference was drawn. Ld. AR thus prayed that following the principle of consistency, CUP method should be accepted. With respect to the observations of TPO that no comparable price was given for 31 transactions, ld. AR drew our attention to PB pages 227 to 229 wherein complete comparable details of all the transactions were submitted before the lower authorities alongwith submission dt. 17.04.2008 and further submits that sample copies of invoices were submitted before the AO which are available at page 365 onwards of the PB. Ld. AR submits that when complete details of comparable data and sample invoices were submitted before the AO there 8. With respect to trading segment, Ld. AR submits that RPM was accepted in assessee’s own case by the Tribunal in AY 2004-05 and from AY 2007-08 to AY 2018-19, this method stood accepted by Revenue and, therefore, by following the principle of consistency, divergent view should not be taken. The Ld. AR submits that Ld. CIT(A) has discussed this issue in detail and then reached to the conclusion that RPM is most appropriate method. Ld. AR further submits that in preceding year, i.e. in Assessment Year 2004-05, in remand proceeding, the TPO accepted the arm’s length price computed by the assessee under trading segment on resale price method. He, therefore, submits that adjustments made in arm’s length price has rightly been deleted by ld. CIT(A) and such order deserves to be upheld. The Ld. AR also filed written submissions in this regard which reads as under: “A Manufacturing segment: 14. It is submitted that the production of lubricants requires two critical inputs, viz, base oils and additives.
With regards to import of base oil the Respondent during the course of TP proceedings submitted supplementary benchmarking in the form of CUP. The Respondent obtained the price at which the base oil was sold by its AE to third parties in India and compared the same with the price paid by Respondent to its AE for imports. The detailed analysis was duly submitted to the TPO vide submissions dated April 17, 2008 and May 2, 2008 (refer page 224 to 250 of the PB Vol. 21, along with sample invoices (refer pages 365-411 of the PB Vol. 2).
With regards to import of additives, it was submitted before the TPO that while the Respondent procures base oil from its AEs, the additives are not procured from Exxon Mobil Group companies but are manufactured and supplied by other independent companies. The vendors for these additives, for the Respondent, are generally overseas corporations like, Chevron, Rohm & Haas, Crompton Corporation, Afton Chemicals etc. which are all independent multinational groups that do not have any relationship with Exxon Mobil group. It was submitted before the TPO that Respondent procures additives from independent DCIT vs. M/s Exxon Mobil Lubricants Pvt. Ltd. third-party suppliers through global agreements negotiated by its affiliated companies to secure volume-based discounts and lower purchase prices. The actual transactions, in substance, are with the independent third parties, therefore, the price paid for the additives is on arm's length basis. Further, it is emphasized that the AE has not retained any benefit or profit for facilitating this arrangement. While in subs the transaction is with third parties in the transfer pricing documentation, this has been included on a conservative basis, to be in compliance with the requirements of Indian Transfer Pricing regulations. Also, Form 3CEB specifically mentions that these transactions are with third parties under a global arrangement (refer submissions at pages 331-332, 360-362 of the PB Vol. 2. agreements for additives at pages 495-681 and invoices at pages 463-494 of the PB Vol. 2) 17. However, the TPO rejected the aforesaid without providing any cogent basis and adopted the approach similar to AY 2004-05 wherein TNMM was applied on entity level 18. For rejecting CUP, the TPO at page 10 of the order gave the basis that there were 70 transactions that relate to import of base oil, however, the Respondent has only provided comparable prices for 29 transactions. TPO further alleged that the transaction dates and volumes of import do not match 19. In this regard, it is humbly submitted that the Respondent had imported base oil from its AE with the grades of J150, SN 150, SN 600 and BS 150 vide 70 transactions and in respect of each grade the Respondent had duly submitted the comparable prices. Further, the dates off the impugned transactions and comparable transactions were of same quarter and comparable volumes. The same is evident comparable data at pages 227 to 229 of PB Vol.
2. Sample invoice submitted before the TPO may be referred at page 365 of PB Vol. 2.
Thus, the TPO was completely wrong in rejecting the CUP data and adopting the approach similar to AY 2004-05.
It is pertinent to mention that the Respondent had submitted similar CUP data and submissions in the preceding AY 2004-05 at the CIT-A level, following which the CIT-A had deleted the adjustment in the manufacturing segment. Further, post remand back by the Hon'ble Tribunal, the TPO in remand proceedings accepted the transaction of import of raw material - Additives and Base Oil under manufacturing segment to be at Arm's Length Pricing after considering Respondent's contentions similar to above and CUP data. (refer TP order for AY 2004-05 pursuant to ITAT remand at pages 39-65 of the PB Vol. 4).
It is further submitted that the Respondent has consistently been benchmarking its manufacturing transactions (namely, import of base oils and additives) by applying CUP method and the same has been accepted by the TPO. The status
DCIT vs. M/s Exxon Mobil Lubricants Pvt. Ltd. of method selected in earlier as well as subsequent AYs have been tabulated as below: AY Method selected TP study Supplementary TPO submission 2004-05 Cost plus method Comparable Accepted CUP in (“CPM”) uncontrolled Price second round of method (“CUP”) proceedings (refer page 42-43 of PB Vol.4) 2005-06 The present appeal before the Hon’ble Tribunal (Impugned AY) 2006-07 Pending for disposal before the Hon’ble Tribunal 2007-08 CPM - Accepted (refer orders 2008-09 CUP for AY 2007-08 to 2009-10 2015-16 at S. No.3 to 11 at pages 66-397 to 2010-11 CUP - 11 at pages 66-397 of 2011-12 PB Vol.4) 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
It is submitted that the facts and circumstances, as prevalent in the subject AY have remained unchanged in other AYs and therefore, applying the rule of consistency, it should not be open for revenue to adopt a divergent position. Reliance in this regard, is placed on the following decisions: Radha Soami Satsang vs CIT 193 ITR 321 (SC); CIT vs New Polypack (P) Ltd. 245 ITR 492 (Del) DIT (E) vs Apparel Export Promotion Council 244 ITR 734 (Del): CIT vs Girish Mohan Ganeriwala 260 ITR 417 (P&H) B. Trading Segment: 24 It is submitted that the Respondent under the trading segments performs the following functions: i. Import of Lubricants: The Respondent merely imports the lubricants from various group companies and resells it further to unrelated parties, without adding any value to the products. Thus, the Respondent acts as a buy sell agent.
DCIT vs. M/s Exxon Mobil Lubricants Pvt. Ltd. ii. Sale of Marine Lubricants: One of the group companies of the Respondent, i.e.. ExxonMobil Marine Limited (EMML) enters into a contract with shipping companies to supply marine lubricants to ship at different ports around the world. EMML then enters into arrangements with ExxonMobil Group companies to supply the lubricants to ship at different ports. It also includes an arrangement with Respondent to supply the lubricants at different ports in India to the vessels arriving in India. In this arrangement, ExxonMobil India invoices EMML and EMML further raises the invoice on the shipping company. The said transactions are in the nature of trading. (refer submissions at pages 360 of the PB Vol. 2) iii. Marketing support services: Respondent finds customers for ExxonMobil group, to supply marine lubricants to the ship al different ports around the world. EMML then enters into an agreement with the customers, to supply the lubricants to the ships at different ports outsides India. In this arrangement EMML, invoices the shipping company while ExxonMobil India gets a commission on the sale of lubricants made by EMML to the shipping company outside India. EMML retains an amount of $ 25/hectoliter out of the total profit earned from sale of marine lubricants and disburse the remaining amount to Respondent. (refer submissions at pages 336-337 of the PB Vol. 2) 25. The aforesaid transactions were benchmarked using CPM method in the TP study and additional analysis using RPM was submitted at the time of TP proceedings. For RPM, the Respondent identified comparable companies engaged in the trading of lubricants and it was proved that the said transaction was at ALP vide submissions dated August 05, 2008 (refer page 251 of the PB Vol. 2).
However, the TPO rejected the aforesaid also without providing any cogent basis and adopted the approach similar to AY 2004-05 wherein TNMM was applied on entity level.
It is pertinent to mention that the Respondent had submitted similar RPM analysis in the preceding AY 2004-05 at the CIT-A level, following which the CIT-A had deleted the adjustment in the manufacturing segment. Further, post remand back by the Hon'ble Tribunal, the TPO in remand proceedings accepted the transactions under Trading segment to be at Arm's Length Price (refer TP order for AY 2004-05 pursuant to ITAT remand at pages 39-65 of the PB Vol. 4).
It is further submitted that the Respondent has consistently been benchmarking its trading segment by applying RPM method and the same has been accepted by the TPO. The status of method selected in earlier as well as subsequent AYs have been tabulated as below:
DCIT vs. M/s Exxon Mobil Lubricants Pvt. Ltd. AY Method selected TP study Supplementary TPO submission 2004-05 Cost plus method Resale price method Accepted CUP in second (“CPM”) round of proceedings (refer page 43-51 of PB Vol.4) 2005-06 The present appeal before the Hon’ble Tribunal (Impugned AY) 2006-07 Pending for disposal before the Hon’ble Tribunal 2007-08 CPM - Accepted (refer orders 2008-09 RPM for AY 2007-08 to 2015- 16 at S. No.3 to 11 at 2009-10 pages 66-397 to 11 at 2010-11 RPM (Purchase of - pages 66-397 of PB finished goods), CUP Vol.4) (Sales of finished goods) and TNMM (Commission received on MSS) 2011-12 RPM (Purchase of - finished goods) 2012-13 CUP (Sales of finished 2013-14 goods) and 2014-15 No transaction of MSS 2015-16 2016-17 2017-18 2018-19 29 It is further submitted that the facts and circumstances, as prevalent in the subject AY have remained unchanged from AY 2004-05 and therefore, applying the rule of consistency, it should not be open for revenue to adopt a divergent position. Reliance in this regard, is placed on the following decisions: Radha Soami Satsang vs CIT 193 ITR 321 (SC) CIT vs Neo Polypack (P) Ltd. 245 ITR 492 9Del) DIT(E) vs Apparel Export Promotion Council 244 ITR 734 (Del) CIT vs Girish Mohan Ganeriwala 260 ITR 417 (P&H C. Receipt of services 30. Exxon Mobil Asia Pacific Pte. Ltd. (AE of the Respondent) has entered into a master Service Agreement with the Respondent for providing services ranging from management consulting and functional advice to administrative technical professional and other support predominantly relating to Respondents downstream businesses of fuels supply, and lubricants & petroleum specialties (refer pages 712 to 729 of the PB Vol. 3) the terms of agreement, the Respondent had agreed to pay the AE, a fee based on cost plus s percent for the services provided by the later.
DCIT vs. M/s Exxon Mobil Lubricants Pvt. Ltd. 31 In the TP Study, the Respondent had used TNMM taking foreign AE as the tested party and OP by TC as PLL to determine the arm's length price for payment of service charges. Further, the Respondent conducted a benchmarking study to identify companies engaged in providing general management consulting and administrative services. The operating margin of the comparable companies was computed at 7.14% as against 5% charged by the AE. Based on the above analysis, the international transactions related to payment of service fees was in accordance with the arm's length principle (refer TP study at page 125-127 of the PB Vol. 1) Re: Adjustment made without any show cause notice 32. At the outset, it is submitted that TPO had made adjustment to the ALP in respect of international transaction of provision of services, without issuing any show cause notice or calling for information in relation to services received (refer CIT-A submissions at pages 338 of the PB, Vol. 2) 33. It is further submitted that the TPO under sub-section (2) is required to serve a notice on the assessee to produce or cause to be produced, on a date specified, evidence which the assessee relies upon in support of computation made by it of the ALP in relation to the international transaction. Under sub-section (3) of section 92CA, the TPO is required to pass an order in writing, determining the ALP in relation to the international transaction in accordance with the provisions of sub-section (3) of section 920. An important caveat in this regard is that while determining the ALP, TPO is statutorily required to hear such evidence as the assessee may produce, including information or documents referred to under sub-section (3) of section 920 and such evidence as the TPO may require the assessee to furnish on specified points. The provisions of sub- section (3) of section 92CA make it clear that it is only upon consideration of all such materials by way of information, documents or evidence that the TPO can proceed to determine the ALP.
It is thus quite plain upon reading of the provisions of sub-section (3) of section 92CA, that the Legislature has clearly cast an obligation on the TPO to accord an opportunity to the assessee since such a requirement has not been adhered by the TPO in respect of international transaction of intra group services received by the Respondent, the impugned order of the TPO was bad in law and liable to be set aside. Reliance in this regard is placed on the following Moser Baer India Ltd. vs Addl. CIT: (2009) 316 ITR 1 (Delhi); Maari Multi-Trading (P.) Ltd. vs ITO: [2020] 118 taxmann.com 647 (Mumbai-Trib.) Re: Entity wide TNMM cannot be applied: 35. The Respondent benchmarked its international transactions separately by applying the most appropriate method in the manner as provided in Rule 108 DCIT vs. M/s Exxon Mobil Lubricants Pvt. Ltd. and 100 of the Income Tax Rules, 1962 ('the Rules") read with section 92C of the Act. However, the TPO applied entity wide approach to benchmark all the international transactions of the Respondent together.
In this regard, it is humbly submitted that the approach followed by the TPO is incorrect and unjustified. Even the Indian transfer pricing regulations requires each international transaction to be evaluated and analyzed separately. With respect to the same, the Respondent wish to draw attention of the Hon'ble Tribunal towards the specific provision contained in sub rule 1 of Rule 100C. "(1) For the purposes of sub-section (1) of section 920, the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction, and which provides the most reliable measure of an arm's length price in relation to the international transaction."
Thus, the law makes it evidently clear that, as far as possible, each international transaction should be evaluated separately and the method which provides most reliable measure of an arm's length price in relation to the international transaction should be selected Further, sub-rule (2) to Rule 10C provides as below: "(2) In selecting the most appropriate method as specified in sub-rule (1), the following factors shall be taken into account, namely: (a) the nature and class of the international transaction 99for the specified domestic transaction): (b) the class or classes of associated enterprises entering into the transaction and the functions performed by them taking into account assets employed or to be employed and risks assumed by such enterprises; (c) the availability, coverage and reliability of data necessary for application of the method, (d) the degree of comparability existing between the international transaction 99 [or the specified domestic transaction] and the uncontrolled transaction and between the enterprises entering into such transactions; (e) the extent to which reliable and accurate adjustments can be made to account for differences, if any, between the international transaction 99for the specified domestic transaction) and the comparable uncontrolled transaction or between the enterprises entering into such transactions, (f) the nature, extent and reliability of assumptions required to be made in application of a method."
DCIT vs. M/s Exxon Mobil Lubricants Pvt. Ltd.
From the combined reading of the Rule 10C, it is quite evident that the intent of law is to analyze each transaction or class of transactions separately and the abovesaid factors should be considered separately for each class of transactions in order to determine the most appropriate method. It is only under remote circumstances, where the transactions are so closely interrelated that they are not capable of being evaluated separately, all the transactions may be grouped together.
Further, the same is supported by OECD guidelines as provided below "Para 1.42-Ideally, in order to arrive at the most precise approximation of fair market value the arm's length principle should be applied on a transaction-by transaction basis. However, there are often situations where separate transactions are so closely linked or continuous that they cannot be evaluated adequately on a separate basis." 40 The Respondent, in its transfer pricing documentation, had used CPM, TNMM and CUP methods to justify the arm's length price for international transactions related to import of raw material and finished goods and payment of service fee to associated enterprise and for cost recharges and purchase of fixed assets to/from associated enterprises respectively. Further, during the course of assessment, the Respondent further furnished supplementary analysis for the transactions relating to import of raw material and finished goods in the form of CUP method and Resale price method respectively. 41 In this regard, reliance is placed on following decisions wherein it has been held that transaction-by-transaction approach of benchmarking is preferred over aggregation approach: MAN Energy Solutions India (P.) Ltd. vs ACIT: [2023] 149 taxmann.com 347 (Pune-Trb) (refer paras 5-8) Faurecia Automotive Seating India (P.) Ltd. vs DCIT: [2023] 146 taxmann.com 327 (Pune-Trib.) (refer para 3) Knorr Bremse Systems for Commercial Vehicles India (P.) Ltd. vs DCIT: (2019) 112 taxmann.com 289 (Pune-Trib.) (refer paras 16-20) 42. Accordingly, considering the afore-mentioned provisions of the law and judicial precedents, the Respondent has made a conscious effort to analyze and evaluate each transaction separately and has proved the arm's length nature of international transaction, which was capable of being analyzed individually on a transaction-by-transaction basis. Thus, the approach adopted by the Respondent has a valid sanction of the law.
Further, in Respondent's own case for AY 2007-08, CIT(A) has accepted the arm's length of intra-group services pertaining to (i) corporate law, (ii) Security, (ii) Safety Health Environment, (iv) Treasury, (v) Business Advisory and (vi) Information Technology (partly)
Heard both the parties and perused the materials available on record. The TPO has allocated the transfer pricing adjustment of Rs.46,57,04,908/- amongst the various international transactions in proportionate, to their respective book values which is tabulated as under:
S. No. International Book Difference Arm’s length transactions Value loader price Manufacturing Segment: 1. Import of base oils 36,32,16,946 17,09,16,094 19,23,00,852 2. Import of additives 15,68,48,306 7,38,06,853 8,30,41,453 Trading Segment: 3. Import of lubricants 23,76,04,747 11,18,07,765 12,57,96,980 4. Sale of marine lubricants 3,75,65,173 1,76,76,743 5,52,41,916 5. Commissioner received 1,47,81,325 69,55,530 2,17,36,855 for market support in respect of sale of marine Lubricants by AE. Intra-Group Services: 6 Payment of service fee 17,96,61,598 8,45,41,922 9,51,19,676 Total 98,96,78,094 46,57,04,908
In the instant case, it is seen that Revenue has accepted the computation of arm’s length price of international transaction by assessee wherein CUP method was taken as MAM under manufacturing segment and RPM under trading and other segments in subsequent Assessment Years. In immediately preceding year i.e. in AY 2004-05 in assessee’s own case, coordinate bench of ITAT vide its order dt. 12.06.2020 in has set aside the issue of determination ALP in all segments to the file of TPO where the TPO in remand proceedings has accepted ALP computed by assessee and no adverse inference was taken , copy of the said order is available at PB Volume-4 pages 39 to 65. As observed above, TPO has not made any adjustment and ALP computed by assessee under all segments by following CUP method and RPM respectively, stood accepted. It is also seen that in subsequent assessment years, ALP of the assessee stood accepted in the orders passed which are placed in PB pages 66 to 91 for AY 2007-08, page 92 to 133 for DCIT vs. M/s Exxon Mobil Lubricants Pvt. Ltd. AY 2008-09, pages 134 to 173 for AY 2009-10 and so on. The Hon’ble Supreme Court in case of Raddhasoami Satsang vs. CIT reported in [1992] 193 ITR 321 (SC) held that principle of consistency should be followed.
In view of the facts as discussed above and further considering the fact that assessee has filed all data of comparable prices with respect to the transactions of import under manufacturing segment which are available in the PB page 227 to 229 and further filed sample copies of bills which are available at page 365 onwards of the paper book. We find that the observations of Ld. TPO in this regard are not correct since all such details were filed along with letter dated 17th April, 2008 before the TPO. Thus, by following the principle of consistency and further looking to the facts that all the details were available before the TPO, we hereby confirmed the order of Ld. CIT(A) in deleting the transfer pricing adjustment made on the international transactions of import of raw material under manufacturing segment as well under trading and the service segment also. Accordingly, the ground of appeal No.1 of Revenue is dismissed.
Ground of appeal No.2 of the Revenue is with respect to the deletion of disallowance of Rs.5,00,000/- made out of foreign travel expenses.
The Ld. CIT-DR supported the order of the AO and submits that the assessee has not provided details for foreign travel expenses and, therefore, the AO has made the disallowance. The Ld. CIT-DR further submits that AO has discussed this issue in para 3 of its order wherein the AO has observed that assessee has not provided complete details of persons and purpose of their visit outside India, therefore, disallowance made by the AO deserves to be upheld.
DCIT vs. M/s Exxon Mobil Lubricants Pvt. Ltd.
On the other hand, the Ld. AR by the assessee supported the order of the Ld. CIT(A) and submits that the disallowance was made without issuing any show cause notice nor the assessee was ever asked to file any information related to foreign travel expenses. It is further argued that ad-hoc disallowance @ 20% was made by the AO which was deleted by Ld. CIT(A) for which the Ld. AR requested for the confirming for the same.
15. Heard both the parties and perused the materials available on record. The assessee company has claimed total expenses under this head at Rs.22,44,380/- out of which 20% was disallowed by AO which comes to Rs.4,28,878/-, however, in the final computation of total income, AO disallowed Rs.5,00,000/- out of foreign travel expenses. It is seen that the assessee was never asked to file details with respect to foreign travel undertaken by its employees. However, looking to the facts and circumstances and further considering the fact that complete details of the traveling etc. are not available, in our considered opinion disallowance @ 10% of total expenses claimed would meet the end of the justice. We order accordingly. This ground of appeal of the Revenue is thus partly allowed.
16. Ground of appeal No.3 is with respect to deletion of disallowance u/s 40(a)(i) of the Act of Rs.14,40,82,192/- made by AO.
17. Heard both the parties and perused the materials available on record. The claim of the assessee is that total expenses of Rs. 17,96,62,000/- were debited under the head “Allocated Expenses” regarding payment to its AE Exxon Mobil Asia Pacific Pte. Ltd., Singapore for incurring expenses on behalf of the assessee for uses of common facility. The assessee claimed that TDS was made on the payment of DCIT vs. M/s Exxon Mobil Lubricants Pvt. Ltd. Rs.3,55,79,407/- i.e. the amount paid towards information system and no TDS was deducted on remaining amount of Rs.14,40,82,192/- on sharing of expenses for functional guidelines support services and other related services. Since, the service were rendered outside India and the income was not accrued or arise in India, therefore, no TDS was made. The Ld. CIT-DR deleted the disallowance by following its order in immediately preceding assessment year which stood confirmed by Co-ordinate Bench of the Tribunal in ITA No.2619/Del/2011. The Co-ordinate Bench has made following observations:
“53. We have heard the rival arguments made by both the sides and perused the record. We find, in the instant case, the AO disallowed the entire expenditure made in foreign currency amounting to Rs. 17,25,71,749/- on the ground that the assessee could not substantiate regarding non-deduction of tax u/s 195 of the IT Act, the payment of which has been made in foreign currency. We find, the Ld. CIT(A) deleted the addition on the ground that substantial amount of expenditure pertained to the year prior to the financial year 2003-04 and, therefore, the AO is not justified in disallowing the entire foreign exchange payment without identifying the payment pertaining to the actual accrual made during the year. Even otherwise, the Id. CIT(A) has threadbare analysed each and every item and given justification for deletion of the same, the operative para of which has already been reproduced in the preceding paras. The Id. DR could not point out any error in the order of the CIT(A) on this issue so as to take a contrary decision. Since the Ld. CIT(A) has given justifiable reasons for deleting the addition made by the AO, therefore, in absence of any contrary material brought to our notice by the Id. CIT-DR, the order of the CIT(A) on this issue is upheld and this ground raised by the Revenue is dismissed.”
Since, facts are identical where ld. CIT(A) has deleted the disallowance and such deletion was confirmed by the Co-ordinate in immediately preceding year, and when there is no change in the circumstances and nature of payment made thus, by respectfully following the order of Tribunal int eh case of assessee in immediately preceding year, we find no error in the CIT(A) in deleting the disallowance made u/s 40(i)(a) of the Act. Accordingly, this ground of Revenue is dismissed.