NESS TECHNOLOGIES (INDIA) PVT. LTD.,MUMBAI vs. DCIT CENT. CIR. 6(1), MUMBAI

आदेश / O R D E R PER BENCH This is an appeal filed by the assessee against the order of DCIT Center Circle 6(1), Mumbai for the A.Y.2012-13 in the matter of order passed u/s.143(3) r.w.s.144C of the IT Act. 2. Even though assessee has taken 11 grounds, the relevant grounds which were pressed during the course of hearing are ground No.4 to 8 which pertains to reimbursement of expenses given by AE to the assessee and the adjustment made by AO while passing the order u/s.92CA(1) of the IT Act.

S.A.No.292/Mum/2017 M/s. Ness Technologies (India) Pvt. Ltd., For the aforesaid reasons, the Transfer Pricing Officer added 10% mark-up as means to compensate the assessee which came to Rs.3,19,51,284/- and such amount was determined as income in the hands of the assessee. 13.1 Before us, the Ld. Representative for the assessee vehemently pointed out that the lower authorities have not appreciated the facts in their proper perspective. It has been explained that the impugned expenses relate to cost of travel, accommodation, visa expenses, per diem and other day to day expenses, which were incurred by the assessee's employees in the course of rendering services or other such expenses incurred on the specific request of the associated enterprises. Since the associated enterprises were responsible for such costs, assessee initially incurred the expenditure but later on recovered it from the associated enterprise and that there was no service element involved so as to justify earning of any service charge. Before us, Ld. Representative for the assessee also referred to voluminous material placed in the Paper Book, which was also available to the lower authorities, to point out that there was no profit-element in such arrangement of recovery of out of pocket expenses.. 13.2 On the other hand, Ld. Departmental Representative appearing for the Revenue emphasised that there was a considerable time lag between the incurring of such expenditure by the assessee company and its ultimate recovery from the associated enterprises and, therefore, it reflected incurrence of financial cost by the assessee, which ought to have been compensated by the associated enterprises, and, therefore, the transfer pricing adjustment in this regard made by the TPO/Assessing Officer is justified. 13.3 We have considered the rival submissions. At the outset, in our considered opinion, it would be appropriate to cull out appropriate facts which are relevant to decide the controversy. Notably, assessee is rendering services to its associated enterprises abroad for which it is to be compensated on a cost plus mark-up basis and such transactions have been separately bench-marked. In the course of rendering such services, assessee also incurred certain costs relating to travel, accommodation, visa, per diem and other day-to-day expenses, which were expended by its personnel. Further, assessee also incurred certain out of pocket expenses on the specific request of its associated enterprises. The responsibility for the aforesaid type of expenses was of the associated enterprises but the payment towards these costs were initially made by the assessee and thereafter, recoveries were made from the associated enterprises. Before the DRP, assessee also pointed out that such expenses, which are recovered by it from its associated enterprises, are in-turn recovered by the associated enterprises from S.A.No.292/Mum/2017 M/s. Ness Technologies (India) Pvt. Ltd., the ultimate clients on a cost to cost basis. In this context, assessee furnished sample copies of debit notes raised by it on its associated enterprises alongwith copies of the corresponding debit notes raised by the associated enterprises on the ultimate clients. The aforesaid was canvassed by the assessee to substantiate that there was one to one co- relation and that the entire exercise did not involve any element of profit or mark-up in the hands of the associated enterprises. The aforesaid material is placed at pages 518 to 612 of the Paper Book and which was also before the lower authorities. At the time of hearing, the Ld. Representative for the assessee had also referred to page 613 to 645 of the Paper Book, wherein are placed copies of assessee's arrangement with the associated enterprises and also the sample agreements between the associated enterprises and the ultimate clients, which prescribe that all impugned travel and related expenses are separately chargeable on a cost to cost basis. All this material clearly brings out a pertinent feature that in the entire transaction involving payment of expenditure by the assessee, its recovery from the associated enterprises, which-in turn recovers it from the end clients, there is no involvement of any profit-element in the hands of the associated enterprises. Therefore, it would be wrong on the part of the income tax authorities to take a position and infer notionally about recovery of mark-up or profit element in the hands of assessee. It has also been brought out that it is a standard practice in the I.T. Industry to recover out of pocket expenses incurred during the course of providing services for the clients on a cost to cost basis. Under these circumstances, in our view, the Transfer Pricing Officer erred in proceeding to infer a non-existent understanding between assessee and its associated enterprises so as to impute income qua the instant transaction in terms of section 92(1) of the Act. Another pertinent fact which has not been rebutted by the Revenue before us is to the effect that in similar situation, from assessment year 2004-05 to 2010-11, no transfer pricing adjustment has been made by the Assessing Officer in relation to the International Transactions on recovery of expenses.