Dcit New Delhi v. M S Silicon Graphics Systems India Pvt Ltd New Delhi

In The Income Tax Appellate Tribunal Delhi Bench A New Delhi Before Shri Amit Shukla Judicial Member Shri Prashant Maharishi Accountant Member I T As No 2935 2937 Del 2013 Assessment Years 2008 09 2009 10 Dcit Circle 8 1 New Delhi Vs M S Silicon Graphics Systems India Pvt Ltd Regus Business Centre Level 15 Erors Corporate Tower Nehru Place New Delhi Pan Aaacs 4104 N Appellant Respondent Appellant By Shri Kaushlendra Tiwari Sr D R Respondent By Shri Piyush Kaushik Adv Date Of Hearing 23 10 2017 Date Of Pronouncement 20 12 2017 O R D E R Per Amit Shukla J M The Aforesaid Appeals Have Been Filed By The Revenu E Against Separate Impugned Orders Dated 18 02 2013 And 28 08 2013 Passed By Ld Cit Appeals Ii New Delhi For Quantum Of Assessment Passed U S 143 3 Of The Income Tax Ac T 1961 For The Assessment Year 2008 09 2009 10 Respectively 2 Since The Issues Involved In Both The Appeals Are Common Arising Out Of Identical Set Of Facts Therefore Both We Re Heard Together And Are Being Disposed Of By Way Of This Con Solidated Order I T As No 2935 2937 Del 2013 2 3 We Will First Take Up The Appeal For The Assessment Y Ear 2008 09 Wherein The Revenue Has Raised Sole Ground Which Reads As Under The Ld Cit A Has Erred In Deleting The Addition Of Rs 81 49 561 Made By The Assessing Officer On Account Of Reimbur Sement Of Repair Charges 4 The Brief Facts Are That Assessee Company Is A Sub Sidiary Of A Foreign Enterprise Silicon Graphics Inc Usa Sgi It Is A Reseller Of Silicon Products And It Imports Computer H Ardware And Software From Its Ae And Sells It To Its Customers In India The Assessee Also Undertakes Warranty And Post Warranty Maintenance Services For Sgi Products In India And In Addition To That It Also Provides Consultancy To Its Ae The Asses Sing Officer From The Perusal Of The Form 3 Ceb Noted That Assessee Ha S Made Payment Of Rs 81 49 561 To Its Ae On Account Of Reim Bursement Of Repair Charges The Assessee Was Required To Expl Ain The Nature Of Such Reimbursement And Also To Produce Documentary Evidence In Support Of Its Claim In Response The Assessee Had Stated As Under This Represents The Actual Cost Of Spare Parts Req Uired By The Assessee To Render Repair Services Of Hardware Machines Of Its Customers It Is Respectfully Submitted That The As Sessee Company Requires Spare Parts For Rendering Repair Services Of Hardware Machines Of Its Customers Under The Terms Of Indepe Ndent Contracts Entered By The Assessee With Its Customers For Pro Curing The Said Spare Parts The Assessee Has Entered Into Agreement With Its Parent Entity Viz Silicon Graphics Inc Of Usa To P Urchase The Said Spare Parts From Silicon Graphics Inc Of Usa Whereb Y The Assessee Will Pay Reimburse The Actual Cost Incurred By Sili Con Graphics Inc Usa In Arranging The Said Spare Parts And No Additi Onal Mark Up Fee Will Be Payable To Silicon Graphics Inc Usa In Providing The Said Spare Parts To The Assessee Copy Of The Said Agreement Is I T As No 2935 2937 Del 2013 3 Enclosed Herewith As Annexure A For Your Perusal F Urther The Voucher Wise And Month Wise Details Of Said Expendi Ture Is Enclosed Herewith As Annexure R For Your Perusal 4 1 Along With The Submissions Assessee Had Also Ann Exed Copy Of Agreement For Purchase Reimbursement Of Spar E Part Cost Which Was Marked As Annexure A And B To The Said Repl Y However The Assessing Officer Observed That The Detail S Given In Annexure B Is Not Supported With Any Bills Vouchers Invoices And Therefore Same Cannot Be Accepted And Assessee Has A Lso Not Furnished The Details Of The Parties To Whom It Retails H Ardware Machines For Which It Needed Spare Part To Be Imported From The Ae In Usa Further Assessee Has Not Been Able To Cla Rify Whether It Has Complied With Provision Of Tds Accordingly H E Held That Assessee Was Required To Deduct Tds Upon Reimbursemen T Of Rs 81 49 561 Relying Upon Cbdt Circular No 7 Of 2 009 Thus He Disallowed The Entire Reimbursement Of Payment Of Rs 81 49 561 5 Before The Ld Cit A The Assessee Had Made Very Elaborate Submissions Countering Each And Every Fi Nding Given In The Assessment Order Which For Sake Of Understanding The Entire Background And Factum Of The Case Is Reproduced Hereu Nder The Assessee Has Made An Accrual Of Rs 81 49 561 O N Account Of Reimbursement Of Repair Charges Payable To Its Pa Rent Entity Viz Silicon Graphics Inc Usa Such Payment Is Essence F Or The Reimbursement Towards Actual Cost Of Spare Parts Required By The Assessee For Rendering Repair Service To Its Custom Ers Under The Terms Of A Cost Reimbursement Arrangement With The Parent Entity Annexure H As Furnished Before The Ao Vide Submission Dated 20 12 10 Annexure G Further The Month Wise Details Of Payments On Account Of Purchase Reimbursements Of Spare Pa Rts Were Also Submitted Annexure I The Said Spare Parts Were Obtained By The I T As No 2935 2937 Del 2013 4 Assessee From Its Parent Entity On A Cost To Cost B Asis Without Any Mark Up Charged By The Parent Entity As Clearly Pro Vided In The Agreement Supra Since The Said Payment Was Purel Y On Account Of Reimbursement And In Any Case It Was In Respect O F Purchase Sale Transaction Undertaken With Theparent Entity Based In Usa Who Does Not Has A Permanent Establishment Pe Inindia Th Erefore No Tax Was Deducted At Source On The Said Accrual To The Paren T Entity Vide Letter Dated 15 12 10 The Assessing Officer Had Sought Cl Arification With Respect To The Said Payment By The Assessee In Resp Ect Of Which The Assessee Had Duly Vide Its Submission Dated 20 12 1 0 Supra Submitted The Copy Of Agreement Entered With Its Pa Rent Entity Regarding The Payment Of Said Reimbursement Charg Es Supra And Also The Complete Voucher Wise And Month Wise Payme Nt Details Thereafter No Further Information Clarification W As Sought By The Ao From The Assessee Which Is Clearly Evident From The Assessment Records Even Though Vide The Said Submission Dated 20 12 10 Supra The Assessee Had Particularly Expressed Its Willing Ness To Provide Any Other Clarification Etc On The Issue As May Be Requ Ired By The Ao 3 2 Assessees Submissions It Is Respectfully Submitted That The Ao Had In An Utterly Perverse Manner And By Framing An Absolutely Wrong Understan Ding In Law Disallowed The Said Amount It Has Been Admitted By The Ao Himself That The Assessee Has Duly Furnished The Agreement With The Parent Entity For The Cost Reimbursement Arrangement Supr A The Assessee Had Also Furnished The Month Wise Payment Summary Supra Vide Assessees Submission On Record Dated 20 12 10 Sup Ra It Was Specifically Submitted That The Assessee Shall Be P Leased To Provide Any Further Information Clarification As May Be R Equired However Without At All Confronting The Assessee On Requirem Ent Of Any Further Details The Ao Has Very Wrongfully Proceeded To Dis Allow The Said Expense Claim Regarding The Aos Observation To Th E Effect That Assessee Has Not Furnished Details Of Parties To Wh Om Repair Services Are Rendered For Which Spare Parts Have Been Import Ed It May Be Noted That The Assessee Had Duly Submitted The Cost Reimbursement Arrangement With The Parent Entity Annexure H Along With Month Wise Details Of Payments On Account Of Purchase R Eimbursements Of Spare Parts Were Also Submitted Annexure I Thereafter Without At All Confronting The Assessee On The Requirement Of Submitting Any Other Detail The Ao Has Proceeded To Make The Disal Lowance In A Very Perverse Manner Even Though The Assessee Had Specif Ically Vide Its Submission On Record Dated 20 12 10 Stated That The Assessee Will Be I T As No 2935 2937 Del 2013 5 Pleased To Provide Any Other Detail With Respect To Reimbursement Charges Regarding The Parties To Whom Maintenance Services Are Rendered For Whom Spare Parts Are Imported It May Be Noted Since Inception I E 22 06 1993 The Assessee Renders Comprehensive Maintenance Services To Its Various Customers Which Is In The Nature Of A Works Contract Involving Supply Of Spare Parts And Rendering Services During The Subject Year Assessee Has Rend Ered Comprehensive Maintenance Services To The Following Reputed Customers Copies Of Contracts Enclosed Herewith As Follows I Annexure M Annual Maintenance Contract Amc With Paradigm Geophysical India Pvt Ltd Ii Annexure N Annual Maintenance Contract Amc With Csir Centre For Mathematical Modelling Computer Simulation Iii Annexure O Annual Maintenance Contract Amc With Centre For Artificial Intelligence Robotics Iv Annexure P Annual Maintenance Contract Amc W Ith Ushodaya Enterprises Limited Your Good Self Is Free To Undertaken Any Verificati On In This Regard On The Aforesaid Documents Enclosed And Or Seek A Re Mand Report From The Ao And The Assessee Will Provide Due Support In This Regard There Is A Serious Fallacy In The Understanding Fra Med By Ao To The Effect That In The Said Transaction Being Essential Ly A Cost Reimbursement Arrangement The Withholding Tax Provi Sions Will Apply It Is A Well Settled Law As Laid Down In Several De Cisions Including Decisions From Jurisdictional High Court Jurisdict Ional Tribunal And In Various Other Cases That The Withholding Tax Req Uirement Does Not Applies Where The Payment Made To A Non Resident Is Essentially In The Nature Of A Cost Reimbursement As In The Presen T Case A Very Direct Support Is Drawn In This Regard From The Fol Lowing Decisions I Decision Of Delhi High Court In The Case Of Van Oor D Acz India P Ltd Vs Cit 323 Itr 130 Del Copy Enclosed Held That The Requirement Of Tds Does Not Arises When Payment To A Non Reside Nt Is Only In The Nature Of A Reimbursement Ii Decision Of Special Bench Of Itat In The Case Of M Ahindra Mahindra Ltd Vs Dcit 2009 122 Ttj Mum Sb 577 Copy Enclosed Held In This Decision Of Special Bench As Approv Ed By Delhi High Court In The Case Of Van Oord Supra That Pay Ment Towards Reimbursement Of Expenses To A Non Resident Not Bei Ng In The Nature I T As No 2935 2937 Del 2013 6 Of Income The Requirement Of Withholding Tax On Su Ch Payment Does Not Arises U S 195 On The Same Iii Decision Of Delhi High Court In The Case Of Cit Vs Industrial Engineering Projects Pvt Ltd Dated 20 08 92 2003 Tiol 247 Hc Del Copy Enclosed Held That Reimbursement Of Expenses To A Foreign Entity Cannot Be Regarded As Revenue Receipts Iv Decision Of Delhi Itat In Thecase Of Cit Vs Modicon Network P Ltd 2007 14 Sot 204 Del Copyenclosed Held In This Important Decision From Delhi Itat That Obligation To Deduct Tax At Source U S 195 1 Is With Reference To The Income Element Embe Dded In The Remittance Held That Reimbursement Of Expenses Can Not Be Considered As Having An Income Element Embedded The Rein So As To Attract Section 195 1 The Ao Has Further Seriously Erred In Not Understan Ding And Appreciating That The Subject Payment Was Made To T He Credit Of A Non Resident Entity Based In Us And The Payment Was In The Nature Of A Transaction Of Sale Purchase On A Cost To Cost Basis The Ao Has Just Failed To Appreciate And Understand That In Vi Ew Of The Clear Provisions Of Article 7 Of India Us Dtaa The Said Transaction Cannot At All Be Subject To Tax In India In The Absence Of A Permanent Establishment Pe Of The Said Non Resident In Indi A A E Consequently The Question Of Tax Withholding Does Not Arises At All These Very Vital Points Have Just Been Omitted To Be Considered By T He Ao Thus It Is Respectfully Submitted In View Of The F Oregoing Facts And Position That The Ac Has Grossly Erred In Making Th E Disallowance In Respect Of Reimbursement Of Repair Charges Of Rs 8 149 56 5 1 Ld Cit A Held That The Amount In Question Was Pay Ment To The Parent Company At Cost For The Spare Parts Import Ed By The Assessee For Rendering The Maintenance Services To The Customers Which Requires Supply Of Spare Parts On Perusal Of Copy Of The Relevant Agreement With The Parent Company He Was Of Th E Opinion That There Is No Provision For Deducting Tds On Purchases And Neither Any Services Have Been Provided By The Ae Nor Any Payment Have Been Made To Any Services Provided To The Ae Thus I T As No 2935 2937 Del 2013 7 He Held That No Tds Would Be Deductible On The Amoun T Of Purchase Of Spare Parts And Accordingly Deleted The Said Addition 6 Before Us The Learned Senior Dr Submitted That The Allegation Of The Assessing Officer Was That Assessee Could Not Produce The Supporting Vouchers And Bills For Reimbur Sement Of Spare Cost Apart From That Assessee Has Not Furnish Ed The Details Of Parties To Whom It Rendered The Repair Services And In Absence Of These Details He Has Made The Addition Ld Cit A Has Not Given Any Proper Finding While Deleting The Said Add Ition On The Specific Reasons Given By The Assessing Officer 7 Before Us The Learned Counsel For The Assessee Su Bmitted That In This Case It Cannot Be Disputed That Payment Of Rs 81 49 561 Has Been Made To The Parent Entity On Ac Count Of Actual Costs Of Purchase Of Spare Parts Which Was Req Uired By The Assessee Company For Rendering Repair Services Unde R The Terms Of Independent Contracts Entered By The Assessee With Its Cu Stomers In India As Per The Agreement With The Parent Entity F Or The Purchase Of The Spare Parts The Assessee Was Required To Pay The Actual Cost To Its Ae And No Additional Markup Fee Wa S Payable He Submitted That All These Agreements Were Produced Be Fore The Assessing Officer And It Was Amply Demonstrated That Onl Y The Cost Incurred For Procuring The Spare Parts Were Given So Far As The Allegation That Assessee Could Not Produce The Detail S Of Parties To Whom He Rendered Repair Services The Same Is Not Correct Because Assessee To Show That It Has Carried Out Amcs Had Filed Various Contracts With The Parties In India On Sample Basis The Assessee Was Not Required To Deduct Tds On Payment Of Purchases From A Non Resident Especially When There I S No Dispute I T As No 2935 2937 Del 2013 8 That Purchase Had Been Made On Cost To Cost Basis Witho Ut Any Markup Or Margin The Judgments As Referred By The As Sessee Before The Ld Cit A Were Reiterated By Him Before Us Viz A Delhi High Court Decision In The Case Of Van Oord A Cz India P Ltd Vs Cit 323 Itr 130 Del Held That No Liability For Tds Arises On A Payment On Account Of Reimbursement To A Non Resident B Decision Of Special Bench Of Itat In The Case Of Ma Hindra Mahindra Ltd Vs Dc It 30 Sot 374 Held That No Li Ability For Tds Arises On A Payment On Account Of Reimbursement To A Non Resident D Decision Of Delhi High Court In The Case Of Cit Vs Industrial Engineering Projects Pvt Limited 2003 Tiol 247 Hc D El It Held That Reimbursement Of Expenses Cannot Be Regarded As Rev Enue Receipts In The Hands Of Non Resident E Decision Of Delhi Itat In The Case Of Acit Vs Modic On Network P Ltd 14 Sot 204 Held That Reimburseme Nt Of Expenses Cannot Be Considered As Having An Income Element Em Bedded In It So As To Attract Sec 195 1 F Decision Of Supreme Court In The Case Of Ge Ind Ia Technology Centre P Ltd Vs Cit 327 Itr 456 Held That Liabil Ity To Tax Deduction Arises Only When The Remittance Is Chargeable To Ta X In The Hands Of Non Resident And Not Otherwise 7 1 Thus The Order Of The Ld Cit A Deleting The Sa Id Addition Should Be Confirmed 8 We Have Heard The Rival Submissions Perused The R Elevant Findings Given In The Impugned Order As Well As The M Aterial Referred To Before Us The Assessee Had Entered Into A Purchase Agreement With Its Associate Enterprise Parent Entity Silicon Graphics Inc Usa For Purchase Of Spare Parts Which Was Required By The Assessee To Execute Repairs And Annual Maintena Nce Contracts Services To Its Customers In India Under Sepa Rate Agreement On Principal To Principal Basis It Is Not Th E Case Of The I T As No 2935 2937 Del 2013 9 Revenue That There Is Some Element Of Markup Or Margin On Cost To Cost Reimbursement Of Purchases Made By The Assessee From Its Ae In Any Case Whether Such Arrangement Is At Arms Length Or Not Is Not A Subject Matter Of Dispute Before Us As I T A Matter Of Separate Transfer Pricing Proceedings Under Chapter X Once It Is Pure Reimbursement Of Actual Cost Of Purchase Then Os Tensibly There Is No Requirement Of Tax Deduction At Source Or W Ithholding Of Tax While Making The Payment To Non Resident Which I S Not In The Nature Of Income To The Non Resident India It Is N Ot The Case Of The Revenue That There Is An Element Of Income Which Is Chargeable To Tax In The Hands Of The Non Resident On A Ccount Of Purchase Transaction Of Spare Parts And Once That Is So Then No Withholding Of Tax Is Required Which Proposition Ha S Been Upheld In Various Judgments As Cited By The Learned Counsel I Ncluding That Of The Honble Supreme Court In The Case Of Ge Indi A Technology Centre Pvt Ltd Vs Cit Supra 9 So Far As The Issue That Assessee Has Not Furnished Any Bill Vouchers Invoices For The Purchase Or Assessee Could Not Furnish Details Of Parties To Whom It Had Rendered Re Pair Services We Find That Assessee Had Given The Detail Of The Spare Parts Purchased From Its Ae A Copy Of Which Is Appearing At Page 16 Of The Assessees Paper Book Which Gives The Description Of The Product The Purpose For Which Such Product Was Purch Ased Month Of Purchase Amount In Us Dollars And Conversi On Date As On Debit Date Etc These Details Goes To Show That The P Roducts Have Been Imported From The Ae For Which Assessee Ha D Made The Payment On Cost To Cost Basis Thus It Cannot Be Held That The Assessee Has Not Imported Or Purchased The Spare Parts From Its Ae And Once It Is Established That The Spare Parts Have Been I T As No 2935 2937 Del 2013 10 Imported Then Liability To Pay For The Cost Of Spare P Arts To Its Ae Arises To The Assessee Further To Prove That Assessee Has Utilized These Costs It Has Filed Copies Of Amcs With Various Parties In India On Sample Basis Thus The Reasoning Given By The Assessing Officer For Making The Addition On Both The Counts Do Es Not Survive And Accordingly Ground As Raised By The Rev Enue Is Dismissed 10 Now We Will Come To The Appeal For The Assessment Year 2009 10 Wherein The Assessee Has Raised The Followin G Grounds 1 The Ld Cit A Has Erred In Deleting The Additi On Of Rs 10 54 76 381 Made By The Assessing Officer On Account Of Expenses Claimed In The P L Account 2 The Ld Cit A Has Erred In Deleting The Addition Of Rs 47 93 704 Made By The Assessing Officer On Account Of Reimbur Sement Of Repair Charges 11 So Far As The Issue Raised In Ground No 2 Is Con Cern It Has Been Admitted By The Parties And The Facts And Issue Inv Olved Is Similar To The Grounds Raised In Appeal For The Assess Ment Year 2008 09 Wherein The Assessing Officer Has Made The D Isallowance Precisely On Same Reasoning And Ld Cit A Too Has Deleted The Said Addition On Similar Grounds Since We Have Alr Eady Dealt With This Issue In The Aforesaid Appeal Therefore Our Fin Ding Given Therein Will Apply Mutatis Mutandis In This Year Also 12 Now So Far As The Issue Raised In Ground No 1 Is Concern The Facts In Brief Are That The Assessee Who Is A Subs Idiary Of Silicon Fabrics Inc Usa With Whom Assessee Has Dif Ferent Agreements For Various Activities And Transactions The Assessing I T As No 2935 2937 Del 2013 11 Officer Noted That Assessee Has Shown Huge Loss In Its Account In Terms Of Payment Accruing To The Foreign Entity So Muc H So That For The Year Under Consideration The Auditors Have Exp Ressed Doubts About The Status Of The Company The Assessing Of Ficer Observed That Buying Parts From Its Parent Entity For Whi Ch No Markup Is Charged And Payment Is Made At Cost Has Resu Lted Into Negative Net Worth Of Rs 282 56 Millions And Had Also Shown Carried Forward Loss Of Rs 40 12 Crores The Assess Ing Officer Perused Certain Sample Copies Of Contracts Entered By The Assessee With Various Parties And Noted That The Order Is For Ma Intenance Of Sgi Work Station And Servers Thus Assessee Is Only Performing Necessarily Functions To Promote Sales Of Its Ae In Ind Ia And Hence Assessee Is Functioning Like An Agent Of Sgi Usa Not Only For Its Business But Also To Support Sales For The Pare Nt Entity And Therefore Such An Expenditure Cannot Be Allowed U S 3 7 1 However He Proceeded To Make An Adhoc Disallowance Of 50 Of Personnel Expenses And Other Expenses And Worked Out The Disallowance At Rs 10 54 76 381 On The Ground That Same Can Be Attributed To The Expenditure Incurred For Ae 13 Before The Ld Cit A Assessee Had Submi Tted That It Has Never Been The Case Of The Revenue That Assessee Is Ec Onomically Dependent On Sgi Usa Or It Constitutes Agency Pe Perm Anent Establishment For Us Entity Out Of The Total Revenue Onl Y Small Portion Of 16 80 Comprises Of Transaction With Ae An D In Support Various Figures Of Revenue Stream Was Given Which Has Been Incorporated At Pages 2 And 3 Of The Appellate Or Der It Was Further Pointed Out That The Contracts Entered With The Cus Tomers In India Are On Principal To Principal Basis The As Sessee Is Undertaking Purchase Sales And Rendering Services Fo R More Than I T As No 2935 2937 Del 2013 12 Two Decades And Only 3 8 Of The Total Expenditure Is Incurred On Account Of Payment For Ae This Was Demonstrated In The Fo Llowing Manner Expenditure On Account Of Sgi Inc As Detailed In T He Transfer Pricing Documentation Table 3 Import Of Spares For Trading Rs 1 785 685 Import Of Finished Goods Rs 2 068 052 Reimbursement Of Repair Rs 4 793 703 Import Of Spares For Services Rs 815 279 Total On Account Of Sgi Inc Rs 9 462 719 12 1 The Assessee Had Also Filed The Copy Of The Trans Fer Pricing Documentation To Show That The Various Transactions Underta Ken By The Assessee With Its Ae Meets The Arms Length Requir Ement In The Past Also The Losses Have Been Examined In The Scru Tiny Proceedings By The Department And In All The Years Tra Nsfer Pricing Analysis Has Been Undertaken By The Assessee Which Ha S Been Accepted The Assessees Detailed Submission In This Regard Has Been Incorporated And Dealt With The Ld Cit A From Pa Ges 2 To 5 Of The Appellate Order Also From Pages 10 To 22 In The Exhaustive Written Submission The Assessee Has Also Given Point Wi Se Rebuttable Of Assessing Officers Observation 13 Ld Cit A Has Deleted The Said Addition After Observing By Holding As Under The Ao Has Made A Very Sweeping Addition On The Ba Sis Of Statements Which Are Not Supported By Any Facts Of Figures The Ao Has No Where Stated That The Expenses Were Not L Egitimately Incurred The Ao Has Also Not Stated That They Were Not Genuine The Ao Did Not Ask For A Break Up Of Expenses To De Termine Which Expenses Were Relating To The Overseas Entity More Over The Amount Of 16 00 73 871 Includes 12 41 11 179 On Accoun T Of The Foreign Exchange Fluctuation Loss Which Was Added Back Agai N I T As No 2935 2937 Del 2013 13 As Has Been Stated By The Ao The Appellant Is A Res Eller Of Silicon Graphics Products And Undertakes Warranty A Nd Post Warranty Services And Provides Consultancy Services The Ao Should Have At Least Divided The Business Of The Ap Pellant Into What The Appellant Was Doing As An Agent For Its Parent Company And With It Was Doing Independently The Appellant Has Stated That As Far As The Foreign Entity Was Concerned There Were Two Aspects One The Parent C Ompany Was Making Sales Of Computers Directly To Clients In In Dia And The Appellant Was Providing Logistic Support Two The Indian Company Was Providing Maintenance Services To The Customers And For That Purpose Buying Spare Parts From The Foreign Entity The Total Revenue Earned From The Foreign Entity As Per The A Ppellant Was In The Range Of 18 The Ao Has Not Been Able To Specify Which Part Of E Xpenditure Incurred By The Appellant Would Be Incurred Wholly And Exclusively For The Business Of The Foreign Entity Before Me The Appellant Has Shown That The Expenditure Has Been Incurred In S Business What Would Be Relevant Is Whether The Foreign Entity Has Earned Revenue Because Of The Presence Of The Appellant In India The Expenses Corresponding To That Part Could Have Been Disallow Ed The Addition Of Rs 10 54 76 381 Is Therefore Deleted This G Round Of Appeal Is Ruled In Favour Of The Appellant 14 Before Us The Ld D R Strongly Relied Upon The Or Der Of The Assessing Officer And Submitted That Persistent Loss Cou Pled With The Fact That Assessee Has Been Making Reimbursement Of Cost Without Charging Any Markup Definitely Goes To Show Th At Ae Is Loading Some Of Its Charges For Its Own Activity In I Ndia On The Assessee And Therefore Assessing Officer Has Rightl Y Made The Disallowance On The Expenses Debited In The P L Accou Nt 15 The Learned Counsel On The Other Hand Reiterate D The Same Submission As Earlier Made Before The Ld Cit A And Submitted That Assessees Receipt From Its Transaction From Ae Only Constitutes 18 60 Of The Total Revenue And The Majo R Revenue Is From Independent Contract With Third Parties In India Out Of Total Income Of Rs 13 86 Crores Only 2 59 Cro Re Pertains To I T As No 2935 2937 Del 2013 14 The Transaction With Ae In The Form Of Marketing Support Fees And Technical Service Fees Similarly Only A Miniscule Expenses Of 3 8 Of Total Expenditure Is Incurred On Account Of Transac Tion Undertaken By The Assessee With Its Ae And In The Net Res Ult The Revenue Derived From The Assessee Forms The Transactio N Undertaken With Its Ae I E Rs 2 59 Crore Is Much H Igher Than The Expenditure Incurred On Account Of Transaction With Th E Assessing Officer Which Is Only Rs 94 62 719 Apart From Tha T All These Details Of Income And Expenditure Have Been Fully Dis Closed In The Transfer Pricing Documentation Which Has Not Been Distur Bed At All And Has Been Accepted By The Assessing Officer Th Us Order Of The Ld Cit A Should Be Confirmed 16 We Have Heard The Rival Submission And Also Per Used The Relevant Finding Given In The Impugned Order As Well As Material Referred To Before Us From The Facts As Culled Out Fr Om The Impugned Order As Well As The Material On Record We Find That It Has Never Been The Case Of The Revenue That The Parent E Nterprise Has Any Kind Of Permanent Establishment In India In The Form Of The Assessee Company The Assessee Is No Doubt A Sub Sidiary Of Sgi Usa But It Has Never Been Reckoned As Pe In Ter Ms Of Article 5 Of India Usa All Its Transaction Have Been Reporte D In The Transfer Pricing Documentation From Year To Year And Tp Study Report Has Been Filed In Form 3 Ceb Before The Assessi Ng Officer To Justify The Arms Length Price Of All The International Transactions Undertaken By The Assessee With Its Ae In None Of The Years Including The Impugned Assessment Years It Has Been Br Ought On Record Before Us That Such Transfer Pricing Analysis Undertaken By The Assessee Has Ever Been Disturbed Or There Is Any Adjustment On Account Of Alp The Assessing Officers Case Is That I T As No 2935 2937 Del 2013 15 The Assessee Has Been Making Persistent Loss And Ther Efore It Can Be Presumed That The Cost Expenditure Of The Foreign Entit Y For Carrying Out Its Activity In India Is Directly Or Indi Rectly Is Loaded Or Borne By The Assessee And Therefore He Has Proceeded To Make Some Adhoc Disallowance Of 50 Of Administrative And Personnel Expenses Such A Premise For Adopting Adhocism Or Ma King The Addition In Such A Manner Is Definitely Divorced Fro M The Facts And Settled Judicial Norm Or Any Authority Of Law The As Sessee Had Duly Demonstrated Not Only Before The Assessing Officer And Also Before The Ld Cit A That Out Of The Total Revenue Earne D By The Assessee Of Rs 13 86 13 293 Only Amount Of Rs 2 59 09 985 Pertains To The Transaction With The Ae As Per The Follow Ing Details Marketing Support Fees Received From Sgi Inc Rs 24 261 335 Technical Service Fees Received From Sgi Inc Rs 1 648 650 Total Earnings From Sgi Inc Rs 25 909 985 15 1 Apart From That It Is Seen That The Total Expenditure On Account Of Ae As Dealt In Transfer Pricing Report Was A S Under Import Of Spares For Trading Rs 1 785 685 Import Of Finished Goods Rs 2 068 052 Reimbursement Of Repair Charge S Rs 4 793 703 Import Of Spares For Services Rs 815 279 Total On Account Of Sgi Inc Rs 9 462 719 15 2 If Such Expenditure Is To Be Seen Then It Needs To Be Analysed Via Vis The Business Undertaken And Revenue Generated From The Transaction With The Parent Entity It Is Seen Tha T The Total Expenditure Debited In The Account Is Merely Sum O F Rs 24 81 24 087 Which Is Miniscule I E 3 8 Of The Total I T As No 2935 2937 Del 2013 16 Expenditure Thus It Cannot Be Held That The Cost Of Expe Nditure On Account Of Ae Has Been Loaded By The Assessee So A S To Suggest That The Loss Incurred By The Assessee Is Attributable Due To Loading Of The Cost Of The Ae In Any Case Once The T Ransaction With The Ae Has Not Be Disturbed And The Alp Has Been Accepted Then Such An Inference Drawn By The Assessing Officer Cannot Be Held To Be Justified Learned Counsel Has Also Pointed Out Before Us That In All The Past Year The Assessees Case Has Been Made In Scrutiny Proceedings And In None Of The Years There Is Any Whisper That Losses Incurred By The Assessee Is An Ac Count Loading Of Cost By Foreign Entity On The Assessee In The Pas T Also Transfer Pricing Analysis Has Been Undertaken By The Assessee Has Been Accepted In Wake Of These Fact Also The Observation An D The Conclusion Of The Assessing Officer Is Definitely Il L Founded And Cannot Be Sustained And The Order Of The Ld Cit A In Deleting The Said Addition Is Confirmed 16 In The Result Both The Appeals Of The Revenue Are Dismissed Order Pronounced In The Open Court On 20 Th December 2017 Sd Sd Prashant Maharishi Amit Shukla Accountant Member Judicial Member Dated December 2017 Pkk Copy Forwarded To 1 Appellant 2 Respondent 3 Cit A 4 Cit 5 Dr Assistant Registrar