The Income Tax Appellate Tribunal (ITAT) Mumbai bench while deleting additions made towards the allocation of head office expenses held that qualifying activities under Tonnage Tax Scheme (TTS) are outside provisions of Transfer Pricing (TP).
Assessee, Van Oord India Private Limited is a wholly owned subsidiary of Van Oord Dredging and Marine Contractors BV, a company registered in the Netherlands. The assessee over the years has become a main contractor directly entering into contracts with Government and port authorities in India.
The assessee also owns certain equipment which it uses for undertaking specified dredging activities. The assessee is registered as a Tonnage Tax Company under the Tonnage Tax Scheme (TTS) as provided under Chapter XXIIHG of the Act.
After filing the return of the income filed by the assessee case was selected for scrutiny under CASS and the statutory notices were duly served on the assessee.
Thereafter, a reference was made to the Transfer Pricing Officer (TPO) in order to determine the arm’s length price from the international transaction detailed in the audit report in form 3CEB.
The TPO, for the purpose of making the transfer pricing adjustment, has added a sum of Rs.10,60,78,531/- being 50% of the expenses allocated to the assessee for the cost incurred centrally at head office towards rendering various services.
TPO made the adjustment for the reason that the assessee failed to provide details services rendered, breakup of cost allocated etc., and therefore made the adhoc addition.
Aggrieved by the order assesee filed objections before the Dispute Resolution Panel (DRP). The DRP rejected the objections from the assessee and confirmed the TP adjustment. Against the order, the assessee filed an appeal before the tribunal.
On behalf of the assessee, Porus Kaka , counsel argued that the head office expenses are allocated based on the revenue generation from qualifying activity and other activities.
Further submitted that the qualifying activities under TTS are outside the provisions of TP and, therefore, the head office expenses incurred towards qualifying activity cannot be a subject matter of any adjustment.
Manoj Kumar, Counsel for Revenue supported the orders of the lower authorities.
After Reviewing the facts submitted and the circumstances, the two member bench of Padmavathy S (Accountant Member) and Vikas Awasthy (Judicial Member) directed the assessing officer/TPO to delete the adjustment made towards the qualifying activities under TTS only.
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