No Transfer Pricing Adjustment u/s 92CA(3) of Reimbursement of Expenses incurred by Assessee on behalf of AE’s: ITAT [Read Order]

Transfer Pricing Adjustment - Expenses - Assessee - AE - ITAT - taxscan

The Mumbai Income Tax Appellate Tribunal has held that no transfer pricing adjustment u/s 92CA(3) of reimbursement of expenses incurred by assessee on behalf of Associated Enterprices.

The appellant, Capgemini India Pvt. Ltd. is a company being subsidiary of CapGemini US LLC, USA engaged in the business of providing information and technology services. The assessee has entered into a Master Service Agreement with 71 Associated Enterprises. According to that agreement, the assessee was to provide information and technology services to the other 71 group entities and assessee operates as a risk free service provider of IT services to all those Associated Enterprises. The assesse has entered into several international transactions; reference was made to the Transfer Pricing Officer (TPO) for determination of arm’s length price of those transactions.

The TPO accepted the arm’s length price of all other transactions except Reimbursement of expenses incurred by various CapGemini Entities on behalf of assesse amounting to ₹170,82,85,067/. Accordingly, he proposed an adjustment of ₹20,49,93,848/- being 12% on the total cost of ₹170,82,85,067/- as transfer pricing adjustment under section 92CA(3) of the Act.

Mr. M M Golvala, counsel for the assessee submitted that the reimbursement of expenditure are of the nature of travel expenses, accommodation expenses, visa expenses, communication expenses, meal expenses and travel related, insurance expenses which are incurred by the assessee only on behalf of its associated enterprises and not on its own account. Therefore, these expenses are reimbursed by Associated Enterprises on cost-to-cost basis. However, these expenses are not on account of the assessee they are not expenses of the assessee and hence, they did not enter ‘cost base’ of the assessee for charging software development fees to associated enterprises. Therefore, no markup is required to be charged on these expenses.

The counsel for the assessee referred to transfer pricing orders in case of the assessee for earlier years and submitted that even on the Principle of consistency the adjustment is unwarranted.

The Tribunal observed that the transfer-pricing officer has no disputed of the comparable selected by the assessee. The set of comparable selected by the assessee for computation of the arm’s-length price deserves to be accepted as it has become final for the AY. Tribunal further observed that the computation of the margin considering the reimbursement as cost base is 19.45%, which is also accepted by the learned transfer pricing officer.

The Coram of Mr. Vikas Awasthy, JM and Mr. Prashant Maharishi, AM has held that “we do not find any reason to sustain addition on account of adjustment of markup on pass through cost claimed by the assessee. Accordingly ground number 3 of the appeal of the assessee is allowed which deletes the transfer pricing adjustment of ₹ 204,993,848 made. In view of this, ground number 1, 2, 4-5 of the appeal are also treated as allowed”.

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