Cost-to-Cost Reimbursements Without Markup Valid for Personnel & IT: ITAT dismisses Cross Appeals in absence of Evidence to Ad & Publicity Expenses [Read Order]
Summary: The ITAT validated cost-to-cost reimbursements for personnel and IT expenses to associated enterprises while upholding a transfer pricing adjustment for advertisement and publicity expenses due to lack of evidence.
The Income Tax Appellate Tribunal (ITAT) Delhi Bench has ruled that cost-to-cost reimbursements without markup for personnel and Information Technology (IT) expenses are valid at arm's length if supported by evidence, but upheld transfer pricing adjustments for advertisement and publicity expenses in the absence of documentary proof.
The Transfer Pricing Officer (TPO) had determined the Arm's LengthPrice (ALP) at Nil for various international transactions undertaken by Benetton India Pvt. Ltd., the assessee including reimbursements of personnel costs (₹1.35 Cr), IT expenses (₹67 Lakhs), advertisement and publicity expenses (₹45.33 Lakhs), and royalty payments (₹21.49 Cr).
The TPO alleged that the assessee failed to provide evidence of requisitioning services, need, benefits derived, or cost-benefit analysis. The CIT(A) deleted the adjustments for personnel, IT, and royalty expenses but upheld the addition for advertisement expenses, leading to cross-appeals before the Tribunal.
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Regarding personnel and IT reimbursements, the assessee submitted that these were incurred on its behalf for administrative convenience and reimbursed on a cost-to-cost basis without any markup. To substantiate the claims, the assessee provided visa copies, Form 16, secondment agreements for expatriates, and screenshots of the indispensable software used.
The two member Bench, comprising Challa Nagendra Prasad (Judicial Member) and M. Balaganesh (Accountant Member), observed that the CIT(A) had rightly deleted the adjustments for personnel and IT expenses, as the assessee provided necessary documents to verify the nature of the expenses on a cost-to-cost basis. The Tribunal noted that the issue was squarely covered by decisions in the assessee's own case for earlier years, which had also been upheld by the Delhi High Court.
Conversely, for the reimbursement of advertisement and publicity expenses, the assessee failed to place any concrete documentary evidence on record to substantiate the need and incurrence of these expenses, relying merely on case law. The Tribunal found no reason to interfere with the CIT(A)'s decision to uphold the TPO's Nil ALP determination for this transaction.
On the issue of royalty payments, the Bench upheld the CIT(A)'s deletion of the ₹21.49 Cr adjustment, noting that the issue was covered by the Tribunal's own order for AY 2011-12 and that the Revenue had not even challenged the issue for AY 2014-15, allowing it to attain finality.
The Bench dismissed both the Revenue's and the Assessee's appeals, thereby upholding the deletions for personnel, IT, and royalty expenses, while confirming the transfer pricing addition for advertisement and publicity expenses due to lack of evidence.
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