Pr. Commissioner Of Income Tax Delhi -2 v. Blue Scope Steel India Pvt. Ltd

© Signature Not Verified Signed By:RAM DATTSigning Date:15.10.2024 16:15Certify that the digital and physical file havebeen compared and the digital data is as perthe physical file and no page is missing. $~61&64 IN THE HIGH COURT OF DELHI AT NEW DELHI Date of Order: February 19, 2019 +ITA 170/2019, CM APPL. 7726-7727/2019 PR. COMMISSIONER OF INCOME TAX DELHI -2 Appellant versus BLUE SCOPE STEEL INDIA PVT. LTD. +ITA 173/2019, CM APPL. 7747-7748/2019 PR. COMMISSIONER OF INCOME TAX DELHI - 2 versus Respondent Appellant BLUE SCOPE STEEL INDIA PVT. LTD. Counsel for the appellant: Mr. Zoheb Hossain, Senior Standing Counsel Respondent Counsel for the respondent; None. CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHATHON'BLE MR. JUSTICE PRATEEK JALAN% S. RAVINDRA BHAT. J. lORALl For detailed order, the decision dated 19.02.2019 in ITA No. 169/2019 may be referred to. S. RAVINDRA BHAT, J FEBRUARY 19, 2019pkb ITA No. 170/2019 & 173/2019 PRATEEK JALAN, J Page 1 of 1 f c i- Iin^hE high court of DELHI AT NEW DELHI natp. of Order- Fphruarv 19. 2019 CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHATHON'BLE MR. JUSTICE PRATEEK JALAN ITA No.l 69/2019,170/2019 & 173/2019 Page 1 of 7 ORDER %S. RAVINDRA BHAT. J. (OR AT ) CM APPL. 7722-7723/2019 CM APPT.. 772^-7727/2019 ^ CM tAPPL. 7747-7748/2019 (condonafinn of delay) By these applications, the appellant seeks condonation of delayin filing/re-filing of the accompanying appeals. For the reasons stated in the applications, the same are allowedand the delay in filing/re-filing is condoned. Applications stands disposed of. ITA 169/2019. ITA 170/2019 & TTA 173/2019 1. The principal issue urged with respect to the assessment year2007-2008, 2008-2009 and 2009-2010, in these appeals under Section260A of the Income Tax Act (hereinafter the Act), by the Revenue is"-^whether the salaries paid to the assessee's Australian AE, weretowards reimbursement of expenses or they were unwarranted. 2. The brief facts are that the assessee renders business supportservices and is the subsidiary of an Australian company. Theassessee's inability to carry out the task assigned to it led to creationof a joint venture (JV company), which took over the part of theduties. A tripartite arrangement whereby the JV performed, some taskwhich the assessee could not discharge out of the functions, required ITA No. 169/2019, 170/2019 & 173/2019 of its AE and the balance which were performed by the assesseebecame the subject matter of ALP determination, and scrutiny by theTransfer Pricing Officer (IPG) under Section 92CA of the Act. TheTPO held that the salary expenses, incuiTed by the assessee wereunwarranted, premised upon the decision that the salaries were reallypaid to employees seconded to it by th(; Australian AE. The AOconfirmed the TPO's order; the assessee successfully appealed to theAppellate Commissioner [CIT(A)]. The GIT (X) reversed the findingof the AO. The Revenue's appeal was rejected by the ITAT. 3. The Revenue contends that the ITAT fell into error inoverlooking that the real beneficiary of the Australian entity'semployees was not the JV but the AE and that in effect thearrangement was secondment, resulting in expenditure that could notbe deducted. Learned counsel relied upon the finding of the TPO thatthe JV arrangement and the agreement entered into between theassessee and the third party company nowhere indicated that theemployees of the AE were necessary to discharge or carry out anytask or fimction. It was thus contended that the ITAT erroneouslyoverlooked the material circumstances. 4. On this specific aspect urged, i.e., the justification for theexpenditure, this cOurt finds that the CrT(A) examined the correctposition and noted that the methodology with respect to theComparable Uncontrolled Prices (CUP) method under Rule lOB. TheCIT(A) observed as follows: ITA No. 169/2019, 170/2019 & 173/2019 4. On this specific aspect urged, i.e., the justification for theexpenditure, this cOurt finds that the CrT(A) examined the correctposition and noted that the methodology with respect to theComparable Uncontrolled Prices (CUP) method under Rule lOB. TheCIT(A) observed as follows: ITA No. 169/2019, 170/2019 & 173/2019 "Apart from the above position, the same expatriateemployees were also involved in providing services to theAE as well as to joint venture company (JV). In otherwords, the income side of the appellant has twocomponents, namely, receipts from its AE and receiptsfrom the JV. The same set of employees are responsiblefor these two receipts. The salary of the employees werepaid by the AE. This was because the employees were onsecondment from the Australian AE. Their salaries werepaid in Australia. The appellant was reimbursing thesesalaries. The AO treated the arm's length price of thereimbursement of salary expenses as NIL. On the otherhand, the AO has accepted the income generated bythese' employees. This itself is a contradiction. Nowherein the assessment order, the AO has doubted the incomereceivedfrom rendering business support services by theappellant. In the same way, the receipt of income fromsupport services rendered to JV was also not disputed bythe AO. Once the AO the of income as accepted receipt genuine, the AD is duty bound to provide for thededuction on account of the expenses incurred towardsearning the same income. The appellant being a servicecompany, the main component of, the expenditure istowards employee cost. As narrated earlier, the employeecost consists of local expenditure and salary expenditurereimbursed to its AE. There is no rational to accept onlythe local expenditure and deny the expatriate salary paidby the AE and reimbursed by the appellant. 4.5. The AO used the CUP method to determine the ALPof the salary reimbursement as NIL. It is to be pointedout that the AO has not used any independentcomparable transactions to hold that such services wererendered by third parties in the market place as an arm'slength transaction without incurring any salary costs.Therefore, the action of the AO cannot be sustained. 4.6. The argument of the AO that by making the"arrangement" of keeping expatriate employees on the \ 7vV/J!h 'he project was sold toZwZjfc77\ "f fior" India andtHustrmtve mu7 , three """"'^ned different by the scenarios assessee. In wereanemmple orked out which was given to the AO during theztrzr Mlmtrtttive far Expat Salary A ITA No. 169/2019, 170/2019 & 173/2019 Profit/(Loss)(102)940(10)81028810Taxation290-2509250(Assumed @30.90%)Net(102)650(10)8101956(j^,profit/(Loss)after taxsummaryTax payment-290250259India ForeignExchange outgo- India6210062 . As can be seen, the assumptions of the TPO are wrongarid if the of the were salary expatriate employees paidby .TV, it would result into lower taxes in India and netforeign exchange outflow work have been higher. 4.7. I am also of the considered opinion that the TPOcannot-sit in judgment on the commercial decision takenthe in the There is noby appellant employing expatriates. evidence brought on record to show that the expatriateemployees did not work in India. The AE has alsocompensated for the' services received from theemployees on the roles of the appellant. There is no basisto conclude that the expenses incurred are a shamtransaction since the appellant has offered the incomefor taxation after such Thegenerated incurring expenses. legitimate question to be asked is whether in anuncontrolled transaction, the parties to the similartransaction behaved in the same way as the appellantdid? In the absence of any comparable uncontrolledtransaction (CUP) 'price of a similar transaction,treating there imbursernents made by the assessee asunnecessary and the value of the transaction as NIL isIt is not to the TPO to whereunjustifiable. open suggest i i from the employees' salaries should have beenrecovered by the appellant. Therefore, I hold that thedecision of the TPO cannot be sustained. Therefore, theAO is directed to delete the addition made in this regard. 5. This court is of the opinion that the view of the CIT (A) whichalso commanded itself to the ITAT was in the circumstances of thecase justified. The CIT(A) noted correctly that the revenue nowherecould establish that its employee did not work in India and the AEhas also compensated for the services of the: employee on the roll ofthe assessee. The decision of the JV and the assessee clearlyconstituted a business or managerial decision which the revenue couldnot have, in the manner it did, interfered with holding that theemployees of the AE were subjected to secondment, which resulted innon deductable expenditure. 6. With the above reasons, we find that ].io substantial question oflaw arises; therefore, the appeals filed by the appellant are dismissed. S. RAVINDRA BHAT, J PRATEEK JALAN, J FEBRUARY 19,2019 pkb ITA No. 169/2019, 170/2019 & 173/2019 Page 7 of 7