{"id":3438,"date":"2011-07-08T16:25:11","date_gmt":"2011-07-08T10:55:11","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=3438"},"modified":"2011-07-08T16:25:11","modified_gmt":"2011-07-08T10:55:11","slug":"patni-computer-systems-ltd-vs-dcit-itat-pune-transfer-pricing-disallowance-of-costs-on-ground-that-ae-also-benefited-not-permissible","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/patni-computer-systems-ltd-vs-dcit-itat-pune-transfer-pricing-disallowance-of-costs-on-ground-that-ae-also-benefited-not-permissible\/","title":{"rendered":"Patni Computer Systems Ltd vs. DCIT (ITAT Pune)"},"content":{"rendered":"\n\n
Click here to download the judgement (patni_transfer_pricing_cost_sharing.pdf) <\/strong> <\/a><\/p><\/td>\n<\/tr>\n<\/table>\n


\nTransfer Pricing: Disallowance of costs on ground that AE also benefited not permissible
\n<\/strong><\/p>\n

The Tribunal had to consider two Transfer Pricing issues (i) whether notional interest relatable to the extended credit<\/em> period allowed to the Associated Enterprises (AEs) to pay the dues can be assessed and (ii) Whether, in the absence of any agreement between the assessee and the AEs to share costs, the consultancy expenses paid to McKinsey & Co can be disallowed on the ground that it benefited the AEs as well<\/em>. HELD by the Tribunal:<\/p>\n

(i) A continuing debit balance per se, in the account of the associated enterprises, does not amount to an international transaction u\/s 92B in respect of which ALP adjustments can be made<\/strong>. It is a result of international transaction. The factum of payment has to be considered vis-\u00e0-vis terms of payment set out in the transaction arrangement, and not in isolation with the commercial terms on which transaction in respect of which payment is delayed. (Nimbus Communications<\/a><\/strong> followed);<\/p>\n

(ii) U\/s 92B(1), the apportionment of cost is permissible only where there exists a \u201cmutual agreement or arrangement<\/em>\u201d between two or more Associated Enterprises for apportionment of cost incurred in connection with a benefit, service or facility provided to any one or more of such Enterprises<\/strong>. In the absence of such an agreement to share the costs incurred on the McKinsey study, the costs cannot be apportioned. The bare allegation that the AE\u2019s had received \u201cspecific and identifiable benefits\u201d is not sufficient to justify apportionment<\/strong>. Further, even assuming that the AEs were liable to compensate the assessee, the TPO ought to have determined the ALP of such \u201cinternational transaction\u201d after taking into consideration all the rights obtained and obligations incurred by the two entities, including the advantages obtained by the AEs. He ought to have identified comparables and recorded a finding that the consultancy charges were higher than what a similarly situated and comparable independent domestic entity would have incurred. In the absence of such exercise, the adjustment cannot be upheld. <\/p>\n","protected":false},"excerpt":{"rendered":"

U\/s 92B(1), the apportionment of cost is permissible only where there exists a \u201cmutual agreement or arrangement<\/em>\u201d between two or more Associated Enterprises for apportionment of cost incurred in connection with a benefit, service or facility provided to any one or more of such Enterprises<\/strong>. In the absence of such an agreement to share the costs incurred on the McKinsey study, the costs cannot be apportioned. The bare allegation that the AE\u2019s had received \u201cspecific and identifiable benefits\u201d is not sufficient to justify apportionment<\/strong>. Further, even assuming that the AEs were liable to compensate the assessee, the TPO ought to have determined the ALP of such \u201cinternational transaction\u201d after taking into consideration all the rights obtained and obligations incurred by the two entities, including the advantages obtained by the AEs. He ought to have identified comparables and recorded a finding that the consultancy charges were higher than what a similarly situated and comparable independent domestic entity would have incurred. In the absence of such exercise, the adjustment cannot be upheld<\/p>\n

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