$ 3. * IN HIGH COURT OF DELHI AT NEW DELHI + ITA 266/2017 PRINCIPAL COMMISSIONER OF INCOME TAX, DELHI 2 Appellant Through: Mr.Dileep Shivpuri, Sr. Standing Counsel with Mr.Sanjay Kumar, Advocate. Versus CPA GLOBAL SERVICES PRIVATE LIMITED Respondent Through: Mr.G.C.Srivastava, Advocate with Mr. Daksh S.Bhardwaj, Mr. Anubhav Jain, Advocates CORAM: JUSTICE S.MURALIDHAR JUSTICE CHANDER SHEKHAR ORDER % 03.05.2017 Dr. S. Muralidhar, J.: 1. This is appeal by Revenue under Section 260A of Income Tax Act, 1961 (the Act) directed against order dated 4 th October, 2016 passed by Income Tax Appellate Tribunal (ITAT) in ITA No. 6814/Del/2015 for Assessment Year ( AY ) 2011-12. 2. question sought to be urged by Revenue concerns validity of direction issued by ITAT in impugned order to Transfer Pricing Officer ( TPO ) to exclude reimbursement cost while calculating operating cost for determining Arm s Length Price ( ALP ) of international transaction involving Assessee during AY in question. 3. Assessee is wholly-owned subsidiary of CPA Mauritius Ltd. which ITA 266/2017 Page 1 of 6 in turn is subsidiary of CPA Jersey. It offers comprehensive range of legal support services to its Associated Enterprises ( AEs ) as well as to independent third party customers. During AY in consideration, Assessee earned margin of 36.08% on cost. 4. Assessee had undertaken following international transactions during AY in consideration: (a) Provision of IT enabled services TNMM was applied and value of transaction was Rs. 120,569,328/-; (b) Reimbursement of expenses to AEs TNMM was used and value of transaction was Rs. 2,239,503/-; (c) Reimbursement of expenses from AEs CUP method was applied and value of transaction was Rs. 138,837/-. 5. During AY in consideration, Assessee received from its AEs Rs. 13,67,95,724/- as cost recharge on account of spare capacity . Assessee did not route this amount to its profit and loss account as it was only reimbursement. stand of TPO, on other hand, was that Assessee had not placed any evidence in support of claim that expenditure was towards maintenance of spare capacity at instance of AEs. Dispute Resolution Panel ( DRP ) held that ALP of receipts from AEs should include all costs and that Assessee did not give sufficient reasons for excluding certain costs for purposes of ITA 266/2017 Page 2 of 6 computing ALP. 6. application for rectification was moved by Assessee before DRP under Section 154 of Act but pending said application, draft assessment order was passed by AO consistent with decision of DRP. Assessee filed appeal before ITAT. controversy before ITAT concerned excluding from operating cost, cost that had been reimbursed by AE. 7. It was demonstrated before ITAT with reference to agreement between Assessee and AE that there were two kinds of reimbursements. One was towards cost of service which had mark- up and to that extent had been accounted for in working out ALP in transfer pricing study; other was reimbursement towards cost of infrastructure on which there was no mark-up. It is this reimbursement towards cost of infrastructure on which there was no mark-up that was sought to be excluded by Assessee from operating costs while working out ALP. 8. In impugned order in para 7, ITAT notes as under:- 7. We have heard rival submissions and perused relevant records. As far as issue of reimbursement is considered, it is submission of assessee that these amounts were adjusted without any mark up. Having perused relevant clauses of agreement, we do find that this contention of assessee is correct and there is no mark-up in reimbursements. Even though these transactions are considered as international transactions for purposes of transfer pricing, since there is no mark up on these reimbursements, it was assessee s ITA 266/2017 Page 3 of 6 submission that these transactions are to be excluded for working out operative margins. assessee relied on decision of coordinate Hyderabad B Bench of ITAT in HSBC Electronic Data Processing India Ltd. v. ACIT in ITA No.1624/Hyd./2010 for this proposition. After considering rival submissions and following principles laid down by ITAT Delhi Branch in DCIT Vs. Cheil Communications India P. Ltd. (2010 TII-60-ITAT-Del-TP) by Hyderabad Bench in Four Soft Limited Vs. DCIT in ITA No.1495/Hyd./2010 we are of opinion that reimbursement costs should be excluded as they do not involve any functions to be performed so as to consider it for profitability purposes. 9. Consequently, ITAT directed TPO to exclude aforementioned reimbursement costs while working out operating costs. 10. central plank of submission of Mr. Dileep Shivpuri, learned Senior Standing Counsel for Revenue is that ITAT overlooked binding precedent of this Court in Commissioner of Income Tax-I v. Cushman and Wakefield (India) (P.) Ltd. (2014) 367 ITR 730 (Del) where, in similar circumstances, this Court had agreed with Revenue and remanded matter to TPO for re-determination of transfer pricing adjustment. 11. This Court has examined carefully aforementioned decision in Commissioner of Income Tax-I v. Cushman and Wakefield (India) (P.) Ltd. (supra). Court finds, to begin with, that said case was instance of reimbursement by Indian entity i.e., Assessee of costs incurred by AE whereas situation in present case is converse. Secondly, and more importantly, in said case there was no categorisation ITA 266/2017 Page 4 of 6 of reimbursement costs as cost of infrastructure and cost of services on which there was mark-up. Ultimately, each case will have to turn on peculiar facts considering clauses of agreement and arrangement between Indian entity and its AE. There can be no parallels drawn where terms of agreement would by themselves be different. 12. In present case, as is evident from passage extracted hereinbefore from impugned order of ITAT, after examination of agreement ITAT came to definite factual conclusion as regards reimbursement of infrastructure costs of Assessee by AE without any mark up. Thus decision has turned purely on facts. 13. Mr. Shivpuri then contended that impugned order of ITAT was perverse. When asked to point out if there is any pleading in memorandum of appeal to above effect, Mr. Shivpuri referred to Ground-D in which there is general plea that impugned order of ITAT is perverse and bad in law as it failed to consider reasons provided for in orders of Ld. TPO which were upheld by Ld. DRP while deciding case. 14. ground of perversity ought not to be casually pleaded. It requires detailed study of entire record by Appellant. It would have to plead with specificity in memorandum of appeal in what manner there is perversity in factual finding by ITAT supported by relevant document. There is neither such plea nor any reference to any particular document that can support such plea. ITA 266/2017 Page 5 of 6 15. In present case, for instance, ITAT after examining agreement between Assessee and its AE has agreed with Assessee that reimbursement of infrastructure cost has no mark-up. Unless there is specific plea to effect that said factual finding is perverse, Court cannot, at instance of general plea of perversity, entertain such ground of appeal by Revenue. In other words, such plea must be made responsibly after studying entire record of case and averred with specificity in relation to facts of case. Also, it should be accompanied by reference to relevant document which formed part of record of case before ITAT. Revenue has done neither in present appeal. 16. Consequently, Court finds that no substantial question law arises from impugned order of ITAT. appeal is, accordingly, dismissed. S.MURALIDHAR, J CHANDER SHEKHAR, J MAY 03, 2017 anb ITA 266/2017 Page 6 of 6 Principal Commissioner of Income-tax, Delhi 2 v. CPA Global Services Private Limited