TMI Blog2020 (9) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 92(3) of the Act. - Decided partly in favour of assessee for statistical purposes. - ITA No. 160/Hyd/2017 - - - Dated:- 4-9-2020 - Smt. P. Madhavi Devi, Judicial Member And Shri D.S. Sunder Singh, Accountant Member For the Asessee : Sh. Ajeet Tolani For the Revenue : Smt. Anjala Sahu, D.R. ORDER PER SMT. P. MADHAVI DEVI, J.M. This is an appeal filed by the assessee for the A.Y. 2012-13 against the final assessment order dated 26.12.2016 passed u/s 143(3) r.w.s. 144C(13) of the I.T. Act, 1961. 2. Brief facts of the case are that the assessee company, engaged in the business of software development services unified data storage solutions, e-filed its original return of income for the A.Y. 2012-13 on 11.10.2012 admitting total income of ₹ 2,43,86,576/- under normal provisions after setting off of the brought forward losses of ₹ 1,26,86,715/- and ₹ 3,46,41,182/- under the provisions of Sec.115 JB of the I.T.Act, 1961. During the assessment proceedings u/s 143(3) of the |Act, the AO observed that the assessee has entered into international transactions with its associate enterprises during the year. Therefore, a reference wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nil the further direction to apply Sec.92(3) may not be given. 3.1. Ld.DR, on the other hand, supported the orders of the authorities below. 4. Having regard to rival contentions and material placed on record, we find that the issue under consideration was decided in favour of assessee by the Coordinate Bench of this Tribunal for previous A.Y. i.e. 2011-12 in ITA no.343/Hyd/2016 dated 11.04.2018. For the sake of ready reference, the relevant paras of the order are extracted hereunder. 6. Brief facts relating to this issue are that the assessee had entered into an agreement dated 1-4-2010 with its AE to distribute the product of the AE in India i.e. Simpana Software, a scalable unified data and information management software designed to replace several products. The products were supplied to the assessee free of cost and sales were made by the assessee to domestic parties. Therefore, the assessee did not treat the same as an international transaction. The assessee, vide letter dated 10.11.2014, had explained to the TPO that it has started the distribution activity with a separate team of 6 employees and the office is located in Mumbai and therefore, it has incurred los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at this financial year is the first year of the distribution activity of the assessee company and therefore, it had to take premises on rent and pay its employees for carrying on distribution work and thus has incurred the expenses resulting in a loss to the company and therefore, the assessee has not made any payment to the AE during the year and hence the provisions of section 92 do not apply. He placed reliance upon sub-section 3 of section 92 of the I.T. Act to argue that where no income is chargeable to tax or it goes to increase the loss, then the TP proceedings are not applicable. He has also drawn our attention to the T.P study of the assessee and particularly, para 7 thereof, wherein the assessee has reported that the goods are supplied to the assessee at Nil cost and therefore, the TP proceedings are not applicable to such distribution activity. Further, he also argued that the TPO u/s 92CA of the Act, can only compute/determine the ALP of the international transactions but cannot re-characterize the transaction according to his understanding. 9. The learned DR, however, supported the orders of the authorities below and submitted that the assessee was providing ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid by Distributor to Comm Vault US shall be exclusive of all Indian taxes . 11. In Form No.3CEB, the assessee has reported as under: The company has received software free of cost from its Associate Enterprise i.e. Commvalut Systems Inc, for distribution in the Indian Market. Since no purchase price was paid for the software received, as per the management, section 92(3) of the Act provides that transfer pricing provisions do not apply in a case where computation has the effect of reducing the income chargeable to tax. Hence, no analysis was undertaken for the software received free of cost . 12. Thus, the assessee has reported as to why no T.P. analysis was undertaken for the distribution activity and has relied upon the provisions of section 92(3) of the Act. For the sake of clarity and ready reference, the provisions of section 92(3) are reproduced hereunder: Section 92(3) (3) The provisions of this section shall not apply in a case where the computation of income under sub-section (1) [or sub-section (2A)] or the determination of the allowance for any expense or interest under [that sub-section], or the determination of any cost or expense allocated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he notional income to tax which is not justified. Therefore, the additional grounds of appeal are allowed. 15. As regards the applicability of the provisions of section 92(3), we find that the Hon'ble Delhi High Court has considered the issue at length in the case of Sony Ericson (cited Supra) and has held as under: 140. Sub-section (3), we do not think incorporates a bar or prohibits set offs or adjustments. It states that Section 92, which refers to computation of income from international transaction with reference to arm's length price under sub- section (2) or (2A), would not have the effect of reducing income chargeable to tax or increase the loss, as the as may be, computed by the assessee on the basis of entries in the books of account. Income chargeable to tax or loss as computed in the books is with reference to the previous year. The effect of sub- section is that the profit or loss declared, i.e. computed by the assessee on the basis of entries in the books of account shall not be enhanced or reduced because of transfer pricing adjustments under sub-section (2) or (2A) to Section 92. It states the obvious and apparent. In case the assessee has declare ..... X X X X Extracts X X X X X X X X Extracts X X X X
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