TMI Blog2021 (8) TMI 911X X X X Extracts X X X X X X X X Extracts X X X X ..... s have been charged in August 2005. He observed that without invoices and charging of sales tax, sale could have not been affected. The assessee had not become the owner of the software wholly or partly before 31.03.2005 hence, on account of ownership claim of the assessee is failed. We are in agreement with the view expressed by the Assessing Officer in our considered view merely downloading of software and providing key to use by the vendor would not ipso facto entitle the assessee for claiming depreciation. Section 32 of the Act provides depreciation on the eligible assets owned wholly or partly by the assessee and used for the business or profession. Hence, the law is clear. There is no ambiguity under the law. Without proper sale, the assessee could not have owned wholly and partly the assets on which depreciation have been claimed. We, therefore, set aside the finding of Ld.CIT(A) on this issue and restore the finding of the Assessing Officer. Working capital adjustment while benchmarking the international transaction of provision of software services - HELD THAT:- In view of the direction given by Ld.CIT(A), we hereby direct the TPO to allow working capital adjustment t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, add or forego any ground of appeal at any time before or during the hearing of this appeal. 3. The facts giving rise to the present appeal are that in this case return declaring an income of ₹ 15,69,60,396/- was filed on 29.10.2005. Subsequently, the case was selected for scrutiny and the assessment u/s 143(3) of the Income Tax Act, 1961 ( the Act ) was framed vide order dated 01.12.2008. The Assessing Officer while framing the assessment observed that during the year under consideration, the assesse had undertaken international transactions with its Associate Enterprises ( AEs ) of ₹ 225 crores. Therefore, a reference was made to the Transfer Pricing Officer ( TPO ) u/s 92CA of the Act for determination of Arm's Length Price ( ALP ) for such transaction. The TPO therefore, passed a detailed order dated 31.10.2008 u/s 92CA(3) of the Act, thereby, he found that the international transactions of the assessee with its AE were not at ALP. The TPO worked out the difference of ₹ 23,64,79,338/-. The assessee filed objections against the findings of the TPO. Rejecting the objections, the Assessing Officer made addition of ₹ 23,64,79,338/- on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntions that the comparables selected by the TPO are correctly selected and are in accordance with settled principles of law. 8. On the contrary, Ld. Counsel for the assessee opposed the submissions of Ld. CIT DR and submitted the Ld.CIT(A) has rightly excluded the comparables. In respect of Thirdware Solutions Ltd., Ld. Counsel for the assessee submitted that the company owned software products and earned income from sale of licenses and subscription. He contended that as per Schedule 14 to the Audited financial statements, it was stated that the company had purchased software licenses amounting to ₹ 2.11 crores. In annual report of the company, it was further stated that the company was engaged in trading and development of software. In view of the aforesaid, it was submitted that since this company was engaged in trading of software and earned income from licensing of software, the company could not be regarded as an appropriate comparable for benchmarking the international transaction of provision of software services undertaken by the assessee. He further submitted that the company has also invested in R D activities related to software engineering and technologies. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is aggrieved by the exclusion of following comparables by the Ld.CIT(A):- [1]. Exensys Software Solutions Ltd.; [2]. Thirdware Solutions Ltd.; [3] Visualsoft Technologies (Seg.); and [4] Sankhya Infotech Ltd. By excluding these comparables, Ld.CIT(A) placed reliance upon the judgement of the Hon ble Delhi High Court and the decision of Tribunal in the case of Colt Technology Services India Pvt.Ltd. (ITA No.609/Del/2011). We find that the Ld.CIT(A) after considering the material placed on records and has given finding on facts in respect of the functional comparability of the comparables selected by the TPO. The Revenue has failed to effectively rebut the finding of Ld.CIT(A). Moreover, this issue has already been examined in the case of Colt Technology Services India Pvt.Ltd.(supra) by the Tribunal as well as Hon ble Jurisdictional High Court. Therefore, we do not see any reason to interfere in the findings of Ld.CIT(A). Thus, order of Ld.CIT(A) is hereby affirmed. The Ground of appeal No.1 raised by the Revenue is dismissed. 10. Now coming to Ground No.2 raised by the Revenue in this appeal, is against the allowing the claim of depreciation on softw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of receipt of PO, which was duly acknowledged by HP India on 22.07.2004. He submitted that the license keys for secured products were provided to the assessee on 17.08.2004. The assessee activated the secured software downloaded from MVLS web site through the license key provided on 17.08.2004. Therefore, the assessee had acquired and put to use the software much before 31.03.2005. He contended that the assessee downloaded the software in August 2004 i.e. delivery of goods was taken prior to the issue of invoice and the same was put to use by the assessee in the relevant previous year. Therefore, it is contended that Ld.CIT(A) has rightly deleted the addition. 13. We have heard the rival contentions and perused the material available on record. We find that Ld.CIT(A) has deleted the addition by observing as under:- 4.2.5. I have given careful consideration to the submissions of the appellant and order of Assessing Officer. In this case, the Appellant downloaded the software purchased from HP India in August 2004. However, the invoices in respect of such software were received in the subsequent year from HP India. The claim of depreciation on such software was denied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the purchase order and Invoices raised by HP India was also submitted. From the perusal of the details and documents submitted by the Appellant, it is clear that the Appellant has indeed purchased the software from HP India and has made payment for the same. The real issue in this case is that whether the Appellant has actually purchased and used the software in the FY 2004-05 and thereby is eligible for claiming the depreciation thereon or not. The AO has denied such claim primarily due to the significant delay in raising of invoice by HP India and payment made by the Appellant which have been made in subsequent year. HP India has acknowledged the PO raised by the Appellant vide its email dated 22 July 2004. Further, HP India has provided the licence key to use software vide email dated 17 August 2004. It has also been mentioned that the Appellant that can download the software from the web portal of Microsoft and it can be activated by entering the license key mentioned in the email. These documents substantiates that the Appellant has actually purchased the software in August 2004. It is a usual practice that software are downloaded from online portal and then are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondent in the Transfer Pricing Report. 2. That the CIT(A) have erred in law and on facts, in upholding the action of the TPO in not allowing the risk adjustment on account of differences in the risk profile of the Respondent vis-a-vis the comparable companies. 3. That the Ld. Assessing Officer/ Ld. Transfer Pricing Officer have erred in law and on facts, in not providing working capital adjustment to the Respondent though the same was directed by the CIT(A). 4. That the Ld. CIT(A) and the Ld. Assessing Officer have erred in law and on facts, in treating the liabilities written back in relation to acquisition of fixed assets amounting to INR 1,587,816 as revenue in nature. 4.1. That the Ld.CIT(A) and the Ld. Assessing Officer have erred in law and on facts by holding the liabilities written back in relation to acquisition of fixed assets as chargeable to tax under section 41(1) of the Act. 16. At the outset, Ld. Counsel for the assessee submitted that he does not wish to press Ground No.2. Hence, Ground No.2 raised by the assessee in the cross-objection is dismissed, as not pressed. 17. Ground No. 1 raised by the assessee is related t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llow working capital adjustment while computing the operating margins of the comparable companies. The assessee has also filed a chart demonstrating the operating margins of the comparable companies after allowing adjustment for working capital. The contents of the chart are reproduced for ready-reference:- Sl.No. Name of the Company Comparables As per TPO Comparables As per CIT(A) After excluding Bodhtree Consulting 1. Bodhtree Consulting Ltd. 22.34% 22.34% Excluded 2. Akshay Software Technologies Limited 6.08% 6.08% 6.08% 3. Lanco Global Systems Limited 8.81% 8.81% 8.81% 4. Sasken Network Systems Limited 15.26% 15.26% 15.26% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectively, working capital adjustment should be allowed to the appellant. Hence, assessing officer is directed to grant working capital adjustment to appellant while giving effect to this order. 23. Ld.CIT DR could not rebut the contentions of the assessee. Therefore, in view of the direction given by Ld.CIT(A), we hereby direct the TPO to allow working capital adjustment to the assessee. Ground No.3 raised by the assessee in this cross-objections is thus, allowed. 24. Ground Nos.4 4.1 raised by the assessee in this cross-objection is against sustaining the addition of ₹ 15,87,816/- on account of liabilities returned back in relation to acquisition of fixed assets. 25. Ld. Counsel for the assessee submitted that the assessee had given a chart relevant to previous year regarding liability, written back a sum of ₹ 15,87,816/- being the liability in respect of purchase of fixed assets which was capitalized in the previous year relevant to Assessment Year 2003-04. 26. Ld. Counsel for the assessee reiterated the submissions as made in the written submissions. Ld. Counsel for the assessee submitted that the assessee during the relevant previous year had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed these submissions and supported the order of Ld.CIT(A). 30. We have heard the rival contentions and perused the material available on record. Ld.CIT(A) has decided the issue in para 5.5. The same is reproduced hereunder for ready-reference:- 5.5. I have carefully considered the submissions of the appellant and the assessment order of AO. It is noted that write-back of amounts due by the Appellant would be taxable only if it represents an expense, loss or trading liability, for which a deduction has been claimed. Section 41 (1) states that when an allowance deduction has been made in assessment for any year in respect of loss, expenditure, or trading liability incurred by the assessee and subsequently during any previous year the 1st mentioned person has obtained whether in cash or in any other manner whatsoever any amount in respect of such laws on expenditure or some benefit in respect of such trading liability by way of renovation or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business and profession and accordingly chargeable to income tax as the income of that previous ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he concept of block of assets stood introduced w.e.f. 1.4.1988, Section 41(2) stood deleted. However, even after 1.4.1988, the proviso to Section 32(1)(ii) continued till 1.4.1996 when by the Finance (No. 2) Act, 1995 the bottles and crates even below ₹ 5,000/- came within the block of assets as defined under Section 2(11) of the 1961 Act. As stated, this judgment is confined to depreciable assets costing less than ₹ 5,000/- which did not enter the block of assets during the assessment years in question (when Section 41(2) stood deleted). 32. Further, Co-ordinate Bench of this Tribunal in the case of JSW Steel Ltd. vs ACIT [2017] 82 taxmann.com 210 (Mumbai-Trib.) in para 12 of the decision held as under:- 12. Before we dwell upon the controversy involved, it needs to be first determined, whether the amount of waiver of loan is taxable under the normal provisions of the Income Tax Act, 1961 or not. It is axiomatic that under the Income Tax Act only those receipts which are in the nature of income can alone be subject to tax and such a nature of income should fall within the charging section as provided under the Act. All the receipts by an assessee woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly chargeable to income- tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; From the plain reading of above section it is quite ostensible that before this section can be invoked it is sine-qua-non that assessee should establish that first of all an allowance or deduction has been granted during the course of assessment for any year in respect of, (i) loss; (ii) expenditure; or (iii)trading liability, which is incurred by the assessee; and subsequently during any previous year the assessee obtains, whether in cash or in any other manner, whatsoever; (i) any amount in respect of such loss or expenditure, or (ii) some benefit in respect of such trading liability by way of remission or cessation of such liability. Thus, a remission or cessation of liability which can be deemed to be as an income must be a trading liability for which an allowance or deduction has been made in the assessment for an earlier year. A Companies liability on account of the principal amount of loan borrowed by it on a capital account, i.e., for acquisition of a capit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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