2018 (8) TMI 1845 - AT - Income Tax

TPA - MAM selection - comparable selection - HELD THAT - In assessee s own case for Assessment Years 2009-10 and 2010-11 2018 (4) TMI 688 - ITAT BANGALORE the matter was restored back to the file of CIT(A) for examining the correctness of ALP at the entity level by applying the TNMM as the most appropriate method by aggregating the transactions. In the present year the matter has come to the Tribunal against the assessment order because the assessee preferred to chose the DRP route and not CIT(A) route. Therefore by respectfully following this Tribunal order in assessee s own case for earlier years we set aside the assessment order on this issue and restore the matter back to the file of DRP for fresh decision with similar directions as were given by the Tribunal in earlier years as per Tribunal order reproduced above. Accordingly ground nos. 1 to 5 of assessee s appeal are allowed for statistical purposes. Nature of expenditure - software expenses - revenue or capital expenditure - HELD THAT - Issue regarding TP adjustment is going back to the file of DRP we feel it proper that this issue also should go back to the file of DRP for fresh decision because as per the DRP necessary evidence was not brought on record but the ld. AR of assessee submitted that the evidence were furnished before the authorities below but these were not considered. Be that as it may but in the interest of justice we set aside the assessment order on this issue also and restore it back to the file of DRP for fresh decision with the direction that the assessee should furnish the evidences in this regard before DRP and after considering the same the DRP should decide the issue afresh after providing reasonable opportunity of being heard to both sides. Addition u/s 36(1)(va) - HELD THAT - DRP of its directions held that assessee placed reliance on the judgment of EssaeTeraoka (P.) Ltd. Vs. DCIT 2014 (3) TMI 386 - KARNATAKA HIGH COURT and case of CIT Vs. Sabari enterprises 2007 (7) TMI 169 - KARNATAKA HIGH COURT approved by the Hon ble Apex Court in the case of CIT Vs. Alom Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT . We delete this disallowance by respectfully following these three judgements

Summary

Issues involved:
1. Transfer Pricing Adjustment on Management Fee
2. Classification of License Fees and Management Fees
3. Treatment of Software Expenses
4. Disallowance of Deduction for Provident Fund Contribution

Issue 1: Transfer Pricing Adjustment on Management Fee
The appeal challenged the assessment for Assessment Year 2012-13, focusing on the Transfer Pricing (TP) adjustment made by the Assessing Officer (AO) regarding the management fee. The grounds raised by the assessee contested the TP adjustment, arguing that the ALP of the management fee was wrongly considered as Nil. The appellant contended that the issue was previously addressed in the assessee's own case for earlier years, where the Tribunal ordered a fresh examination of the ALP at the entity level using the TNMM method. Following the precedent, the Tribunal set aside the assessment order and directed a fresh decision by the Dispute Resolution Panel (DRP) with similar instructions.

Issue 2: Classification of License Fees and Management Fees
The appellant disputed the classification of license fees and management fees as separate transactions not closely linked to the manufacture and export of drug formulations. The appellant argued that being a joint venture entity, it was not a captive manufacturer and had the flexibility to manufacture for third parties with AIHPL's approval. The appellant contended that the license fees were essential for procuring technical know-how and were recovered as part of the sales price. The Tribunal found in favor of the appellant, emphasizing the need for a comprehensive assessment of the ALP and directing a fresh decision by the DRP.

Issue 3: Treatment of Software Expenses
Regarding the treatment of software expenses, the appellant requested a fresh decision by the DRP, as the evidence supporting the revenue nature of the expenses was not considered. The Tribunal, in light of the pending TP adjustment issue going back to the DRP, decided to remand the software expenses matter to the DRP for a fresh decision after reviewing the evidence provided by the appellant.

Issue 4: Disallowance of Deduction for Provident Fund Contribution
The appellant challenged the disallowance of the deduction claimed under section 36(1)(va) with respect to employees' provident fund contributions. The appellant relied on judgments of the Hon'ble Karnataka High Court and the Hon'ble Apex Court, arguing that these judgments should prevail over a CBDT circular cited by the DRP. The Tribunal, following the binding judgments, allowed the appellant's claim and deleted the disallowance.

In conclusion, the Tribunal allowed the appeal for statistical purposes, setting aside the assessment order and directing a fresh decision by the DRP on the TP adjustment, software expenses, and provident fund contribution issues, in line with previous judgments and legal principles.