2022 (2) TMI 1354 - AT - Income Tax

TP Adjustment - characterisation carried out by the TPO of the assessee’s business - As submitted TPO characterised assessee differently in both the years as for A.Y. 2011-12 accepted the activity of assessee to be a manufacturer of software products, however, characterised the business of assessee as software development service provider - assessee is a manufacturer of software products, it owns and develop IP of the software product by the name CRM software - HELD THAT:- Admittedly, for both the years under consideration, assessee has been noted to be manufacturer of software product. As admitted assessee owns the development of IP of software product being CRM software. Assessee entered into agreement with its AE for being an exclusive distributor for its software product in North America, for which the AE shall pay to assessee a licence fee equal to 30% of gross revenue. This receipt by assessee has been shown as royalty income by assessee. Apart from this, the assessee sells this software directly to third party customers in Asia-pacific region. It is noted that assessee also provides software support services for the CRM software product sold to both AE as well as non-AE.

The segments of income generated by assessee are income from licence fee, payment of licence fee, income from software services.

As for A.Y. 2010-11, assessee was identically characterised in the TP study which has not been disturbed by the transfer pricing officer therein. Subsequently, assessee has been characterised in different ways in the subsequent assessment years which needs to be verified at the end of Ld.TPO. In the interest of justice and to remain consistent in the approach of characterisation of assessee’s business module, we remand the transfer pricing issues to the Ld.AO/TPO for de novo verification.

Disallowance of provision for audit fee - HELD THAT:- It is a claim of assessee that assessee was disallowed the provision towards audit fee in A.Y. 2010-11 and the same has been reversed in A.Y. 2011-12 which deserves to be allowed and disallowance of the provisions would amount to double taxation.

Thus in the interest of justice, we direct the Ld.AO to verify the details filed by the assessee and to consider the claim in accordance with law.