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2016 (10) TMI 984 - AT - Income TaxTransfer pricing adjustment - revenue submitted that DRP has erred in directing the TPO to consider both the BPO and ERP segment relating to the comparable M/s.Jeevan Scientific Technology Ltd., for the purpose of margin computation, ignoring the fact that the ERP segment is totally different from the BPO segment and also without stating reasons for the same - Held that:- Nature of work carried on by M/s.Jeevan Scientific Technology Ltd. is IT Enabled Services, though it was called by different name. The nature of service performed by M/s.Jeevan Scientific Technology Ltd. is IT Enabled Services and when assessee itself included ERP in IT segment, TPO cannot be re-characterised without making any enquiry u/s.133(6) of the Act. In our opinion, the direction given by the DRP that ERP is nothing but ITES and to include the ERP in ITES segment so as to compute the profit margins is justified. The Direction of the DRP is upheld. TDS u/s 195 - non deduction of tds on software expenses representing reimbursement of software cost to its parent company - whether mere reimbursement of expenses on cost to cost basis without any mark-up does not attract TDS u/s.195? - Held that:- As decied inAsst. Director of Income-tax (International Taxation) Versus M/s Bartronics India Ltd. [2014 (4) TMI 569 - ITAT HYDERABAD] the assessee has acquired a readymade off - the shelf computer programme to be used in their business and no right was granted to the assessee to utilize the copy right of the programme and, therefore, consideration cannot be treated as royalty. As held by the CIT(A), the payments made by the assessee company cannot be held as ‘royalties’ coming into the ambit of Article 12 of DTAA or ‘fee for technical services’ u/s 9(1 )(vii) of the IT Act and accordingly no tax need to be deducted u/s 195 of the IT Act - Decided in favour of assessee Provision for bad and doubtful debts - treated as a non-operating expenses in computation of margins of comparables as confirmed by DRP - Held that:- In our opinion, if the provision for doubtful debts is the current operating expenses associated with the losses from normal credit sales, it will be treated as operating expenses and usually as a part of selling, general and administrative expenses. If the expense is associated with the extending credit outside of a company’s main selling activities, the loss will be non-operating expenses. With this observation, we remit the issue to the file of AO for fresh consideration after giving opportunity of being heard to the assessee.
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