2020 (4) TMI 300 - AT - Income Tax

Disallowance of depreciation on computer software u/s 40(a)(ia) - assessee had purchased software but had not deducted TDS u/s 194J of the Act on the payment for its purchase - HELD THAT:- As during the year assessee had purchased the software and it was capitalized and the purchase of software has not been claimed as an expenditure. It is also a fact that no TDS was deducted by the assessee on the purchase price paid by it.

We find that the Bangalore Tribunal in the case of Kawasaki Microelectronics Inc. [2015 (9) TMI 9 - ITAT BANGALORE] has held that the question of disallowance of expenses u/s 40(a)(ia) of the Act arises only when an expenditure is claimed by the assessee and on which the tax at source as per the provisions of Chapter XVII-B of the Act has not been deducted. It held that when assessee has not claimed payment as an expenditure, then the question of disallowance u/s 40(a)(ia) does not arise - when the assessee has once capitalized the payment and had not deducted TDS on such payments, Sec.40(a)(ia) of the Act cannot be invoked for disallowance of depreciation. Before us, Revenue has not pointed out any contrary binding decision in its support nor has placed any material to demonstrate that the aforesaid decision of Bangalore ITAT has been set aside / over ruled / stayed by higher judicial authorities. We are therefore of the view that the AO had erred in disallowing the claim of depreciation by invoking the provisions of Sec.40(a)(ia) of the Act. We therefore direct the AO to grant deduction of depreciation. Thus, the ground of the assessee is allowed.

Denial of deduction u/s 10A with respect to Unit No.I, Bangalore - AO denied the claim of deduction as the claim of deduction was not made in the return of income - HELD THAT:- The fact that the claim and detail of working of deduction of 10A has been made in the computation of income is evident from the computation filed by the assessee in the Paper Book. In such a situation, the claim of the assessee that the assessee had through oversight missed to claim the deduction cannot be brushed aside without there being any material to demonstrate to the contrary. We also find that the Hon’ble Bombay High Court in the case of Pruthvi Brokers [2012 (7) TMI 158 - BOMBAY HIGH COURT] has held that the jurisdiction of the appellate authorities to entertain the claim which has not been made before the AO but before the appellate authorities has not been rejected by the Hon’ble Apex Court in the case of Goetze India Pvt. Ltd. [2006 (3) TMI 75 - SUPREME COURT] - AO was not justified in denying the claim of deduction u/s 10A of the Act with respect to Unit No.1 of Bangalore. We therefore direct the AO to grant deduction subject to the assessee complying with other conditions of deduction. Thus, the ground No.2 of the assessee is allowed.

TP Adjustment - international transactions with it’s Associated Enterprises (AEs) - comparable selection - HELD THAT:- Infosys Ltd. - since the turnover of the assessee was ₹ 342.21 crore, it would fall in the category of a “medium” seized firm as per Dun & Brad Street categorization compared to Infosys Ltd., which would fall in large company with turnover greater than ₹ 2000 crore. It therefore directed its exclusion.

Functional dissmilaity - ICRA Techno Analytics Ltd., and Infosys Ltd., are not comparables and Akshay Software Technologies to be the comparable company with the assessee.

Risk adjustment - granting of percentage of risk adjustment by DRP - TPO denied the risk adjustments as he was of the view that assessee facing single customer risk which brings the assessee almost at par to the uncontrolled comparables and risk levels and therefore no adjustment was necessary - HELD THAT:- We find that DRP after considering various decisions cited in his order has directed the TPO to decide the percentage of risk adjustment. Before us, Revenue has not pointed any contrary binding decision in its support nor has pointed out any fallacy in the findings of DRP. Before us, Ld.A.R. has further submitted that if Infosys Ltd., is excluded from the list of comparables then the assessee would be within the arms length as compared to that of comparables and no adjustment to ALP would be required. Since we have hereinabove upheld the order of DRP in excluding the Infosys Ltd. from the list of comparables and for the reasons cited herein above, we are of the view that no interference to the order of DRP is called for.

Method of computation of deduction u/s 10A - HELD THAT:- We find that identical issue arose before the Tribunal in assessee’s own case for A.Y. 2009-10 wherein the Co-ordinate Bench of the Tribunal by following the decision of CIT Vs. HCL Technologies [2018 (5) TMI 357 - SUPREME COURT] held that to calculate deduction u/s 10A of the Act, the expenses should be reduced from the export turnover and total turnover also. Before us, Revenue has not pointed out any contrary binding decision in its support. We therefore find no reason to interfere with the order of DRP. Thus, the grounds of Revenue are dismissed.