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Income Tax - Case Laws
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2022 (11) TMI 1342 - ITAT PUNE
Income taxable in India - Royalty receipts - receipts on account of I.T. support services and management services - HELD THAT:- As decided in assessee own case [2022 (6) TMI 1382 - ITAT PUNE] extant payment received by the assessee can neither be considered as royalty u/s 9(1)(vi) of the Act nor as fees for technical services and therefore, the same cannot be included in the total income of the assessee.
As in assessee’s own case, Pune Tribunal has given relief to the assessee on this very issue in A.Y. 2011-12 as well as in A.Y. 2017-18. The ld. CIT DR could not produce any materials/evidences on record to suggest any deviance from the facts situation. Therefore, following our order in assessee’s own case (supra) on the same parity of reasoning these grounds of the assessee are allowed.
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2022 (11) TMI 1341 - ITAT MUMBAI
TP Adjustment - recovery of expenses made by the Appellant from its AEs during the relevant previous year - HELD THAT:- Both, TPO and DRP have simply cited non-submission of third party invoices as the reason for making the transfer pricing adjustment treating the same at par with the reimbursement of out-of-pocket expenditure incurred despite the Appellant taking a position that deduction was never claimed in the return of income which fact has not been challenged/controverted by the Revenue during appellate proceedings before us.
The third party invoices submitted during the assessment proceedings were accepted. It was not the case of the Revenue that some mark-up was been charged by the Appellant while making recoveries from AEs. Accordingly, transfer pricing adjustment made by the Assessing Officer is deleted.
Reimbursement of Out-of-Pocket expenses - AO had vide Remand Report conveyed his consent for admission of additional evidence in the form of third-party invoices and requested the DRP to decide the issue on merits - HELD THAT:- Remand this issue back to DRP for fresh adjudication as per law after giving Appellant a reasonable opportunity of being heard. While doing so the DRP shall take into consideration the thirdparty-invoices already filed by the Appellant and the Remand Report, dated 21.10.2013, submitted by Assessing Officer in respect of the same as well as any further invoices/documents that may be filed by the Appellant before DRP to support the claim. Accordingly, addition on account of the transfer pricing adjustment is set aside.
Nature of expenditure - Disallowance of Software Expenses - Appellant appearing before us submitted that the aforesaid expenses were disallowed on the ground that the same were capital in nature and depreciation @ 60% was allowed in respect of the same - HELD THAT:- Ground No. 5 raised in the appeal is dismissed as not pressed. The Assessing Officer is directed to allow depreciation in respect of the aforesaid amount at the rate of 60% as per law.
TP adjustment - reimbursement of software maintenance expenses (connectivity charges) - HELD THAT:- On closure scrutiny we note that the amount of USD 5,440/- is the sum total of amount reflected in column with heading Supply and Installation –"Total Monthly Cost" and the column with heading 'Manage and Maintain (per Month)'. On perusal of "Tesla Scope Statement" it becomes clear that project is for obtaining Global IP VPN connection to help in connectivity between Chullora, Sydney, Australia and Mumbai, India. Thus, the connectivity expenses are separate from Software Maintenance Expenses - Further, as per the Project Closure Report and the monthly intra-group account statements, the same are being reimbursed at cost. TP addition is deleted. Ground No.3 is allowed.
Allowability of lease payment - addition u/s 37(1) - HELD THAT:- we note that in cash flow statement lease rent paid on finance lease has been shown under the head "cash flow from the financing activity" . Under Schedule 15 – "Operating and Administrative Expenses" forming part of financial statement for the previous year relevant to the Assessment Year 2009-10, rent is shown as INR 5,50,82,263/-, and warehouse and facility charges are shown at INR 3,45,86,682/-. Further, Schedule 17 – Notes to Accounts mentioned the maturity profile of finance lease obligations. Thus, it is not clear whether the payment of INR 1,00,59,111/- pertain to operating or finance lease obligations of the Appellant. Further, before the Assessing Officer as well as before the DRP the Appellant has maintained the position that the payments pertain to finance lease. In view of the aforesaid facts, we hold that the issue requires verification by the Assessing Officer.
Deduction as bad debt written off - HELD THAT:- In our view, the amount is in the nature of advance for purchases in respect of which goods were never received resulting in loss from business operations. Accordingly, the issue is remanded back to the file of AO to examine the allowability of deduction representing negative balance of creditors written off during the relevant previous year in terms of Section 37 of the Act after giving appellant an opportunity of being heard. Ground raised by the Appellant is allowed for statistical purposes.
Granting of tax credit - HELD THAT:- As the issue is remanded to the file of Assessing Officer with the directions to verify amount of tax credit available and grant the benefit of the same to the Appellant as per law. In case, on verification the Assessing Officer is of the view that credit is not available, the Appellant would be granted reasonable opportunity of being heard to justify its claim. Ground No. 10 is allowed for statistical purposes.
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2022 (11) TMI 1340 - ITAT BANGALORE
TP Adjustment - addition of corporate guarantee fees - TPO has made TP adjustment at 2% without considering any comparable unrelated transaction and on a notional basis - DRP directed the AO to adopt the rate at 0.92% as determined by the TPO in the first round of proceedings - HELD THAT:- We notice that this issue is covered by the orders of the Tribunal in Medrich Ltd [2021 (4) TMI 1321 - ITAT BANGALORE] in the case of Manipal Global Education Services (P.) Ltd [2019 (5) TMI 1942 - ITAT BANGALORE] in the case of Xchanging Solutions Ltd [2016 (10) TMI 1211 - ITAT BANGALORE] and in the case of ACIT v Tejas Networks Ltd [2022 (2) TMI 1326 - ITAT BANGALORE] wherein it was directed to AO/TPO to make TP adjustments in respect of corporate guarantee at 0.50% for the assessment years under consideration.
With respect to the balance on which the TP adjustment needs to be made, we see merit in the contention of the ld AR that the TPO himself has applied the rate on the closing balance of the outstanding guarantee in assessee’s own case for AY 2012-13 and we therefore direct the AO to apply the rate @ 0.50% on the closing balance the of the corporate guarantee as of 31.03.2011 for the purpose of TP adjustment. It is ordered accordingly.
Exclusion of royalty income while computing deduction under section 10A/10AA - We notice that the Hon’ble Karnataka High Court in assessee’s own case for the AY 2009-10 (2021 (11) TMI 1146 - KARNATAKA HIGH COURT] held that royalty income constitutes profits and gains of business and eligible for deduction under section 10A.
Thus we hold that the royalty income from licensing of software products should be considered as profits of business of eligible units for the purposes of providing deduction under section 10A and 10AA of the Act.
Exclusion of expenses incurred in foreign currency while computing deduction u/s 10A - HELD THAT:- Section 10A does not warrant exclusion of expenses incurred in foreign currency attributable to rendering of services in connection with development of computer software. Section 10AA specifically warrants exclusion of expenses incurred in foreign currency attributable to rendering of services in connection with computer software. Similar prescription is absent in section 10A.
The exclusion from ‘Export turnover’ under section 10A is of expenses incurred in foreign currency in providing technical services outside India. “Technical services” would mean making available specialized knowledge or information to a third person. The recipient of such knowledge or information is then enabled to apply and use such knowledge and information for the purpose of carrying out any work. Technical services would therefore mean and refer to the usage or deployment of specialized skills in rendering any services of a consultancy nature.
Whether the services rendered by the assessee in terms of software development is to be regarded as technical services? - AO while reducing the expenses incurred in foreign currency has done it for the SEZ units also. In view of the fact that the expenses incurred in foreign currency being already reduced, in our considered view reducing the expenses based on the breakup in notes to accounts would amount to double reduction and not warranted. It is further noticed that the AO has made the similar reduction from the total turnover also while computing the deduction u/s.10A and 10AA. We therefore direct the AO to delete the deduction of Rs.7329.94 lakhs made in the export turnover and total turnover. It is ordered accordingly.
Addition of withholding taxes and income tax - HELD THAT:- From the perusal of records it is noticed that the taxable income is computed by the assessee by making additions and deletions to profit after tax and a sum of Rs. 3,72,68,820 is disallowed by the Assessee under the head ‘Expenses debited to P&L account’ and ‘Withholding taxes and income taxes, net’ to profit after tax to arrive at profit before tax. Therefore we see merit in the argument that the addition made by the AO is not correct. We remit the issue back to the AO to verify and delete the addition.
Disallowance u/s 14A - HELD THAT:- We direct the AO to verify whether the investment in joint ventures which had not yielded any dividend income for the year under consideration and exclude the same for the purpose of computation of average value of investments under section 14A and for computation of disallowance under section 14A read with rule 8D in accordance with the decision of the Special bench of ITAT in the case of ACIT v Vireet Investment P Ltd [2017 (6) TMI 1124 - ITAT DELHI] It is ordered accordingly.
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2022 (11) TMI 1339 - ITAT MUMBAI
TP Adjustment - validity of order passed by TPO u/s. 92CA(3) as barred by limitation - HELD THAT:- A conjoint reading of the relevant provisions of section 92CA(3A) and 153(1) of the Act would show that the TPO is required to pass order u/s. 92CA(3) of the Act at any time before sixty days prior to the date on which the period of limitation referred to in section 153 of the Act for making assessment order expires.
The period of limitation for passing the assessment order in the instant case expires on 31/03/2014. The time limit for passing the order u/s. 92CA(3A) is sixty days prior to the date on which the limitation referred in section 153 of the Act expires. Thus, the limitation in the present case for passing the order u/s. 92CA(3) of the Act expires on 29/01/2014. The TPO passed the order u/s. 92CA(3) of the Act on 30/01/2014. Ergo, the order u/s. 92CA(3) of the Act is surely time barred by one day.
Reference to DRP can only be made by “eligible assessee"- Eligible assessee mean any person in whose case variation arises as a consequence of the order of the TPO passed u/s. 92CA(3) of the Act. The order has to be a valid order. In the instant case since, the order of TPO was beyond the period of limitation it is not a valid order. Therefore, there is no “eligible assessee” in terms of the definition provided in sub-section (15) to section 144C of the Act . If there is no eligible assessee, no reference to DRP could have been made. Once the substratum for making the assessment under transfer pricing mechanism erodes the subsequent proceedings emanating from flawed foundation is without jurisdiction.
We find merit in the additional grounds of appeal - The assessee succeeds on the aforesaid legal grounds.
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2022 (11) TMI 1338 - ITAT BANGALORE
TP Adjustment - appropriate adjustments towards working capital differential existing between the Appellant vis-a-vis independent comparable companies - HELD THAT:- Tribunal consistently granting working capital adjustment to the assessee while computing ALP of international transactions and this view was fortified by the order of the Tribunal in the case of Huawei Technologies India Pvt. Ltd. [2021 (8) TMI 1334 - ITAT BANGALORE] - Thus we direct the AO/TPO to grant working capital adjustment.
Comparable companies – Information Technology Enabled Services (“ITES”) - Microland Limited - As seen from its annual report total ITES revenue is 60%. The AO/TPO included 17% of selling services revenue as part of the revenue from ITES, which is not correct. In our opinion, it does not satisfy the 75% of sales as filter and the income from ITES services is only 60%. Hence, it is directed that Microland Limited is to be excluded from the list of comparables.
Manipal Digital Systems Private Limited is directed to be excluded from the list of comparables.
Datamatics Business Solutions Limited - As contented segmental financials are not available and also TPO has not considered the correct percentage of export revenue in the earlier 3 assessment years and also margin of last 2 assessment years cannot be considered in view of the export revenue filter. In our opinion, these facts are required to be examined by the AO/TPO. Accordingly, we remit this issue to the file of AO/TPO for reconsideration of this comparable and include this comparable i.e. Datamatics Business Solutions Limited in the list of comparables if it satisfies the export revenue filter.
Infosys BPO Limited company is functionally dissimilar and use robotics automation and diversified activities. Therefore, we direct the AO/TPO to exclude this company as comparable for determining ALP.
Incorrect disallowance with respect to expenditure on ESOP under section 37 - HELD THAT:- In assessee’s group case, namely, EIT Services India Pvt. Ltd. v. DCIT (2022 (8) TMI 1309 - ITAT BANGALORE), had held that the ESOP expenditure is to be allowed as a deduction u/s 37 of the I.T.Act. The Tribunal had followed the judgment of the Hon’ble jurisdictional High Court in the case of CIT v. Biocon Limited (2013 (8) TMI 629 - ITAT BANGALORE] - Decided in favour of the assessee
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2022 (11) TMI 1337 - ITAT CUTTACK
Disallowance u/s 40(a)(ia) - non-deduction of TDS - liable to be restricted to 30% as against 100 made by the AO and confirmed by the CIT(A) - Scope of amendment to Section 40(a)(ia) of the Act by the Finance Act (No.2) Act, 2014 - HELD THAT:- A perusal of the amendment by the Finance (No.2) Act, 2014 made to the provision of Section 40(a)(ia) of the Act clearly shows that the amendment has been brought to remove hardship caused to the assessee. As understood that the disallowance of 100%, by the said amendment was restricted to 30%, thus, clearly the amendment was brought in to remove the hardship caused to the assessee. The principle laid down in the case of Vatika Township (P.) Ltd. [2014 (9) TMI 576 - SUPREME COURT] the AO is directed to restrict the disallowance u/s.40(a)(ia) of the Act to 30%.
As argued by the ld. Sr. DR that at the time of hearing of miscellaneous application, the Bench was convinced that the said amendment was not retrospective and for that purpose only the earlier order of the Tribunal had been recalled. The said argument would not hold good insofar as when the miscellaneous application is heard, its prima facie case that is looked at. It is at the time of hearing of the appeal that a perusal of the various decisions and the amendments are looked into. In these circumstances, the appeal of the assessee is partly allowed.
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2022 (11) TMI 1336 - ITAT BANGALORE
TP Adjustment - Comparables - comparables to be excluded on functional dissimilarities - HELD THAT:- We direct the Ld.TPO/AO to exclude Persistent Systems Ltd., Thirdware Solution Ltd., Larsen & Toubro Infotech Ltd., Infosys Ltd., Nihilent Ltd. and Aspire Systems (India) Pvt Ltd. for not satisfying functional similarity under SWD segment.
Cybage Software Ltd. - The main contention of the Ld.AR is that this assessee is having super profit in immediate two financial years and also having huge turnover is more that 200 crores in the assessment year under consideration. In our opinion, these facts to be examined by the Ld.AO/TPO. Accordingly, the issue remitted to the Ld.AO/TPO. If the functionality of the Cybage Software Pvt. Ltd. is not similar to the assessee and/or if the turnover is more that Rs.200 crores for the assessment year under consideration, it deserves to be excluded on any one of the above reasons.
Comparables i.e. Tech Mahindra Business Services Ltd., Infosys BPM Ltd., SPI Technologies India Pvt. Ltd. and Eclerx Services Ltd. to exclude from the final list for failing the turnover filter under ITES segment.
R S Software (India) Ltd. - This comparable underwent a shift in the revenue generating segments. This comparable has made investments in developing tools and platforms and has also enhanced the sales and marketing activities. These are any ways not the functions performed by the assessee before us which is a captive service provider, only catering to its AE. Thus we hold that R.S. Software(India) Ltd., should be excluded from the list of comparables.
Microland Ltd. - As we have excluded various comparables that exceeded 200 crores turnover, this comparable also deserves to be excluded on the same principle - we direct the Ld.TPO to exclude the above comparables from the Final list of SWD segment for failing in functionality tests.
Interest on receivables - We direct the Ld.TPO that in the event the WCA subsumes the outstanding recievables, no separate characterisation is to be made. However for those recievables that fall out of the WCA pertaining to year under consideration, then, the rate of interest to be charged must be LIBOR + 300 basis points which is in accordance with the principles laid down by Hon’ble Delhi High Court in case of CIT vs. Cotton Naturals (I) Pvt.Ltd.[2015 (3) TMI 1031 - DELHI HIGH COURT] by considering a credit of 90 days. Assessee will be allowed a reasonable opportunity of being heard in such fresh proceedings.
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2022 (11) TMI 1334 - ITAT JAIPUR
Addition u/s 68 - cash sales of the assessee unexplained - assessee is an individual and deriving income from business of jewellery - CIT-A deleted the addition - HELD THAT:- The assessee is engaged in the business of Jewellery and gold. The higher cash sales on festival season Karva Chouth, Dhanteras and Diwali is general feature in the trade of the assessee and such sales is also apparent from the cash book submitted during the course of assessment proceedings.
It is not the case of the A.O. that the assessee did not have the sufficient stock for making the sales. Thus, it cannot be said that the figures of sales and purchases are not supported by the quantity details. As regard to not providing the name, address and PAN of the customers to whom cash sales was made the assessee explained that the sales were below the prescribed limit so it is not compulsory or mandatory under the I. Tax Act, 1961 to collect the information related to full name, address and PAN of the customer to whom goods were sold in cash during the course of business below to the prescribed limit. The assessee further explained that in the preceding financial years, subsequent financial years and other periods of this same financial year, the same practice was being followed by the assessee where no details of name, address and PAN of customer was available with the assessee.
We agree with the findings of ld. CIT(A) that the AO has not brought any material on record to establish that the sale bills are bogus nor any evidence indicating that such sales was bogus and merely having some doubt by twisting the data and giving some findings which are not alone sufficient to justify the addition the income so assessed in not tenable in the eye of law. In fact the AO neither found any concrete and conclusive evidence of back dating of the entries of sale, evidence of bogus sales, evidence of bogus purchases, and non-existing cash balance in the books of account. The AO did not even reject the books of accounts of the appellant under the provision of section 145(3) of the Act. Therefore, the contention of the revenue on the facts and circumstance of the case is not accepteda - Appeal of the revenue is dismissed.
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2022 (11) TMI 1333 - ITAT JAIPUR
Addition u/s 68 r.w.s. 115BBE - Unexplained cash deposited in demonetized currency as undisclosed income of Assessee - CIT-A deleted the addition - HELD THAT:- We found that all the points or allegation mentioned by the AO are duly considered and discussed by the CIT(A) while dealing with the appeal of the assessee. The revenue did not pin point which of the findings of the CIT(A) is incorrect or against the facts placed on record by the assessee.
As noticed that during the course of assessment proceedings, the AO examined the books of account and she has not rejected the books of account of the assessee and provisions of section 145(3) were not applied. During the year under consideration the assessee deposited in demonetized currency. The cash so deposited was accumulated cash which was received against/for sales made in the proprietorship concern of assessee M/s Mohan Lal Mahendra Kumar Jewellers. The assessee submitted the summary of cash book.
We find the explanation of the assessee is genuine and the sales cannot be doubted merely on surmises and conjectures on the ground of nonfurnishing of address and PAN of the customer. The AO did not make any enquiry on the material submitted by the appellant. She merely proceeded on statistical analysis to make the addition on account of cash deposits.
We agree with the findings of ld. CIT(A) that the AO has not brought any material on record to establish that the sale bills are bogus nor any evidence indicating that such sales was bogus and merely having some doubt by twisting the data and giving some findings which are not alone sufficient to justify the addition the income so assessed in not tenable in the eye of law.
AO neither found any concrete and conclusive evidence of back dating of the entries of sales, evidence of bogus sales, evidence of bogus purchases, and non-existing cash balance in the books of account. AO did not even reject the books of accounts of the appellant under the provision of section 145(3) - Therefore, the contention of the revenue on the facts and circumstances of the case is not accepted and we see no reason to interfere in the order of the ld. CIT(A). Appeal of the revenue stands dismissed.
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2022 (11) TMI 1332 - ITAT MUMBAI
Addition u/s 68 - Bogus LTCG - receipt of sale consideration of sale of listed shares unexplained - unexplained commission expenditure u/s 69C - HELD THAT:- In the instant case, a specific request was made for a copy of investigation report as well as copies of statements recorded of different persons. The assessee is noted to have rebutted whatever details were provided by the AO and had sought cross-examination as well. Hence, the facts involved in the present case are noted to be distinguishable from the above case. Further, in respect of the circumstantial evidences the Hon’ble Calcutta High Court in Swati Bajaj case [2022 (6) TMI 670 - CALCUTTA HIGH COURT] has not disturbed the settled position of law that circumstantial evidences can be looked into only when direct evidences are not available.
In the instant case, direct irrefutable evidences were made available to the AO and, therefore, ignoring the direct evidences and jumping to circumstantial evidences is not justified even if one refers to the decision of Hon’ble Calcutta High Court. Moreover, as noted by us earlier, this issue at hand is squarely covered by the binding judgments of the Hon’ble jurisdictional High Court, in favour of the assessee, and, therefore following the judicial discipline, the order of the Ld. CIT(A) does not require any interference since we have the benefit of guidance on this subject by the Hon‟ble jurisdictional High Court, which is binding upon us.
As decided by Ripu Sudan Kundra [2021 (11) TMI 77 - ITAT MUMBAI] additions made by the AO was purely based only on suspicion, surmises and conjectures without there being any tangible evidence on record against the assessee and, therefore deleted the same.
No infirmity in the order of the Ld. CIT(A) deleting the additions made u/s 68 of the Act and the consequent addition of unexplained commission expenditure made u/s 69 of the Act and uphold to the same.
AO has noted that the primary sources of income of the assessee were salary, rental income, other sources and capital gains. The AO has however not been able to bring on record any material or evidence unearthed during search which would reveal as to from which income-earning activity did the assessee derive such unaccounted monies to support his theory that he had routed such unaccounted monies in the guise of bogus capital gains. Before us, the assessee has placed on record copies of the panchnamas, details of cash & valuables found, details of documents impounded etc. and the Revenue was unable to point to any specific item or evidence which would lend credence to their case. Although these aspects are not sufficient to draw definite conclusions but coupled with the facts and circumstances discussed in the foregoing, it does lend persuasive value to the case of the assessee.
For the above reasons therefore, we do not see any reason to interfere with the order of the Ld. CIT(A) deleting the additions made by the AO u/s 68 & 69C. Decided in favour of assessee.
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2022 (11) TMI 1331 - ITAT DELHI
CIT-A disposing-of the appeal Ex- Parte - CIT(A) dismissed the appeal just on the ground that in Form No.35, the section of assessment order mentioned is 144 instead of 143(3) - In his opinion of Ld. CIT(A) this is an incurable defect - HELD THAT:- CIT(A) has not specified under which law, it is an incurable defect. On query in this regard, DR has shown his inability to refer to any laws in this regard.
Be as it may in our considered opinion, when interest of substantial justice is pitted against technicalities, it is always justice that prevails. Accordingly, we remit this issue to the file of the CIT(A) to consider the issue and pass an order on the merits of this case after giving assessee the proper and requisite opportunity Assessee has also undertaken to cooperate with the CIT(A). Appeal stands allowed for statistical purposes.
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2022 (11) TMI 1328 - ITAT BANGALORE
Rectification u/s 254 - period of limitation - non-consideration of the decision of the jurisdictional high court/Supreme Court - Belated deposit of employees’ contribution towards the EPF and ESI - HELD THAT:- As the time limit to file a miscellaneous petition u/s 254(2) of the Act to rectify the order of the Tribunal passed u/s 254(1) of the Act is to be considered is within 6 months from the end of the month in which the order was communicated so as to rectify the mistake passed u/s 254(1) of the Act. Accordingly, we admit the miscellaneous petition filed by the revenue as the miscellaneous petition has been filed on 31.10.2022 as it was received only on 25.4.2022 by the revenue authorities and in our opinion, miscellaneous petition filed in this case is within time limit allowed u/s 254(2) of the Act and the same is admitted for adjudication.
Coming to the merit of the issues raised by the revenue in its miscellaneous petition, we not that Hon’ble Supreme Court in the case of CIT Vs. Saurashtra Kutch Stock Exchange[2008 (9) TMI 11 - SUPREME COURT] has held that non-consideration of the decision of the jurisdictional high court/Supreme Court constitutes mistake apparent from record and is rectifiable within the meaning of section 254(2).
Article 141 of the Constitution of India provides that the law declared by Hon’ble Supreme Court shall be binding on all courts within the territory of India. The law laid down by Supreme Court operates retrospectively and is deemed to the law as it has always been unless, the Supreme Court, says that its ruling will only operate prospectively.
There is a mistake apparent on record in view of the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt.Ltd. [2022 (10) TMI 617 - SUPREME COURT] though rendered subsequent to the order passed by the Tribunal and has to be rectified by holding that the disallowance made by the revenue authorities u/s.36(1)(va) of the Act was justified. Consequently, the appeal by the Assessee will stand dismissed. The order of the Tribunal will stand modified /rectified accordingly.
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2022 (11) TMI 1327 - ITAT BANGALORE
Delayed payment of employee’s contribution to ESI and PF - Payment made by the assessee beyond the due date by invoking the provisions of section 36(1)(va) - Assessment u/s 143(1) - HELD THAT:- It is not disputed that as per the decision of CHECKMATE SERVICES PVT LTD [2022 (10) TMI 617 - SUPREME COURT] decided the issue on allowability/treatment of ‘delayed’ Employee PF Contribution payment in hands of assessee under provisions of Income Tax Act and held that Section 36(1)(va) and Section 43B(b) operate on totally different equilibriums and have different parameters for due dates, i.e., employee's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to the payment before the prescribed due date for filing of return u/s. 139(1) - The result of any failure to pay within the prescribed dates also leads to different results. In the case of employee's contribution, any failure to pay within the prescribed due date under the respective PF Act or Scheme will result in negating employer's claim for deduction permanently forever u/s.36(1)(va). On the other hand, delay in payment of employer's contribution is visited with deferment of deduction on payment basis u/s.43B and is therefore not lost totally. Therefore as per the above decision, the disallowance made by the Revenue authorities were fully justified.
As clear from Intimation u/s 143(1) the disallowance has been made on the basis of audit report in Form 3CD wherein the fact that employees contribution was paid beyond the date of ESI and PF and hence not allowable as deduction under section 36(1)(va) of the Act has been clearly mentioned. The mere fact that the wordings “as there has been no response”, in the intimation referred to earlier has not been struck off, it cannot be presumed that the reply of the assessee dated 29.2.2020 has not been considered while issuing the intimation under section 143(1) of the Act.
We are of the view that the disallowance under section 143(1)(a) of the Act is valid in view of the decision made by Hon’ble Supreme Court in the case of Checkmate services (supra). - Decided against assessee.
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2022 (11) TMI 1324 - CALCUTTA HIGH COURT
Revision u/s 263 - second round of proceedings u/s 263 - HELD THAT:- Tribunal has carefully considered the factual position and noted that assessing officer has followed the direction issued in the earlier order passed by the Section 263 of the Act. The Assessing Officer has issued summons under Section 131 of the Act to the directors of the Shareholding Company M/s. Laxmi Timber Pvt. Ltd. in consonance with the direction issued by the Principal Commissioner of Income Tax under Section 263 of the Act. This finding would be seen from paragraphs 5 to 7 of the assessment order. Thus the learned Tribunal on re-verification of the facts found that this is not a case of non application of mind nor this is a case of failure to re-appreciate the facts and concluded that the view taken by the assessing officer was a plausible view. That apart we note that the assessing officer conducted thorough enquiry and has also examined the directors of the holding company.
Thus the learned Tribunal rightly dismissed the appeal filed by the revenue. No substantial question of law
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2022 (11) TMI 1323 - ITAT BANGALORE
TP adjustment - interest expenditure incurred on the CCD's issued by it to its non-resident AE - re-charactering and concluding that CCDs issued by the assessee are in the nature of equity investments - HELD THAT:- The new section 94B of the I.T.Act is applicable with effect from 01.04.2018, and hence is applicable for the impugned assessment year, namely, A.Y. 2018-2019. Section 94B of the I.T.Act is different from transfer pricing provisions contained in sections 92 to 92F of the I.T.Act. The transfer pricing provisions deal with the determining the arm's length rate of interest payable on a debt-claim from an AE.
In contrast, section 94B of the I.T.Act places a blanket threshold on the deductibility of interest paid, based on the profitability of the Assessee and not based on the debt-claim itself. Assessee did not comply with the provisions of section 94B of the I.T.Act to suo moto disallow the interest on CCD while computing the taxable income in the income tax return filed for the impugned AY (probably due to oversight).
The assessee failed to appreciate that the same definition of AE as per sub section (1) and sub section (2) of section 94A is referred in section 94B of the I.T.Act and hence interest on CCD paid to PIL, who being a deemed AE as per the provisions of section 94A(2)(C) of the I.T.ACt, also comes under the purview of section 94B - In the light of the aforesaid reasoning and the impugned TP adjustment with respect to payment of interest on CCD is deleted. However, the disallowance is liable to be made u/s 94B of the I.T.Act. Appeal filed by the assessee is partly allowed.
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2022 (11) TMI 1321 - ITAT BANGALORE
Adjustment on account of alleged excessive AMP expenditure - HELD THAT:- As relying in assessee’s own case in assessment year [2022 (12) TMI 238 - ITAT BANGALORE] we redirect the Ld.AO/TPO to delete the addition made towards AMP expenses.
Disallowance of Seminars, Conventions and sales promotion expenses - expenses incurred related to doctors in the form of seminars and conventions and sales promotion - HELD THAT:- Similar issue came for consideration before this Tribunal in the case of Astra Zeneca Pharma India Ltd[2023 (1) TMI 1114 - ITAT BANGALORE] A.O. had primarily made disallowance by referring the CBDT Circular No.5/2012 dated 01.08.2012. The A.O. has not critically examined the nature of expenditure incurred by the assessee. In the larger interest of justice, in view of the latest judgment of the Hon’ble Apex Court, which has examined the very same issue, it becomes necessary to examine the exact nature of expenses incurred by the assessee for Doctors from all angles. Therefore, for substantial question and cause, the additional evidence are taken on record. Since the additional evidence is taken on record, necessarily, the matter needs fresh verification by the A.O., especially in the light of the recent judgment of the Hon’ble Supreme Court in the case of M/s. Apex Laboratories Pvt. Ltd. [2022 (2) TMI 1114 - SUPREME COURT] For the aforesaid purpose, the issues raised are allowed for statistical purposes.
Adjustment in respect of IT support services - Companies functinally dissimilar with that of assessee need to be deselected - we direct the AO/TPO to exclude M/s. Infosys Ltd., M/s. L&T Infotech Ltd., M/s. Persistent Systems Ltd. and M/s. Thirdware Solutions Ltd. from the lists of comparables and to recompute the ALP of international transactions with A.E. Ordered accordingly.
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2022 (11) TMI 1320 - ITAT BANGALORE
TP Adjustment - comparable selection - Software Development Services - Application of upper turnover filter - HELD THAT:- The assessee’s turnover for the year under consideration in software development segment is Rs.198 crores. Therefore, respectfully following the decision AUTODESK INDIA PRIVATE LTD [2018 (7) TMI 1862 - ITAT BANGALORE] we hold that the companies whose turnover in the current year is more than Rs.200 Crores should be excluded from the list of comparable companies. Accordingly Larsen & Toubro Infotech Ltd., Nihilent Ltd., Persistent Systems Ltd., Thirdware Solution Ltd., Infosys Ltd., Aspire Systems (India) Pvt Ltd., and Cybage Software Pvt Ltd., are excluded from the list of comparables.
Inteq Software Pvt. Ltd. is not a suitable comparable vis-a-vis the taxpayer which is a routine software development service provider working on costplus mark up model, hence ordered to be excluded from the final set of comparables.
Minvesta Infotech Ltd. - We are not in agreement with the decision of the lower authorities to exclude Minvesta Infotech Ltd only on the basis that the company fails different financial year filter. We therefore remit the issue back to the AO/TPO to examine the relevant financial data from which the details can be extrapolated for the purpose of comparison and accordingly decide the inclusion of the company after giving a reasonable opportunity of being heard to the assessee.
Sagar Soft (India) Ltd. and Evoke Technologies Pvt. Ltd. - We are of the view that the comparability of this company has to be remanded to the TPO for fresh consideration as relying on Infor India P. Ltd. Vs. DCIT [2016 (1) TMI 410 - ITAT BANGALORE] wherein it was held that availability unaudited accounts cannot be the reason to reject the comparability of the company which satisfies all filters. Also case of Zynga Game Network India Pvt. Ltd. [2021 (4) TMI 208 - ITAT BANGALORE] in which the comparability of this company was remanded to the TPO for fresh consideration.
Inclusion of Sagarsoft (India) Ltd. - Given that the basis on which the TPO came to the conclusion that the company fails the SWD service revenue filter is not clear. Further the assessee has made the submission before the TPO bringing the above fact to his notice - We notice that the TPO has not examined this. The DRP has rejected stating that the assessee has not brought any documentary evidences - As relying on M/S. RED HAT INDIA PRIVATE LIMITED case [2022 (2) TMI 1283 - ITAT MUMBAI] comparability of the company requires to be examined afresh. Considering all we remit the issue back to the TPO with a direction to examine the facts properly.
Selection of comparables for IT Enable Services - HELD THAT:- Where data for current year is not available at the time of furnishing the return of income, data of 2 preceding years out of 3 years would be used. Therefore we see merit in the argument that the company cannot be rejected merely for the reason that the current year data is not available. In the given case the company is excluded also for the reason that the financial year end is different.
Interest on delayed receivables - whether the interest on receivable is a separate international transaction and the rate of interest to be considered? - realizations in respect of certain invoices were made after the period of 30 days - TPO equated the outstanding receivables from AEs to loans and accordingly proposed a notional interest on the outstanding balances (exceeding 30 days) taking Prime Lending Rate of SBI at 5.39% as arm’s length interest rate - HELD THAT:- Treatment of interest on deferred receivables is an independent international transaction and the interest rate to be adopted is LIBOR rate and it would be appropriate to take the LIBOR rate + 2. It is ordered accordingly,
Disallowance of deduction claimed u/s 80G - donations made in pursuance of CSR policy - HELD THAT:- As relying on FIRST AMERICAN (INDIA) PVT. LTD. [2020 (5) TMI 187 - ITAT BANGALORE] remit the issue to the AO with a direction to verify the details and allow the deduction to the extent of eligibility. The assessee is directed to furnish the relevant details to substantiate the claim and cooperate with the proceedings. It is ordered accordingly.
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2022 (11) TMI 1318 - ITAT BANGALORE
Condonation of delay - delay of about 582 days in filing the appeal by the assessee - assessee entrusted the filing of appeal before CIT(A) against the Order of Assessment to Chartered Accountant (CA) with instructions to file the appeal - assessee did not contact the CA till the AO contacted the assessee in January 2022 for recovery of outstanding demand and when he informed that the Assessee that the Assessee’s appeal before CIT(A) has been dismissed - HELD THAT:- Assessment Order was passed on 22.12.2017 and the papers must have been handed over to the CA for filing appeal before the CIT(A) in January 2018. It is hard to believe that till January 2022 assessee did not make any enquiry with the CA about the fate of his appeal. It is even more surprising, when it is said that even the CA did not know that the appeal was listed before CIT(A) and was dismissed for non-prosecution.
From the affidavit, it appears that it is only the AO who informed the assessee in January, 2022, that the assessee’s appeal before CIT(A) was dismissed. It is thus clear that there has been clear lack of diligence on the part of the assessee and therefore the delay in filing the appeal cannot be accepted as owing to reasonable cause. Hence,refuse to condone the delay in filing the appeal and dismiss the appeal as unadmitted.
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2022 (11) TMI 1317 - ITAT BANGALORE
Deduction claimed u/s 10AA in respect of 4 SEZ units - satisfaction of conditions mentioned in clause (ii) to sub-section (4) to Section 10AA - denial of exemption related to assessment year 2007-08 on the ground of ‘splitting up and reconstruction’ - HELD THAT:- We have referred to the observations by the Ld.CIT(A) for assessment years 2007-08 to 2009-10 wherein there is a categorical finding that these units have not been formed by splitting up or restructuring. This observation has not been challenged by the revenue in appeals filed in [2022 (11) TMI 1316 - ITAT BANGALORE] and thus this issue has attained finality. For sake of convenience, we reproduce the relevant observation by the L.dCIT(A) has been tabulated by the Ld.AR.
We therefore direct the Ld.AO to grant the deduction claimed by the assessee in respect of the Chennai SEZ Unit I, Chandigarh nit, Mangalore Unit I and Pune Unit I.
TP Adjsutment Interest receivables from Infosys China and Infosys Brazil - Rate of interest charged by the assessee for both the loans was at 6% p.a. - TPO determined the arm's length interest rate @ 11.17% stating the same as yield from BBB+ grade corporate bond (investment grade bonds) for a 1 to 2 years period during the FY 2011-12 - HELD THAT:- We note that, the assessee admittedly charged 6% interest rate on the loans advanced to Infosys China and Infosys Brazil. The revenue authorities have accepted the rate charged by the assessee in the subsequent as well as preceding assessment years. We therefore do not see any reason to deviate from the same. We also note that 11.17% computed by the Ld.TPO which was subsequently rectified to 8.53%, do not have any basis, as it is based on fixed deposit interest rate by different banks. We note that principles laid down in case of CIT vs. Cotton Naturals India Pvt. Ltd. [2015 (3) TMI 1031 - DELHI HIGH COURT] has not been followed by the Ld.TPO, We also note that the LIBOR rate of 12 month USD is much less than the rate computed by the assessee. We therefore uphold the interest rate computed at 6%.
Disallowance u/s. 14A r.w.Rule 8D(2)(iii) - dividend income from mutual funds which was exempt - HELD THAT:- Admittedly, the assessee suo moto disallowed u/s.14A. We note that the Ld.AO while computing disallowance under Rule 8D(2)(iii), included the investments made in Infosys BPO Ltd., that did not yield any exempt income for year under consideration. Going by the submissions of the Ld.AR, ratio laid down in Vireet Investment [2017 (6) TMI 1124 - ITAT DELHI] disallowance then computed would be less that the disallowance voluntarily offered to tax by the assessee which is not the right course to be adopted. We therefore uphold the disallowance voluntarily made by the assessee that has been offered to tax by the assessee. We direct the Ld.AO to compute the disallowance as voluntarily offered by the assessee. Needless to say that proper opportunity of being heard mist be granted to the assessee.
Disallowance u/s. 40(a)(i) in respect of subscription fee paid - Disallowance u/s. 40(a)(ia) / 40(a)(i) in respect of software expenses - HELD THAT:- We remand these issues back to the Ld.AO/TPO to verify these claims in accordance with the principles laid down by Hon’ble Supreme Court in case of Engineering Analysis Centre of Excellence Pvt. Ltd. [2021 (3) TMI 138 - SUPREME COURT]. In the event after verifying the relevant agreements / invoices and applying the ratio laid down by the Hon’ble Supreme Court, no TDS is liable to the deducted, the disallowance u/s. 40(a)(i) / 40(a)(ia) deserves to be deleted. The Ld.AO is directed to carry out necessary verifications in accordance with law by granting proper opportunity of being heard to assessee.
Disallowance of software expenses as capital expenditure - Alternatively, assessee has prayed for depreciation to be granted at 60% as against 25% - HELD THAT:- We note that the Ld.AO has not examined the documentary evidences in respect of this claim. We therefore set aside this issue to the Ld.AO with a direction to consider the claim of the assessee in the light of evidences / documents filed. The Ld.AO shall also verify this issue based on the principles laid down by Hon’ble Supreme Court in case of Engineering Analysis [2021 (3) TMI 138 - SUPREME COURT].
Nature of expenses - Disallowance of brand building expenditure - Brand building expenses are included and shown under 'Selling and Marketing expenses' in the financial statements and claimed as revenue expenditure - HELD THAT:- We note that Coordinate Bench in case of the sister concerns of assessee Infosys BPO Ltd v DCIT [2020 (1) TMI 1011 - ITAT BANGALORE] considered identical issue on similar facts. Nothing has been brought on record by the revenue to the expenses incurred by the assessee is towards any capital asset. Respectfully following the same, we direct the disallowance to be deleted.
TDS u/s 195 - Disallowance of Commission paid to non residents - non deduction of TDS - Addition u/s 40(a)(ia) - HELD THAT:- There is no quarrel that the benefit available to assessee as per DTAA must be granted as per the ratio of Hon’ble Supreme Court in case of Engineering Analysis [2021 (3) TMI 138 - SUPREME COURT]. The Ld.AO shall verify and consider the claim in accordance with law. Needless to say that proper opportunity of being heard mist be granted to the assessee.
Non reduction of communication expenses and expenses incurred in foreign currency from total turnover while computing deduction under section 10AA - HELD THAT:- This issue is no longer resintegra. Hon’ble Supreme Court in the case of CIT v HCL Technologies Ltd [2018 (5) TMI 357 - SUPREME COURT] held that, freight, telecommunication charges, insurance charges and expenses incurred in foreign currency reduced from export turnover should also be reduced from total turnover while computing deduction under section 10A. Ratio of the said decision is squarely applicable for the purposes of section 10AA/10A and both these sections are in pari material with each other. The CBDT vide Circular No. 4 of 2018 dated 14/08/ 2018 cited the decision of the Hon’ble Supreme Court in the case of HCL Technologies Ltd.,(supra), and clarified that, all charges/expenses specified in Explanation 2(iv) to section 10A are liable to be excluded from total turnover also for the purpose of computation of deduction under section 10A.
We thus hold that the communication expenses and expenses incurred in foreign currency reduced from the export turnover should also be reduced from the total turnover while computing deduction under section 10AA.
Computing deduction u/s. 10AA - reduction of following items from profits of SEZ units i.e. interest income from GLES deposit, interest income from loans given to employees, receipts from sale of scrap and incentive receipts from Airlines - HELD THAT:- Amount of income that that qualifies for the deduction under section 10AA is the profits that arises out of the business undertaking, and not from any other income earned by the assessee de horse the business of the undertaking. If the income earned by the assessee is held to be falling under the head, Income from other sources, the same will not qualify for the deduction section 10 AA of the Act.
From the above sources that have yielded income to the assessee for the year under consideration, except for income from sale of scrap, no other income could be said to have arisen out of the business undertaking. Further in respect of cessation of trading liability, we direct the Ld.AO to verify if the trade receivables were offered to tax by the assessee in any of the preceding assessment years. If the amount has been offered to tax in any of the preceding assessment years, as a sequitur, would obviously for part of the qualifying amount for the purposes of deduction under section 10AA of the Act.
In respect of interest income from GLES deposit, interest income from loans given to employees and incentive receipts from Airlines, in our opinion cannot be held to be profits that arises out of the business undertaking and therefore we hold the same not eligible for purposes of deduction under section 10AA of the Act.
Reduction of deduction under section 10AA in respect of pure onsite revenue - HELD THAT:- We note that the denial of the exemptions claimed is purely due to the reason that the Ld.AO did not verify the details furnished by assessee. There is no doubt expressed by the Ld.AO regarding the nexus or any shortfall of evidence or materials in support of the assessee’s claim as argued by the Ld.AR, the disallowance made on adhoc basis, without any justification and the reasoning for such disallowance is absolutely uncalled for. However in the interest of justice, the Ld.AR suggested the issue may be remanded to the Ld.AO for due verification. We direct the Ld.AO to verify the details filed and to consider the claim of assessee in accordance with law. Needless to say that proper opportunity of being heard is to be granted to the assessee.
Deduction under section 80JJAA being disallowed - DRP held that the assessee is not engaged in manufacture or production of article or thing and therefore not eligible for deduction under section 80JJAA. It was held that manufacture or production of article or thing cannot be equated with software development - HELD THAT:- As relying on case of SAP Labs India Pvt. Ltd. [2016 (6) TMI 1333 - ITAT BANGALORE] wherein held there is no case for the Revenue that assessee had failed to file details of software engineers employed by it. In our opinion software engineers newly employed by it fell within the meaning of the word 'workmen' - we direct the Ld.AO to consider the claim in accordance with the observations and principles laid down by this Tribunal in herein above. Needless to say that proper opportunity of being heard is to be granted to the assessee.
TDS u/s 195 - Disallowance of Sub Contracting charges paid to Infosys Technologies China Co Ltd under section 40(a)(i) for not deducting tax at source - HELD THAT:- AR though have submitted various arguments, does not have any merit. Accordingly we dismiss this ground raised by the assessee.
Deduction under section 10AA in respect of disallowance under section 40(a)(i) and Deduction in the year of payment of TDS demand - HELD THAT:- We note that the submissions of assessee deserves to be considered and the claim has to be considered in accordance with law. In our opinion there is no statutory provision to that effect having been made, as a consequence of the disallowance, claim of deduction of such disallowance under section 10A/AA must follow. Needless to say that proper opportunity of being heard is to be granted to the assessee.
Allowability of deduction u/s 35(2AB) in respect of scientific research expenditure incurred from 1.4.2011 to 22.11.2011 - HELD THAT:- As this claim deserves to be verified by the Ld.AO based on various evidences and documents filed by assessee having regards to the decisions relied upon by assessee hereinabove. Needless to say that proper opportunity of being heard is to be granted to the assessee.
TDS credit not allowed - HELD THAT:- As AR submitted that TDS credit was not allowed to the extent of Rs.1,06,50,855/- was not allowed by the Ld.AO. He has filed the evidences in support of this claim. In lieu of the above, we direct the Ld.AO to verify the above claim of assessee in accordance with law. Needless to say that proper opportunity of being heard is to be granted to the assessee.
TDS credit and advance tax relating to ICIL not allowed even though it was allowed in the Draft assessment order - HELD THAT:- Action of the Ld.AO in denying the aforesaid TDS credit and advance tax in the final assessment order is contrary to the scheme of section 144C, invalid, bad in law and liable to be quashed. The Ld.AO be therefore directed to allow TDS credit and advance tax relating to Infosys Consulting India Ltd which was merged with the assessee. We direct the Ld.AO to verify the claim of assessee in accordance with law. Needless to say that proper opportunity of being heard is to be granted to the assessee.
Allowability of incremental foreign tax credit which was allowed in the draft assessment order - HELD THAT:- As relying on case of Goetz India Ltd. [2006 (3) TMI 75 - SUPREME COURT] we direct the Ld.AO to consider the assessee’s claim and grant credit of foreign taxes paid for the year under consideration that has been verified during the draft assessment proceedings. Needless to say that proper opportunity of being heard must ne granted to the assessee.
Interest on IT Refund granted under section 143(1) but subsequently recovered on completion of assessment proceedings is allowable as deduction - HELD THAT:- This issue needs to be verified by the Ld.AO. The Ld.AO is directed to verify based on the necessary evidences filed by assessee. The issue then is to be considered in accordance with law. Needless to say that proper opportunity of being heard must be granted to assessee.
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2022 (11) TMI 1316 - ITAT BANGALORE
Nature of expenses - Disallowance of Building repair expenses - adhoc disallowance of 10% by the Ld.AO - HELD THAT:- Hon’ble Supreme Court in the case of CIT vs. Kalyanji Mavji and Co [1980 (1) TMI 1 - SUPREME COURT] has held that, cost on repairs which are not current repairs can be allowed under section 37 (1). Section 30 and 31 are not a bar in this regard.
AO has not identified any expenditure that has resulted in creation of a new asset. There is no basis for the to disallow adhoc 10% of the total expenditure incurred by the assessee of the building repairs.
From the above case law it is apparent that expenditure on repairs although prolonging the life and increasing durability of the asset is not necessarily of capital nature. Hence, in our considered opinion expenditure incurred by the assessee with regard to repairing/ renovating of existing make-up rooms have to be allowed as deduction as revenue expenditure, as they cannot be treated as capital expenditure meant for bringing into existence a new asset or a new advantage, and they are laid out wholly and exclusively for the purpose of business of the assessee. - Decided in favour of assessee.
Taxability of Inducement fees - ‘inducement fees’ was received for cancellation / lapse of proposed scheme of acquisition - Excess of inducement fees received over expenditure incurred and the same was treated as ‘capital receipt’ by the assessee and consequently the said sum was not offered to tax - HELD THAT:- As the proposed acquisition failed, the assessee was in recipient of certain amount in connection to the cancellation/lapse of the proposed scheme of acquisition. It is submitted that the assessee had spent certain amount towards due diligence in the form of legal charges, advisory etc., of the proposed acquisition. The said expenditure was reduced from the total amount received by the assessee, and the balance was treated by the assessee as capital receipt that was not offered to tax.
We have considered the above receipt by the assessee, based on various provisions of the Act. The expenditure incurred by the assessee towards the due diligence, legal advices and payments for other professional services are to considered as business loss for the reason that the same did not culminate into a completed transaction.
In sofar as the excess amount received by the assessee over and above the expenditure is concerned, the same cannot be held to be exempt since this excess amount was received by the assessee for failure of the proposal for acquisition. The said amount is taxable in the hands of the assessee as revenue receipt. Therefore, in our considered opinion, section 28(ii)(e) of the Act, would come into play and the income received by the assessee would have to be certainly treated as profits and gain.
Whether the amount will qualify for deduction under section 10AA ? - The answer to this is in negative and against assessee. In our opinion, the money received by assessee does not arise out of the profits of the undertaking. We therefore do not find any infirmity in the view taken by the Ld.CIT(A) and the same is upheld.
Disallowance of foreign exchange fluctuation loss - HELD THAT:- The foreign exchange loss is due to the reinstatement of the accounts at the end of the financial year as well as loss incurred on account of exchange fluctuation on repayment of borrowings is similar to the interest expenditure and it is to be allowed as revenue expenditure u/s 37 of the I.T.Act, as per the accounting standard approved by the Institute of Chartered Accountants of India.
This issue is no longer res integra. Hon’ble Supreme Court in the case of CIT vs. Woodward Governor India Pvt. Ltd. [2009 (4) TMI 4 - SUPREME COURT] has held that, the actual payment was not a condition precedent for making adjustment in respect of foreign currency transactions at the end of the closing year.
We direct the Ld.AO to carry out necessary verification in respect of the loss /gain incurred by the assessee for the years under consideration whether on account of Capital asset based on the principles laid down by Hon’ble Mumbai Special Bench in case of Bank of Bahrain and Kuwait [2010 (8) TMI 578 - ITAT, MUMBAI] - In the event the loss/gain is out of trading liability, no disallowance can be made. However, we make it clear that there cannot be double claim by the assessee; once in the year under consideration and on actual settlement of the bill in any subsequent year.
Reduction of export turnover u/s. 10A on account of later realization of export turnover into India - .AO denied the claim and held that the late realised export turnover cannot be reduced from the formula for computation of section 10A - HELD THAT:- We note that the assessee has furnished the details wherein the authorised dealers under FEMA have not taken any adverse action for late realisation of export turnover and neither declined nor rejected the application for late realisation of such export turnover.
We note that the authorities below have not verified any documents /evidences filed by the assessee. The question is, whether the extension of time for realisation of the export proceeds by the Competent Authority under FEMA can be said to be the approval granted by the Competent Authority under section 10A(3) of the Income-tax Act, 1961. In the event there is an approval granted by the competent authority under FEMA, the claim of assessee deserves to be allowed. We therefore, direct the Ld.AO to verify the evidences and the documents in respect of the RBI approval and to consider the claim of the assessee in accordance with law in the light of the above ratio by Hon’ble Bombay High Court in in case of Mogan Stanley [2011 (8) TMI 279 - BOMBAY HIGH COURT]
Reduction of rental income from profits of 10A units - assessee had received rental income from its subsidiary companies that constituted income from incidental and ancillary activities that was subservient to carrying on the business of the assessee - The said rental income was claimed by the assessee as deduction u/s. 10A which was denied by the Ld.AO, based on the turnover of the SEZ units - HELD THAT:- As relying on this Tribunal for A.Y. 2005-06 in assessee’s own case [2017 (11) TMI 2016 - ITAT BANGALORE] we direct the Ld.AO to include the rental income received from the SEZ units for the purposes of computing profits u/s. 10A.
MAT computation - disallowance u/s. 14A if any could be added for computing book profits - Addition of SEZ book profits u/s. 115JB - HELD THAT:- This issue is no longer resintegra and the same stands settled by the decision of Hon’ble Special Bench of Delhi Tribunal in case of ACIT vs. Vireet Investment (P) Ltd [2017 (6) TMI 1124 - ITAT DELHI] We accordingly direct the Ld.AO to delete the disallowance added while computing book profits.
Enhancement of income by CIT(A) in respect of new source which was not at all dealt by the learned AO in the assessment order is bad in law - Reduction of 50% of overseas revenues from licensing of Finacle software from export turnover of 10A units - HELD THAT:- As in a software development segment, once a software developed cannot be used in perpetually, the product has to undergo various changes in accordance with the demands of time and the business model. Product that gets outdated due to rapid change in the commercial requirement, deserves to be replaced with a new model. In the present facts of the case, the only dispute with the assessing officer is in respect of Finacle being a remodel of BANCS2000. It is not disputed that the said license fee generated out of licensing of Finacle software is eligible for deduction u/s. 10A. Whether there is a change in the product and whether there are new features that could categorise this Finacle software to be a new product has not been verified by the Ld.AO. Such technical analysis is definitely very difficult at the revenue’s end due to the lack of expertise.
We therefore direct the Ld.AO to verify with the assistance of the assessee on a technical level to understand the difference in both these softwares. In the event, there is a difference in the products, assessee deserves 100% deduction on the license fee received from the overseas in respect of licensing the product. We direct the assessee to provide sufficient assistance to the Ld.AO in order to understand the product model to come to a just conclusion.
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