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Income Tax - Case Laws
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2022 (11) TMI 1355
Validity of assessment u/s 92CA - period of limitation as prescribed u/s 92CA(3A) r.w.s. 153 - HELD THAT:-The order passed by the Transfer Pricing Officer is barred by limitation and therefore, the transfer pricing adjustments made in the Final Assessment Order, dated 26.02.2015 are deleted.
As respectfully following the above decision of the Tribunal [2022 (10) TMI 255 - ITAT MUMBAI] preferred by the assessee for the Assessment Year 2011-12, in the case of the Appellant, Additional Ground No. 1 raised by the Assessee in the present appeal is allowed.
Disallowance u/s 14A r.w.r 8D - addition to suo-moto disallowance offered by the Assessee - HELD THAT:- The Assessing Officer is directed to verify the investment which yielded exempt income during the year and re-compute disallowance under Section 14A read with Rule 8D(2)(iii) of the Rules by taking into consideration only the investments which yielded exempt income during the previous year for the purpose of calculating Average Value of Investment.
Disallowance of deduction for foreign exchange loss on revaluation of shareholders deposits - HELD THAT:- Ground raised by the Assessee is dismissed since, admittedly, the very basis on which the Assessee had set up this alternative/without prejudice claim does not survive. Further, in our view the two pleas set up by the Assessee are not alternative but mutually destructive. While preparing return of income the Assessee has treated the exchange loss on revaluation of Shareholders‟ Deposits as capital in nature, during the assessment proceedings the Assessee has claimed the same to be Revenue in nature while retaining the stand that the exchange gain on revaluation of Shareholders‟ Deposits in earlier years is capital in nature. While there is no bar on taking any inconsistent or alternative pleas, mutually repugnant and contradictory pleas which are destructive of each other cannot be permitted to be urged simultaneously.
Computing the amount of MAT credit to be carried forward without including surcharge and cess - HELD THAT:- As considered the rival submissions. Assessing Officer is directed to re-computed the amount of MAT Credit to be carried forward, after including surcharge and cess as per law.
Disallowance of interest u/s 36(1)(iii) - Assessee was holding investment in overseas entities - HELD THAT:- As decided in assessee own case [2022 (10) TMI 255 - ITAT MUMBAI] loans and advances given by the assessee company to its subsidiary company was raised for the assessment year 1989 -90 and it was decided in favour of the assessee. In the present case, we are concerned with the assessment years 1998-99 to 2002-03. The Tribunal has consistently applied the ratio of its decision rendered for assessment years 1989-90 and assessment year 1997-98. We do not find that there is any change in the factual position. Decided in favour of assessee.
TDS u/s 194H - Disallowance being credit card commission paid without deducting tax at source - effect of amendment - HED THAT:- As decided in assessee own case [2022 (10) TMI 255 - ITAT MUMBAI] commission to bank on payments received from customers who had made purchases through credit cards is not liable to TDS under section 194H of the Act . Also the second proviso to Section 40(a)(ia) of the Act being beneficial to the assessee and declaratory/curative in nature, must be given retrospective effect. Decided against revenue.
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2022 (11) TMI 1353
Condonation of delay - Tribunal dismissing the application for condonation of delay in filing the appeal - HELD THAT:- It is not in dispute that accountant, was representing the Assessees before the AO and the CIT(A). His appearance on behalf of the Assessees is duly recorded in the order passed by the CIT(A). Assessees have also filed on record the affidavit owning up to the fact that the Assessees had instructed filing of the appeal and the non-filing happened due to a human error. It appears that there was a bonafide mistake on the part of the Assessees in pursuing the remedy.
AO, in addition to determining the demand has also referred the matter to prescribed authority for initiation of penalty proceedings against the Assessees.
As Collector, Land Acquisition, Anantnag [1987 (2) TMI 61 - SUPREME COURT] wherein it was opined that there is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. Therefore, initiation of penalty proceedings has been referred by the AO, it would be in interest of justice that the merits of the assessment orders are tested in the appeals before ITAT rather than the Assessees being deprived of remedy in appeal due to the aforesaid default of delay.
We set aside the common impugned order passed and condone the delay in filing of the appeals before the ITAT and restore the appeals to the file of the ITAT to hear the appeals on merits - Decided in favour of the Assessee.
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2022 (11) TMI 1352
TP adjustment - Adjustment determined by bifurcating the marketing and business support services segment into ITES segment and MSS segment - HELD THAT:- For assessment year 2013-2014 when the DRP had held that services rendered by the assessee are in the nature of marketing and support services and since no appeal preferred by the Revenue to the ITAT, the matter had attained finality. Therefore, we are of the view that the entire TP issue raised under marketing support services segment needs to be examined afresh by the AO / TPO in the light of the DRP’s directions for assessment year 2013-2014.
Thus respectfully following the decision of the coordinate bench of the Tribunal, we remit the issue back to the AO/TPO for fresh consideration in the light of the DRP’s directions for assessment year 2013-2014. It is ordered accordingly.
Adjustment determined in respect of warranty cost -TPO made an adjustment on the basis that the Assessee had not made any recovery towards the warranty services and the out of pocket warranty charges paid to third parties and the same was upheld by the DRP - AR submitted that the Assessee has in fact recovered the expenses incurred in respect of the warranty services, with a mark up of 5%. Therefore, no further adjustment is warranted - HELD THAT:- We notice that the coordinate bench of the Tribunal in assessee’s own case for the assessment year 2009-10 [2022 (3) TMI 1511 - ITAT BANGALORE] since the services related to warranty are being handled by a third party and the assessee is being used only as a medium, the TPO is not correct in charging a markup on this amount. Hence, the objection relating to markup on the warranty cost is upheld. The TPO cannot charge a markup on warranty amount as such services are not rendered by the assessee to its AE - Respectfully following the above decision we direct the TPO to re-examine the issue raised in ground no.5 afresh. It is ordered accordingly.
TDS u/s 194H - Disallowance u/s 40(a)(ia) of rebates given to customers - assessee submitted before the AO that taxes were not liable to be deducted at source on the rebate given to distributors - AO was of the view that the transaction was between principal and agent and not principal to principal basis and therefore the assessee was obliged to deduct tax at source u/s. 194H - HELD THAT:- Respectfully following assessee’s own case for AY 2010-11 [2023 (3) TMI 809 - ITAT BANGALORE] we remit this issue to the AO for verification of the agreements which the assessee has entered into with the distributors in relation to discount/rebate transactions and decide the allowability after giving reasonable opportunity of being heard to the assessee. This ground is allowed for statistical purposes.
Disallowance of deferred revenue - AO brought to tax the deferred revenue by holding that the Income-tax Act does not provide for the concept of deferred revenue - HELD THAT:- As relying on assessee own case for AY 2010-11 [2023 (3) TMI 809 - ITAT BANGALORE] held that when the services are rendered in a particular year, the revenue deferred to such year is recognized as revenue during such year (amortised) and offered to tax and therefore it is clear that the Assessee has been recognizing the revenue periodically on the basis of accrual and offered them to tax - claim of the assessee deserves to be accepted and the addition made by the AO as confirmed by the DRP is hereby deleted. This ground accordingly is allowed in favour of the assessee.
Disallowance of fixtures and stores interiors expenses - expenditure was claimed as being revenue in nature and deductible under Section 37(1) of the Act for the reason that the said expenditure was incurred for maintaining uniformity in the franchisee stores and the Assessee neither owns nor derives any enduring benefit on such expenditure - HELD THAT:- We notice that the coordinate bench of the Tribunal in the case of M/s. NIKE India Pvt. Ltd. [2022 (7) TMI 1329 - ITAT BANGALORE] has considered a similar issue wherein AO has erroneously held that there was no termination clause in the agreement of lease and that the lease is permanent. We find that the lease is for a period of 4 years only and the assessee was to pay for lease rental as well interest-free security deposit for the lease and also that the assessee is required to incur the expenditure for interior and exterior works for carrying on the business as per 'brand' specifications - it cannot be said that the assessee is deriving an enduring benefit nor can it be said that any capital asset has been created in favour of the assessee. The quantum of expenditure cannot determine the nature of the expenditure. Therefore, we hold that this expenditure is revenue in nature.
In assessee’s case, the expenses are incurred for the purpose of refurbishing the showroom which provides the customers an environment where these products are sold in Dell exclusive stores We hold the expenses incurred by the assessee towards fixture and stores interiors expenses is an allowable expenses and the claim made by the assessee is directed to be accepted. This ground is allowed in favour of the assessee.
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2022 (11) TMI 1351
TP adjustment - Bifurcation of marketing and business support services segment into ITES and MSS segments - HELD THAT:- Merely because services are rendered using IT medium, they cannot be termed as ITES. As entire TP issue raised under marketing support services segment needs to be examined afresh by the AO / TPO in the light of the DRP’s directions for assessment year 2013-2014 [2023 (1) TMI 1248 - ITAT BANGALORE] - Thus we remit the issue back to the AO/TPO for fresh consideration in the light of the DRP’s directions for assessment year 2013-2014.
Adjustment determined in respect of warranty cost - Assessee provides telephonic support services for standard problems to the customers who purchase the products sold by DGBV in India - TPO made an adjustment on the basis that the Assessee had not made any recovery towards the warranty services and the out of pocket warranty charges paid to third parties and the same was upheld by the DRP - HELD THAT:- Assessee’s own case for the assessment year 2009-10 [2022 (3) TMI 1511 - ITAT BANGALORE] direct the TPO to re-examine the issue raised . It is ordered accordingly. This ground is allowed for statistical purposes.
Provision for warranty and warranty expenses - As per AO appellant has failed to substantiate the basis of creation of provision for warranty - DRP confirmed the disallowance of provision for warranty on the ground that the scientific basis of the creating the provision was not established - HELD THAT:- We notice that issue of allowability of warranty expenses was considered by the Tribunal in assessee’s own case for AY 2009-10 [2022 (3) TMI 1511 - ITAT BANGALORE]
We notice that the method of creation of warranty provision has not undergone change and is consistent with what is described in above order. Respectfully following the decision of the coordinate bench in assessee’s own case we direct the AO to allow the provision made towards warranty.
Disallowance u/s 40(a)(ia) of rebates given to customers - HELD THAT:- As per assessee’s own case for AY 2010-11 [2023 (3) TMI 809 - ITAT BANGALORE] we remit this issue to the AO for verification of the agreements which the assessee has entered into with the distributors in relation to discount/rebate transactions and decide the allowability based on the ratio laid down by the Hon’ble High Court after giving reasonable opportunity of being heard to the assessee. This ground is allowed for statistical purposes.
Addition of deferred revenue - HELD THAT:- As in assessee’s own case for AY 2010-11 [2023 (3) TMI 809 - ITAT BANGALORE] claim of the assessee deserves to be accepted and the addition made by the AO as confirmed by the DRP is hereby deleted. This ground accordingly is allowed in favour of the assessee.
Disallowance of Marked to Market (MTM) Losses - as argued such losses are incurred to mitigate foreign exchange fluctuation risk in relation to imports and the same is revenue in nature - HELD THAT:- MTM loss is related to the revenue assets, the same is allowable as deduction. Accordingly, we direct the AO to delete the disallowance of loss.
Disallowance of expenditure u/s 40(a)(ia) - details of TDS were not furnished for the same - HELD THAT:- We notice that with respect to the various expenses verified by the AO the assessee has submitted substantial portion of the evidences and also with respect to expenses claimed u/s.40(a)(ia) the assessee has submitted evidenced to a major extent. It is also noticed that the AO has not disallowed these expenses on the ground that tax was not deducted at source but on the basis that the assessee has not produced the evidences.
For a company of assessee’s size and the volume of business, assessee has managed to submit more than 95% of the supporting documents with respect to the expenses claimed. It is also to be noticed that the AO has not found any discrepancy with respect to TDS compliance in the bills/evidences submitted and has fully allowed to the extend the supporting documents are submitted. Considering the above fact of the case and the decision of Hon’ble Tribunal in the case of M/s Infinity Retail Limited [2022 (11) TMI 681 - ITAT MUMBAI] we of the considered view that the assessee should be allowed full deduction of these expenses basis that more than 95% of the details are submitted and no discrepancy is found on the same. We therefore direct the AO to delete the additions. This ground is allowed in favour of the assessee.
TDS credit - As submitted that in the final assessment order, the AO has given credit of TDS less as against reflected in Form 26AS - HELD THAT:- We direct the AO verify and grant credit of TDS as appearing in Form 26AS in accordance with law after giving a reasonable opportunity of being heard.
Forex loss addition - AO proposed a disallowance on the ground that no evidence was provided to substantiate the same - DRP deleted the addition - HELD THAT:- AO completely ignored the detailed workings on forex loss. Having mentioned in the order that sample invoice copies were submitted, the AO erred in contending that no evidences were provided by the assessee. DRP rightly appreciated that evidences demonstrating foreign exchange loss had been submitted and that the same cannot be said to be contingent liability. Decided against assessee.
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2022 (11) TMI 1348
Validity of Revision order u/s 263 - issuance of manual communication - no Document Identification Number (DIN) has been mentioned in the body of the impugned order which was in violation of Circular No.19 of 2019 of CBDT - DR has submitted that mere non mentioning of DIN does not invalidate the order and further that the Circular of the CBDT is directory in nature and not binding on this Tribunal - HELD THAT:- We find that the issue is squarely covered by the decision of the Coordinate Bench of the Tribunal in the case of Tata Medical Centre Trust vs. CIT [2022 (7) TMI 1334 - ITAT KOLKATA] adjudicate on the additional ground in favour of the assessee by holding that the order passed by the Ld. CIT(E) is invalid and deemed to have never been issued as it fails to mention DIN in its body by adhering to the CBDT circular no. 19 of 2019. Accordingly, additional ground taken by the assessee is allowed.
In its recent judgment in the case of “Pradeep Goyel vs. UOI” [2022 (8) TMI 216 - SUPREME COURT] taking note of the aforesaid CBDT Circular of 2019 to implement the DIN system and also in view of the larger interest and to bring transparency and accountability in the indirect tax administration also, has directed Union of India and GST council to issue advisory/instruction/recommendations regarding implementation of digital generation of DIN for all communications sent by SGST officers to taxpayers and further directed that concerned States to consider implementing system of e-generation of DIN - impugned order of the ld. PCIT is hereby quashed - Decided in favour of assessee.
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2022 (11) TMI 1347
Assessment u/s 153A - estimating income from business @15% of the gross receipts, income from insurance commission, addition u/s 68 and interest income - assessee could not produce the books of account and furnish other details as called for by the Assessing Officer since the Directors were under custody and there was nobody available to produce the record/details before the Assessing Office - HELD THAT:- As considering assessee submission that since the Directors are now free and the books of account are available with the assessee therefore, given an opportunity, the assessee is in a position to substantiate his case, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to adjudicate the issue afresh after giving due opportunity of being heard to the assessee and decide the issue as per fact and law. We hold and direct accordingly. The grounds raised by the assessee and the Revenue are accordingly allowed for statistical purposes.
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2022 (11) TMI 1346
Income taxable in India - PE in India - Liaison Office in India - whether no income is liable to attributable in India even MIPL is taken as Dependent Agency PE to the assessee in India? - HELD THAT:- Admittedly, the learned predecessor Division Bench of this Court in the case of the respondent-assessee itself [2018 (3) TMI 434 - DELHI HIGH COURT] after considering the survey report held that the Liaison office of the assessee did not constitute a Permanent Establishment (for short ‘PE’). Consequently, the first two substantial questions of law do not arise for consideration in the present appeal.
Dependent agency PE to the assessee liable to tax in India - As this Court finds that both CIT(A) and ITAT have given concurrent findings of fact that MIPL is not performing additional function and in absence of material, it cannot be taken as dependent agency PE to the assessee liable to tax in India. Since the said finding has not been challenged on the ground of perversity, even the third substantial question of law does not arise for consideration.
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2022 (11) TMI 1345
Fee for Technical Services (FTS) - PE in India - Applicability of Force of Attraction Rule - amount received from contract with Andhra Pradesh Transmission Corporation (AP Transco) atxed applying the rate of 20% - HELD THAT:- Undisputedly, the projects from which the assessee has earned revenue in the year under consideration were continuing from preceding assessment year. We have noted, while considering identical nature of dispute arising between the parties, the Coordinate Bench [2019 (12) TMI 812 - ITAT DELHI] relating to assessment years 2001-02 to 2005-06, has not only held that there is no PE of the assessee in India, insofar as, the AP Transco project is concerned, but also held that Force of Attraction Rule will not apply
As duration of services rendered for AP Transco project in terms with the agreement is for a period of less than 6 months. The aforesaid factual position has not been controverted by the Revenue. That being the case, there is no PE in terms with Article 5(1) read with Article 5(2)(i) of the Tax Treaty. Therefore, the decision of the Coordinate Bench (supra) will squarely apply to the facts of the present appeal. That being the case, respectfully following the decision of the Coordinate Bench, we direct the Assessing Officer to delete the addition. Ground nos. 1 and 2 are allowed.
Taxability of revenue earned from contract with Jaiprakash Industries Ltd. by applying the provisions of section 44DA of the Act - As on going through the decision of the Tribunal in preceding assessment years, we find that the Tribunal did not accept assessee’s claim that the revenue earned from the contract with the Jaipraksh Industries Ltd. is covered under section 44BBB of the Act, however, the Tribunal held that the assessee has no PE in India and in absence of PE, the revenue earned from Jaiprakash Industries Ltd., being in the nature of FTS will be taxable at the rate of 10%. Thus we direct the Assessing Officer to tax the revenue earned from the Jaiprakash Industries Ltd by applying the rate of 10% as provided under Article 12 of India – Germany Tax Treaty. This ground is partly allowed.
Applicability of Force of Attraction Rules to the revenue earned from contracts with AP Transco and Jaiprakash Industries Ltd. - As relying on assessee own case Force of Attraction Rule is not applicable to the revenue earned from the AP Transco and Jaiprakash Industries Ltd.
Interest u/s 234B and 234C is not chargeable where tax is deductible at source - The reliance placed on GE Packages Power Inc. [2015 (1) TMI 1168 - DELHI HIGH COURT] is apt.
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2022 (11) TMI 1344
Exemption u/s 11 - eligibility to get registration u/s 12AA - HELD THAT:- Pune Bench of the Tribunal in [2021 (6) TMI 811 - ITAT PUNE] has remanded the matter back to the file of the ld. CIT (Exemption). Therefore, it has to be seen what exactly is the status determined by the CIT(Exemption) as regards to the assessee and whether the ld. CIT(Exemption) would grant registration u/s 12AA of the Act to the assessee or not.
This decision thus certainly has a bearing on all these appeals placed before us. Therefore, we remand all these matters to the file of the ld. A.O to re-adjudicate the issue as per law on the basis of the findings of the ld. CIT (Exemption) determining the issue of grant of registration u/s 12AA of the Act vis-à-vis the assessee. The ld. A.O shall comply with the provisions of natural justice. Accordingly all the grounds of appeal in respect of these appeals are allowed for statistical purposes.
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2022 (11) TMI 1343
Disallowance of STCL u/s. 68 - script is penny stock - AR contended that the impugned purchase was made through BSE and that the assessee has held the shares for about six months and the assessee has furnished all the relevant details of payment made for purchase of the impugned share from bank account to the broker and the details of the broker, etc - HELD THAT:- As decided in Smt. Shikha Dhawan [2018 (6) TMI 1451 - ITAT DELHI] wherein it was held that the assessee was able to prove the genuinely of the transaction of purchase and sale of shares and that the same has been routed through recognized stock exchange and when the Revenue has got no other material on record to rebut the claim of the assessee of exemption claimed u/s.10(38) of the Act, the addition is to be deleted
Assessee has proved the genuity of the transaction by furnishing all the required documentary evidence. It is also pertinent to point out that the lower authorities have not rebutted the claim of the assessee, other than the information received from DDIT that M/s. Vas Infrastructure Ltd. is a penny stock. CIT(A) has not dealt with the issue in details except for relying on the order of the A.O. No independent enquiries have been carried out by the lower authorities as to the impugned transaction - we set aside the order of the ld. CIT(A) and delete the addition made u/s. 68 - Decided in favour of assessee.
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2022 (11) TMI 1342
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
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
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
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
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
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
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
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
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
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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