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Birlasoft (India) Limited, (formerly Birlasoft Limited) Versus Dy. Commissioner of Income tax

2015 (5) TMI 398 - ITAT DELHI

Transfer pricing adjustment - DRP holding that the internal comparability does not provide meaningful benchmarking - Held that:- As decided in assessee’s own case for the earlier assessment year [2014 (8) TMI 64 - ITAT DELHI], it has been held that the assessee was justified in undertaking internal bench marking analysis on standalone basis by placing on record working of operating profit margin from international transactions with AEs and transactions with unrelated parties undertaken in simila .....

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nterprise and profitability from the international transactions with unrelated parties after allocating respective revenues and expenses to both the segments – Decided in favour of Assessee by way of remand.

Deduction u/s 10A - disallowance of miscellaneous income considering the same as part of business income - Held that:- As relying on assessee's own case [2014 (8) TMI 64 - ITAT DELHI] the amount received by the assessee towards notice period is to be treated as income derived .....

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s, from the date of its acquisition till the date when the asset is put to use, is to be disallowed - the interest paid on the capital borrowed for acquisition of an asset for extension of existing business, shall not be allowed as deduction, from the date on which the capital was borrowed for acquisition of the asset till the date on which the asset was first put to use - no efforts has been done by the AO to find out the date on which the assessee borrowed the fund for acquisition of asset in .....

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ch date the asset for extension of business thus procured has been put to use - Decided in favour of assessee for statistical purposes. - ITA No. 200/Del/2015 - Dated:- 17-4-2015 - Smt. Diva Singh And Sh. N. K. Saini JJ. For the Appellant : Sh. Ajay Vohra, Sr. Adv. & Sh. Neeraj K. Jain, Adv. For the Respondent : Sh. Ajit Kumar Singh, CIT DR ORDER Per N. K. Saini, AM: This is an appeal by the assessee against the order dated 27.01.2014 of TPO-I(3), New Delhi. 2. Following grounds have been ra .....

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national transactions undertaken during the previous year on the basis of order passed by Transfer pricing Officer ('TPO') under section 92CA(3) of the Act. 2.1 That the Dispute Resolution Panel ('DRP')/TPO erred on facts and in law in disregarding the internal benchmarking undertaken by the appellant for determining the arm's length price of the international transactions applying TNMM on the ground that- (i) the appellant did not maintain segmental accounts for the related .....

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he management. (v) That the appellant has failed to provide the details of employees functioning under the AE and non-AE segments. 2.2 That the assessing officer/DRP erred on facts and in law in holding that the internal comparability does not provide meaningful benchmarking, even after accepting that, FAR of the segments are identical and concurrent transactions of both the segments are homogeneous. 2.3 That the assessing officer/DRP erred on facts and in law in disregarding the internal benchm .....

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g comparable companies: (i) Cressanda Solutions Ltd. (ii) Cyberscape Multimedia Ltd. (iii) Zigma Software Ltd. (iv) R D L Infotech Ltd. 2.5 That the assessing officer/DRP erred on facts and in law in allegedly considering following companies holding them to be functionally comparable to the appellant: (i) Infosys Limited (ii) Persistent Systems Limited 2.6 That the assessing officer/DRP erred on facts and in law in considering Infosys Limited in the final set of comparable companies without appr .....

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provider, even while holding that "the assessee cannot be compared to a risk free entity". 2.8 That on the facts and in the circumstances of the case and in law, the DRP erred in rejecting the contention of the appellant regarding risk adjustment, holding that in absence of robust and reliable data, both for the assessee and for the comparables, risk adjustment cannot be considered for enhancing comparability. 2.9 That the assessing officer/TPO erred on facts and in law in considering .....

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ant has provided to it's AE. ii) The appellant has deployed its own personnel and there is cost involved in deploying such personnel by way of salary and other expenses. iii) The appellant has deployed huge amount of money. iv) The amount falls within the category of 'total cost' as it is directly linked to primary business activity of the appellant. v) The appellant has taken up itself certain duties of the associated enterprise for which the appellant needs to be compensated adequa .....

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. 4. That the assessing officer erred on facts and in law in making an ad-hoc disallowance of interest expenses of ₹ 1,58,70,000 allegedly holding that the interest paid on short term loans which are invested in acquisition of fixed assets shall be capitalized along with the fixed assets. 4.1 That the assessing officer erred on facts and in law in not appreciating that the fixed assets were acquired by the assessee out of its own funds and accordingly, no interest expenses shall be aggrega .....

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erred on facts and in law in levying interest under Section 234B and Section 234C of the Act. The appellant craves leave to add, alter, amend or vary from the aforesaid appeal before or at the time of hearing. 3. Ground no. 1 is general in nature so do not require ay comments on our part. 4. As regards to the Ground No. 2 to 2.10 relating to the adjustment made by the AO on account of difference in Arm s Length Price amounting to ₹ 30,08,43,288/-. The ld. Counsel for the assessee submitte .....

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have considered the submissions of both the parties and carefully gone through the material available on the record. It is noticed that an identical issue having similar facts was a subject matter of adjudication in assessee s own case in ITA No. 1572/Del/2014 for the assessment year 2009-10 wherein the relevant findings have been given in paras 17 & 18 of the order dated 28.07.2014 which read as under: 17. The ld counsel pointed out that a co-ordinate Bench of this Tribunal in appellant s .....

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ould be the basis for determination of arm s length price in respect of international transactions undertaken with the associated enterprise. In the light of the facts of the present case as discussed above, we therefore, hold that the Transfer Pricing Officer had the present case as discussed above, we therefore, hold that the Transfer Pricing Officer had to mandate to have recourse to external comparables when, the present case, internal comparables were available, which could be applied for d .....

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king by allocating revenue and expenses to both the segmental and determined separate profitability. However, on perusal of the TPO s order, we find that the TPO has not undertaken any exercise to examine the correctness of the workings done by the assessee. We, therefore, restore this matter back to the file of the Assessing Officer/ Transfer Pricing Officer for fresh adjudication and for the purpose of determining the arm s length price in respect of the international transactions undertaken w .....

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rnal comparison of the profitability from the international transactions with associated enterprise and unrelated parties undertaken by the assessee in the similar functional and economic scenario we order accordingly. 18. Since we have accepted the assessee s stand that arm s length price in respect of international transactions undertaken with associated enterprises is to be determined on the basis of internal comparison of the profit earned from the international transactions with AEs and pro .....

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ngth price in respect of the international transactions undertaken with the associated enterprise by making internal comparison of profitability from the international transactions with associated enterprise and profitability from the international transactions with unrelated parties after allocating respective revenues and expenses to both the segments. We find that in Assessment Year 2007-08 and 2008- 09, too, the Tribunal has relied on its own previous order and upheld the benchmarking analys .....

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efore in the light of the decision of the co-ordinate bench of this Tribunal we respectfully follow it and set-aside the order of the AO/TPO on this issue and restore it back to the file of the AO/TPO with the direction as stated in order for Assessment Year 2006-07 as reproduced above in para 20. 7. Since the facts for the year under consideration are identical to the facts involved in the aforesaid referred to orders dated 28.07.2014 for the assessment year 2009-10 in assessee s own case in IT .....

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n brief are that the AO during the course of assessment proceedings asked the assessee to show cause as to why the notice pay of ₹ 30,76,101/- be not considered as ineligible for deduction u/s 10A of the Act. The submissions of the assessee has been incorporated by the AO in para 3.2 of the assessment order dated 29.12.2014, for the cost of repetition the same are not repeated herein. The AO however, did not find merit in the submissions of the assessee and treated the notice pay earned by .....

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ment years 2006-07 to 2008-09 but the department has not accepted the same and filed appeal before the Hon ble Delhi High Court, thus, the issue did not achieve finality. It was pointed out that the identical issue has been decided by the ITAT in ITA No. 1572/Del/2014 for the assessment year 2009-10 vide order dated 28.07.2014. 11. In his rival submissions the ld. CIT DR although supported the order of the AO but could not controvert the aforesaid contention of the ld. Counsel for the assessee. .....

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ble as income from other sources and, accordingly, disallowed deduction in respect of the same income u/s 10A of the Act and it was contended by the ld counsel that the amount of ₹ 44,77,370/- was actually received towards notice pay receivable from employees working in the software units. According to Shri Ajay Vohra, the said amount was received towards reduction of salary cost debited to the eligible undertaking. In the light of these facts, the assessee claimed the miscellaneous income .....

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e Tribunal held as on this issue is as follows:- We have heard both the parties and perused the material on record. In the course of hearing of this appeal, reliance was placed by the ld counsel for the assessee upon the decision of ITAT, Delhi Bench in the case of Jubilant Empro (P) Ltd. Vs. DCIT in ITA NO. 107/Del/2007=(2007- TIOL-458-ITAT-DEL). In the above referred case of Jubilant Empro (P) Ltd. pertaining to the Assessment Year 2000-01, the assessee had recovered a sum of ₹ 4,95,070/ .....

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the real nature of the transaction will not have any effect on the income derived by the assessee from the eligible undertaking. In the earlier decision the Tribunal had taken a view that because the assessee instead of crediting the notice period pay to the salary account and reducing the salary expenses, had shown the amount separately in the profit & loss account, that book-entry by itself would not change the real nature of transaction and it was accordingly held that the recovery of not .....

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ts for the year under consideration are identical to the facts involved in the assessment year 2009-10, so by respectfully following the earlier order dated 28.07.2014 in ITA No. 1572/Del/2014 for the assessment year 2009-10 this issue is decided in favour of the assessee. 14. The issue agitated by the assessee vide Ground No. 4 to 4.3 relates to the adhoc disallowance of interest expenses amounting to ₹ 1,58,70,000/- made by the AO by holding that the interest paid on short term loans whi .....

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on which was on capital expenditure. He computed the investment on capital items at ₹ 10.58 crores and worked out the interest @ 15% amounting to ₹ 1,58,70,000/-. The said amount was disallowed from the interest expenses. The proposal of the TPO/AO was upheld by the DRP, accordingly the AO made the disallowance. 15. Now the assessee is in appeal. The ld. Counsel for the assessee at the very outset stated that this issue is also covered vide order dated 28.07.2014 for the assessment y .....

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2009-10 vide paras 32 to 37 which read as under: 32. From a perusal of the records we take note that the appellant during the relevant previous year had total borrowing aggregating to ₹ 55.04 crores comprising of the following: (i) Cash and export credit facility of ₹ 28,77,40,932/- (ii) Term loan of ₹ 2,16,66,667/- (iii) Foreign currency term loan of ₹ 11,41,18,750/- (iv) External commercial borrowing of Rs.12,61,36,047/- 33. And during the relevant previous year incurr .....

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fluctuation of ₹ 4,79,38,507 on asset taken on finance lease. The auditors, however, in their report observed that short term funds amounting to ₹ 60.36 crore had been used for long term purposes, as follows:- Paticulars Rs. Crore Short term funds (i) Unsecured loan 37,50,00,000 (ii) Secured loans 34,61,56,856 Less: Long term use Fixed assets-net block 78,02,80,997/- Net amount 60,36,15,834/- 35. The Assessing Officer on the basis of the aforesaid, observed that short term borrowed f .....

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quisition of asset is sourced from the profit earned by it and as to why the appellant has raised loan of ₹ 60.365 crores for long term purpose. 36. It may be taken note that Interest on capital borrowed even for acquisition of assets is eligible for deduction as per Sect 36(i)(iii) of the Act. Subsequently a proviso has been inserted by the Finance Act 2003. April1, 2004 relating to Assessment Year 2004-05 and subsequent years. Hence the said proviso will apply to the present Assessment Y .....

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which such asset was first put to use. A reading of section 36(1)(iii) mandates that only interest for the period between the date of borrowing to the date of put to use is to be capitalized as part of actual cost of asset. In other words, no interest is required to be capitalized for the period after such assets are put to use. Therefore the interest expenditure on the utilization of borrowed funds for the acquisition of new assets, from the date of its acquisition till the date when the asset .....

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fund from the date on which the capital was borrowed for acquisition of the asset till the date on which the asset was put to use shall be disallowed. Therefore in order to apply the proviso to Section 36(1)(iii) of the Act to the facts of the present case, that is in other words, before disallowing the interest expenditure on the Fund borrowed for procurement of asset for extension of existing business, the AO has to record as a matter of fact the date on which the assessee borrowed the fund fo .....

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