Contact us   Feedback   Annual Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (6) TMI 602 - ITAT HYDERABAD

2015 (6) TMI 602 - ITAT HYDERABAD - TMI - Disallowance of payment towards consultancy charges by determining Arm's Length Price (ALP) at Nil - Held that:- In the instant case, the UK and USA subsidiaries did only contractual work parcelled out to it whose results were given to clients directly and no technical knowledge was made available to assessee. Hence, even under the respective DTAA, the payments made to UK and US subsidiaries/companies would not fall under the ambit of FTS.'

Th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

yments at nil. In view of the aforesaid factual position, since the issue raised by assessee goes to the root of the matter as it is inextricably linked with the ultimate determination of TP adjustment made by TPO and since the primary/basic facts relating to such issue are already available on record, in our view, the additional grounds raised by assessee required to be admitted in consonance with the principle decided in case of NTPC Ltd. v. CIT [1996 (12) TMI 7 - SUPREME Court] . However, sin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. and Wipro Ltd. - Held that:- It is accepted fact that these two companies are leading software companies and have carved out a separate place for themselves. They are in their own league and cannot be compared to any other software development company. The Hon'ble Delhi High Court in case of Agnity India Ltd. (2013 (7) TMI 696 - DELHI HIGH COURT ) has also observed that big companies like Infosys cannot be considered as comparable to other software development companies. Different benches of I .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e even assuming for a moment there is a business connection between the assessee and the foreign software supplier there are no operations in India of the foreign company to which income may be reasonably attributed to as required under Explanation 1(a) to section 9(1)(i). Hence we find there is no applicability of S.9(1)(i) in the instant case. Similar issue relating to disallowance of amounts paid to M/s G.E. Network Solutions, Netherlands towards purchase of 'small world software' came up for .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e-tax Act, there cannot be any withholding of tax u/s 195 and consequentially no disallowance can be made u/s 40(a)(i). - Decided in favour of assessee.

Exclusion of communication expenses from the export turnover while granting deduction u/s 10A - Held that:- This issue is squarely covered by the decision of CIT v. Gemplus Jewellery [2010 (6) TMI 65 - BOMBAY HIGH COURT] and ITO v. Saksoft Ltd. [2009 (3) TMI 243 - ITAT MADRAS-D]. Following the ratio laid down in the aforesaid judgment .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

full. However, considering the fact that assessee maintains guest house and some expenditure must have been incurred towards maintenance of the same. It will be reasonable to allow 50% of the expenditure claimed. Accordingly, we direct AO to sustain the addition to the extent of 50% of the expenditure claimed by assessee. - Decided partly in favour of assessee.

Disallowance of deduction towards stores and spares written off - Held that:- There is no dispute with regard to the fact tha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ture vis--vis- the expenditure claimed in AY 2006-07, 2007-08 and 2008-09. If, on verification, the nature of expenditure is found to be same, then, the expenditure claimed has to be allowed - Decided in favour of assessee for statistical purposes. - IT APPEAL NOS.1780 (HYD.) OF 2012 & 395 (HYD.) OF 2014 - Dated:- 30-4-2015 - P.M. JAGTAP, AND SAKTIJIT DEY, JJ. For The Appellant : M.V.R. Prasad For The Respondent : Smt. G. Aparna Rao ORDER Saktijit Dey, Judicial Member - These two appeals by ass .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s Length Price (ALP) at Nil. Sub-ground No. (ii) is in relation to selection of two comparables, i.e., M/s Infosys Technologies Ltd. and Wipro Ltd. In sub-ground No. (iii) though, assessee raised the issue of disallowance made u/s 40(a)(i) for an amount of ₹ 14,98,07,749, but, subsequently, in course of hearing, ld. AR admitted that the said ground has been mistakenly raised as there is no disallowance made u/as 40(a)(i) of the Act. In addition to the issues in ground No.2, assessee also r .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ndered by them." Additional ground which corresponds to sub-ground No. (i) will be dealt with at a later stage while considering the issue of determination of ALP for consultancy charges paid of ₹ 14,98,07,749 at Nil. 3. Briefly the facts relating to the issue raised in sub-ground Nos. (i) & (ii) are, assessee an Indian company incorporated as private limited company in August, 1991 was subsequently converted to a public ltd. company in the year 1997. Assessee has various subsidia .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sign/engineering reverse engineering (CAD/CAE), design and modeling, repair development engineering, software products development consulting and implementation. For the AY under consideration, assessee filed its return of income on 24/09/2008 declaring total income of ₹ 24,44,28,898 after claiming deduction u/s 10A of the Act. In course of assessment proceeding, AO while examining the financials of the company noticed that assessee has earned revenue from international transactions entere .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y and adopted Transaction Net Margin Method (TNMM) as most appropriate method with operating profit to operating cost as the profit level indicator (PLI). Assessee selected 16 comparable companies from the databases with weighted average margin of 12%. As margin of assessee was shown at 15.45%, the price charged by assessee was found to be within the arm's length as per TP report. TPO, though, accepted TNMM as the most appropriate method, for bench marking the transactions pertaining to sale .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

allowing working capital adjustment of 0.11%, the adjusted arithmetic PLI was worked out at 26.09%. By applying the adjusted arithmetic mean PLI to the operating cost, ALP was determined at ₹ 483,32,88,400 after excluding the sales to non-AEs of ₹ 221,49,20,530, ALP of sales to AEs was determined at ₹ 261,83,67,870 as against the price shown by assessee of ₹ 216,73,07,289. Thus, the shortfall of ₹ 45,10,60,581 was treated as adjustment to be made u/s 92CA of the Ac .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

antiate whether there was any need for consultancy services and if required whether such services were actually rendered and if rendered whether there are any benefits to assessee in terms of higher profits. Further, he observed that if at all there was any benefit from availing such services, whether the payment made is commensurate with benefits derived. Expressing his view as above, TPO proceeded to determine ALP of the payment made towards consultancy services at Rs. Nil. However, since adju .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e determination of ALP of consultancy charges of ₹ 14,98,07,749 at Nil, ld. DRP dealt with the issue as under: "43.3 The TPO dealt with the payment of ₹ 14,98,09,749 towards consultancy charges from para 30 to 37.7 of his order. The assessee did not raise any ground in respect of this issue and also did not make any submissions about the findings of the TPO. The TPO gave a finding that the taxpayer did not substantiate the consultancy services rendered by the AE. And also observ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ment u/s 92CA can be higher than this sum." 5. As far as the objections of assessee with regard to selection of certain comparables is concerned, ld. DRP after considering the same, accepted assessee's objections with regard to one of the comparable companies M/s Celestial Bio Labs Ltd. and directed TPO to exclude the same. In respect of two other companies, namely, Kals Information Systems Ltd. and Softsol India Ltd., though ld. DRP upheld the selection of these companies as comparable .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ces rendered by them. Ld. AR referring to the 'master services agreement' entered with M/s Pratt and Whitney, USA and the agreement entered into between assessee and its subsidiary in USA, submitted before us, assessee has obtained some orders from M/s Pratt and Whitney, USA for development of certain software. A portion of the software development work obtained from M/s Pratt & Whitney was parceled out to its subsidiary in USA and the payments made were towards services rendered by .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ered by them. However, TPO though verified the international transaction did not make any adjustment as far as such payments are concerned, whereas, AO in the draft assessment order disallowed the payments made by applying provisions of sec. 40(a)(i) of the Act. When the disallowance made ultimately came up for consideration before the ITAT in those AYs, ITAT vide its order passed in ITA Nos. 115 & 2184/Hyd/2011 dated 16/01/2014 Infotech Enterprises Ltd. v. Addl. CIT [2014] 63 SOT 23, after .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and not towards any consultancy charges, ALP cannot be determined at Nil. Ld. AR submitted, same view was again expressed by ITAT while deciding the issue in assessee's own case for AYs 2002-03, 2004-05 and 2005-06 in ITA Nos. 1450, 1452 & 1453/H/13 dated 25/03/15. 7. Ld. DR contesting the submissions made by assessee's counsel submitted before us, assessee cannot raise the ground at this stage as assessee never objected to the determination of ALP of the consultancy charges at nil .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Nil was raised before ld. DRP, inadvertently, however, he submitted as the issue relating to disallowance of consultancy charges of ₹ 14,98,07,749 was merged into the addition of ₹ 45,10,65,081 on account of TP adjustment, the issue relating to determination of ALP at nil cannot be looked into in an isolated manner. Thus, he requested for consideration of the additional ground raised on the issue. 9. We have considered the submissions of the parties and perused the orders of revenue .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the said written submission we do not find any reference to the issue. Thus, it can be held that assessee has not specifically raised the issue of disallowance of consultancy charges at Nil before ld. DRP. Having held so, it is to be decided whether assessee can raise such issue by way of additional ground. As can be seen, TPO has determined the ALP of consultancy charges at Nil by applying the benefit test. However, it is the specific claim of assessee before us that the amount of ₹ 14, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ces enclosed in the paper book also bear testimony to this fact. It is further evident from record that in the preceding AYs i.e. AY 2006-07 and 2007-08 though the international transactions of assessee were examined by TPO, but, similar payments made to foreign subsidiaries were accepted by him without making any adjustment. Of course, AO in the draft assessment order disallowed the payments made by applying the provisions of section 40(a)(i) by treating them as royalty. When the matter came up .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tween the assessee and its concerned foreign subsidiaries to whom the said amount has been paid. He held that the assessee has been "habitually/ securing orders in India for the benefit of non-resident in terms of clause (c) of the said Explanation. 36. With respect to IEAI USA, we find that factually the assessee has secured the orders from PRATT (PWC) for its own benefit and it only parcelled out a portion of the work entrusted to it by PRATT & WHITNEY to IEAI USA. The said Explanatio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

we have perused intercompany agreement entered into by the assessee with its subsidiaries placed in the paper book at page 197 to 222. This proves that the assessee obtained orders on its own behalf and it has only parcelled out a portion of its work to its foreign subsidiaries. As per the terms of the agreement, the assessee "shall release the work order" before the commencement of the work by IEAI USA and each work order shall be supported by end customers order copy. Clause 3 of th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ood faith a revised Work Order mutually agreeable to both parties, however if no such agreement can be reached either party may terminate that work order according to provisions of section 1. Obligations of IEL and IEAI under this agreement are detailed in the Annexure." 38. Further, we find that the TPO has found that the operation transaction were effected at arms length price. We also observe that the foreign subsidiaries do not work exclusively for the assessee and they obtain orders on .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rofits (Article 7 r.w. Article 5) in the respective DTAAs. As submitted by the assessee, the Board Circular No. 29 dated 27.3.1969 is inapplicable to the present case as the example given by the Board, the non-resident is the parent company whereas, in the present case, the Indian Company is the parent company and the assessee has not sold the products of its US subsidiaries or any other foreign subsidiaries. The contention of the assessee that the rate of tax in India is lesser than the rates i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

entire amount paid by assessee to its foreign companies may be regarded as Fees for Technical Services u/S.9(1)(vii). So while we have held already that S.9(1)(i) is inapplicable in the instant case, we now have to deal with the alternate of the entire amount being disallowed u/S.9(1)(vii) (or Article 12) as Fees for Technical Services. 41. Firstly, under the Act, the payments made to the subsidiaries may indeed be construed as Fees for Technical Services. However this is only due to the fact o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to tax the income from that source. The Apex Court held that there must be a direct live link between the services rendered and India. The Government subsequently introduced a retrospective amendment in Finance Act 2007 which read- "for the removal of doubts, it is hereby declared that for the purposes of this section, where income is deemed to accrue or arise in India under clause (v), (vi) and (vii) of sub-section (1), such income shall be included in the total income of the non-resident, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

date reading as under: "Explanation. - For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not, - (i) the non-resident has a residence or place of business or business connection in India; or (ii) the non-resident has rendered services in India.&quo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s. Furthermore, the assessee could not have been expected to know that TDS should have been deducted in accordance with a law that was to be brought in subsequently. Hence any disallowance u/s 40(a)(i) based on the application of a retrospective amendment which the assessee could not have foreseen is wholly erroneous. This rationale is upheld by various decisions of the Tribunals which we rely on such as Channel Guide (139 ITD 49) & Sterling Abrasives (IT No.2243, 2244/Ahd/ 2008 dated 23-12- .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e assessee. Further, no technical plan or technical design placement has been transferred by US subsidiary to the assessee. What IEAI did was only in fulfilment of contractual requirement with PRATT & WHITNEY and not for the benefit of the assessee. The non resident has simply executed the portion of work parcelled out to it by the assessee. The Karnataka High Court in CIT v. De Beers India Minerals Pvt. Ltd. (ITA No.549 of 2007 dated 15th May 2012) lucidly explained the concept of "mak .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ider. In other words, to fit into the terminology "making available", the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the rece .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

duct which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as "fee for technical included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied." 44. In the instant case, the UK and USA subsidiaries did only contractual work parcelled out to it whose results were given to clients directly and no technical knowledge w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n the impugned AY are of identical nature, then, it cannot be treated as consultancy charges simpliciter Further, it is relevant to note that though similar payments were made even in the subsequent AY 2009-10, TPO has not determined the ALP of such payments at nil. In view of the aforesaid factual position, since the issue raised by assessee goes to the root of the matter as it is inextricably linked with the ultimate determination of TP adjustment made by TPO and since the primary/basic facts .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eements between assessee and M/s Pratt & Whitney as well as assessee and its subsidiaries and other evidences brought on record by assessee. Further while deciding the issue, TPO must keep in view the findings of the coordinate bench in assessee's own case for AYs 2006-07, 2007-08 in ITA Nos. 115 & 2184/Hyd/2011 Infotech Enterprises Ltd. (supra) and for AYs 2002-03, 2004-05 and 2005-06 in ITA Nos 1450, 1452, 1451 & 1453/Hyd/2013. The assessee must be given an opportunity of being .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

urnover of Infosys Technologies Ltd. during the year was ₹ 15,677 crores that of Wipro Ltd. was ₹ 11,258, whereas, assessee's turnover is only ₹ 435 crores. Thus, the turnover of these two companies being in excess of 10 times of assessee's turnover, these two companies cannot be treated as comparable to assessee. For such proposition, ld. AR relied upon the decision of Hon'ble Delhi High Court in case of CIT v. Agnity India Technologies (P.) Ltd, and a number of de .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the submission of ld. DR that only on the basis of turnover a company cannot be treated as uncomparable. More so, when assessee's turnover is also equally high. Even otherwise also, as can be seen, TPO has selected some comparables with very less turnover compared to assessee. A reference of few such companies are as under: 1. Avani Technologies ₹ 2.93 crore 2. E-Zest Solutions ₹ 7.66 crores 3. Kals Information Systems ₹ 2.05 crores 4. Bodhtree Solutions Ltd. ₹ 10.43 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s worth mentioning, Infosys Technologies Ltd and Wipro Ltd are uncomparable to assessee for various other factors such as brand name, economy of scales, goodwill, diversified activities, owning of intangibles. It is accepted fact that these two companies are leading software companies and have carved out a separate place for themselves. They are in their own league and cannot be compared to any other software development company. The Hon'ble Delhi High Court in case of Agnity India Ltd. (sup .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, assessee has challenged the disallowance of an amount of ₹ 2,29,78,128 u/s 40(a)(i) of the Act. 14. Briefly the facts are, during the assessment proceeding, AO noticed that assessee has debited an amount of ₹ 5,02,70,792 towards purchase of computer software. On verification of the details submitted by assessee in response to query raised by AO, it was found that out of such sum debited to P&L A/c, an amount of ₹ 2,29,78,128 represents payments made to non-resident compan .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

yalty, AO rejecting all contentions of assessee disallowed the amount of ₹ 2,29,78,128 u/s 40(a)(i) by holding that since payment made is in the nature of royalty, assessee was required to deduct tax u/s 195 of the Act. Being aggrieved of such disallowance assessee raised objections before ld. DRP. However, ld. DRP following its decision in AY 2006-07 and 2007-08 sustained the disallowance. 15. Ld. AR more or less reiterating the submissions made before departmental authorities submitted, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

made to M/s G.E. Network Solutions, Netherland. Ld. AR further submitted, the issue is squarely covered in favour of assessee by the order of ITAT, Hyderabad Benches in assessee's own case for AY 2006-07 and 2007-08 wherein the Tribunal after analyisng the facts and also the nature of payments as well as keeping in view the Double Taxation Avoidance Agreement (DTTA) between India and Netherlands held that no tax is required to be deducted at source u/s 195 of the Act, hence deleted the addit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

relied upon the reasoning of the AO as well as ld. DRP. 17. We have considered the submissions of the parties and perused the material on record. There is no dispute to the factual aspect that an amount of ₹ 2,29,78,128 was paid to M/s G.E. Network Solutions, Netherlands towards purchase of a software called 'small world software'. The department has also not controverted the fact that M/s G.E. Network Solutions, Netherlands neither has permanent establishment in India nor has any .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

2006-07 and 2007-08, the Tribunal after considering the nature of payment and going through the Indo-Netherlands DTAA in the context of provisions contained u/s 195 read with section 9(1)(vi) of the Act, held that the payments made by assessee to M/s G.E. Network Solutions, Netherlands is not in the nature of royalty. Further, the Tribunal held that when the payment made to non residents is not assessable to tax under the Indian Income-tax Act, there cannot be any withholding of tax u/s 195 and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of money payable to the non-resident. In other words, if the tax is not so assessable, there is no question of tax at source being deducted. Hence, the short point is that one has to see whether the amount of ₹ 52,55,881/- represents amount chargeable to tax in the hands of the non-resident both in terms of sec.9(1)(i) and 9(1)(vi) of the I.T. Act and also DTAA between India and Netherlands. 25. We find that the amount in question is not taxable u/s 9(1)(i) because even assuming for a mome .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

see has purchased the Small World Software from Netherlands and bundled it with its own software and thus customised it and sold it to its own customers both in India and abroad. The assessee cannot meddle with the copies of the software in the process of its customization. We also observe that the assessee has to purchase the said software each time it wanted to sell the bundled software to its customers and if it had got any right to the copyright to the said software it would not have bought .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e end customer by the vendor company. Copies of the invoice raised by Net Work Solutions on the assessee and at paper book 176 to 178 support the view of the assessee where the invoice mentioning name of the end customer supports our view. Hence, in our opinion, when there is no transfer of even the license to the assessee even though it is the purchaser, it cannot be said that there is any royalty payment by the assessee to the vendor company. The amount of ₹ 52,55,81/- is simply the cost .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

peal before the jurisdictional high court. The Hon'ble High Court, however, dismissed the appeal of the department on this issue by upholding the view expressed by the coordinate bench. Further, the coordinate bench deleted similar disallowances made in AYs 2004-05 and 2005-06 in ITA Nos. 1450 to 1453/Hyd/2013 dated 25/03/2015 expressing similar view. As the ld. DR has not brought to our notice any material difference in the facts in the impugned AY, respectfully following the decisions of t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t in case of CIT v. Gemplus Jewellery [2011] 330 ITR 175 and ITO v. Saksoft Ltd. [2009] 30 SOT 55 (Chennai)(SB). Following the ratio laid down in the aforesaid judgments, we direct the AO to exclude the communication expenses from export turnover as well as total turnover while computing deduction u/s 10A of the Act. 20. Ground No. 5 is in respect of disallowance of guest house maintenance expenditure of ₹ 18,28,883. 21. As can be seen, in course of the assessment proceeding, AO noticed th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

materials on record. Undisputedly, though, assessee has claimed the expenditure towards maintenance of guest house, but, he has failed to furnish any documentary evidence towards claim of such expenditure. Therefore, assessee's claim of expenditure cannot be allowed in full. However, considering the fact that assessee maintains guest house and some expenditure must have been incurred towards maintenance of the same. It will be reasonable to allow 50% of the expenditure claimed. Accordingly, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

specific adjudication, hence, they are dismissed. 25. In Ground No. 2, assessee has challenged the disallowance of an amount of ₹ 49,81,113 u/s 40(a)(i) of the Act. 26. We have heard the parties and perused the materials on record. This issue is identical to the issue raised by assessee in Ground No. 3 of ITA No. 1780/Hyd/14, following our decision therein as expressed in para No. 17 Of the order we delete the addition made by AO. 27. In Ground No. 3, assessee has challenged the disallowan .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ation of the information submitted by assessee, it was noticed by AO that assessee has paid such consultancy fees to its foreign subsidiaries without deducting tax at source as per section 195. He, therefore, proposed to disallow the same by invoking section 40(a)(i) of the Act. Though, assessee strongly objected to the proposed disallowance, but, AO rejecting the contentions of assessee, disallowed the amount of ₹ 17,11,39,243 u/s 40(a)(i) by alleging violation of section 195 of the Act. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

logies ( Pratt and Whitney), USA to render some software development services. It was submitted, in the process of fulfilling the contractual obligations, assessee parceled out a portion of work to its non-resident subsidiaries for rendering onsite services and the payments made were towards services rendered by subsidiaries for software development work sub-contracted to them. In this context, ld. AR drew our attention to the 'Master Service Agreement' between assessee and United Techno .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

7-08 in ITA Nos. 115 & 2184/Hyd/2011 dated 16/01/14 Infotech Enterprise Ltd. (supra) as the Tribunal while considering similar disallowance made in these assessment years deleted the additions while holding that payments made were towards software development charges and not consultancy charges. Ld. AR submitted, the order passed by the Tribunal on this issue was accepted by the department as no appeal was preferred before the Hon'ble High Court on this issue. He further submitted, same .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the master service agreement between assessee and Pratt & Whitney as well as inter company agreement, we find merit in assessee's contention that the amounts paid were actually towards software development charges towards a portion of work sub-contracted to the non-resident subsidiaries, though in the accounts, it has been termed as consultancy charges. In fact similar payments made to foreign subsidiaries arising out of the same agreement were subject matter of addition in AY 2006-07 a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

en reproduced in the earlier part of this order. (vide paragraph no. 9). It is also a fact on record that the department has accepted the aforesaid finding of the coordinate bench since no appeal was preferred on this issue before the Hon'ble High Court. As the facts involved in the impugned AY is materially same, and no contrary fact has been brought to our notice by ld. DR, respectfully following the decision of the coordinate bench in AYs 2006-07 ad 2007-08 (supra), we hold that the payme .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

res being written off. On verifying the details submitted by assessee, he noticed that the spares written off were hard disk, R&D material, soft mouse and DAT drives, modems, Dell hardware, MB Ram etc. AO observed that all these items are fixed assets relating to computers, hence, are in the nature of capital asset. He opined that replacement of the spares of a capital asset is an expenditure, which is capital in nature, hence, cannot be allowed as a revenue expenditure. However, he held tha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nditure. He submitted, similar expenditure claimed by assessee in AY 2008-09 was allowed by ld. DRP following the decision of the jurisdictional High Court, hence, there is no reason why it was disallowed in the impugned AY. 35. Ld. DR, however, relied upon the assessment order. 36. We have considered the submissions of the parties and perused the material on record. There is no dispute with regard to the fact that the expenditure claimed by assessee relates to replacement of certain spares to t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version