TMI Blog2017 (1) TMI 1502X X X X Extracts X X X X X X X X Extracts X X X X ..... erest disallowance made by the Assessing Officer on M/s. Prodapt Corporation Inc, USA, M/s. Prodapt Technology Holdings Pvt Ltd and M/s. Southern Group Industries Pvt. Ltd to the file of the Assessing Officer to verify and pass orders and the assessee should be provided opportunity of being heard before disposal of the order on merits. Non deduction of TDS - payment to the subsidiary company towards software development services - Held that:- Considering the facts and the payment made to subsidiary for software development services does not come into the purview of applicability of provisions of TDS Section 40(a)(ia) of the act and accordingly we following the decision of this coordinate Tribunal M/s. Financial Software & Systems (P) [2016 (6) TMI 889 - ITAT CHENNAI] direct the Assessing Officer to delete the addition and allow this ground of the assessee. - ITA Nos.: 1015/Mds/2015 - - - Dated:- 16-1-2017 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER Appellant by : Shri Vikram Vijayaraghavan, Advocate Respondent by : Shri Vivekanandan, CIT O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: The assessee has filed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icing Officer (TPO). The Ld. TPO vide order dated 03.01.2014 has considered the methodology adopted and determined the Arms Length Price (ALP) with the upward adjustment of ₹21,41,590/- towards interest accrued to the assessee company on advances given to its wholly owned subsidiary Prodapt Corporation Inc., USA and whereas this adjustment was rectified under the directions of the DRP to ₹20,71,590/-. 5. Further, the Ld. Assessing Officer found that the assessee does not satisfy the conditions stipulated under Section 10A of the Act and also no Revised return of income was filed to claim the relief, and on further verification of the Form No.56F filed by the assessee for the assessment year 2010-11, the assessee commenced manufacture or production on 29.01.1999 which relates to the assessment year 1999-2000. Therefore, the Assessing Officer is of the opinion, that the exemption under Section 10A of the Act, was claimed in the first year being assessment year 2001-02 is without any basis as the assessee company has commenced manufacture in the assessment year 1999-2000. The Assessing Officer dealt on the provisions of Section 10A of the Act and there was no clarificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2000-01 and also supported with invoice copies. Whereas, the Assessing Officer relied only on the facts, based on the Form 56F, wherein it was mentioned that the production was commenced on 21.01.1999 relating to assessment year 1999-2000, as first year. We found the Revenue could not substantiate with any evidence before us that the production was commenced in the assessment year 1999-2000 but relied only on the Form 56F filed by the assessee. Considering the apparent facts, material on record and the paper book filed, we are of the opinion that the matter has to be re-examined by the AO as these facts were not mentioned in the order of the DRP and it is not clear whether the assessee has filed these details before the DRP or before the Assessing Officer to substantiate the claim. Therefore, in the interest of justice, we remit this issue to the file of Assessing Officer to verify the genuineness and the assessee shall be provided an opportunity of hearing before passing the order. 8. The Assessing Officer found that the assessee has incurred expenses towards the communication charges paid to Tata Communications and Reliance Communications and these charges are paid for de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerns without interest. The Assessing Officer found that the assessee has obtained loans and paying interest. Whereas, interest free advances were provided to its group concerns and the Ld. Assessing Officer dealt on the advances made to Prodapt Corporation Inc, USA being subsidiary of the assessee company and where day to day operations are controlled and advances made by the assessee company on commercial expediency. Whereas, the assessee has loan liability of ₹15,16,66,007/- as on 31.03.2010 and claims interest expenditure in P L account ₹64,68,160/-. Whereas the interest has been paid by the assessee, on providing interest free loans to three subsidiaries and the Ld. AR relied on the decision of the Supreme Court in the case of SA Builders v CIT (Appeals) in 288 ITR 1, where it was held that the interest burden on funds advanced to a third party is allowable if it is for commercial expediency. The assessee company could not prove with any evidence that this amount is used for the purpose of business. Whereas, the Ld. TPO has made an Adjustment of interest on advances to Prodapt Corporation USA, therefore no action was considered by the Assessing Officer. But, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts, the assessee company has provided these interest free advances for the reasons best known to them. The contention of the assessee that the advance to M/s. Prodapt Corporation Inc, USA was on commercial expediency and the Ld. TPO has already considered these facts and made upward adjustment. In respect of other two advances of M/s. Prodapt Corporation Inc M/s. Prodapt Technology Holding Pvt. Ltd., it was contested as opening balance available in the books of the assessee company and same pertains to the sale of furniture and computers in the year 2006 and during the year advance was provided and same was repaid within the financial year. Whereas, in the case of M/s. Southern Group Industries Pvt. Ltd, there is opening balance of ₹8,91,447/- and pertains to the adjustment of rental advance originally received by the Southern Group Industries. Therefore, the net amount is debited to the Southern Group Industries. We on perusing the provisions of Section 36(1)(iii) of the Act, found any expenditure in nature of interest on borrowed capital shall be allowed as deduction provided it has been utilized for the purpose of business. We are of the opinion that the assessee cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual agreement of the subsidiaries and does not interfere with the decision of the Assessing Officer to treat the transaction as in the nature of technical services under Section 9(1)(vii) of the Act and confirmed. 14. Before us on appeal, the Ld. AR s contention that the software transactions made by the non-resident subsidiary company in USA and the provisions of applicability of TDS doesn t arise and there is no obligation to deduct TDS. The Ld. AR relied on the coordinate Bench of this Tribunal in the case of Financial Software Systems (P) Ltd v Income Tax Officer (International Taxation) in ITA Nos.822,823 824/Mds/2016 dated 22.06.2016, where similar issue has been considered and the difficulty lies with the assessee company to deduct TDS on clients in USA Intrado, West Corporation and Pacific Crest Technology and prayed for allowing the appeal. Contra, the Ld. DR relied on the orders of the lower authorities. 15. We heard the rival submissions, perused the material on record and the judicial decisions cited. The crux of the issue lies that the assessee company has paid ₹1.57 crores to the subsidiary company towards software development services. The services ..... X X X X Extracts X X X X X X X X Extracts X X X X
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