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TMI Blog2018 (8) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... with section 143(3) of the Income-tax Act (the Act) at income of Rs. Nil after adjusting brought forward business losses of Rs. 54,37,55,822, as against returned income of Rs. Nil after setting off of brought forward losses of Rs. 4,87,99,289. 2. That the assessing officer erred on facts and in law in making adjustment of Rs. 48,29,39,813 to the income of the appellant on account of the alleged difference in the arm's length price of the international transaction of provision of software development services 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, holding that: (i) the appellant did not maintain segmental accounts for the related and non-related transactions and there was no segregation of these activities in the audited financials. (ii) in the segmental accounts prepared by the appellant, expenses which cannot be directly allocated are apportioned o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m loans which are invested in acquisition of fixed assets shall be capitalized along with the fixed assets. 3.1 That the assessing officer/ DRP 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 aggregated with the value of fixed assets. 3.2 That the assessing officer erred on facts and in law in not appreciating that interest on amounts borrowed in connection with acquisition of an asset to the extent relatable to the period after such asset is first put to use, cannot be capitalized and treated as part of actual cost of such asset. 3.3 Without prejudice, the assessing officer/ DRP erred on facts and in law in allegedly considering the interest rate at 15% on the short term loans for the purpose of computing the interest to be capitalized. 3.4 Without prejudice the assessing officer/ DRP erred on facts and in law in not allowing depreciation on the increased cost of acquisition / written down value of such asset after including interest expenses of Rs. 1,20,16,720. 4 That the assessing officer erred on facts and in law in levying interest under Section 234B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated 15.04.2015 passed in ITA No. 44/2015 has affirmed the view of the Tribunal in Assessment Year 2009-10 by observing as under:- "The second question is whether the adjustment directed by the AO/TPO ultimately set aside by the ITAT, with respect to the profits margin derived by the assessee in regard to its transactions with the associated enterprise could have been subjected to adjustment. The ITAT was of the opinion that since the assessee was a service provider to its associated enterprise (AE) as well as other foreign customers or non-AEs, the suggestion that the non-AE transactions which reported lower margins and to be used for bench marking the AE transactions were acceptable. The adjustment was not called for. This Court sees no reason to interfere firstly because the ITAT's order has become final. Furthermore, the ITAT's reasoning is in accord with Rule 10B(1)(e)(ii) of the Income Tax Rules. This question does not arise for consideration." 4.3.1 We further note that the Tribunal in assessee's own case for the assessment year 2008-09 has given the directions to the AO/TPO as under:- "13. We find that in AY 2007-08 Tribunal has observed in para 4 as under:- 4." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts and circumstances, respectfully following the order for earlier assessment years noted above, we restore this matter to the file of the AO/TPO with similar directions as have been given by the ITAT in the preceding assessment year." 4.3.2 Since the facts of the year under consideration are similar to the facts involved in the assessment year 2008-09, therefore, respectfully following the precedent as referred above, the ground no. 2 to 2.7 are restored to the file of the AO/TPO with the similar directions as have been given by the ITAT in assessment year 2008-09 (Supra). In the result, the ground is allowed for statistical purposes. 5. Apropos ground nos 3 to 3.4 relating to adhoc disallowance of interest expenses of Rs. 1,20,16,720/-. 5.1 Ld. Counsel for the Assessee submitted that identical issue came up before the Tribunal in the assessment year 2009-10 in assessee's own case passed in ITA No. 1572/Del/2014 and the Tribunal has set aside the matter to the TPO and in this behalf he drew our attention towards Tribunal's order placed at page no. 115 & 116 of the PB and requested that similar directions may also be passed in this year under consideration by following the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply the proviso to Section 36(l)(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 for acquisition of asset for extension of business and the date on which the asset thus procured was put to use is absolutely necessary. However in the instant case, we find that no such exercise has been done by the AO to find out the date on which the assessee borrowed the fund for acquisition of asset in the relevant AY and we also find that no attempt has been made by the AO to find out on which date the asset thus procured with the said borrowed fund have been put to use. Only after the dates as afore-stated has been found out then only one can compute the disallowance as prescribed by the proviso to section 36(1)(ii) of the Act. In the said circumstances we set aside the impugned order on this issue and remand this issue back to the file of AO, with a direction to AO to find out the date on which the assessee borrowed the fund for acquisition of asset and als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts 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, holding that: (i) the appellant did not maintain segmental accounts for the related and non¬related transactions and there was no segregation of these activities in the audited financials. (ii) in the segmental accounts prepared by the appellant, expenses which cannot be directly allocated are apportioned on the basis of respective turnover and is not reliable at all. (iii) The segmental accounts were created by the assessee artificially. (iv) that the characteristics of services transferred, functions performed, asset employed and risk assumed by assessee in providing services to related and unrelated party are different. 2.2 That the DRP/ TPO 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 DRP/ TPO erred on facts and in law in disregarding the internal benchmarking analysis applying TNMM undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 5,43,79,729 as against actual brought forward losses claimed in the return of income of Rs. 25,00,07,902. 5. That the assessing officer 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 appeal before or at the time of hearing. 9. Ground no. 1 is general in nature, hence, needs no separate adjudication. 10. Apropos ground nos. 2 to 2.6 relating to TP adjustment amounting to Rs. 9,86,08,398/- in respect of international transaction of provision of software development services is concerned, we find that issue in dispute is exactly similar to the issue raised in assessment year 2012-13 as discussed in para no. 4 to 4.3.2 referred above while deciding the ITA No. 1028/Del/2017 wherein we have set aside the similar issue to the file of the AO/TPO in terms of the earlier directions of the Tribunal. Therefore following the consistent view, this issue is also set aside to the file of the AO/TPO in terms of our directions given in para no. 4.3 to 4.3.2 as referred above. In the result, the ground is allowed for statistical purposes. 11. Apropos ground nos 3 to 3.2 relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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