TMI Blog2020 (8) TMI 724X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the coordinate bench in assessee s own case [ 2017 (8) TMI 225 - ITAT DELHI ] we direct the learned assessing officer to grant assessee depreciation on the above software at the rate of 60% as relying on CIT Vs BSES Yamuna Powers Ltd. [ 2010 (8) TMI 58 - DELHI HIGH COURT ] Disallowance u/s 14A read with rule 8D - no satisfaction was recorded by the assessing officer having regard to the accounts of the assessee - HELD THAT:- AO failed to record any satisfaction with regard to the correctness of the claim of the assessee that it has not incurred any expenditure. AO did not cite any of the expenditure in the profit and loss account of the assessee, which is incurred by the assessee for earning of the exempt income. The satisfaction of the learned assessing officer as provided u/ss 2 of Section 14 A is a preliminary requirement for invoking the provisions of rule 8D of the income tax rules for making a disallowance u/s 14 A - in absence of any satisfaction recorded by the learned AO with respect to the examination of the books of account of the assessee to verify the correctness of the claim of the assessee, the disallowance u/s 14A cannot be sustained. Accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned assessing officer is dismissed. Disallowance of depreciation on goodwill - asset purchase agreement dated 4/11/2009 and its subsequent amendment with American Express India private limited to acquire the global travel service centre as a going concern for a lump sum consideration - HELD THAT:- As stated by us earlier that this issue is not a new as the claim of the depreciation on the goodwill has already been allowed to the assessee in assessment year 2010 11 by the coordinate bench. Therefore respectfully following the decision of the coordinate bench in assessee s own case, we dismiss this ground of appeal. Disallowance of referral pay - assessee has failed to furnish evidence in respect of the services rendered - According to the learned dispute resolution panel the above expenditure is allowable u/s 37 (1) - HELD THAT:- No infirmity in the order of the learned dispute resolution panel because such expenditure was incurred by the assessee for the purpose of recruitment of its own employees. The payment for such referral was made to the employees of the company who were existing and who referred new employees. Therefore, the above expenditure is incurred wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. In doing so, the Ld. AO/ Ld. TPO has grossly erred in: 3.1 re-characterizing the outstanding period as short term loans advances related party receivable from overseas AEs beyond 90 days period to the AEs; 3.2 disregarding the business/ commercial arrangement by not appreciating the fact that unlike a loan or borrowing, outstanding receivable is not an independent transaction which can be viewed on standalone basis and needs to be examined with the commercial transaction as a result of which the debit balance has come into existence; 3.3 rejecting the Appellant s contention that the impact of working capital investment made by the Appellant should be evaluated using Transactional Net Margin method ( TNMM ) as the most appropriate method rather than independently benchmarking the outstanding receivables of the Appellant by considering an interest rate (i.e. LIBOR) for comparability which does not amount to the application of Comparable Uncontrolled Price ( CUP ) Method or any of the method defined in the Act; 4. The Hon ble DRP has erred in considering reimbursement of expenses received as part of the core transaction (i.e. provision of Information Techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contribution in the total value chain; 5.6 not appreciating the fact that in the relevant assessment year the Appellant was; entitled to a tax holiday on its profits from provision of IT enabled services and therefore did not have advantage by manipulating the transfer prices of its any motive of deriving any tax international related party transactions; 6. The reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO has not recorded any reasons in the draft assessment order based on which he reached the conclusion that it was necessary or expedient to refer the matter to the Ld. TPO for computation of the ALP, as is required under section 92CA(1) of the Act. 7. The Ld. TPO/ AO erred in enhancing the income of the Assessee by ₹ 3,55,309 holding that the international transactions do not satisfy the arm s length principle envisaged under the Act and in doing so have grossly erred in not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case; 8. The Ld. AO/ Ld. TPO has grossly erred on facts and in law by disregarding judicial pronouncements in India in undertaking the TP adjustm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under section 10A of the Act with reference to the income computed by the Ld. AO under the head profits and gains of business and profession and not the profit as computed by the Appellant. 13. That the Ld. AO erred in law and on the facts and circumstance of the case by directing to levy interest under section 234B, 234C and 234 of the Act. 14. That the Ld. AO erred in law and on the facts and circumstances of the case by initiating penalty proceedings under section 271(l)(c) of the Act for furnishing inaccurate particulars of income and concealment of income. 3. ITA No. 1482/Del/2016 is filed by the ld AO raising following grounds of appeal:- 1. On the facts and circumstances of the case and in law, the Hon ble DRP has erred in directing to allow deduction u/s 10A/10B in respect of income of ₹ 353989/- from sale of scrap of Gurgaon of Pune Unit. 2. On the facts and circumstances of the case and in law, the Hon ble DRP has erred in directing to delete the disallowance on account of depreciation of Goodwill of ₹ 168391424/- which is not allowable as per the provisions of income tax Rules, 1962. 3. On the facts and circumstances of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble at 35.78%. He applied this margin to the operating cost of the assessee at ₹ 5660241831/- compared them with the price received of ₹ 7122893475/- and made an adjustment of ₹ 562582883/-. He further found that there is a delay in recovery of outstanding dues from the associated enterprises and therefore, he held it to be a separate international transaction and computed the interest receivable from associated enterprises at overdue outstanding amounting to ₹ 5695209/-. 7. The ld AO based on the above adjustment passed an order proposing draft of the income on 30.03.2015 making an adjustment of ₹ 568278092/- on account of the ALP of international transaction. He further held that a. Sale of scrap cannot be considered as a part of eligible business profit while calculating deduction u/s 10A of the Act and made an addition of ₹ 1107141/-. b. Disallowed the depreciation of goodwill in the hands of the assessee amounting to ₹ 168391424/-. c. Restricted the depreciation of software @ 25% instead of 60% as claimed by the assessee and disallowed ₹ 115860/-. d. Assessee has derived an exempt income of ₹ 18674678/- which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s aggrieved with the sum of the addition retained in the final assessment order and the ld AO is aggrieved with the addition directed to be deleted by the ld TPO. Therefore, both the parties are in appeal before us. 12. We first come to the appeal of the assessee. Ground number 1 is general in nature and therefore it is dismissed. Ground no 13 and 14 are also not argued and hence same are also dismissed. 13. Ground number 2 3 are related to the transfer pricing adjustment of ₹ 355,509 in relation to delay in receipt of receivable from associated enterprise. The learned assessing officer from the perusal of the invoice of details of services rendered to the associated enterprise noted that in certain cases the remittances were received by the appellant after sometime beyond the period agreed between the parties i.e. 90 days. The learned transferpricing officer concluded that the outstanding receivable are like a shortterm loans/advances only and they fund the working capital requirement of the associated enterprise for the period. He therefore stated that delay in receipt of receivable is an unsecured loan advance to the associated enterprise, so a separate Internation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady been built into the sale price or profit margin of the appellant. Therefore, it was submitted that no separate adjustment on account of the alleged delay in realization of the receivable is warranted. For this proposition he relied on the decision of the honourable Delhi High Court in case of Principal Commissioner Of Income Tax Versus Kusum Healthcare Private Limited once again. He also referred to several judicial precedents of the coordinate benches wherein the adjustment on account of receivable was deleted on the basis of the comparison of working capital adjusted margin of the assessee with comparable companies applying transactional net margin method. In the end, it was submitted that at the beginning of the year ₹ 227,363,291 was payable by the appellant to its associated enterprise and no interest was paid by the appellant . It is debt free company. Therefore it is submitted that since the appellant has not paid any interest on payable due to its associated enterprise no interest to be imputed on the receivable outstanding from the associated enterprise. 15. The learned departmental representative relied upon the orders of the learned transfer pricing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed or acquired along with the computer and not to software license. 19. The learned authorised representative submitted that this issue is squarely covered in favour of the appellant by the order of coordinate bench in appellants own case for assessment year 2010 11 in ITA number 302/del/2015. He extensively referred to para number 24 of that order. 20. The learned departmental representative relied upon the orders of the lower authorities. It was submitted that there is a difference between the computer software and the software on which the assessee is claiming depreciation at the rate of 60%, which is merely a license. 21. We have carefully considered the rival contention and perused the orders of the lower authorities. In the present case, the issue is squarely covered in favour of the assessee by the decision in assessee s own case for assessment year 2010 11 in ITA number 302/del/2015 dated 3 January 2017 wherein para number 24 of that decision the identical software was considered. In para number 28, the coordinate bench relying on the decision of the honourable Delhi High Court in case of CIT versus BSE Yamuna powers Ltd (2013) 355 ITR 47 directed the AO to al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of ₹ 186,74,678 after deduction of such fund management charges. He further stated that no effort/ time was utilized in receiving the dividend income and the investment activity only requires filing of mutual fund standard printed requisition forms and issue of cheques. The dividend on maturity proceeds are straightway credited to the appellant s bank account. In the end, it was submitted that the coordinate bench in assessment year 2010 11 has set aside the matter to the file of the learned assessing officer. 24. The learned departmental representative vehemently supported the orders of the lower authority and submitted that the learned assessing officer has recorded proper satisfaction therefore the argument of the learned authorised representative that no satisfaction has been recorded is devoid of any merit. It was further stated that the learned AO has merely computed disallowance being 0.5% of the average value of the investment. He otherwise submitted that even the minimum activities that as stated by the learned authorised representative also deserves to be considered for making the disallowance and the only option left with the learned assessing officer i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Under subsection 2 of Section 14 A of the income tax act is a preliminary requirement for invoking the provisions of rule 8D of the income tax rules for making a disallowance u/s 14 A of the act. Therefore, in absence of any satisfaction recorded by the learned AO with respect to the examination of the books of account of the assessee to verify the correctness of the claim of the assessee, the disallowance u/s 14A cannot be sustained. Accordingly we direct the learned assessing officer to delete the disallowance of ₹ 1,252,630 made u/s 14 A of the act. 26. As we have already deleted the disallowance u/s 14 A of the income tax act in normal computation of the total income, for the similar reasons, as well as special bench decision in case of the Asst Commissioner of income tax versus Virret investments private limited [2017] 82 taxmann.com 415 (Delhi - Trib.) (SB)/[2017] 58 ITR(T) 313 (Delhi - Trib.) (SB)/[2017] 165 ITD 27 (Delhi - Trib.) (SB)/[2017] 188 TTJ 1 (Delhi - Trib.) (SB), we direct the AO to delete the above addition while calculating the book profit u/s 115JB of the income tax act. 27. Accordingly, ground number 10 of the appeal of the assessee is allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he head Profits and gains of business or profession ,- . (ia) thirty per cent of any sum payable to a resident, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 (emphasis supplied) The Memorandum explaining provisions of the Finance Bill, 2014 provides the rationale of the aforesaid amendment to section 40(a)(ia) of the Act in the following words: As mentioned above, in case of non-deduction or non-payment of tax deducted at source (TDS) from certain payments made to residents, the entire amount of expenditure on which tax was deductible is disallowed under section 40(a)(ia) for the purposes of computing income under the head Profits and gains of business or profession . The disallowance of whole of the amount of expenditure results into undue hardship. In order to reduce the hardship, it is proposed that in case of non-deduction or non-payment of TDS on payments made to residents as specified in section 40(a)(ia) of the Act, the disallowance shall be restricted to 30% of the amount of expenditure claimed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x act the disallowance has rightly been made. 32. We have carefully considered the rival contentions and perused the orders of the lower authorities. Here the facts stated before us undisputedly shows that the assessee has deducted tax on the above sum the rate of one percent instead of 2% as held by the assessing officer. Therefore there is no failure of non-deduction of tax. If there is any offence or violation it is deduction of tax at lower rates compared to what is prescribed. The issue is squarely covered in favour of the assessee by the decision of the honourable Calcutta High Court in CIT versus SK Tekriwal 361 ITR 431. In view of this ground number 11 of the appeal is allowed. 33. In the result, appeal filed by the assessee is partly allowed. 34. Now we come to the appeal of the learned assessing officer. The ground number 1 is with respect to the disallowance of deduction u/s 10 A/10 B on account of income of ₹ 353,989 arising from sale of scrap. Assessee has claimed deduction u/s 10 A of the income tax act on sale of scrap pertaining to its Gurgaon and Pune units amounting to ₹ 301,723 and ₹ 52,266 respectively. The learned assessing officer de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 10 B the profit derived from export of article or things or computer software shall be the amount which bears to the profits of the business of the undertaking in the same proportion as the export turnover in respect of such article or things or computer software bears to the total turnover of the business carried on by the undertaking. Therefore, according to that provision profits of the business of the undertaking is required to be computed and thereafter the deduction is required to be granted in proportion to the export turnover to total turnover. For this reason, also we do not find any infirmity in the order of the learned dispute resolution panel giving direction to the learned assessing officer to delete the above disallowance. Accordingly, ground number 1 of the appeal of the learned assessing officer is dismissed. 38. Ground number 2 of the appeal of the AO is against the disallowance of depreciation on goodwill amounting to ₹ 168,391,424 which resulted into on account of an asset purchase agreement dated 4/11/2009 and its subsequent amendment with American Express India private limited to acquire the global travel service centre as a going concern for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat this issue is not a new as the claim of the depreciation on the goodwill has already been allowed to the assessee in assessment year 2010 11 by the coordinate bench vide para number 71 of its order. Therefore respectfully following the decision of the coordinate bench in assessee s own case, we dismiss this ground of appeal. 42. 3rd ground of appeal of the AO is against the disallowance of referral pay amounting to ₹ 7,287,750 on the ground that the assessee has failed to furnish evidence in respect of the services rendered. The fact shows that the assessee incurred employee referral cost of the above sum towards payment to its employees, which is paid whenever a new employee is hired or employed through a reference given by the existing employee. The details of the employees to whom such referral pay was paid during the year was submitted by the assessee along with the pay slips mentioning the amount of referral pay so paid to the employees on sample basis. The learned assessing officer disallowed the above expenditure stating that no actual expenses were incurred. The learned dispute resolution panel took note of the industry practice of payment of referral paid to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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