9911796707
TMI Blog2019 (4) TMI 1929X X X X Extracts X X X X X X X X Extracts X X X X ..... ucts. The assessee also provides application / specific contract R & D activities with regard to developing and porting of software, creation of software specification, etc. The assessee filed its return of income for Assessment Year 2011-12 on 30.11.2011 declaring NIL income and current losses of Rs. 66,25,31,764/-. The return was processed under section 143(1) of the Act and the case was subsequently taken up for scrutiny for this Assessment Year. The Assessing Officer (AO) made a reference under section 92CA of the Act to the Transfer Pricing Officer (TPO) for determination of the arm's length price (ALP) of the assessee's international transactions with its Associated Enterprises (AE) in the year under consideration. The assessee has reported three segments, namely manufacturing, trading and services segments. While the international transactions in the manufacturing and trading segments were found to be at arms length by the TPO, the TPO made certain adjustments to the service segment of the assessee. 2.2 In respect of the services segment, the assessee classified its services as contract R & D services. The assessee conducted its comparability analysis applying TNMM as the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .01.2016 for Assessment Year 2011-12, has filed this appeal before the Tribunal, wherein it has raised the following grounds:- I. Transfer Pricing The grounds mentioned hereinafter are without prejudice to one another. 1. The learned Assessing Officer ("learned AO"), learned Transfer Pricing Officer ("learned TPO") and the Honourable Dispute Resolution Panel ("Hon'ble DRP") erred in proposing an adjustment of INR 8,43,63,985/- to the arm's length price of the Appellant's international transactions with Associated Enterprises ("AEs") with respect to the services rendered by the Appellant u/s 92CA of the Income-tax Act, 1961 ("the Act"). 2. The learned TPO / Hon'ble DRP erred in rejecting summarily the Transfer Pricing ("TP") documentation maintained by the Appellant by invoking provisions of sub-section (3) of Section 92C of the Act contending that the information or data used in the computation of arm's length price is not reliable or correct and conducting a fresh comparability analysis without appreciating the fact of impossibility of performance. 3. The learned TPO / Hon'ble DRP erred in rejecting the economic analysis performed by the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP erred in not applying the employee cost filter wherein companies having an employee cost greater than 25% of revenue should be accepted while selecting companies that are comparable to the Appellant. 12. The learned TPO / Hon'ble DRP erred in application of different financial year ending filter wherein companies with financial year ending other than March 2011 have been rejected. 13. The learned TPO / Hon'ble DRP erred in applying onsite filter to reject the companies that are comparable to the Appellant. 14. The learned TPO / Hon'ble DRP erred in not considering the provision for bad and doubtful debts as operating in nature. 15. The learned TPO erred in computation of operating margin on cost of comparable companies while proposing the transfer pricing adjustment to international transactions of the Appellant. 16. The learned TPO erred in computation of working capital adjustment while determining the transfer pricing adjustment to international transactions of the Appellant. 17. The learned TPO / Hon'ble DRP erred in ignoring the limited risk nature of the contractual services provided by the Appellant and in not providing an appropriate adjustm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DSIR] is mandatory for claiming expenses in the nature of such annual license fee. d. The learned AO and Hon'ble DRP has failed to appreciate that the annual license fees expenditure has been claimed as a deduction under section 37(1) of the Act which does not arrant any approval from DSIR and the said expenditure is solely for the purpose of business and are recurring in nature [from the second year of incorporation of the Company]. e. The learned AO and Hon'ble DRP has erred in not appreciating the fact that the applicable withholding tax on the payments has been deducted and remitted. f. The learned AO has erred in contending that the expenditure incurred by the Appellant would give enduring benefits and such expenditure would be capital in nature. g. Notwithstanding and without prejudice to the above, even if the said expenses are held as vital expenses relating to R&D resulting in an enduring benefit, the Appellant must be lowed deduction under section 35(1)(iv) of the Act. h. Notwithstanding and without prejudice to the above, even if the said expenses are held as capital in nature, the Appellant would be eligible to claim depreciation under section 32 of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per this ground, the assessee is requesting for inclusion of three companies but now he is requesting for inclusion of only one company i.e. R Systems International Ltd. and as per ground no. 3B, the request of the assessee is for inclusion of 4 companies i.e. Infosys BPO Ltd., Accentia Technologies Ltd., Cosmic Global Ltd. and Eclerx Services Ltd. Regarding ground nos. 3 to 7, he submitted that these grounds are not pressed and accordingly these grounds are rejected as not pressed and part of ground 3A is also rejected as not pressed. It was submitted that as per Para no. 15.1 of the order of DRP, it was held that the company R Systems International Ltd. cannot be considered as a comparable because the financials of this company is for a period of 12 months ending December 2008. He submitted that it is now a settled position of law that even if a comparable company is having different financial year and data for the period from April to March can be made available then such company can also be considered as a good comparable. He submitted that this issue may be restored back to the file of TPO for fresh decision. Regarding the request for exclusion of 4 companies, it was submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the provision has been made on a scientific basis. However, Revenue carried the matter to the Tribunal and the Co-ordinate Bench of this Tribunal in its order in IT(TP)A No.165 and 254/Bang/2014 dated 28.09.2017 for Assessment Year 2009-10 had remanded the matter back to the file of the AO for fresh determination. 6.2.1 We have considered the submission of both the parties and perused the material on record; including the judicial pronouncement cited. In Assessment Year 2009-10, the DRP had allowed the assessee's claim on this issue. Revenue had raised the issue before the Tribunal in grounds 3 and 4 of Revenue's appeal, which is at page 4 of Tribunal's order (supra) and which is extracted hereunder:- "3. The DRP erred in directing the AO to delete the disallowance of provision for warranty amounting to Rs. 1,09,46,000/ without appreciating that a comparison of the provisions and the actual expenses do not disclose any scientific relationship amongst them and the claim was only an estimation which cannot be held as scientific and the SC in the case of Rotork Controls India (P) Ltd. has held that the claim should be scientific. 4. The DRP erred in holding that the assessee& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estored back to AO for fresh decision. 10. We have considered the rival submissions. In view of this fact that the basis of computation of the provision by the assessee on account of warranty is not established to be on scientific basis before us and there is no finding of the authorities below in the aspect of this aspect of the matter, we feel it proper to restore back this issue to the file of AO for fresh decision with the direction that the assessee should bring all the details and evidence on record to establish that the provisions made by the assessee is on scientific basis and the AO should pass a speaking and reasoned order after providing an opportunity of being heard to assessee. Accordingly, the ground nos. 3 and 4 of revenue's appeal are allowed for statistical purposes." 6.2.3 From the above, we find that the Co-ordinate Bench of the Tribunal in its order for Assessment Year 2009-10 (supra) has remanded the issue back to the file of the AO and while doing so, has, inter alia, considered the provisions made for Assessment Year 2011-12; the year under consideration in this appeal. In the above view of the matter, we deem it appropriate to respectfully follow the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h before the AO has been made before the DRP. The DRP, however, declined admission of this claim and also the details / documents filed in support thereof. In doing so, the DRP has relied upon the decision of the DRP for Assessment Year 2009-10. 7.2.2 We find that the Co-ordinate Bench of this Tribunal in its order in IT(TP)A No.165 and 254/Bang/2014 dated 28.09.2017 in the assessee's own case for Assessment Year 2009-10 had remanded this issue back to the file of the AO for fresh examination and adjudication. The grounds raised by the assessee in this regard before the Tribunal for Assessment Year 2009-10 at 8 to 8B at page 3 of the order of the Co-ordinate Bench are extracted hereunder: "8. Disallowance of Research and Development (R&D) Expenditure- Rs. 33,897,837 8.A The learned AO erred in concluding approval under section 35(2AB) is mandatory for claiming expenses in the nature of annual license fee, testing charges and engineering services charges which have been merely grouped as R&D Expenditure. The learned AO ought to have appreciated that these expenditure are towards operating activities of the Appellant and do not provide any enduring benefits. 8.B Notwithstandi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, we deem it appropriate to follow the order of the Co-ordinate Bench of this Tribunal in the assessee's own case for Assessment Year 2009-10 (supra); admit the details filed by assessee before DRP and remand this issue back to the file of the AO with the same directions as contained in the Tribunal order for Assessment Year 2009-10 (supra). The assessee is directed to provide complete details and evidence of its claim which may be required by the AO to examine and decide the matter. Needless to add, the AO shall provide adequate opportunity of being heard to the assessee and to duly consider the submissions, details and evidences put forth by the assessee before deciding the issue. Consequently, ground 2 (a to h) is treated as allowed for statistical purposes. 8. In the result, the assessee's appeal for Assessment Year 2011-12 is allowed for statistical purposes. Revenue's appeal in IT(TP)A No.425/Bang/2016 - Assessment Year 2011-12 9.1 In this cross appeal, Revenue has raised the following grounds:- 1. M/s Infosys Technologies Ltd. A The Hon'ble DRP has erred in fact in rejecting the company as a comparable on the grounds that it is functionally different when the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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