TMI Blog2021 (4) TMI 581X X X X Extracts X X X X X X X X Extracts X X X X ..... e international transaction by the Ld.AO/TPO. Disallowance u/s 10A regarding the voluntary income offered by assessee for computing the transfer pricing adjustment - HELD THAT:- As the first proviso to section 92C(4) of the Act is evidently applicable only to situations where adjustment to the ALP is made by the Assessing Officer/TPO/Ld. DRP and not to the voluntary adjustment made by the assessee itself. We note that, various Hon ble High Courts and the coordinate Benches of the Tribunal have allowed revised enhanced deduction u/s 10A of the Act on the additions to the income made during the revised return/course of assessment. Further, we also note that, if the legislature intended to treat the adjustments made by the Assessing Officer at par with the voluntary adjustment made by the assessee, the same would have been expressed, and section 92C(4) would not have referred to computation of income made by the Assessing Officer in terms of the ALP determined u/s 92C(3) based on enhanced income. We therefore find merit in the arguments advanced by the Ld.Counsel in this regards. It is an admitted fact that the voluntary TP adjustment has been made through a disclosure in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pper turnover filter from the finalist. ICRA Techno Analytics Ltd. (seg) - As assessee before us is a captive service provider who performs software development services only for its AE under a specified contract the comparable alleged for exclusion is in diversified activities for which segmental details are not available.Under such circumstances we do not find it to be a fit comparable for computing ALP of the international transaction with a captive service provider. Respectfully following the above view, we direct Ld.TPO to exclude this comparable from final list. Negative working capital adjustment granted by Ld. AO - Rule 10B(3) of the Income-tax Rules, 1962, supports the said action of the Ld.TPO in granting working capital adjustment. In the following decisions rendered by coordinate bench of this Tribunal in case of, TNT India (P.) Ltd. [ 2011 (3) TMI 560 - ITAT BANGALORE] AND APIGEE TECHNOLOGIES (INDIA) PVT. LTD [ 2015 (9) TMI 1547 - ITAT BANGALORE] it has been held that positive adjustment towards working capital differences between the assessee and the comparables should be considered and appropriate adjustment granted in arriving at the profit margins of comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 30/01/2015 passed by Ld.DCIT Circle 6(1)(2), Bangalore under section 143 (3) read with section 144C(13) of the Act for assessment year 2010-11 on following grounds of appeal: ITA No.517/B/2015 1. The directions of the Dispute Resolution Panel are opposed to law and facts of the case. 2. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in law in holding that the size, turnover and brand of the company are the deciding factors for treating a company as a comparable and accordingly erred in excluding Infosys Ltd., M/s. KALS Information Systems Ltd., Persistent Systems Ltd., M/s. Tata Elxsi Ltd., Sasken Communication Tech. Ltd., R.S.Software India Ltd. as comparables without appreciating the fact that the TPO had discussed regarding comparables and included the companies as rule 1OB(3) requires that not only the transactions but the enterprises should also be comparable in TNMM. 3. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in appreciating that the directions issued are beyond the mandate of the provisions of Sec. 144C of the IT Act. 4. On the facts and in the circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court. 11. For these and other grounds that may be urged at the time of hearing, it is prayed that the directions of the Dispute Resolution Panel in so far as it relates to the above grounds may be reversed. 12. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above. ITA No. 570/B/2016 I. Transfer Pricing The grounds mentioned hereinafter are without prejudice to one another. 1. The learned Deputy Commissioner of Income-tax (Transfer Pricing-IV), Bangalore ( Transfer Pricing Officer or learned TPO ) grossly erred in determining an adjustment u/s 92CA of the Income-tax Act, 1961 to the Arm's Length Price ('ALP') of the international transactions entered into by the Appellant with its Associated Enterprises ( AEs ) with respect to the software development services. 2. The Appellant aggrieved by the TPO order further appealed before the Honorable Dispute Resolution Panel ( DRP ) against the TPO order and subsequently, the learned Assessing Officer ( learned AO ) issued the final assessment order with a transfer pricing ( TP ) adjustment of INR 4,77,30,553/-. 3. The learned AO/l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted as Comparable companies. II Corporate Tax 1. Set off and carry forward of business loss of Noida unit 1.1 The learned AO has erred in not setting off the business loss amounting to ₹ 5,14,01,852 pertaining to Noida unit against the income chargeable to tax under the head 'Profits and Gains from Business' after claim of deduction u/s 10A for the Bangalore and Pune units. 2. Set off of loss under the head 'Income from other Sources 2.1 Without prejudice to the above, the learned AU has further allowing set off of loss under the head 'Income from other Sources' amounting to ₹ 2,16,0 17 against the income chargeable to tax under the head 'Profits and Gains from Business'. 2.2 In case your Honour allows the loss of the Noida unit to be set off against the income chargeable to tax under the head 'Profits and Gains from Business' after claim of deduction under section 1 OA for the Bangalore and Pune units., the learned AO be directed to allow carry forward of the loss under the head 'Income from other Sources' amounting to ₹ 2, 16,017 for set off against income in subsequent years. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor of the Company in accordance with the provisions of the Act. 3. Ld.Counsel submitted that, amongst the TP adjustment, assessee wishes to seek exclusion of ICRA Techno Analytics Ltd. she submitted that though this comparable was selected by assessee, she placed reliance on the decision of Chandigarh Special Bench in case of Quark Systems Pvt.Ltd., reported in (2010) 4 ITR (T) 606. Placing reliance on the ratio of this decision, the Ld.Counsel submitted that, assesee seek exclusion of a comparables selected by it in its TP study as not being comparable, even of such plea is raised for the 1st time before this Tribunal. She also submitted that the decision of Chandigarh Special Bench in case of Quark Systems Pvt.Ltd.(supra) has been affirmed by Hon able Punjab and Haryana High Court reported in 244 CTR 542. 4. The next issue raised in the additional ground is regarding computation of negative working capital adjustment. She submitted that the Ld.TPO computed negative working capital adjustment for the comparable companies by using the standard template of computation, without appreciating the fact that assessee is a captive service provider funded by its associated enterpri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is stated to be a subsidiary of Core Objects Software Inc., USA, which in turn is held by Symphony Services Corp. US. The assessee was incorporated under the provisions of Companies Act 1956, and is engaged in provision of software development and related services. 9. The assessee filed its return of income on 12/10/2010. Subsequently the return was revised on 15/10/2010 wherein additional income of ₹ 1,20,30,165/- was offered as adjustment voluntarily. The return was processed under section 143(1) of the Act, and notice under section 143(2) of the Act was issued to the assessee. In response to statutory notices, representative of assessee appeared before the Ld.AO and filed requisite details as called for. 10. While going through the details, the Ld.AO found that assessee has entered into international transaction that exceeded ₹ 15 crores, and accordingly, a reference was made to the Transfer Pricing officer to determine the arm s length price of such international transaction. 11. Upon receipt of reference, the Ld.TPO called for economic details of the international transaction in Form 3 CEB. The Ld.TPO observed that assessee had following international t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inksoft Global Services Ltd. 11.13 4. Zenith Infotech Ltd. 18.23 0. Kale Consultants Ltd. 18.27 1. Tania Solutions Ltd. -12.39 2. Virinchi Technologies Ltd. 7.46 Arithmetical Mean 9.46 14. The Ld.TPO dissatisfied with analysis by assessee applied following filters: Step Description 1. Companies whose software development service income ₹ 1 crore - excluded 2. Companies whose software development service is less than 75% of the total operating revenue - excluded 3. Companies which have related party transactions more than 25% of the sales - excluded 4. Companies who have export sales less than 75% of sales - excluded 5. Companies whose employee cost i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for non-deduction of TDS under section 40(a)(ia) of the Act amounting to ₹ 51,00,689/-; disallowed a sum of ₹ 21,73,081/- under the head income from other sources which was set off against the rental expenditure by assessee; recomputed the deduction under section 10A of the Act thereby reducing the deduction to ₹ 46,80,755/- as against ₹ 6,58,74,683/- claimed by assessee. 18. Upon receipt of the draft assessment order, assessee raised objections before DRP. 19. In regards to the transfer pricing adjustment, the DRP directed exclusion of Infosys Ltd., Kals Information Systems Ltd., Persistent Systems Ltd., Tata Elxsi Ltd., and Sasken Communications Ltd., by accepting the contentions of assessee. The DRP also excluded RS Software India Ltd., and Persistent Systems and Solutions Ltd., suo moto. In respect of the remaining comparables DRP rejected the submissions of assessee. Regarding corporate tax issues raised, the DRP held that; disallowance of depreciation on software under section 40(a)(ia) of the Act, on account of non-deduction of TDS is not sustainable. Directed the Ld.AO to verify the claim of TDS having deducted on p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks assumed, the report states that assessee is not a complex entity that engages in full-fledged product development/system consulting services covering the complete software development cycle. The AE undertakes all these activities and therefore all the significant business and enterprise in real risk including product development performance of the market, financial risk etc., are born by the AE. 25. From the above it is clear that assessee is a captive service provider to its associated enterprises carrying out its functions as required and specified by the AE. It is also clear that assessee assumes low risk while providing the software development service and is characterised as a low risk contract service provider. 26. At the outset, Ld.Counsel, submitted that in assessee s appeal, she has been instructed to restrict her arguments to Grounds No.3, 4 (b), (c) and Additional Ground No.1, 2. Amongst corporate tax issues the Ld.Counsel argued on issues raised in Ground Nos.1, 2 and Additional Ground No.3. 27. It has been submitted that other grounds are either general or consequential in nature, and therefore do not require separate adjudication. 1st we shall deal wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year was equal to the average operating profit mark-up on cost earned by the comparable companies, it was concluded that the transfer pr/ce of the Assessee is at arm's length. In our view, the statement is factually incorrect and misleading. The statement that the assessee received price of ₹ 3821,89,008/- in the international transactions with AEs as against ₹ 370158,923/, considered by the TPO is false and contrary to the facts emerging from the audited P L accounts, report u/s 92E (in Form 3CEB) and TP study. 3.1.1.3 Perusal of the auditor's report u/s 92E (Col. 10 in Part B of Form 3CEB) shows that the value of international transactions with AEs for software development services as per books of accounts was ₹ 3701,58,923/- only (Refer Annexure 2). Value of international transactions with AEs as per ALP as been shown at ₹ 3821,89,088/-. In the last Column of Ann. 2of the auditor s report, the adjustment to total income is shown at ₹ 120, emphasis added). This report is apparently based on TP documentation/study maintained by the assessee. 3.1.1.32 As seen from the undated Transfer Pricing Study report prepared by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and deduction u/s 10A has been claimed as profits of the undertakings, which is not Correct in our view. 3.1.1.4 While filing the revised return on 15.10.2010, the assessee has allocated the alleged TP adjustment of ₹ 120,30,1641- as income/profits among three of the STPI units at Bengaluru, Noida Pune and claimed deduction u/s.10A. We have perused the auditor's report in Form 56 (Rule 160) for the computation of deduction LI/S 10A as under: Particulars STP Bengaluru STP Noida STP Pune STP Total Inc From other source Total Rs. income from business or profession Profit as per P L A/c Add: 62070954 22570821 (51560848) Nil 3823649 Nil 14333755 22570821 (215157) Nil 14118597 22570821 Depreciation as per books Add: Inadmissible expenses Addition u/s.92E - 8190770 327387 3512007 12030164 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions, where the assessee was being remunerated by the AE on cost plus mark-up basis. 3.1.1.52 It is relevant to refer to clause (I) of sub-Rule IOD(1) reproduced as under: (1) Every person who has entered into an international transaction shall keep and maintain the following information and documents, namely- (a) .. (1) details of the adjustments if any, made to the transfer prices to align them with arm's length prices determined under these rules and consequent adjustment made to the total income for tax purposes. (emphasis supplied) As may be seen from the said sub-rule that any adjustment determined (by an assessee or by the AO) under these rules shall be made to the total income of an assessee for tax purposes, and not to the profits of any particular undertaking belonging to the assessee. Since the deduction u/s.10A is based on books of accounts and compliance to the requirement of bringing in foreign exchange for the profits to be eligible for deduction, the TP adjustment amount cannot be said to be profits or income of an undertaking for the purpose of deduction. Further, the TP adjustment has to be made only after being determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iGate Global Solutions Ltd in ITA no.453 of 2008 dated 17/06/2014; Decision of coordinate bench of this Tribunal in case of DCIT vs. EYBGS India (P) Ltd reported in (2020) 117 taxmann.com 294 Decision of Hon ble Delhi Tribunal in case of DCIT vs. G.S.Engineering Constructions India (P.) Ltd. reported in (2018) 100 taxmann.com 66; Decision of Hon ble Pune Tribunal in case of Apporva Systems (P.) Ltd. vs. DCIT reported in (2018) 92 taxmann.com 82. 35. On the contrary, Ld.CIT.DR relied on the observations of authorities below. He submitted that, there was no need to make voluntary adjustment. He submitted that these were not reflected in the computation of ALP and therefore Ld.TPO was correct in not considering it. He also submitted that, assessee has claimed deduction under section 10A on such voluntary adjustment as a part of export turnover. 36. We have perused submissions advanced by both sides in light of records placed before us. The issues that needs to be considered for purpose of this ground are two: (1) Whether Ld.TPO erred in not considering the additions of voluntary adjustment for computing proposed adjustments. (2) Whether Ld.AO erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allocated the voluntary TP adjustment to various STPI units as inadmissible expenses , for which there is no basis. DRP noticed that though the voluntary TP adjustment has been treated as profits of the business of the undertaking, the same has been reduced from export turnover for purposes of computation of deduction under section 10A. The assessee thus claimed deduction under section 10A amounting to ₹ 6,95,45,969/- which was subsequently denied by the DRP. The DRP denied such allocation to STPI undertaking, and thereby inflate the profits of such units for claiming deduction. 39.2 DRP was of the opinion that since deduction u/s.10A is based on the books of accounts, and compliance to requirement of brining in foreign exchange for the profits to be eligible for deduction, the voluntary TP adjustment cannot be said to be profits or income of the undertaking for the purpose of deduction. DRP thus held that, where the consideration has not been earned by the undertaking or accounted in its books of account as export receivables nor the consideration is received in or brought into India by assessee, the same cannot be included in the export turnover of undertaking for compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10A on the adjustment made by the assessee to the arm's length price. In the instant case, the assessee company entered into transaction with associated enterprise. The assessee company determined arm's length price and accordingly made adjustment to the income because arm's length price determined was more than the consideration, at which the transactions were shown in the books of account. The deduction under s. 10A has not been allowed as per proviso to s. 92C(4). As per this proviso, no deduction under s. 10A or 10B or under Chapter VI-A is to be allowed in respect of amount of income, by which the total income of the assessee is enhanced after computation of income under the sub-section. The learned Authorized Representative during the course of proceedings has referred to the word 'enhanced'. In case the income is enhanced, then deduction is not permissible. However, in the instant case, income has not been enhanced because the same was already returned by the assessee. In the Memo Explaining the Provisions of Finance Bill, 2006, it has been mentioned as under: Under sub-s. (4), it has been provided that on the basis of arm's length price so det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here adjustment to the ALP is made by the Assessing Officer/TPO/Ld. DRP and not to the voluntary adjustment made by the assessee itself. We note that, various Hon ble High Courts and the coordinate Benches of the Tribunal have allowed revised enhanced deduction u/s 10A of the Act on the additions to the income made during the revised return/course of assessment. Further, we also note that, if the legislature intended to treat the adjustments made by the Assessing Officer at par with the voluntary adjustment made by the assessee, the same would have been expressed, and section 92C(4) would not have referred to computation of income made by the Assessing Officer in terms of the ALP determined u/s 92C(3) based on enhanced income. We therefore find merit in the arguments advanced by the Ld.Counsel in this regards. 45. The Ld.Counsel before us submitted that assessee does not have any other income other than the income generated from the units that is eligible for deduction under section 10A of the Act. It is also been submitted that the assessee has excluded voluntary TP adjustment from 'export turnover' in line with the computation mechanism prescribed in section 10A, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee stands allowed for statistical purposes. 48. Ground 4 (b) and Additional ground 1 is seeking exclusion of Larsen and Toubro Infotech Ltd. and ICRA Techno Analytics Ltd. Larsen and Toubro Infotech Ltd. 49. It was submitted that Larsen and Toubro Infotech Ltd. included without considering the fact that, these comparables are functionally not similar with that of assessee and also that they fail the turnover filter. The Ld.AR submitted that applying the upper limit for turnover filter while carrying out the benchmarking analysis is necessary as asked Ld.TPO has excluded comparables which is less than ₹ 1crore turnover. He submitted that, Larsen and Toubro Infotech Ltd., having high turnover of more than 200 crores deserves to be excluded by applying an upper turnover limit. 50. The Ld.Councel submitted that for the same year under consideration this Tribunal excluded this comparables for having high turnover. He submitted that coordinate bench of this Tribunal in case of Genesis Integrating systems vs.DCIT reported in (2012) 20 taxmann.com 715, suggested guideline regarding considering turnover filter and the categorisation of software companies. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating Systems (I) (P.) Ltd. (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India (P.) Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation is available for two segments i.e., services and sales. However, it is evident from the annual report that the service segment comprises of software development, software consultancy, engineering services, web development, web hosting, etc. for which no segmental information is available and therefore, the objection of the assessee is found acceptable. Accordingly, Assessing Officer is directed to exclude the above company from the comparables. 15. We find that the facts recorded by the DRP in respect of business activity of this company are not in dispute. Therefore, when this company is engaged in diversified activities of software development and consultancy, engineering services, web development hosting and substantially diversified itself into domain of business analysis and business process outsourcing, then the same cannot be regarded as functionally comparable with that of the assessee who is rendering software development services to its AE. 16. In view of the above facts, we do not find any error or illegality in the findings of the DRP that this company is functionally not comparable with that of a pure software development service provider 60. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered for purposes of upholding the exclusion. As regards the RPT filter, in our opinion this needs verification by the Ld.TPO. 68. Accordingly, we remand these comparables back to the Ld.TPO for verifying the related party transaction. In the event it is found less than 25% this comparable ease to be included in the finalist. Accordingly ground 4 (c) stands allowed for statistical purposes. 69. Ground no.10 Additional Ground No.2 raised by assessee is on negative working capital adjustment granted by Ld. AO. 70. The Ld.Counsel submitted that the Ld.AO while discussing working capital adjustment erred in adding to the average arithmetic profit margin of the comparable companies negative working capital adjustment of (-) 0.61%. The Ld.Counsel submitted that, assessee do not bear any working capital risk since it is been fully funded by its AE from its inception and has no working capital contingencies. She also submitted that assessee is a captive service provider and does not stand to lose anything as it is compensated on the total cost plus basis. However it has been submitted by her that, though assessee is working without any working capital risk, the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities below. 76. We have perused submissions advanced by both sides in light of records placed before us. 77. Admittedly, the units are eligible units under section 10A of the Act. Ld.AO disallowed the claim of assessee of set of 78. The decision based on which the Ld.AO disallowed the claim of the assessee has been reversed by Hon ble Supreme Court in case of CIT vs Yokogawa, (supra), by observing as under: 16. From a reading of the relevant provisions of Section 10A it is more than clear to us that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794 dated 9.8.2000 which states in paragraph 15.6 that, The export turnover and the total turnover for the purposes of sections 10A and 10B shall be of the undertaking located in specified zones or 100% Export Oriented Undertakings, as the case may be, and this shall not have any mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly section 10B(i), 10B(5), 10B(6)(ii), and section 70 as well as the para 5.2 of the Circular issued by the Central Board of Direct Taxes Section 10B(1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee. Section 10B(5) The deduction under sub-Section (1) shall not be admissible for any assessment year beginning on or after the 1st day of April 2001, unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as defined in the Explanation below sub-Section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section. Section 10B(6)(ii) Notwithstanding anything contained in any other provision of this Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no brought forward loss to be set off in accordance with the provisions of section 72 of the Act) and the same is eligible in accordance with the provisions of Chapter VI-A or Sections 10A, 10B etc. of the Act, the same shall be allowed in computing the total income of the assessee. 7. section 10B of the Act was substituted by Finance Act, 2000 w.e.f. 1-4-2001. section 10B as it stands is not a provision in the nature of an exemption but provides for a deduction of such profit and gains as are derived by 100% export oriented undertaking from the export of articles or things or computer software for 10 consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce. section 10B does not contain any prohibition to prevent an assessee from setting off losses from one source against income from another source under the same head of income as prescribed under section 70 of the Act. section 10B(6)(ii) of the Act restricts carry forward and set off of loss under sections 72 and 74 of the Act but does not provide anything regarding intra-head set off under section 70 and inter-head set off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect to. It is pertinent to mention here that Income-tax Appellate Tribunal had taken a similar view in Mindtree Consulting (P.) Ltd., supra, which was upheld by a Division Bench of this Court in Yokogawa India Ltd. (supra). Similar view has been taken by Bombay High Court in Galaxy Surfactants Ltd. (supra). We respectfully agree with the view taken by the Division Bench of this Court as well as Bombay High Court. It is pertinent to mention here that decision of the Supreme Court in Yokogawa, supra is not an authority for the proposition that an assessee cannot claim set off under section 70 of the Act and therefore, the aforesaid decision has no application to the facts of the case. Since we have dealt with the issues involved in this appeal with reference to the return filed for the assessment year 2008-09 on 30-8-2009, therefore, it is not necessary for us to deal with the contention raised by the learned counsel for the revenue that the return had filed beyond prescribed period and therefore, has no legal sanctity. In view of preceding analysis, the substantial question of law framed by this Court are answered in favour of the assessee and against the revenue. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2-5 raised by revenue stands partly allowed. 90. Ground No. 6 is in respect of disallowance deleted made under section 40(a)(ia) of the Act for non-deduction of TDS towards purchase of software. 91. The Ld.Sr.DR relied on the orders passed by the Ld.AO and the draft assessment order. 92. At the outset the Ld.Counsel submitted that, this issue has been dealt with by this Tribunal in assessee s own case for assessment year 2009-10 in IT(TP)A No.305 248/Bang/2014 by order dated 12/02/2020 as under: 42. As far as ground No.4 is concerned, the issue is whether depreciation can be denied on software on the ground that there has been no tax deduction at source while making payment to the seller. The facts are that during the assessment year, the assessee had purchased software for Bangalore and Pune Unit for ₹ 287,823I and ₹ 26,000Irespectively. The assessee capitalized the same and claimed depreciation @ 60% on the same. The AO disallowed the depreciation claimed amounting to ₹ 1,72,693 and Rs,15,600 on purchase of computer software in respect of the units located at Bangalore and Pune respectively on account of non-deduction of taxes at source in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rises is whether any amount paid outside India or to the Non Resident without deduction of tax at source and the assessee has capitalized the same in the fixed assets and claimed only depreciation is subjected to the provisions of sec. 40(a)(i) or not? The Tribunal held that it was manifest from the plain reading of provisions of sec. 40(a)(i) that an amount payable towards interest, royalty, fee for technical services or other sums chargeable under this Act shall not be deducted while computing the income under the head profit and gain of business or profession on which tax is deductible at source; but such tax has not been deducted. The expression 'amount payable' which is otherwise an allowable deduction refers to the expenditure incurred for the purpose of business of the assessee and therefore, the said expenditure is a deductible claim. Thus, section 40 refers to the outgoing amount chargeable under this Act and object to TDS under Chapter XVII-B. There is a difference between the and other kind of deduction. The other kind of deduction which includes any loss incidental to carrying on the business, bad debts etc., which are deductible items itself not because an expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing the view taken hereinabove, we do not find any infirmity in the action of the Ld.AO in deleting the disallowance made under section 40 (a) (ia). Accordingly this ground raised by revenue stands dismissed. 95. Ground No. 7 has been raised by revenue against the deletion of disallowance made for non-deduction of TDS on payments towards professional and legal fees. The Ld.Sr.DR placed reliance on orders passed by the Ld.AO and the draft assessment order. 96. At the outset the Ld.Counsel submitted that DRP directed assessee to file the details in respect of the same before the Ld. AO for due verification, based on which the Ld.AO was consider the claim of assessee. He submitted that, the details were actually filed before the DRP which is placed at page 181-185 of the paper book regarding the TDS having deducted in respect of the payments made. The Ld.AO while passing the final assessment order carried out verification in respect of the same and granted relief to assessee. 97. We have perused the submissions advanced by both sides in light of records placed before us. We do not find any infirmity in the order of the Ld.AO as relief granted to assessee is base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the head income from other sources however it was contended that the same has to be allowed as deduction under section 57 (iii) of the Act. The DRP on appreciating the facts was of the opinion that any expenditure incurred in relation to such income from other sources has to be allowed as deduction as per provisions of section 57(iii) of the Act, as there was a direct connection between the income and expenditure incurred. 105. We note that identical issue arose before this Tribunal in assessee s own case in IT(TP)A No.305 248/B/2014 for assessment year 2009-10. This Tribunal vide order dated 12/02/2020 observed and held as under: 25. As regards ground No.5, the facts are that the assessee sublet a portion of the premises of which it was a lessee and earned rental income of Rs,1,31,20,320. The income so earned was offered by the assessee under the head 'income from other sources'. Against the aforesaid income, the assessee claimed deduction u/s. 57(iii) of the Act of the lease rent which the assessee paid to its lessor viz., a sum of Rs,1,81,11,130. It is the plea of the assessee that the proportionate rent of the portion of the sub-lease was not claimed as deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le High Court of Karnataka in the case of East West Hotels Ltd. (supra), the deduction claimed by the assessee has to be allowed. We, however, direct the AO to examine as to whether the sum claimed as a deduction has also been claimed as deduction while computing profits of the STPI unit. The AO will verify this aspect and decide on whether the claim of assessee for deduction can be allowed after affording opportunity of being heard to the assessee. 106. Respectfully following the above observation, we also direct the Ld. AO to examine as to whether the sum claimed as deduction has also been claimed as deduction while computing profits of the STPI unit. The AO shall verify this aspect then decide on whether the claim of assessee for deduction can be allowed after affording proper opportunity of being heard in accordance with law. Accordingly this ground raised by revenue stands allowed for statistical purposes. Ground No. 2 (raised under corporate tax by assessee in its appeal): 107. As we have already remanded this issue, ground No. 2 raised by assessee under the corporate tax regarding set-off of loss under the head income from other sources against income cha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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