TMI Blog2022 (11) TMI 1341X X X X Extracts X X X X X X X X Extracts X X X X ..... requested the DRP to decide the issue on merits - HELD THAT:- Remand this issue back to DRP for fresh adjudication as per law after giving Appellant a reasonable opportunity of being heard. While doing so the DRP shall take into consideration the thirdparty-invoices already filed by the Appellant and the Remand Report, dated 21.10.2013, submitted by Assessing Officer in respect of the same as well as any further invoices/documents that may be filed by the Appellant before DRP to support the claim. Accordingly, addition on account of the transfer pricing adjustment is set aside. Nature of expenditure - Disallowance of Software Expenses - Appellant appearing before us submitted that the aforesaid expenses were disallowed on the ground that the same were capital in nature and depreciation @ 60% was allowed in respect of the same - HELD THAT:- Ground No. 5 raised in the appeal is dismissed as not pressed. The Assessing Officer is directed to allow depreciation in respect of the aforesaid amount at the rate of 60% as per law. TP adjustment - reimbursement of software maintenance expenses (connectivity charges) - HELD THAT:- On closure scrutiny we note that the amount of USD 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer is of the view that credit is not available, the Appellant would be granted reasonable opportunity of being heard to justify its claim. Ground No. 10 is allowed for statistical purposes. - ITA No. 1628/MUM/2014, 2297/MUM/2015 - - - Dated:- 23-11-2022 - SHRI AMARJIT SINGH, ACCOUNTANT MEMBER AND SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER For the Appellant : Shri Nitesh Joshi For the Respondent : Ms. Samruddhi Dhananjay Hande ORDER Per Rahul Chaudhary, Judicial Member: 1. These are two appeals filed by the Assessee for the Assessment Years 2009-10 and 2010-11. Since the appeal involved common grounds arising out of similar facts, the same were heard together and are being disposed of by way of a common order. ITA No. 1628/Mum/2014 (Assessment Year 2009-10) 2. We would first take up appeal for the Assessment Year 2009-10 directed against Final Assessment Order dated, 08.01.2014, passed under Section 143(3) read with Section 144C(13) of the Income Tax Act, 1961 [hereinafter referred to as the Act ], as per directions issued by Dispute Resolution Panel-II, Mumbai (hereinafter referred to as the DRP ) under Section 144C(5) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09. 7. Based on the facts and circumstances of the case and in law, the Ld. AO/DRP erred in adding an amount of Rs.81,800 to the income of the appellant on account of mismatch of AIR details. 8. Based on the facts and circumstances of the case and in law, the Ld. AO/DRP erred in making a disallowance of Rs. 31,653,132 under section 40(a)(iii) of the Income-tax Act, 1961(the Act ) 9. Without prejudice to ground no. 8, based on the facts and circumstances of the case and in law, the appellant prays that amount of Rs 31,653,132 be allowed as an expense in AY 2010-11. 4. The relevant facts in brief are that the Appellant is a company engaged in the business of wholesale trading (cash and carry) of consumer electronics and appliances. 5. The Appellant filed its return of income on 26.09.2009 declaring loss of INR 22,80,48,420/-. The case of the Appellant was selected for scrutiny. During the assessment proceedings, the Assessing Officer noted that the Appellant has entered into international transactions with its Associated Enterprises (AEs) and therefore, a reference was made under Section 92CA(1) to the Transfer Pricing Officer (TPO) for the determination of Arm s Leng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve which are taken up in seriatim hereinafter. Ground No. 1 8. Ground No. 1 is general in nature and therefore does not require adjudication. Ground No. 2, 3 and 4 9. Ground No. 2, 3 and 4 pertain to the following transfer pricing adjustment Sr. Description of No. transaction Associated enterprise (AEs) Amount ( INR) TP Adjustment (INR) 1 Reimbursement of Out-of-Pocket expenses Woolworths Limited, Australia 70,92,807 54,67,445 2 Recovery of Expenses Woolworths Limited, Australia 12,66,950 5,23,377 10. Part of Ground No. 2 and Ground No. 4 are directed against the transfer pricing adjustment of INR.5,23,377/- pertaining to recovery of expenses made by the Appellant from its AEs during the relevant previous year. 11. During the previous year relevant to the Assessment Year 2009-10, the Appellant recovered from its AEs INR.12,66,950/- being expenses incurred by the Appellant on their behalf. Duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Part of Ground No. 2 and Ground No. 3 are directed against the transfer pricing adjustment of INR 54,67,445/- pertaining to reimbursement of the out of pocket expenses. 15. The relevant facts for the adjudication of the issue, in brief, are that the Appellant had claimed deduction for payments of INR 70,92,807/- made by the Appellant to its AEs contending the same to be reimbursement of out of pocket expenses incurred by the AEs on behalf of the Appellant. The Appellant submitted third-party invoices for INR 16,25,362/-. The TPO, after granting benefit in respect of the same, proposed transfer pricing adjustment of INR 54,67,445 taking ALP of the balance out-ofpocket expenses of INR 54,67,445/- as Nil . The proposed transfer pricing adjustment of INR 54,67,445/- was incorporated in the Draft Assessment Order. The Appellant filed objections before the DRP. However, the DRP declined to grant any relief to the Appellant holding that the Appellant was not able to justify the claim with the supporting invoices/documents during the assessment proceedings. Accordingly, Assessing Officer made transfer pricing adjustment of INR 54,67,445/- in the Final Assessment Order, dated 08.01.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to INR.27,22,692/- already filed by the Appellant and the Remand Report, dated 21.10.2013, submitted by Assessing Officer in respect of the same as well as any further invoices/documents that may be filed by the Appellant before DRP to support the claim. Accordingly, addition of INR 54,67,445/- on account of the transfer pricing adjustment is set aside. 19. In view of the above, Ground No. 2 is partly allowed, Ground No. 3 is partly allowed and Ground No.4 is allowed. Ground No. 5 20. Ground No. 5 pertains to disallowance of Software Expenses of INR 1,06,73,773/- held by the Assessing Officer/DRP to be capital in nature. The Ld. Authorised Representative for the Appellant appearing before us submitted that the aforesaid expenses were disallowed on the ground that the same were capital in nature and depreciation @ 60% was allowed in respect of the same. He submitted that the appellant does not wish to press this Ground of appeal and is satisfied with the grant of depreciation at the rate of 60% in respect of the aforesaid expenses. Accordingly, Ground No. 5 raised in the appeal is dismissed as not pressed. The Assessing Officer is directed to allow depreciation in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Act, 1961 [hereinafter referred to as the Act ], as per directions issued by Dispute Resolution Panel-II, Mumbai (hereinafter referred to as the DRP ) under Section 144C(5) of the Act pertaining to the Assessment Year 2010-11. 27. The Appellant has raised the following grounds of appeal: Transfer Pricing Grounds 1. That on the facts and circumstances of the case and in law the Learned Assessing Officer/ Transfer Pricing Officer/ ( Ld. AO/ TPO ) erred in proposing and the Hon'ble Dispute Resolution Panel ( DRP ) further erred in upholding the transfer pricing adjustment of Rs.40,07,005 pertaining to reimbursement of out of pocket expenses and reimbursement of software maintenance expenses to its Associated Enterprise ( AE ), alleging the same is not at arm's length in terms of the provisions of Sections 92C(1) and 92C(2) of the Income-tax Act, 1961 ( Act ) read with Rule 10D of the Income-tax Rules, 1962 ( the Rules ). 2. That on the facts and circumstances of the case and in law the Ld. AO/ TPO/ DRP grossly erred in ignoring the facts and materiality of third party invoices submitted to the Ld. AO TPO and in adjusting an amount of Rs.15,37,81 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent and without prejudice to the other grounds of appeal preferred by the appellant. 28. The relevant facts in brief are that the Appellant is a company engaged in the business of wholesale trading (cash and carry) of consumer electronics and appliances. 29. The Appellant filed its return of income on 29.08.2010 declaring loss of INR 1,10,61,771/-. The case of the Appellant was selected for scrutiny. During the assessment proceedings, the Assessing Officer noted that the Appellant has entered into international transactions with its Associated Enterprises (AEs) and therefore, a reference was made under Section 92CA(1) to the Transfer Pricing Officer (TPO) for the determination of Arm s Length Price (ALP) of the international transactions. The TPO, vide order, dated 16.01.2014 passed under Section 92CA(3) of the Act, proposed transfer pricing adjustment of INR 83,48,801/- including the following two transfer pricing adjustments: Sr. No. Particulars Amount (INR) 1 Reimbursement of Out of Pocket Expenses to AE [For non submission of third party invoices] pertaining to travelling, acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P on the proposed addition. However, the DRP declined to grant any relief to the Appellant holding that the Appellant was not able to justify the claim by following the order of DRP for the Assessment Year 2008-09. Accordingly, Assessing Officer made transfer pricing adjustment of INR 15,37,812/- in the Final Assessment Order, dated 27.02.2015. Being aggrieved, the Appellant has carried the issue in appeal before us. 35. We note that the DRP had rejected the objections filed by the Appellant on the issue under consideration by following the decision of DRP for the Assessment Year 2008-09. In appeal preferred by the Appellant for the Assessment Year 2008-09 identical issue has been decided in favour of the Appellant and the addition has been deleted. The relevant extract of the decision of the Tribunal passed in ITA No. 7718/Mum/2012 on 13.10.2022 reads as under: 18. We have heard the rival submissions and perused the material on record. While we are not inclined to accept the contention advanced on behalf of the Appellant that an assessee cannot be directed to produce bills/supporting documents pertaining to entire amount of expenses claimed as deduction, we are also alive t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that for the Assessment Year 2008-09 Appellant had not furnished third-party invoices or other supporting documents for 22% out of pocket expenses reimbursed which is 24% for the Assessment Year 2010-11 which is in issue before us. TPO/Assessing Officer has not pointed out any defect/discrepancy in the bills/supporting documents furnished by the Appellant as the same have been examined and accepted. Since there is no change in the facts and circumstances in the assessment year 2010-11 before us as compared to the Assessment Year 2008-09, adopting the reasoning given by the Tribunal in paragraph 18 of the order of the Tribunal for the Assessment Year 2008-09 reproduced hereinabove, we delete the transfer pricing addition of INR 15,37,812/- made in relation to reimbursement of out of pocket expenses to AE. Accordingly, Ground No. 2 raised in the appeal is allowed. Ground No. 3 4 37. Ground No. 3 is directed against the transfer pricing adjustment of INR 24,69,193/- pertaining to reimbursement of software maintenance expenses (connectivity charges). 38. During the previous year relevant to the Assessment Year 2010-11, the Appellant made a payment of INR 24,69,193/- to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t before the TPO) he submitted that the Appellant was required to incur monthly charges on connectivity in respect of which rates were prescribed in the aforesaid report. He submitted that the connectivity charges were incurred for taking dedicated lease lines, and were separate/distinct from the software maintenance expenses incurred for customization of AS-400 ERP Software. 40. Per Contra, the Learned Departmental Representative relied upon the order passed by the TPO/DRP. 41. We have considered the rival submission and perused the material on record including Annexure 10 and 11 to submission dated 25.11.2013 filed by the Appellant before TPO and the Project Closure Report. The Project Report is dated 10.10.2006. During the hearing the Learned Authorised Representative for Appellant had relied upon Section 2 to the said report giving Cost and Pricing Summary to contend that total amount of USD 5,440/- reflected at the bottom on the column with heading Months 1 to 48 payments to contend that this was the communication charge which was reflected in monthly inter-group account statement under the head communication charges . On closure scrutiny we note that the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to disallowance of aforesaid software expenses in appeal before the Tribunal for the Assessment Year 2008-09 (ITA No. 7718/Mum/2012) disposed vide order dated 13.10.2022 and in appeal for the Assessment Year 2009-10 being disposed of by way of present order. Accordingly, the Appellant is entitled to claim the depreciation in respect of the aforesaid Software Expenses pertaining to the Assessment Year 2008-09 and 2009-10 and therefore, the Assessing Officer is directed to allow depreciation at the rate of 60% in respect of aforesaid Software Expenses of INR 80,07,197/- and INR 74,71,642/- (INR 1,06,73,775/- Less INR 32,02,133/-) disallowed during the Assessment Year 2008-09 and Assessment Year 2009-10. Ground No. 6 raised by the Appellant is allowed. Ground No. 7(a) and 7(b) 46. Ground No. 7(a) and 7(b) are directed against disallowance of lease rental payment of INR 1,00,59,112/-. 47. Learned Authorised Representative for Appellant submitted that the Assessing Officer has incorrectly disallowed lease rent payments of INR 1,00,59,112/- by considering the same as capital expenditure by misleading himself in believing that the Agreement For Provision For Warehousing Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olworths India with respect to Goods, as and when Woolworths India requests. xx xx 5.1 Services provided from premises: Provider shall provide the services to Woolworths India from the Premises. 5.2 Adequacy of Premises : Provider shall ensure that the requirements set out in schedule 1 are satisfied at all times with respect to the Premises, and that the Premises are suitable and adequate for provision of the Services required by Woolworth India from time to time. xx xx 5.4 Access: Woolworths India may at any time during Working Hours, having given not less than 24 hours prior notice to Provider (which notice, notwithstanding clause 22.6, may be given oraliy to the Representative of Provider), enter the Premises and be permitted to conduct an inspection of the Premises, and Woolworths India's Goods stored at the Premises, for the purpose of inspecting or counting Woolworths India's Goods and ensuring that Provider is complying with its obligations under this agreement. Provider shall co-operate fully with Woolworths India with respect to any such inspection so as to ensure that each inspection can be fully, and without hindrance by Provider, carried out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Administrative Expenses forming part of financial statement for the previous year relevant to the Assessment Year 2009-10, rent is shown as INR 5,50,82,263/-, and warehouse and facility charges are shown at INR 3,45,86,682/-. Further, Schedule 17 Notes to Accounts mentioned the maturity profile of finance lease obligations. Thus, it is not clear whether the payment of INR 1,00,59,111/- pertain to operating or finance lease obligations of the Appellant. Further, before the Assessing Officer as well as before the DRP the Appellant has maintained the position that the payments of INR 1,00,59,111/- pertain to finance lease. In view of the aforesaid facts, we hold that the issue requires verification by the Assessing Officer. Accordingly, this issue is remanded back to the file of Assessing Officer for fresh adjudication. Ground No. 7(a) and 7(b) are allowed for statistical purposes. Ground No. 8 54. In Ground No. 8 pertains to addition of INR 2,60,035/- made by the Assessing Officer. The Appellant had claimed deduction for the aforesaid amount as bad debt written off. 55. The Ld. Authorised Representative for the Appellant submitted the Appellant made 100% payment for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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