9911796707
TMI Blog2023 (8) TMI 1528X X X X Extracts X X X X X X X X Extracts X X X X ..... aborate reason cited in the main portion of the assessment order and hence, computation with total income of Rs. 68,87,72,84,860 should have been considered. 3.1 The ld. A.R. submitted that National Faceless e-Assessment Centre ("NFeAC") has given two computations to the order wherein total income of Rs. 6,887 cr and Rs. 7,099 cr are computed under normal provisions. Second computation with total income of Rs. 7,099 cr is contrary to the elaborate reasons cited for variation in the assessment order whereas computation with total income of Rs. 6,887 cr is based on reasons cited in the order. Hence, without prejudice to our subsequent grounds to this appeal, computation with total income of Rs. 6,887 cr should have been considered. 3.2 The ld. D.R. not put any serious objection. 3.3 After hearing both the parties, we are of the opinion that if there is no mistake while determining the total income, the same be corrected by ld. AO while passing the Order Giving Effect to this Tribunal order. 4. Next ground no.3 of the assessee's appeal is with regard to order passed by NFAC u/s 144C(13) of the Act is barred by limitation. The ground is reproduced below: 3. That the order passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue. Even if the expenditure does not result in creation of any successful software product/application/tool etc., considering the business nature of the assessee, those expenses shall constitute revenue expenditure in the hands of the assessee, as it is necessary for the assessee to keep updating itself and keep trying new products to be afloat in the competitive market. Accordingly, expenses incurred on CTOprojects (Item A), Domain projects (Item C) and Platform/tools/solutions (Item D) are required to be allowed as revenue expenditure * Adjustment for Bench employees are made on adhoc basis on presumption that their services would have been used for CTO projects and accordingly, decision for CTO projects would apply mutatis mutandis to Bench employees as well. 5.2 The ld. D.R. relied on the order of ld. DRP. 5.3 We have heard the rival submissions and perused the materials available on record. This issue came for consideration before this Tribunal in assessee's own case in IT(TP)A No.370/Bang/2021 for the assessment year 2016-17 dated 14.6.2023, wherein, the Tribunal followed the earlier order of the Tribunal in assessee's own case for the assessment year 2015-16, wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne does not have to be a Sherlock Holmes to realize that Wipro Holmes is a capital asset. So where is this platform recognized in fixed asset schedule? Where are the other platforms for lnternet of Things and Blockchain reported? ln the course of hearing on 15.11.2018, this was confronted to the AR. AR argued that it is an industry practice to claim all employee expenses as revenue expenditure. The AR was asked to furnish details of (a) number of man- days of the company in the year, (b) number of man-days that have been utilized in in-house projects, and (c) number of man-days that have been characterized as 'bench'. 'Bench' is an industry nomenclature. An employee who is on the 'bench' is not working on any client project at a given time (she might have completed one client project and is awaiting another client project). But companies generally keep these employees busy by giving them some in-house projects. Assessee was also asked to furnish some sample timesheets of persons working on the 'bench', so as to verify this fact" The AO noticed that the assessee has claimed all expenses incurred in development of these software products as revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details of their usage were not available, the Ld DRP declined to grant depreciation. The relevant observations made by the Ld Dispute Resolution Panel are extracted below:- "2.g With respect to the classification of assets and resultant treatment for applying correct rates the information is not sufficient. The AO initially took the stand that the assets created are software and applied 60% rate (restricted to less than 182 days). However as per the remand report the AO raised alternative argument that the depreciation may be restricted to 25%, as the assessee was creating intangible assets. The information with regard to the nature of assets created and put to use is not made available to the Panel. Hence, it is not possible to grant depreciation to the assessee in the given circumstances." 6.4 The assessee raised an alternative contention that the above said disallowance would result in increasing the profits of undertakings, which are eligible for deduction u/s 10AA of the Act and hence enhanced amount of deduction should be given to the assessee. The Ld DRP accepted the same with the following observations:- "2.11 The Panel has considered the grounds, the submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contending that, if the development of software products mentioned above are considered to be capital in nature, then the same is allowable as deduction u/s 35(1)(iv) of the Act, since it is in the nature of Scientific Research expenses. In this regard, the assessee placed its reliance on the decision rendered by Hon'ble Karnataka High Court in the case of Talisma Corporation P Ltd (ITA 515/2007). The Ld DRP called for a remand report from AO, who opined that the assessee has only created "intangible assets" in the nature of "Software platform" and "software codes" and it cannot qualify as Scientific research activity. He also expressed the view that the decision rendered in the case of Talisma Corporation is distinguishable and cannot be taken support of by the assessee. The assessee strongly refuted the remand report given by the AO and contended that the provisions of sec.35(1)(iv) should be allowed in assessee's case and accordingly entire expenditure should be allowed. The ld DRP did not accept the contentions of the assessee and accordingly rejected the claim for deduction u/s 35(1)((iv) with the following observations:- "2.14 The contention of the assessee are carefully c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Section 35 relates to cases where assessee exclusively carries on "scientific research, as business activity and cases where assessee carries on a business as well as scientific research as two distinct activities. Board's circular No. 281 dated 22.9.1980 states that the deductions u/s 35 are aimed at providing incentives to encourage scientific research in India and to encourage assessee who need the output of scientific research for their business. Hence the activities of the assessee need to be examined in the light of these provision if assessee has a stream of activity called scientific research related to the business carried on by it. Whether the activities of the assessee are in the nature of scientific research or commercial activities in development of new products not amounting to scientific research needs to be addressed as per the provisions of the Act. The assessee has never made any claim for conducting scientific research in the past. The returns of income do not show any claim to that effect. Section 35 is special incentive provision where both revenue and capital expenditure are allowed fully. It is also observed that assessee has not maintained separate boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive plea of allowing depreciation on the amount so capitalised, which was accepted by AO in the draft assessment order. Before Ld DRP, the assessee raised another alternative plea to allow the capital expenditure as deduction u/s 35(1)(iv) of the Act. However, Ld DRP rejected both the alternative pleas, viz., claim for depreciation and also claim for deduction u/s 35(1)(iv) of the Act. (iii) The Ld A.R submitted that these software products/applications/software tools/platforms, which have been developed are part of its regular business operations and the products used for inhouse only enable enhancing its capabilities and efficiencies in newer technological areas. These are normal research expenses incurred on certain futuristic and disruptive technologies in order to stay competitive and relevant in market place. The assessee has intended to use them in-house and was not meant to exploit it commercially in order to facilitate its business activities. Hence these expenses are revenue expenses only. (iv) He submitted that the intangible assets (as named by AO) are only tools and solutions deployed along with other IT services to differentiate, facilitate and have effective d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice that the primary contention of the assessee is that the expenses incurred by it on development of software/applications/tools/platforms, which were meant to be used for internal purposes, are revenue in nature. These group of products have been titled as "internal intangible assets' by the AO. We noticed that the AO has, however, taken the view that cost of developing these internal intangible assets are required to be capitalised, as according to him, these internal intangible assets are capital in nature. 6.10 We notice that the assessee has furnished the details relating to the above said applications/tools etc before the AO. In the details furnished before the AO, the assessee has described these items as "Tools/Solutions/Platforms". The relevant details are available at pages 235 to 240 of paper book filed by the assessee. The break-up details of expenses capitalised by Ld DRP are given below:- (A) CTO PROJECTS:- (Rs. In crores) (i) CTO projects 94.81 (ii) Customer future projects 24.17 (iii) Domain Projects 109.79 (iv) Internal Projects 34.52 (iv) Platform/tools/solutions 74.98 338.27 Less:- Customer future projects 24.17 Total of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tomer funded projects - These projects have been undertaken by CTO for customers. We noticed earlier that the expenses relating to this project has not been capitalised. Hence it is outside ambit of this issue. (C) Domain projects:- These are expenses incurred as investment in 'Centre of Excellence' (CoE) to do research in specific domain solutions. It is stated that any outcome, which qualifies for development' will go to CTO projects for development and for further funding under CTO. As the name suggests, these expenses have been incurred to do research and improve domain specific solutions. Some of the work carried out under this heading are Digital CoE, Energy & Utilities CoE, Business Application Service CoE, Insurance CoE, Healthcare CoE, Financial Solutions CoE, Testing CoE etc. (D) Internal Projects :- These expenses have been incurred for internal use of Wipro, i.e., it is Enterprise specific projects for internal use and it is not meant to sale or use in customer's projects. These are regular upgrades, support and maintenance of existing process, solutions, tools etc. It is stated that no significant new development has taken place in FY 2014-15 relevant to AY 2015- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, the same can be properly classified as capital expenditure. At the same time, even though the expenses are once and for all and may give an advantage for enduring benefit but is not with a view to bringing into existence any asset, the same cannot be always classified as capital expenditure. The test to be applied is, is it a part of the company's working expenses or is it expenditure laid out as a part of the process of profit earning. Is it on the capital layout or is it an expenditure necessary for acquisition of property or of rights of a permanent character, possession of which is condition on carrying on trade at all. The assessee in the course of its business acquired certain application software. The amount is paid for application of software and not system software. The application software enables the assessee to carry out his business operation efficiently and smoothly. However, such software itself does not work on stand alone basis. The same has to be fitted to a computer system to work. Such software enhances the efficiency of the operation. It is an aid in manufacturing process rather than the tool itself. Thus, for payment of such application software, though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 order dated 16.03.2012. The reasoning given by the Tribunal is relevant here:- "20. We have carefully considered the rival submissions. The subject matter of the Settlement Agreement dated 21.03.20216 was independently owned IPR and Foreground Information that both the parties were privy to in the course of joint development of Foreground IPR but excluding Foreground IPR. We have already reproduced clause 3.1 and 3.2 of the Settlement Agreement in the earlier part of this order. The assessee and Spreadtrum were recognized as joint owners of the independently owned IPR and Foreground Information. In this regard, we may recollect that when the assessee and Spreadtrum entered into Agreement dated 30.05.2005, for joint development of Foreground IPR, the assessee agreed to contribute its WCDMA Source Code together with technical and testing documents in addition to deputing engineers to Shanghai, China, to work with Spreadtrum engineers on the project. This was the independently owned IPR that was recognized as joint property of assessee and Spreadtrum under the Settlement Agreement. This is clear from the term "Independently Owned IPR" as understood under the Settlement Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as the assessee was free to exploit independently owned IPR as well as Foreground information and therefore the argument that the sum received is capital receipt for losing a source of income and therefore not chargeable to tax, is devoid of any merits." It can be noticed that the Tribunal has expressed the view that the software product developed by an Information Technology company constitutes its revenue asset (akin to stock in trade) and hence the revenue generated on its sale or licensing, constitutes business income. In respect of the software product so developed, the said information technology company may be holding IPR and the transfer of IPR was also held to business receipt. The business model of an information technology company is such that it would retain source code of the software product with itself and would be issuing licenses for using the said software. Once source code is retained, the company could issue "n" number of licenses to its customers, whenever it receives orders from its customers. This is the peculiar feature of the software products. In the above said decision, the Tribunal has used the expression "stock in trade", only to mean that it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial to hold that it amounted to a new or fresh venture. The further circumstance that the agreement pertained to a product already in the line of assessee's established business and not to a new product indicates that what was stipulated was an improvement in the operations of the existing business and its efficiency and profitability not removed from the area of the day to day business of the assessee's established enterprise." The above said observations were made by Hon'ble Supreme Court in the context of deciding the issue whether the expenditure incurred by a pharma company for acquiring technical knowhow is revenue expenditure or not. The Hon'ble Calcutta High Court took support of the above said decision to hold that the expenditure incurred on purchase of software by a mining company is revenue expenditure. The relevant observations made by Hon'ble Calcutta High Court in the case of Indian Aluminium Company Ltd vs. CIT (ITA 278 of 2007 dated 18-032016) are extracted below:- "The Apex Court in Alembic Chemicals has recognized the fact that in a field where advancements are taking place rapidly and where technology which was once the state of the art becomes obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... developing at a very fast speed and new products are to be developed in case one has to remain in the business. The product developed is marketed for one year only, as the next product will come before the end of first year of the introduction of an earlier product. A number of prototypes are developed but all such prototypes are not used as model for the new product. The prototypes, which are not finally approved for commercial production, are rejected and such prototypes are of no use. Only those prototypes are retained, for which, the Company manufactures the product. Such prototype is kept for four to five years, so that the assessee Company is able to redress the complaint of any customer in case any complaint is received. Such prototype is model of the product, which is marketed and, therefore, it was of the view that the benefit is not derived for a period of more than five years, the benefit is not of enduring nature and expenses cannot be treated as capital and, therefore, ultimately it recorded a finding that the expenditure on prototype development is to be treated as revenue and not as capital. It also held that the expenditure in the alternative as allowable under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they want to be in the field. Therefore, there is a constant upgradation of the original product. It is in that context substantial amount is spent towards employees cost and the upgradation also includes use of components purchased every year. In fact, those components are used for manufacturing Printed Circuit Boards. Every year these Circuit Boards under go modification, changes. Therefore, the expenses incurred in this regard is in the nature of revenue expenditure. 12. The Apex Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1/3 Taxman 69 has held that, the decided cases have, from time to time, evolved various tests for distinguishing between capital and revenue expenditure but no test is paramount or conclusive. There is no all embracing formula which can provide a ready solution to the problem; no touchstone has been devised. Every case has to be decided on its own facts, keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. Further they held that, there may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at is claimed is for upgrading the existing product. Therefore, the product so upgraded goes on changing as time progresses, keeping in mind the requirement and the competition in the market. The Tribunal rightly held that the expenditure is not in the nature of capital expenditure but is revenue expenditure. Therefore, the first substantial question of law is answered in favour of the assessee and against the revenue. 15. In so far as the second substantial question of law is concerned, in fact the Tribunal has not given any reasons and as the assessee succeeds on the first substantial question of law, we are not going into the said question and that question is left open to be agitated at an appropriate time in an appropriate forum. On the ground that no reasons are given, we set aside the said finding." The Hon'ble jurisdictional Karnataka High Court has followed the decision rendered by Hon'ble Supreme Court in the case of Alembic Chemical works Co Ltd (supra) and held that the principles laid down by the Hon'ble Supreme Court shall equally apply to the area of telecommunication also, may be with more force. 6.18 In the case of CIT v. Carborandum Universal Ltd [2009] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Even if the expenditure does not result in creation of any successful software product/application/tool etc., considering the business nature of the assessee, those expenses shall constitute revenue expenditure in the hands of the assessee, as it is necessary for the assessee to keep updating itself and keep trying new products to be afloat in the competitive market. Accordingly, apart from the principles discussed in the earlier paragraphs, applying above said rationale, the expenses incurred on CTO projects (Item A), Domain projects (Item C) and Planform/tools/solutions (Item D) are required to be allowed as revenue expenditure. 6.21 Accordingly, we hold that the impugned expenses incurred by the assessee are allowable as revenue expenditure and accordingly, the disallowance made by the assessing officer could not be sustained." 6. Considering the arguments from both the sides a similar issue has been decided by the co-ordinate bench of the Tribunal, therefore, respectfully following the above judgment in assessee's own case for the AY 2015-16 cited supra in which the expenses incurred by the assessee have been held that "these expenses are revenue in nature, the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal are with regard to Corporate guarantee commission, which are reproduced as under: 5.6 "That NFAC, TPO and DRP erred in law in enhancing the percentage of commission on corporate guarantees issued by the appellant for and on behalf of its overseas subsidiaries to 2% (safe harbour rate for corporate guarantee for AY 2017-18 was 1%), without any valid computation or basis ignoring the arm's length price charged by the appellant at rate of 0.5%. 5.7 That NFAC, TPO and DRP erred in making the TP adjustment on account of commission for corporate guarantees without recording any reasons that are relevant to the facts and circumstances of the assessee." 7.1 The ld. A.R. submitted that that the assessee has also filed modified return for AY 2017-18. Accordingly, these grounds are dismissed as withdrawn. 7.2 The ld. D.R. relied on the order of the ld. DRP. 7.3 We have heard the rival submissions and perused the materials available on record. These grounds are infructuous in view of the APA entered by the assessee for the assessment year 2016-17 to 2020-21. 8. Ground Nos.5.8 to 5.18 are with regard to adjustment for Specified Domestic Transaction ("SDT"), which are reproduced a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejudice, that NFAC, TPO and DRP have failed to appreciate the fact that, Revenue for a SEZ unit from another SEZ/STPI unit, which is a subject matter of adjustment under SDT, has not been considered as an export turnover, on which the assessee has not been allowed any deduction under Section 10AA. 5.16 Without prejudice, that NFAC, TPO and DRP erred in adding the transfer pricing adjustment on account SDT transaction directly to the total income instead of making the transfer pricing adjustment in each of the components of the formula prescribed in Section 10AA(7) of the Act (i.e) the Export Turnover, Total Turnover and Profits of the respective undertakings and recomputed the deduction under Section 10AA. 5.17 Without prejudice, NFAC, TPO and DRP has erred in not making corollary adjustments in the cost of the service receiving units. Corollary adjustment is not adjustment made under Section 92C of the Act and the proviso under Section 92C(4) is not applicable to such corollary adjustment. 5.18 Without prejudice, NFAC, TPO and DRP erred in not following the common order dated 5th October 2020 of this Hon'ble Tribunal in assessee's own case for AY 2009-10 to AY 2014-15 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xceeds the prescribed limit. Sec.92BA reads as under:- "92BA. For the purposes of this section and sections 92, 92C, 92D and 92E, "specified domestic transaction" in case of an assessee means any of the following transactions, not being an international transaction, namely:- (i) any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of subsection (2) of section 40A;* (ii) any transaction referred to in section 80A; (iii) any transfer of goods or services referred to in sub-section (8) of section 80-IA; (iv) any business transacted between the assessee and other person as referred to in sub-section (10) of section 80-IA; (v) any transaction, referred to in any other section under Chapter VI- A or section 10AA, to which provisions of sub-section (8) or sub-section (10) of section 80-IA are applicable; or (vi) any other transaction as may be prescribed, and where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of (twenty crore)** rupees. (* Omitted by Finance Act, 2017 w.e.f. 1-4-2017. ** Substituted for "five" by Finance Act, 2015 w.e.f. 1.4.2016)" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of sec. 92BA(v) relating to Specified Domestic Transaction are applicable to the assessee. At the cost of repetition, we extract below clause (v) of sec.92BA:- "(v) any transaction, referred to in any other section under Chapter VI-A or section 10AA, to which provisions of subsection (8) or sub-section (10) of section 80-IA are applicable;" Hence, it is pertinent to refer to the provisions of sec.80IA(8), which read as under:- "80IA(8) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-eligible unit, if the said transfer of goods or services between the undertakings did not occur at "market value". The AO, for the purpose of computing deduction under respective section, shall compute the "profits and gains" of the eligible undertaking by substituting the "actual price" with "market value". 39.14 Though the above said provisions empowered AO to examine and determine the Fair Market Value of certain transactions mentioned therein, yet the Act did not prescribe any method to compute FMV of these transactions. Hence it has resulted in disputes between taxpayers and AO in determining FMV of transactions. The Hon'ble Supreme Court in the case of Glaxo Smithkline Asia (P) Ltd (supra) has examined the complications which arise in cases where fair market value is to be assigned to transactions between domestic related parties and suggested that Ministry of Finance should consider appropriate provisions in law to make transfer pricing regulations applicable to such related party domestic transactions. Accordingly sec.92BA was introduced along with corresponding amendment in sec.80IA of the Act. Under these provisions, the transfer pricing regulations were extended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions between (a) SEZ units and SEZ units, (b) SEZ units and non-SEZ units. In between SEZ units also, the transactions have taken place between SEZ units enjoying 100% tax deduction and SEZ units enjoying 50% tax deduction. Accordingly, one unit shall be providing services and another unit shall be receiving services. The inter-unit transaction would result in "generation of income" for "Service provider", while it would constitute "expenditure" for the "Service receiver". 39.19 Before us, the assessee has raised many important contentions, which would impact the exercise of determination of ALP. They have been summarised by us in the earlier paragraphs. We notice that many of the contentions have not been examined by the TPO/AO. We have noticed earlier, the TPO has determined the ALP of Profit ratio at 15.58% and has actually added the excess profit declared by the undertaking. The provisions of sec.10AA requires re-computation of deduction by substituting the actual value with market value. We notice that the AO/TPO did not carry out this exercise of recomputing the quantum of deduction allowable u/s 10AA of the Act by recasting the profit and loss account with the AL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of computing deduction u/s 10AA of the Act. This is so because, as per the provisions of sec.80IA(8) of the Act, the profits and gains of "eligible unit" alone is mandated to be recast by adopting "market value" for the purpose of computing deduction u/s 10AA of the Act. Since deduction u/s 10AA is not allowed for "non- eligible unit", the question of recasting the profit and loss account of that unit shall not arise. (C) However, in our view, the above said contention of the assessee will hold good for sec. 92 of the Act, since the provisions of sec.92(2A) mandates that any income in relation to the SDT shall be computed having regard to the "arms' length price". Further, as per the provisions of sec.92C(4), the assessing officer may compute the "total income" of the assessee having regard to the arms' length price so determined. Accordingly, unless the ALP is adopted in both the "service providing unit" and "service receiving unit" in respect of their inter-unit transactions, the total income cannot be computed having regard to the arms' length price. Accordingly, the ALP of the inter-unit transactions should be applied in both the eligible and non-eligible unit fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Adjustment Eligible Non- eligible unit Total Eligible Unit Non- eligible unit Total Sales Revenue 10,00,000 5,00,000 15,00,000 10,00,000 5,00,000 15,00,000 Less: - - - -50,000 -50,000 Adjustment for ALP Adj Rev 10,00,000 5,00,000 15,00,000 9,50,000 5,00,000 14,50,000 Cost -9,00,000 -4,25,000 -13,25,000 -9,00,000 -4,25,000 13,25,000 Add: - - - - 50,000 50,000 Corresponding Adjustment for ALP Adj Cost -9,00,000 -4,25,000 -13,25,000 -9,00,000 -3,75,000 - Net Income 1,00,000 75,000 1,75,000 50,000 1,25,000 1,75,000 Deduction u/s 10AA - 100% -1,00,000 -1,00,000 -50,000 -50,000 Total Income 75,000 1,25,000 SDT adjustment 50,000 In this illustration, (a) the "net income" remains at Rs. 1,75,000/- before and after ALP adjustments u/s 92 of the Act, since adjustment to the inter-unit transactions have to be done in the hands of both eligible and non-eligible units u/s 92 of the Act. (b) The amount of deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 92 of the Act in respect of Specified domestic transaction. (d) Hence the total income has increased from Rs. 75,000/-(prior to ALP adjustment) to Rs. 1,25,000/- after ALP adjustment. The net effect is the addition of SDT adjustment of Rs. 50,000/-. (B) Eligible Unit - eligible for deduction u/s 10AA of the Act @ 50%. ILLUSTRATION 3 (Over invoicing of revenue) Transaction between an Eligible unit, which is eligible for deduction @ 50% and a non-eligible unit. Eligible unit is Service Provider and accordingly earns revenue from non- eligible unit. Transaction Price - 1,00,000 Arms Length Price - 50,000 Actual Transaction SDT Adjustment Eligible Unit Non-eligible unit Total Eligible Unit Non-eligible unit Total Sales Revenue 10,00,000 5,00,000 15,00,000 10,00,000 5,00,000 15,00,000 Less: Adjustment for ALP - - - -50,000 -50,000 Adj Rev 10,00,000 5,00,000 15,00,000 9,50,000 5,00,000 14,50,000 Cost -9,00,000 - - 13,25,000 -9,00,000 - -13,25,000 Add: Corresponding - 425,000 - 4,25,000 -50,000 Adjustment for ALP - 50,000 Adj Cost -9,00,000 - - 13,25,000 -9,00,000 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 92 of the Act, since adjustment to the inter-unit transactions have to be done in the hands of both eligible and non-eligible units. (b) The amount of deduction u/s 10AA worked out to Rs. 50,000/- prior to ALP adjustment. However, it has fallen down to Rs. 25,000/- after ALP adjustment in terms of sec.80IA(8). (c)Thus the reduction in the quantum of deduction u/s 10AA, i.e., Rs. 25,000/- is also the adjustment made u/s 92 of the Act in respect of Specified domestic transaction. (d) Hence the total income has increased from Rs. 1,25,000/-(prior to ALP adjustment) to Rs. 1,50,000/- after ALP adjustment. The net effect is the addition of SDT adjustment of Rs. 25,000/-. 39.22 We notice that the TPO has not carried out these exercises. Hence, in our view, this issue requires fresh examination at the end of TPO/AO by duly considering various other contentions of the assessee and also by considering the discussions made supra. Accordingly, we set aside the order passed by A.O. on this issue and restore the same to the file of the AO/TPO for examining it afresh." In this year also, the TPO has not examined this issue in the line discussed above. Accordingly, we set aside t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit period to any party whether it is AE or not. Accordingly, interest should be benchmarked at nil interest based on internal CUP. Further, OECD TP Guidelines also states that no interest may be charged on delayed payment on commercial consideration for ensuring a long and healthy relationship as persuasive value. ii) Even otherwise, Wipro provides similar credit period to both AEs and Non-AEs and accordingly, based on internal CUP, no adjustment is warranted. Reliance placed on order of the Hon'ble Bombay High Court dated 8th January 2013 in ITA(L) No.1053/2012 in the case of CIT v. Indo American Jewellery Ltd. 9.2 Without prejudice to above, he submitted that delayed receivables carry short credit period provided to AEs and Non-AEs and should warrant a very low rate of interest, if any. 9.3 The ld. D.R. relied on the order of the ld. DRP. 9.4 We have heard the rival submissions and perused the materials available on record. After hearing both the parties we are of the opinion that similar issue came for consideration in assessee's own case in IT(TP)A No.370/Bang/2021 cited (supra), wherein held as under: 19. The last item of TP adjustment, i.e. the 5th item, pertains t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NFAC erred in facts and in law by not giving effect to the rectified directions of DRP and order of TPO giving effect to rectified directions of DRP . " 10.1 This ground is not pressed before us. Accordingly, dismissed as not pressed. 11. Next ground 6 to 6.3 are with regard to disallowance u/s 14A of the Act, which are reproduced as under: 6.1 "That the NFAC/DRP erred in law as it failed to appreciate that the appellant had itself quantified from its books of account a sum of Rs. 3,36,63,801 as the expenditure from different departments based on time spent co-relatable to earning exempt income and thus no further disallowance under section 14A of the Act was warranted. 6.2 That NFAC/DRP erred on facts and in law by quantifying and adding a notional expenditure of Rs. 27,88,19,336 under section 14A of the Act by applying Rule 8D, even while the conditions for applying the said rule were not met in the facts and circumstances of the appellant. 6.3 That the learned NFAC erred in law by not placing satisfaction on an objective criteria but based the same on subjective satisfaction which is impermissible in law." 11.1 The ld. A.R. submitted that in paras 22-23; pg nos 47-5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of investments. Ld. DRP restored the matter to the file of A.O. with the direction to examine this issue afresh by considering the decision rendered by ITAT in the case of Syndicate Bank, by Hon'ble Bombay High Court in the case of Godrej &Boyce Manufacturing Company Ltd. 328 ITR 81 and by Hon'ble Kerala High Court in the case of Dhanalakshmi Bank Ltd. 344 ITR 259. The A.O. while passing the final assessment order, duly considered the above said 3 decisions and confirmed the disallowance originally made in the draft assessment order. Aggrieved, the assessee has filed this appeal before us. 22.3 We heard the parties on this issue and perused the records. We notice that the coordinate bench has considered an identical issue in assessment year 2008-09 and the matter was restored to the file of the A.O. with the following observations: "12. Thus it is clear that the Tribunal was of the view that the disallowance made under section 14A as computed under Rule 8D(2)(iii) cannot be more than the actual expenditure which can be relatable for earning the exempt income and debited to the Profit and Loss account. In the case on hand the disallowance made by the assessee on its own is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5JB even if the amount of expenditure is not specifically debited in the Profit and Loss Account. 12.1 The ld. A.R. submitted that in paras 28 - 28.3 at pg no 127 of the order dated 5th October 2020 for AYs 2009-10 to 2014-15 where it was held that amount disallowed u/s 14A of the Act cannot be adopted for the purpose of computation of book profit u/s 115JB of the Act and the disallowance, if any, is to be computed independently without having regard to section 14A of the Act. Based on the same, matter was restored to the file of the AO for examining it afresh. 12.2 The ld. D.R. relied on the order of ld. DRP. 12.3 After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in IT(TP)A No.3115/Bang/2018 and Others, the Tribunal vide order dated 5.10.2020 held as under: "28.1 This issue arises in assessment year 2014-15 in the appeal of the assessee. 28.2 The facts relating to this issue are that A.O. had computed disallowance u/s 14A of the Act. while determining total income under normal provisions of the Act. The amount so computed by him for the purposes of sec.14A of the Act was adopted by the A.O. for making addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts all are not profit making and the assessee had incurred losses on the six SEZ units as tabulated by the AO. The AO noted that the assessee has set-off the losses of the six SEZ units from other taxable units and other divisions. The AO after discussing the relevant provisions did not allow set-off the losses of the six SEZ units and added back in to the total income of the assessee to the extent of Rs. 90.66 crores. Considering the rival submissions we noted that an identical issue has been examined by the co-ordinate bench in the assessee's own case in AY 2009-10 to 2015-16 and it was decided as under:- "4.7 We heard rival contentions on this issue and perused the record. We notice that the co-ordinate bench has considered an identical issue in AY 2008-09 in assessee's own case in ITA No.1665/Bang/2012 dated 04-01-2017 and it was decided in favour of the assessee with the following observations:- "14. We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. At the outset, we note that an identical issue was also involved for the Assessment Year 2004-05 as well as for the Assessment Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losses of the units for which the assessee has disclosed positive income for the purpose of claiming deduction u/s 10A". 16.5 Respectfully following the decisions of the Hon'ble Tribunal referred supra, we direct the assessing officer to set off brought forward losses of the units for which the assessee has disclosed positive income for the purpose of claiming deduction u/s 10A" Respectfully following the decision of the co-ordinate bench of the Tribunal in the assessee's own case for Assessment Year 2004-05 (supra) on this issue, we direct the Assessing Officer to set off brought forward losses of the units for which the assessee has disclosed positive income for the purpose of claiming deduction under section 10A." Thus, it is clear that the Tribunal has followed the earlier order for the Assessment Year 2004-05 which has been upheld by the Hon'ble jurisdictional High Court. Following the earlier order of this Tribunal as well as Hon'ble jurisdictional High Court, we decide this issue in favour of the assessee and against the revenue." 4.8 Though it is stated that the issue is decided in favour of the assessee, we notice that the discussions were not happi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertakings are not required to be adjusted against the profits arising from other SEZ/STPI undertakings and the said loss can be adjusted against profits arising from non-SEZ/non-STPI units. Accordingly, this issue is decided in favour of the assessee." The Ld A.R submitted that the above said view of the Hon'ble Karnataka High Court has since been upheld by Hon'ble Supreme Court in the case of Yokogawa India Limited (2017)(391 ITR 271)(SC). Accordingly, following the above said decision rendered in the assessee's own case, we hold that the loss arising in eligible SEZ/STPI undertakings are not required to be adjusted against the profits arising from other SEZ/STPI undertakings and the said loss can be adjusted against profits arising from non-SEZ/non-STPI units. " 9.2.We further noted that in the assessee's own case the Hon'ble SC dismissed the SLP filed by the revenue against the order of the Hon'ble High Cort reported in [2022] 134 taxmann.com 302 (SC) in SLP APPEAL (C) NO.11582 OF 2021† NOVEMBER 26, 2021 in which it has been held as under:- "3. This Special Leave Petition challenges the judgment and final order dated 15-12-2020 passed by the High Court of Karnata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be adjusted against the profits arising from other SEZ/STPI undertakings and the said loss can be adjusted against profits arising from non-SEZ/non-STPI units this issue is decided in favour of the assessee." 13.4 In view of the above order of the Tribunal, this issue is decided in favour of the assessee. Accordingly, this ground of assessee's appeal is allowed. 14. Next ground no.8 of the assessee's appeal is reproduced as under: 8. That the NFAC/DRP erred on facts and in law in excluding income under the nomenclature of other income of Rs. 25,96,66,292 from the profits of the business of the undertakings eligible for deduction under section 10AA of the Act without appreciating that the said sum is inextricably linked to the export business carried on by the eligible undertakings of the appellant and thus eligible for the deduction under the said section. 14.1 The ld. A.R. submitted that in paras 30-32; pg nos 60-63, the order dated 23rd May 2022 for AY 2015-16 following order dated 5th October 2020 for AYs 2009-10 to 2014-15 was followed, where it was held as follows: i) Allowed deduction u/s 10AA for sale of scrap and newspaper. ii) Other Income - restored back to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble High Court: "166. The court had an occasion to consider the substantial question of law in the assessee's case itself in ITA 507 of 2002 decided on August 25, 2010 while dealing with the income earned from sale of scrap, export incentive and rent received, answered the question in favour of the assessee and against the Revenue. 167. In so far as gain on exchange rate fluctuation is concerned, it was subject matter of ITA 3202 of 05 which was decided on February 28, 2012 in the assessee's case itself, where the said question was answered in favour of the assessee and against the Revenue. 168. In so far as income earned from interest is concerned that was subject matter of this court in the case of CIT v. Motorola India Electronics P. Ltd. in ITA No.428 of 2007 decided on December 11, 2013 - (2014) 2 ITROL 499 (Karn), while dealing with exemption under section 10B. It is in Pari materia with section 10A and has answered the said question in favour of the assessee and against the Revenue. 169. As all these questions are decided and answered in favour of assessee in the aforesaid case, this question of law is answered in favour of the assessee and against the Revenue." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 5th October 2020 for AYs 2009-10 to 2014-15 was followed, where the issue was restored to AO to examine first as to whether the interest income was assessed under the head "Income from business" or under the head "Income from other sources". If the AO has assessed interest income as business income, then the assessee is eligible for deduction u/s 10A/10AA/10B on interest income also. However, if the income is assessed under the head "income from other sources", then it is required to be examined as to whether there is direct nexus between interest income and income of business undertaking. 15.2 The ld. D.R. relied on the order of ld. DRP. 15.3 After hearing both the parties, we are of the opinion that this issue came for consideration in assessee's own case in ITA No.370/Bang/2021 cited (supra), wherein the Tribunal held as under: "33. The eleventh issue relates to rejection of claim for deduction u/s 10AA of the Act in respect of interest income earned by the assessee. During the year under consideration, the assessee had earned interest income on short term deposits made out of PCFC Loan and also from Surplus funds. After deducting the interest expenses, there was net su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related to the software development activity. Further, the AO also took the view that the surplus funds is fully fungible and hence surplus funds relating to SEZ division could not be separately identified, if all the surpluses of all divisions (both 10A/10AA/10B units and non-10A/non- 10AA/non-10B units) are put together. Accordingly, the AO rejected the claim of the assessee. The Ld DRP also confirmed the same. 6.5 From the foregoing discussions, we notice that the principle enunciated by Hon'ble Karnataka High Court in the case of Motorola India Electronics (P) Ltd (supra) is that the deduction u/s 10B is allowable if there is direct nexus between interest income and the income of the business of the undertaking. The co-ordinate benches in the earlier years have also followed the decision rendered by Hon'ble Delhi High Court in the case of CIT Vs. Shriram Honda Power Equipment 289 ITR 475, wherein it was held that, if the AO has assessed interest income under the head Income from business and this has not been challenged by the department thereafter, then the question cannot be permitted to be reopened and the only question then will be if netting should be allowed. According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO that there is no nexus between interest income and income of business undertaking. In our view, the assessee may be given an opportunity to show that the nexus between SEZ/STPI divisions and the fixed deposits from which interest income was earned. If the assessee is able to show the nexus to the satisfaction of the AO, then the interest income to that extent should be eligible for deduction u/s 10A/10AA/10B of the Act. 6.9 With these observations, we restore this issue to the file of the AO for examining it afresh in the light of discussions made supra." 34. Respectfully following the above said decision, we restore this issue to the file of AO for examining it afresh with similar directions. This ground is allowed for statistical purpose." 15.4 In view of the above order of the Tribunal, this issue is remitted to the file of AO/TPO on similar directions. 16. Next ground no.10 of the assessee's appeal is reproduced as under: 10. "That NFAC/DRP failed to appreciate that deemed exports are 'exports' as per the EXIM policy and thus erred in excluding deemed exports from export turnover of the undertaking for the purposes of computing deduction under section 10AA of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 10A of the Act?" 147. The said question came up for consideration before this Court in the case Tata Elxsi vs. Asst. CIT (I.T.A No.411 of 2008). This court has answered the said substantial question in favour of the assessee and against the Revenue. Accordingly, the said substantial question of law is answered in favour of the assessee and against the Revenue." 7.6 In the case of Tata Elxsi Ltd (supra), the Hon'ble Karnataka High Court dealt with this issue as under:- "18. As Section 10A was introduced to give effect to the Exim Policy of the Central Government, we have to take into consideration the provisions of the Exim Policy. 19. Paragraph 6.10 of the Exim Policy speaks about exchange through others. It provides that a EOU/EHTP/STP/BTP unit may export goods manufactured/software developed by it through another exporter or any other EOU/EHTP/STP/SEZ unit subject to the conditions mentioned in paragraph 6.19 of Handbook. The conditions to be fulfilled if a Unit has to export through other exporters is as under: "6.19 An EOU/EHTP/STP/BTP unit may export goods manufactured/software developed by it through other exporter or any other EOU/EHTP/STP/SEZ/B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t may export goods manufactured/software developed by it through other exporter or Status holder recognized under this policy or any other EOU/EHTP/STP/SEZ/BTP unit. What follows from this provision is that to be eligible for exemption from payment of income tax, export Should earn foreign exchange. It does not mean that the undertaking should personally export goods manufactured/software developed by it outside the country. It may export out of India by itself or export Out of India through any other STP Unit. Once the goods manufactured by the assessee is shown to have been exported out of India either by the assessee or by another STP Unit and foreign exchange is directly attributable to such export, then Section 10A of the Act is attracted and such exporter is entitled to benefit of deduction of such profits and gains derived from such export from payment of income tax. Therefore, the finding of the authorities that the assessee has not directly exported the computer software outside country and because it supplied the software to another STP unit, which though exported and foreign exchange received was not treated as an export and was held to be not entitled to the benefit is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. During the year under consideration, the assessee had received reimbursements to the tune of Rs. 177.77 crores categorized as assets reimbursements of Rs. 3.17 crores, communication link reimbursements of Rs. 24.79 crores, travel reimbursements of Rs. 23.24 crores, and incentive awards/other reimbursements of Rs. 126.57 crores. The ld. AR of the assessee submitted that reimbursements constitute an integral part of the measurement for realizing its price for the computer software exported. He further submitted that the similar issue has been decided by the coordinate bench of the Tribunal in assessee's own case for the AY 2015-16. The AO excluded these reimbursements from the profits for computing deduction u/s 10AA of the Act. Considering the rival submissions we found that in assessee's own case the co-ordinate bench has observed as under:- An identical issue has been examined by the co-ordinate bench in the assessee's own case in AY 2009-10 to 2014-15. The relevant facts have been narrated by the co-ordinate bench as under:- "20.2 The facts relating to this issue are discussed in brief. In respect of software development activity, for which the assessee had clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the export turnover. From the submission so made, we notice that this amount has been received as incentive from the customers, meaning thereby, it is in the nature of additional payments received towards export of software. Hence, we are of the view that it shall form part of sales turnover. Since it is only a revenue item, it cannot be categorized as expenditure as contemplated under the definition of the export turnover. Hence the same is not required to be excluded from the export turnover. 20.7 In respect of the remaining amounts received, in our view, it is required to be examined as to whether the same shall form part of expenses, which are required to be excluded from the amount of Export turnover, as per the definition of the term "export turnover" given in sec.10A/10AA/10B of the Act. We have discussed the principles at length while adjudicating the earlier issue. Accordingly, the remaining amounts require fresh examination in the light of discussions made supra. 20.8 We also make it clear that, if any of the amount is required to be excluded from export turnover, then the same shall be excluded from the total turnover also, as held by Hon'ble High Court of Karna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra), wherein the Tribunal held as under: "39. The fourteenth issue relates to question as to whether the expenditure incurred in foreign currency is required to be deducted from the export turnover while computing deduction u/s 10AA of the Act. On going through the entire submissions and order of the authorities below we observe that the expenditure incurred outside India for onsite development of computer software is not to be deducted from export turnover. Only the expenditure on telecommunication charges or insurance attributable to the delivery of the computer software outside India or expenses, if any incurred in foreign currency in providing technical services outside India also are required to be excluded from the export turnover. Further , if any amount excluded from the export turnover is required to be deducted from total turnover. An identical issue was examined by the co- ordinate bench in the assessee's own case in AY 2009-10 to 2014-15 and it was decided as under:- "19.2 The facts relating to this issue are stated in brief. The A.O. noticed that the assessee has incurred various expenses in foreign currency under different heads. The issue is whether these e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n currency in rendering such technical services require exclusion from export turnover. On the other hand, the assessee company, extensively quoting the provisions of section 10A(4) of the Act and also placing strong reliance on the decision of the CIT(A) for the AYs 01-02 and 0203 had argued that the exclusion of above sums of communication link and other reimbursements, VAT/GST, telecommunication expenses and expenditure in foreign currency as carried out by the AO be vacated. 15.1. After critically analyzing the rival submissions and also drew strength from his earlier decision on a similar issue, the Ld.CIT(A) has held that no exclusion was required on this issue and, accordingly, directed the Ld. AO to re-compute the deduction u/s 10A. 15.2.Protesting against the action of the Ld. CIT(A), the Revenue has brought up this issue before us for redressal. It was the case of the Revenue that the Ld.CIT(A) has grossly erred in deciding the issue in favour of the assessee by following the decision of Hon'ble Tribunal in the case of Infosys Technologies Limited which has been challenged before the Hon'ble High Court. Another point on which the Revenue found fault with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d concluded that the amount received by the assessee as communication link charges or other rewards and incentives were not a consideration for the export of the software. However, the assessee company's contention was that - "15.1 The reimbursement of certain expenses was also in the nature of export as the same was paid pursuant to the contract of sale of computer software. Alternatively, if it is held that the said sum does not form part of sale proceeds of export turnover then similar amount should be reduced from the total turnover also as held by Bombay High Court in Sudarshan Chemicals reported in 245 769. Alternatively, the AO should have consistently applied the rationale that what is not turnover in the first place cannot be part of either export turnover or total turnover." 14.1, After considering the rival submissions, the Ld. CIT(A) took a view that this issue was covered by his decision for the AYs 01-02 and 02-03 and holds good for the AY under dispute also and, accordingly, directed the AO to consider the reimbursements as part of export turnover for the purpose of computing deduction u/s 10A. 14.2. In respect of Telecommunication expenses, the Ld. AO r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g software. The assessee was not involved in rendering of technical services. Such software are provided through the computer programmes developed by them. Hence, expenses in foreign currency were not to be reduced for ascertaining the export turnover. This bench in the case of M/s.Relq software Pvt. Ltd. in ITA No:767/Bang/2007 vide order dated 16th May 2008 has also held that the on-site expenses for development of computer software is not in the nature of technical services. It will be useful to reproduce para 14 and 15 from that order:- "14. During the course of proceedings before us, the learned AR submitted that the issue stands decided in favour of the assessee by the Tribunal in the case of - 1. ACIT v. M/s.Infosys Ltd.653 & 969(B)/2006 2. M/s.Tata Elxsi Ltd. 315(B)/2006 dt 16.10.2007 3. M/s.I-Gate Global Solutions Ltd. v.ACIT (Supra) 15. We have heard both the parties. Deduction u/s 10A is available in respect of profit or gains derived from an undertaking from the export of articles or things or computer software. One has to understand the meaning of computer software with reference to the fact that it is preceded by articles or things. Deduction u/s 10A wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record any expenditure which may not be relevant for the purpose of export. Hence, the apportionment is not desirable. We confirm the finds of the learned CIT(A) that such apportionment cannot be done. 24.7. In respect of telecommunication expenses, only those expenses which are relevant for the delivery of software are to be excluded. No effort has been made by the assessing officer to ascertain the telecommunication expenses relating to the delivery of the software. This Bench in the case of I-Gate Global Sales held that 80% of unlinking charges should be reduced from the export turnover. Such finding of the learned CIT(A) was confirmed on the basis of the fact that the learned CIT(A) discussed the software development with a number of representatives of various companies and noticed that 80% of the uplinking charges are incurred for the delivery of software. We are not having the details of the unlinking charges, hence, the issue of disallowance of telecommunication expenses relating to the delivery of software is restored on the file of the assessing officer. The assessing officer will give opportunity to the assessee to furnish the details in respect of telecommunication e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the cost of development of software would fall under the category of "technical services" has been examined by the coordinate bench in assessment year 2004-05 and the Tribunal has taken the view that the cost incurred outside India in development of software would not fall under the category of 'expenses incurred in providing technical services outside India' as mentioned in the definition. Accordingly, we are of the view that the expenditure incurred in development of software and which forms part of "direct cost of development of software" would not fall under the category of "technical services" or "services" rendered outside India, as contemplated in the definition of Export turnover. Hence the same is not required to be excluded from export turnover. Accordingly, what is required to be excluded is the expenses specifically mentioned in the definition of "export turnover", viz., the expenditure incurred on freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India or expenses, if any incurred in foreign exchange in providing technical services outside India alone are required to be excluded from the export turnover. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeds. During the year the total outstanding balance was 209.25 crores out of which Rs. 193.66 crores were received beyond the period of six months from the end of the relevant year and were received upto 31.10.2016 and the remaining amount of Rs. 15.59 crores were received on 31.10.2019. The A.O. rejected the claim of the assessee on the reasoning that mere submission of application by the assessee to RBI is not sufficient to infer that RBI has allowed extension of time for realizing sale proceeds in foreign exchange. Accordingly, he rejected the claim of the assessee. The ld. DRP also rejected by observing that the assessee has not revised its return of Income A similar issue has been examined by the co-ordinate bench in the assessee's own case in AY 2009-10 to 2014-15 and it was decided as under:- "8.2 The facts relating to the issue are stated in brief. As per the provisions of section 10A/10AA/10B of the Act deduction is allowable only on export turnover which received in or brought into India in convertible foreign currency within the period of 6 months from the end of the previous year within such further period as the competent authority may allow in this behalf. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oval of extension is not passed by the Reserve Bank of India, whether the assessee could be denied the benefit of Section 10A. The Tribunal on consideration of the entire material on record, taking note of the statutory provisions and the object underlying this provision, has come to the conclusion that notwithstanding the fact there is no express order granting approval by the Reserve Bank of India, as it has not been rejected and foreign exchange is received and remitted through the proper channel, the assessee is entitled to the benefit of Section 10A. In the facts of the case, we do not find any error committed by the Tribunal. Therefore, the said substantial question is answered in favour of the assessee and against the revenue." Respectfully following the binding decision of the jurisdictional High Court, we direct the AO to include sale amount in the export turnover, while computing deduction u/s 10A of the Act, where the applications have been filed by the assessee to RBI seeking permission to receive the export proceeds beyond the prescribed period." 42. Following the decision of the Hon'ble jurisdictional Karnataka High Court, we direct the AO to include sale amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority level is allowed in respect of profits subject to tax outside India. 20.2 With regard to ground no.15 the ld A.R. submitted that in paras 43-44; pg nos 85-99, order dated 23rd May 2022 for AY 2015- 16 was followed, where it was held that Foreign tax paid by the assessee, to the extent not allowed as tax credit u/s 90/91 of the Act, should be allowed as deduction from the business income. 20.3 The ld. D.R. relied on the order of ld. DRP. 20.4 After hearing both the parties, we are of the opinion that this issue came for consideration in assessee's own case in ITA No.370/Bang/2021 cited (supra), wherein the Tribunal held as under: 43. "Ground No. 16 to 16.3 relates to the claim of foreign tax credit and allowability of State Taxes paid. The contentions raised by the assessee in this year is two-fold. The first contention relates to the allowability of quantum of foreign tax credit. The second contention is that the foreign tax & State Taxes paid, if not fully allowed, then the difference amount should be allowed as business expenditure. A similar issue has been decided by the co-ordinate bench of the Tribunal in assessee's own case for the AY 2015-16 which is as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding the services. Though the Central Government may extend the said benefit to the assessee in this country, by negotiations with the other countries, they could also be requested to extend the same benefit. If the contracting country agrees to extend the said benefit, then the assessee gets the relief. In another scenario, though the said income is exempt in this country, by virtue of the agreement, the amount of tax paid in the other country could be given credit to the assessee. Thus for the payment of Income-tax in the foreign jurisdiction, the assessee gets the benefit of its credit in this country. 40. However, if the contracting country is not agreeable to extend the said benefits, then in terms of the agreement and probably in terms of the exemption granted, the assessee would be entitled to benefit only in this country on account of the exemption and the benefit in the other country is not extended. Thus when exemption is granted in respect of the income chargeable to tax under this Act in respect of which no benefit is granted in the corresponding country the assessee gets no benefit. However, if the benefit is extended to a portion of the income say for example 90 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been vested with the power to enter into an agreement with the Government of any country outside India for the granting of relief in respect of Income-tax chargeable under the Income-tax Act or under the corresponding law in force in that country, to promote mutual economic relations, trade and investment. Therefore, the statute by itself is not granting any relief. But, by virtue of the statute, if an agreement is entered into providing for such relief, then the assessee would be entitled to such relief. 56. Therefore, it follows that the income under section 10A is chargeable to tax under section 4 and is includible in the total income under section 5, but no tax is charged because of the exemption given under section 10A only for a period of 10 years. Merely because the exemption has been granted in respect of the taxability of the said source of income, it cannot be postulated that the assessee is not liable to tax. The said exemption granted under the statute has the effect of suspending the collection of Income-tax for a period of 10 years. It does not make the said income not leviable to Income-tax. The said exemption granted under the statute stands revoked after a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not, however, exceed that part of the Income-tax (as computed before the deduction is given) which is attributable to the income which is to be taxed in the United States. Therefore, an embargo is prescribed for giving such tax credit. In other words, the assessee is entitled to such tax credit only in respect of that income, which is taxed in the United States. This provision became necessary because the accounting year in India varies from the accounting year in America. The accounting year in India starts from 1st of April and closes on 31st of March of the succeeding year. Whereas in America, the 1st of January is the commencement of the assessment year and ends on 31st of December of the same year. Therefore, the income derived by an Indian resident, which falls within the total income of a particular financial year when it is taxed in the United States, falls within two years in India. Therefore, while claiming credit in India, the assessee would be entitled to only the tax paid for that relevant financial year in America, i.e., the income attributable to that year in America. In other words, the Income- tax paid in the same calendar year in the United States of America is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to the treaty, there is no double taxation. Therefore, the benefit of this treaty is not available to the Indian assessee. 62. It is submitted on behalf of the assessee that by virtue of the formulae prescribed under section 10A(4), entire export profits had not got exempted under section 10A, residuary surplus being subjected to tax both in India and Canada. This residuary surplus could qualify for tax credit as it is subjected to tax in both the countries. 63. As is clear from the aforesaid clause in the Indo-Canadian agreement if the income from source within Canada, is lower, has been subjected to tax both in India and Canada then, the tax paid in Canada shall be allowed as a credit against the Indian tax paid in respect of such income. If the entire income assessed by the assessee under section 10A is exempted in India, then, the aforesaid clause does not confer any benefit on the assessee. However, notwithstanding the aforesaid provision, if any portion of the income falling under section 10A is subjected to tax then, by virtue of aforesaid provision, the tax paid in Canada corresponding to the income subjected to tax in India, the assessee would be entitled to cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not only to the Federal Government of that country, but also any Income-tax charged by any part of that country meaning a State or a local authority, and the assessee would be entitled to the relief of double taxation benefit with respect to the latter payment also. Therefore, even in the absence of an agreement under section 90 of the Act, by virtue of the statutory provision, the benefit conferred under section 91 of the Act is extended to the Income-tax paid in foreign jurisdictions. India has entered into an agreement with the federal country and not with any State within that country. In order to extend the benefit of this, relief or avoidance of double taxation, the aforesaid Explanation explicitly makes it clear that Income-tax in relation to any country includes the Income-tax paid to the Government of any part of that country or a local authority in that country. Therefore, even though, India has not entered into any agreement with the State of a country and if the assessee has paid Income-tax to that State, the Income-tax paid in relation to that State is also eligible for being given credit to the assessee in India. Therefore, the argument that in the absence of an agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the income-tax paid or deducted in any foreign country is not eligible for relief u/s 90 or u/s 91, such tax paid of Rs. 117.32 Crores is deductible u/s 37(1) of the Act or allowable as a loss u/s 28 and such unrelieved foreign taxes are not covered by the restriction in Section 40(a)(ii) of the Act. But for the restriction imposed by clause (ii) of section 40a, income-taxes paid or deducted in foreign countries by the assessee-company is an expenditure laid out or expended wholly and exclusively for the purposes of the business carried on by the assessee outside India and the same is deductible u/s 37 of the Act. In any case, it is a loss incurred by the assesse-company in carrying on business outside India and such tax is allowable u/s 28 of the Act. A plain reading of the aforesaid provision makes it abundantly clear that foreign taxes paid on profits or gains is not deductible only to the extent relief is eligible u/s 90 or deduction is eligible u/s 91. To the extent relief u/s 90 or deduction u/s 91 is denied as ineligible, the company is eligible for deduction u/s 37 or as a loss u/s 28 of the Act. Further, we wish to submit that the said amount shall also be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of income tax is not a payment made/incurred to earn profits and gains of business. Therefore, it cannot be allowed an as expenditure to determine the profits of the business. Taxes such as Excise Duty, Customs Duty, Octroi etc., are incurred for the purpose of doing business and earning profits and/or gains from business or profession. Therefore, such expenditure is allowable as a deduction to determine the profits of the business. It is only after deducting all expenses incurred for the purpose of business from the total receipts that profits and/or gains of business/ profession are determined. It is this determined profits or gains of business/profession which are subject to tax as income tax under the Act. The main part of Section 40(a)(ii) of the Act does not allow deduction in computing the income i.e. profits and gains of business chargeable to tax to the extent, the tax is levied/ paid on the profits/ gains of business. Therefore, it was on the aforesaid general principle, universally accepted, that this Court answered the question posed to it in S. Inder Singh Gill (supra) in favour of the Revenue. (l) We would have answered the question posed for our consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me tax relief under Sections 90 or 91 of the Act, then the tax paid abroad would be governed by Section 40(a)(ii) of the Act. The occasion to insert the Explanation to Section 40(a)(ii) of the Act arose as Assessee was claiming to be entitled to obtain necessary credit to the extent of the tax paid abroad under Sections 90 or 91 of the Act and also claim the benefit of tax paid abroad as expenditure on account of not being covered by Section 40(a)(ii) of the Act. This is evident from the Explanatory notes to the Finance Act, 2006 as recorded in Circular No.14 of 2006 dated 28th December, 2006 issued by the CBDT. The above circular inter alia, records the fact that some of the assessee who are eligible for credit against the tax payable in India on the global income to the extent the tax has been paid outside India under Sections 90 or 91 of the Act, were also claiming deduction of the tax paid abroad as it was not tax under the Act. In view of the above, Explanation inserted in 2006 to Section 40(a)(ii) of the Act, would require in the context thereof that the definition of the word "tax" under the Act to mean also the tax which is eligible to the benefit of Sections 90 and 91 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and circumstances, question (iii)(a) is answered in the negative i.e. against the Revenue and in favour of the applicant assessee. Question (iii)(b) is answered in the negative i.e. against the Revenue and in favour of the applicant assessee." Accordingly, we direct the AO to allow the foreign tax paid by the assessee, to the extent not allowed as tax credit u/s 90 &91 of the Act, as deduction from the business income of the assessee." 44. Since this issue has been decided as stated above for the AY 2015-16 in assessee's own case, accordingly, we direct the AO to allow the foreign tax & State Tax paid by the assessee, to the extent not allowed as tax credit u/s 90 & 91 of the Act, as deduction from the business income of the assessee from the respective units." 20.5 In view of the above order of the Tribunal, this issue is remitted to AO/TPO to decide the assessee's case in the light of above directions of the Tribunal. 21. Ground No.16 of the assessee's appeal is reproduced as under: 16. Payments made to Gartner Group: 16.1 That NFAC/DRP erred on facts and in law in treating the payments of Rs. 20,01,03,442 made to Gartner Group as royalty exigible to deduction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation. The payment is for obtaining data and use it the way assessee want it to be used. It is for use of a copyrighted article and is not for transfer of right in the copyright in the article. Based on the above findings, this Tribunal held that provision for service of offering the data base to its customers is an event outside the taxable territories of India. It is also an accepted fact that Gartner do not have any permanent establishment in India. Further such an access to database cannot fall within the scope as found in DTAA. Accordingly, he submitted that the payments to Gartner were held not liable for taxation in India and consequently, assessee is not obligated to deduct TDS. 21.3 He further submitted that the aforesaid order of this Tribunal in ITA Nos 152 to 154/Bang/2004 was reversed by Hon'ble Karnataka High Court relying on the case of Samsung Electronics. This decision of Karnataka High Court in case of Samsung Electronics has been reversed by the Hon'ble Supreme Court in case of Engineering Analysis (supra) and accordingly, ruling in the case of Samsung Electronic is no more good law. 21.4 Furthermore, he submitted that the Hon'ble Supreme Court in Company's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the provisions of sec.9(1)(vi) are attracted. Hence the AO took the view that the assessee should have deducted tax at source from the above said payment and accordingly proposed to disallow the payment by invoking provisions of sec.40(a)(i) of the Act. Before the A.O., the assessee submitted that the license was used for the business carried on by the assessee outside India or for the purpose of earning income from any source outside India. Accordingly, it was contended that the payment made for the use of license would be covered by the exception given u/s 9(1)(vi) of the Act. However, the A.O. noticed that an identical issue has been examined by the jurisdictional Karnataka High Court in the assessee's own case reported in 355 ITR 284 and the issue has been decided against the assessee. Accordingly, the A.O. held that the payment made to M/s. Gartner Group is in the nature of royalty and assessee is liable to deduct TDS from the said payment u/s 195 of the Act. Since the assessee did not deduct TDS, the A.O. disallowed the payments made to Gartner Group in the years relevant to the assessment years 2010-11 to 2014-15 by invoking provisions of section 40(a)(i) of the Act. .. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the High Court had placed reliance on the decision rendered by it in the case of Samsung Electronics Ltd. However, the decision rendered by Hon'ble Karnataka High Court in the case of Samsung Electronics Ltd has since been reversed by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited vs. CIT (CA Nos. 8733 - 8734/2018). Accordingly, he submitted that the decision rendered by Hon'ble Karnataka High Court is no more good law. Accordingly he submitted that the assessee is not liable to deduct tax at source from the payment made to M/s Gartner Group, since the said payment cannot be treated as "royalty" payments as per the decision rendered by Hon'ble Supreme court, referred above. Accordingly he prayed that this disallowance should be deleted. 19.3 We heard Ld D.R on this issue and perused the record. We noticed that the co-ordinate bench had confirmed the disallowance following the decision rendered by the jurisdictional Hon'ble Karnataka High Court in the assessee's own case. It is the submission of the assessee that the Hon'ble High Court has decided an identical issue against the assessee following its own decision rendered in ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
