Tribunal directs fresh adjudication on transfer pricing, section 14A disallowance, and common expenses apportionment.

The Tribunal partly allowed the appeal, directing fresh adjudication on specific issues such as transfer pricing adjustments, disallowance under section 14A, and apportionment of common expenses. The Tribunal instructed the AO to follow established precedents and verify claims, with the order pronounced on 07th September 2022.

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Issues Involved:
1. Transfer Pricing adjustments
2. Corporate Tax adjustments
3. Disallowance under section 14A
4. Apportionment of common expenses for deduction under section 80-IC
5. Nature of application software expenditure
6. Short grant of Tax deducted at source (TDS) amount
7. Calculation of interest under sections 234B and 234C

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustments
Error in sustaining the arm's length price and imputing notional interest:
The assessee challenged the adjustments made by the AO/TPO/DRP to the Arm's Length Price (ALP) of international transactions. The TPO proposed adjustments of Rs. 505.29 Lacs, including interest on advances to Associated Enterprises (AEs) and royalty on sales. The Tribunal directed the AO to compute interest at LIBOR+2% on such transactions, following the precedent set in AY 2006-07. The Tribunal also admitted additional evidence related to royalty on sales and remanded the matter back to the TPO/AO for fresh adjudication.

2. Corporate Tax Adjustments
Disallowance under section 14A:
The AO applied Rule 8D to compute disallowance of Rs. 97.52 Lacs, which included interest and expense disallowance. The Tribunal held that Rule 8D was not applicable for the year under consideration and directed the AO to restrict the disallowance to 2% of exempt income, following the decision in AY 2006-07.

Apportionment of common expenses for deduction under section 80-IC:
The AO allocated common expenses based on turnover, which the assessee disputed. The Tribunal upheld the AO's method except for the allocation of depreciation on trademarks. The Tribunal admitted additional evidence and remanded the issue of depreciation allocation back to the AO for re-adjudication.

3. Nature of Application Software Expenditure
The AO treated software expenses as capital expenditure, while the assessee claimed it as revenue expenditure. The Tribunal held that the software expenses were revenue in nature as they did not result in the creation of a new asset or a new source of income. The Tribunal directed the AO to allow the expenditure as revenue and reverse the depreciation granted on the same.

4. Short Grant of TDS Amount
The assessee claimed a short credit of TDS amounting to Rs. 93,683/-. The Tribunal directed the AO to verify the TDS claim and grant credit in accordance with the law.

5. Calculation of Interest under Sections 234B and 234C
The assessee disputed the computation of interest under sections 234B and 234C. The Tribunal noted that these issues were consequential and did not require specific adjudication.

Conclusion
The appeal was partly allowed, with directions for fresh adjudication on certain issues and specific instructions for the AO to follow established precedents and verify claims. The order was pronounced on 07th September 2022.

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