TaxTMI 
TaxTMI 
2017 (12) TMI 301
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....AT income of Rs. 32,35,27,021/-. 3.1 As the case was covered by the provisions of section 92CA, with the prior approval of the CIT-II, the AO referred the case to TPO for determining the Arm's length price. 3.2 Assessee's Profile: The assessee is an information technology enabled service provider, specializing in help desk services, offshore support, maintenance etc. web based internal resource management module for HR services, design and deployment of backup solutions, oracle application ongoing support, infrastructure and managed services support, which are in the nature of IT enabled services/back office services. Assessee is a 100% subsidiary of GSS America Inc., USA. 3.3 International Transactions: As per 3CEB report/TP Document submitted by the assessee, the international transactions are as under: AE Nature of transaction Amount (Rs.) GSS America Inc., USA IT Enabled Services 34,85,06,258 -do- -do- 3,45,31,665 -do- Interest free loan for development of business with a 18,71,52,000 clause for converting the same into equity. Total 57,01,89,923 3.4 Financial results for FY 2008-09 Item Amount in Rupees Operating Revenue ....
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....e TPO observed that the contention that the funds were given out of the free reserves of the assessee company is not much relevance, as it is important to note that no independent business entity operating at arm's length will part with its substantial funds without any consideration or quid pro quo whatsoever. He further observed that the assessee had failed to show that tangible and direct benefits it had received from the interest free loan given to its AE, as the funds were used by the AE for acquisition and therefore it was the AE which had directly benefitted from the funds and not the assessee. As regards the argument of the assessee that the loan was in the nature of quasi equity and the advance was converted into equity in FY 2011-12, the TPO observed that there was a gap of almost three years between giving loan and issuance of equity and if the funds were actually given for the purpose of equity then the assessee would have insisted for issue of shares against the amount given. TPO observed that the assessee had neither received any interest nor any dividend for this period. He opined that in an arm's length scenario, no commercial enterprise will part with such substant....
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....show how the advancing of loan has furthered the development of business of the assessee with any facts and figures and the argument is general in nature. 7. Aggrieved, the assessee is in appeal before us raising 9 grounds of appeal, the sum and substance of which are, the ld. AO/TPO/DRP are not justified in law in determining the Arm's length price at Rs. 83,21,639/- being the interest on loan given to AE as against Rs. Nil. 8. Ld. AR submitted that the AEs had already allotted shares in respect of advances made. He submitted that investments in share capital of subsidiaries outside India are not in nature of the transactions referred in section 92B. For this proposition, he relied on the following cases: 1. Prithvi Information Solutions Ltd., ITA No. 472/Hyd/2014. 2. Vijay Electricals, 842/H/2012 3. GSS Infotech Ltd., 497/H/2015 9. Ld. DR, on the other hand relied on the orders of revenue authorities. 10. Considered the rival submissions and perused the material facts on record. In the case of Prithvi Information Solutions Ltd. (supra), the coordinate bench has held as under: "9. We have considered the submissions of the parties and perused the orders of the revenue a....
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....in course of hearing, learned DR submitted before us that the ratio laid down in case of Vijai Electricals Vs. ACIT (supra) cannot be said to be laying down the correct proposition of law as amendment brought to section 92B of the Act by the Finance Act, 2012 with retrospective effect was not taken note of by the Tribunal. Considering the totality of the facts and circumstances and keeping in view the direction of the coordinate bench in assessee's own case in the preceding AY 2008-09, we remit the matter back to the file of the AO for considering afresh keeping in view the decision of the Tribunal in case of Vijai Electricals Vs. ACIT (supra) and also the amended provisions of section 92B of the Act. We make it clear that if ultimately it is found that any amount given to the overseas subsidiaries are in the nature of loans and advances, AO/TPO may consider charging interest @ LIBOR +2% as per the direction of the learned DRP in AY 2008-09. Thus, grounds raised by assessee are allowed for statistical purposes." 10.1 In the above case, the coordinate bench has adjudicated clearly that once the amount is accepted as investment in share application money the same cannot be treated ....
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....is an ascertained liability and hence it cannot be added to book profits. He relied on the following decisions: 1. Dresser Valve India Ltd., 30 SOT 495 2. Ekla Appliances, 45 SOT 7 3. Kanco Enterprises Ltd., 65 Taxmann.com 289 11.3 Any disallowance made to the total income will increase profits u/s 10A. 11.4 Ld. AR submitted that if any disallowance is made, then there will be corresponding increase in the deduction u/s 10A. He relied on the following cases: 1. Planet Online P. Ltd., ITA No. 1016/H/2007 2. Informed Technologies India Ltd., 75 Taxmann.com 128 3. Circlar No. 37/2016. 11.5 Ld. DR relied on the orders of revenue authorities. 12. Considered the rival submissions and perused the material facts on record. The assessee has claimed provision for gratuity as expense for the year but the AO has observed that the Assessee has created provision with actuary valuation and opened gratuity fund account which was not approved by CIT. To avail deduction, the assessee has to evaluate the gratuity on actuarial basis and part with the fund by depositing the same in the appropriate fund account. The approval of the fund is only the procedural aspect, which can be cured. ....
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....n made because of the statutory provisions - s. 43B in the case of the employer's contribution and s. 36(v) r/w s. 2(24)(x) in the case of the employees contribution which has been deemed to be the income of the assessee. The plain consequence of the disallowance and the add back that has been made by the A.O is an increase in the business profits of the assessee. The contention of the Revenue that in computing the deduction under s. 10A the addition made on account of the disallowance of the PF/ESIC payments ought to be ignored cannot be accepted. No statutory provision to that effect having been made, the plain consequence of the disallowance made by the AO must follow." We thus in light of the aforesaid facts of the case r.w the settled position of law, herein direct the A.O that pursuant to the disallowance of Rs. 3,10,868/- so made by him u/s 14A, a consequent enhancement of the entitlement of the assessee towards claim of deduction u/s 10A of the 'Act' be carried out. The Ground of appeal No. 1 is thus allowed." Respectfully following the above ratio, we direct the AO to allow the increase in profit consequent to disallowance of provision for gratuity as dedu....
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....assessee filed objection before the DRP, the DRP rejected the objection and confirmed the ALP adjustment of Rs. 3,65,81,330/-. 15. Aggrieved, the assessee is in appeal before us. 16. Before us, the ld. AR of the assessee submitted that no interest can be charged on the investments made by the assessee in its own AE and investment in AE is not an international transaction as no income is generated. He relied on the following cases: 1. DCIT vs. Cadila Healthcare Ltd., 39 Taxmann.com 51 2. Prithvi Information Solutions Ltd. Vs. DCIT, 472/H/2014 3. M/s Vijay Electricals Ltd. Vs. Addl. CIT, 842/H/12 4. Hill County Properties Ltd. Vs. ACIT, 48 Taxmann.com 94 5. Vodafone India Services (P) Ltd. Vs. Union of India, 50 Taxmann.com 300 6. Dana Corporation Re, 321 ITR 178 7. Amiantit International Holding Ltd., 322 ITR 678 8. GSS Infotech Ltd. Vs. ACIT, Hyd., 497/Hyd/2015 17. Ld. DR relied on the order of DRP. 18. Considered the rival submissions and perused the material facts on record. Similar issue has been decided in ITA No. 267/Hyd/2014 (supra). Following the conclusions drawn therein, this ground is allowed. 19. Ground Nos. 3 to 6 relate to deduction u/s 10A of the ....
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....3,705 + 1,51,57,968). The AO held that as per the revised form 56F furnished by the assessee, the export turnover of Hyderabad unit is Rs. 37,24,76,941/-, however, for the purpose of computation of deduction u/s 10A, the export turnover is restricted to the extent of realization of sale proceeds i.e. Rs. 11,48,31,673/-. 24. Aggrieved, the assessee is in appeal before us. 25. As regards ground No. 3 to 3a & 3b., regarding export receivable received after 1 year 2.5 months of Rs. 17,61,37,767/-, the ld. AR submitted that letter from Authorised Dealer with regard to the regularization of export proceeds is entitled to exemption u/s 10A(3) of the Act. He relied on the decision in the case of Prithvi Information Solutions Ltd. Vs. ITO, 225/Hyd/2005 wherein the coordinate bench has held as under: "7. We have carefully considered the submissions and perused the material available on record. As could be noticed from the letter dated 05/10/2005 the company was permitted to utilize 70% of the onsite export proceeds for overseas branch expenses and also regularize the non-repatriation and utilization of the balance 30% of the realisations for eligible current account transactions of the c....
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.... were supported with FIRCs or approval from RBI for investing in Wholly Owned Subsidiary or remittance into approved bank accounts maintained in abroad. The assessee also furnished all the required statements in the form of FIRCs or RBI approvals. This has been considered by the CIT(A) after confronting the same to the Assessing Officer. All the monies received by the assessee were supported by the FIRCs. The Assessing Officer has rejected the benefit u/s 10A(3) on the reason that the provisions of section 10A(3) are specific and does not include the deeming provisions as per the RBI (relating to the capitalized proceeds/work in progress). In our opinion, the provisions of Explanation 2 to section 10A(3) is applicable for a situation where sale proceedings are credited to a separate account maintained outside India with the approval of RBI. In the present case, the remittance is within the prescribed time limit and the Explanation 2 is irrelevant. Further, FIRCs, being issued by the approved dealers of the foreign exchange which is good and sufficient evidence for remittance of foreign exchange into India and the same has to be accepted. Further, the approval for capitalization gra....
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....rogress/future receivables cannot be considered for deduction u/ s 10A. However, when these amounts on realization were actually transferred to Wholly Owned Subsidiary as an investment within the extended time by RBI, it is to be considered for exemption u/s 10A if the other conditions are fulfilled by the assessee and similar is the position in case of work in progress. The Assessing Officer has to re-compute deduction u/s 10A considering the work in progress/future receivables as not entitled for exemption u/s 10A. However, as soon as it is realized and transferred from work in progress/future receivable account to WOS it is to be considered as entitled for exemption u/s 10A if it is within the extended time by RBI. The assessee has to reconcile with reference to work in progress realized and transferred it into investment in WOS to avail deduction u/s 10A and the assessing officer is to grant the deduction u/s 10A, if it is within the extended time." 29. Ld. DR relied on the order of DRP. 30. Considered the rival submissions and perused the material facts on record. As the issue under dispute is squarely covered by the decision of the coordinate bench of this Tribunal in the ....
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....able on other export turnover, the receipts whereof are in an Indian currency or in currency which is not a convertible foreign exchange. The object therefore, appears to be to encourage more inflow of convertible exchange and not the mere export of goods. Making it available with reference to the realization in convertible exchange is suggestive of the fact that it was with a view to encourage foreign exchange inflow. Under the provisions of S.10B to avail the deduction under this sec. the undertaking has to bring into India the sale proceeds in convertible foreign exchange, which shall be physically brought to India." Repatriation of these receipts is the main condition, in availing of Sec.10B. The sale proceeds must be receivable in convertible foreign exchange. Therefore, the avowed object is to encourage inflow of convertible foreign exchange. If that object is kept in mind, amount received by branches in US as sales cannot be considered received in the form of convertible foreign exchange by assessee in India. The sale proceeds received in convertible foreign exchange means the 'actual receipt' not 'deemed receipt'. The argument of the assessee's counsel i....
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....he financials of the assessee, the result is as under: Description Amount Arm's length Margin 24.96% Less: WCA -2.51% Adjusted Arm's length margin 27.47% Operating Cost (OC) 65,82,78,605 Adjusted Arm's length Margin (%) AALM) 27.47% % of AE sales on total revenue 13.31% Proportionate cost on AE sales 8,76,16,882 Arm's length price = (100+AALM)*OC 11,16,85,239 Price received (OR) 7,71,72,081 Adjustment u/s 92CA 3,45,13,158 Thus, the arm's length price of the assessee is Rs. 11,16,85,239/- and the shortfall of Rs. 3,45,13,158/- with regard to provision of ITES is treated as an adjustment u/s 92CA of the Act by the TPO and accordingly, enhanced the income of the assessee u/s 92CA(3) of the Act. 39. The assessee carried the matter before the DRP and raised grounds relating to adoption of "MAM", adoption of incorrect margin calculation and relating to search applied, filters and comparables. Ld. DRP has confirmed the "MAM" adopted by TPO and the comparables selected by TPO. However, they agreed the objection raised by assessee and for convenience, the findings of are reproduced below: "Having considered the submissions, we have perused the record to observ....
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....ng balance as on 01/04/2011 was Rs. 108,96,88,358/-. Thus, the loan outstanding as on 31/03/2012 is Rs. 140,93,76,299/-. The explanation of the assessee is that the funds were given out of the free reserves of the assessee company, which was rejected by the TPO and computed the interest as under: Opening balance as on 01/04/2012 Rs. 108,96,88,358/- Closing Balance as on 31/03/2012 Rs. 140,93,76,299/- Total Rs. 249,90,64,657/- Average Rs. 124,95,32,329/- Interest @ 3.90% pm on Rs. 124,95,32,329/- = 4,87,31,761/-. 43. When the assessee objected the same before the DRP, the DRP upheld the addition. 44. Considered the rival submissions and perused the material facts on record. Similar issue arose in AY 2009-10 in ITA No. 267/Hyd/2014 (supra). Following the conclusions drawn therein will apply in this year also but we have observed in the DRP order that the assessee has lent loan to the extent of Rs. 31.96 crores during this year and also took loan from Banks. Hence, this year the financial equations are changed. Considering the directions given in ITA No. 267/Hyd/2014, in case, the findings of the TPO are that this transaction is in the nature of financial transaction, then....
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.... as seen from the calculation provided in page 7 of the assessment order, the date of realization was shown as 0202-2011 and interest was levied from 01-04-2010 to 02-02-2011 which is not pertaining to the year under consideration. As far as this year is concerned, the invoices raised on 31-12-2009 were outstanding only for a period of three months by the end of the accounting year. We are of the opinion that this period is reasonable and so no interest can be levied, just because amounts are shown as 'outstanding'. Accordingly, we cancel the interest levied and allow assessee's contentions. Grounds are considered allowed." As the issue under consideration is materially identical to AY 2010- 11, except for the reason that assessee does not charge interest to both AE and non AE but during this year, the entire receivables had not been received. It is not submitted before us, the reasonable period of outstanding allowed to the debtors in the normal business. Considering the fact that section 10A allows assessee to bring the foreign exchange within 6 months to claim benefit under this section. In our considered view, the same can also be extended to assessee as the reaso....
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....000/-. The AO observed that the Assessee failed to prove the following: 1. The purchase of ERP package was not proved 2. Utilisation of the ERP package for the purpose of business was not proved. 3. The ERP package was really written off in its books of account was not proved. In view of the above, the AO disallowed the depreciation of Rs. 4,87,57,000/- and Rs. 14,62,50,000/- and added to the income of the assessee. 50. Aggrieved, the assessee preferred appeal before the DRP. The DRP has confirmed the addition by relying on the remand report from AO by observing as under: "Considering the totality of facts and circumstances. We have examined this issue in minute details to find that the assessee as against its revenue of around Rs. 60 crores has chosen to purchase the so called ERP software amount into Rs. 25.58 crores as second sales from M/s Basant Marketing Pvt. Ltd. In spite of transaction being such a big one and that too, a second sale, the assessee has not been able to produce the basic information to establish the genuineness of the purchase. Further, assessee being a reasonably small company cannot afford to buy such expensive software without a proper business p....