TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 1539
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....e and revenue are directed against the order of ld. CIT(A)-IV, Bangalore dated 12.03.2012 and for Assessment Year 2008-09, the cross appeals are directed against the order of ld. CIT(A)-IV, Bangalore dated 10.01.2013. All these appeals were heard together and are being disposed of by way of this common order for the sake of convenience. 2. First we take up the appeal of the assessee for Assessment Year 2006-07. As per the revised and additional grounds of appeal filed by the assessee, there are 24 grounds of appeal including additional ground no. 24. The same read as under. (In conformity with Rule 8 of Income-tax Appellate Tribunal Rules. 1963) 1. That the learned Assessing Officer ('AO') and the learned Dispute Resolution Panel('Panel') erred in upholding the rejection of Transfer Pricing (TP) documentation bythe learned Additional Director of Income-tax (Transfer Pricing Officer - II) ('TPO')and thereby erred in not appreciating that the Appellant had prepared the TPdocumentation bona fide and in good faith and conducted the comparable analysisbased on the detailed Functional, Asset and Risk analysis performed with duediligence and the data availabl....
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....the Rules to necessarily imply current year/ singleyear (i.e. FY 2005-06) data and expecting the Appellant to perform act ofimpossibility in terms of being able to use data subsequently available (i.e. duringaudit proceedings). [corresponding to ground 2.3, 2.3.1 & 2.3.2] 6. That the learned AO and the learned Panel erred both in facts and law in upholdingthe rejection of comparability analysis of the Appellant in the TP documentation andconfirming the comparability analysis as adopted by the learned TPO in the TPOrder by applying additional filters (i.e. RPT filter of 25% instead of 15% asapplied by the Appellant) and introduction of the below mentioned companiesas comparables that are either functionally dissimilar or have differing asset base and risk profile, and also 'rejection of other potentially comparable companies. [corresponding to ground 3] Companies included in the final set ought to be rejected S.No. IT Services segment IT Enabled Services segment R&Dservices segment 1. Aztec Software Limited Datamatics Financial Services Limited(Seg) Geologging Industries Limited 2. Geometric SoftwareLimited (Seg) Vishal Information T....
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....INR15,114,000. [corresponding to ground 6] 10. That the Learned Assessing Officer erred .in treating telecommunication expenses ofINR 12,866,261; freight charges of INR 824,428 and insurance charges of INR2,470,891 as being expenditure attributable to delivery of computer software outsideIndia while computing deduction under section 10B of the Act without anyjustification, while ignoring the appellant's submissions. [corresponding toground 7] 11. That the Learned Assessing Officer erred in treating travel and conveyance of INR10,424,981; salaries of INR 9,135,780; telephone & telex, fax charges of INR5,098,102 as being expenditure incurred in foreign exchange attributable toproviding technical services outside India while computing deduction under section 10B of the Act without any justification, while ignoring the appellant's submissions.[corresponding to ground 8] 12. Without prejudice to the above, the Learned Assessing Officer erred in consideringincorrect figures relating to telecommunication charges and freight charges whilecomputing claim of deduction under section 10B of the Act. [corresponding toground 9] 13. Without prejudice to the above, the Learned Asse....
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....missions made by the appellant. [corresponding to ground 16] 20. That the Learned Assessing Officer erred in denying the claim under section 37(1) ofthe Act for payments made towards purchase of bearing assembly amounting to INR1,129,313 by treating the same as capital expenditure. [corresponding to ground17] 21. Consequent to the above adjustments, the learned Assessing Officer erred indetermining the tax payable of INR 27,665,565 as against returned tax refund ofINR 3,052,792. [corresponding to ground 18] 22. The learned Assessing Officer erred in levying interest under section 234B of the Actof INR 9,678,215 and under section 234C of the Act of INR 64,731. [corresponding to ground 19] 23. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify thegrounds herein above or produce further documents before or at the time of hearing ofthis Appeal. [corresponding to ground20] ADDITIONAL GROUNDS OF APPEAL Transfer Pricing Related: 24. The learned AO / TPO erred in considering certain companies as mentioned below ascomparable that fail the test of comparability or certain filter applied by the TPO, ascomparable to the Appellant. S.No. IT Servic....
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.... In course of hearing and in the chart, there is no argument on any other aspect. By now, this is settled position of law as per these two judgments cited before us being the judgment of Hon'ble Karnataka High Court rendered in the case of CIT Vs. Tata Elxsi Ltd. (supra) and the judgment of Hon'ble Apex Court rendered in the case of CIT vs. HCL Technologies Ltd. (supra) that total turnover is sum total of export turnover and domestic turnover and therefore, if an amount is reduced from export turnover then the total turnover also goes down by the same amount automatically. Respectfully following these two judgments, we direct the AO to decide the issue afresh regarding allowability of deduction to assessee u/s. 10B of IT Act by reducing the same expenses from total turnover also which has been reduced by AO from export turnover for the purpose of computing deduction allowable to assessee u/s. 10B of IT Act. These grounds are disposed of accordingly. 7. As per ground no. 18 raised, the issue in dispute is this that the AO is not justified in disallowing the claim towards purchase of software amounting to Rs. 36,92,961/- by treating the same as capital expenditure. As per the ch....
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....sion of DRP on this issue. The ld. AR of assessee submitted that the decision of DRP is contained on page no. 26 of the DRP directions. He submitted that the order of DRP is very cryptic without any reasoning. The ld. DR of revenue supported the orders of authorities below. 11. We have considered the rival submissions. First of all, we reproduce the relevant finding of DRP from page nos. 25 and 26 of the DRP directions. The same are as under. "Objection No. 3 - Capital Expenditure - Rs. 13,78,603/- 1. The AO is not justified in proposing to treat the payment to the architect forobtaining stability certificate for the factory building as capital in nature and therebyproposing an addition to the total income. 2. Without prejudice to the above objection, the AO should have considered allowingdepreciation on the software expenditure alleged to be capital in nature. Regarding payment of architect's fees, the Counsels submitted that architect's certificate isrequired for layout plan of building. This is an annual requirement under the Factories Act.The Counsels have also produced certificates for earlier three years as proof of the same.Since this is an annual requireme....
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....hich it is stated that because of MAP resolution, the assessee has withdrawn the grounds of appeal in respect of transfer pricing issues and only the remaining grounds are to be decided. For this year also, the ld. AR of assessee has submitted a chart and in this chart also, it is submitted by ld. AR of assessee that ground nos. 1 to 4 and additional ground nos. 1 and 2 are being withdrawn because these grounds involve transfer pricing issues and regarding revenue's appeal, it is submitted that ground nos. 4 to 11 in revenue's appeal are regarding TP issue and since TP issue has attained finality as per MAP resolution, the TP grounds as per revenue's appeal are also to be rejected. Accordingly these grounds are rejected. 16. Regarding ground nos. 5a & 5b, it is submitted by ld. AR of assessee that issue involved in this ground is regarding software expenses of Rs. 44,87,282/- by treating the same as capital expenditure and this ground may be decided on similar line as per ground no. 18 in Assessment Year 2006- 07. The ld. DR of revenue supported the orders of authorities below. As per Para no. 7 above, ground no. 18 raised by assessee in Assessment Year 2006-07 was rejected and he....
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....r & brand of the company aredeciding factors for treating a company as a comparable, and accordinglyerred in excluding M/s Infosys technologies Ltd & M/s Wipro Ltd (Seg.) insoftware development segment and Infosys BPO Ltd and Wipro Ltd (seg.) inITES segment as comparables. 8. The Ld. CIT(A) erred in holding that profit on cost of more than 50%. of the comparable company(ies) is abnormal without giving reasons how functionsdischarged, assets deployed and risks assumed of such companies weredifferent from the appellant company. 9. On the facts and in the circumstances of the case the learned CIT(A) erred inholding that M/s Celestial labs Ltd, M/s Flextronics Software Systems Ltd andM/s Tata Elxsi Ltd in SWD segment and M/s Eclerx Services Ltd & M/sMoldtek technologies Ltd in ITES segments being functionally different, cannotbe taken as comparables. 10. For these and other grounds that may be urged at the time of hearing,it is prayed that the order of the CIT(A) in so far as it relates to the abovegrounds may be reversed and that of the Assessing Officer may be restored. 11. The appellant craves leave to add, alter, amend and / or delete any ofthe grounds mentioned above." 19....
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....curred on civil works and rain protection screen and it did not result in the addition to capital assets of the assessee and therefore, the same should be allowed as revenue deduction and not be treated as a capital expenditure. Reliance has been placed on following judicial pronouncements. a) Indian Ginning & Pressing Co. Ltd. Vs. CIT [2001] 252 ITR 577 (Guj) b) CIT Vs. Neyveli Lignite Corporation Ltd. (2016) 388 ITR 172 (Mad) c) CIT Vs. MAC Chares (India) Ltd. (2015) 233 Taxman 177 (Kar) 22. At the time of hearing, the bench wanted to see the details of expenditure incurred and in reply it was submitted by ld. AR of assessee that the details are available on page no. 912 of paper book for Assessment Year 2008-09. He pointed out that on 25.03.2008, an amount of Rs. 4,31,083/- was incurred on account of civil work related to HVAC pipeline and other civil works as per its specifications. The bench wanted to see corresponding bill and in reply, it was submitted that the bills are not readily available. He further submitted that an amount of Rs. 1,96,207/- was incurred on 26.03.2008 on account of supply and installation of rain protection screen at Cafeteria of 123.190 sq. mtr....
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.... this reason that no TDS was deducted by assessee. As per the chart submitted by assessee before us, this is the contention raised by him that as per the Tribunal order rendered in the case of Destimony Enterprises Limited vs. ITO (TDS) in ITA Nos. 4124 & 4125/Mum/2015 dated 28.08.2017, copy submitted in the compilation of judgments, it was held that in respect of internet connection charges paid by assessee, the provisions of section 194-I, 194-C and 194-J of IT Act are not applicable and therefore, no TDS was deductible. He submitted that the facts of present case are similar and therefore, in the present case also, this Tribunal order should be followed and issue should be decided in favour of the assessee. The ld. DR of revenue supported the orders of authorities below. He also filed written submissions and in the same, he has raised various submissions but there is argument on this aspect that how this issue is not covered in favour of the assessee by the tribunal order cited by the learned AR of the assessee as noted above by pointing out any difference in facts. 26. We have considered the rival submissions. First of all, we reproduce the relevant paras 292 to 296 from pages....
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....ceiver is bound to accept. The onlyalternative to not accepting such terms and conditions is not to avail the serviceat all. Therefore, it cannot be said that there was no contract in existence. 295. Having clarified this aspect, one must now consider whether the serviceof providing broadband Internet connectivity constitutes a 'work' within themeaning of section 194C(1). As the definition of work contained in clause (iv) ofExplanation to section 194C is an inclusive one, one has to infer that thedefinition is not exhaustive and is not limited to the items that are specifically named in the definition clause and thus there is scope to interpret the definition to cover broadband Internet service as well. 296. The appellant has made elaborate submission on the ambit and scope of terms such as royalty and fees for technical services, but there is no reference by the AO to those terms or section 194J.The appellant's discussion on theseaspects and the provisions of the Act and the case laws cited in that context aretherefore superfluous. Considering that broadband Internet service is notspecifically excluded from the definition of work in clause (iv) of Explanation to1....
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....gies Ltd, M/s Wipro Ltd(seg) and M/s Allsec Technologies Ltd in ITES segment. 3. The learned CIT(A) erred in holding that M/s Celestial Biolabs Ltd should be excluded fromthe list of comparables of Software segment and Engineering R&D services segmentbecause of abnormal high profit margin, without giving reasons how functions discharged,assets deployed and risks assumed of such companies were different from the appellantcompany. 4. The learned CIT(A) erred in holding that the TPO was not justified in applying the employeecost filter and directed to include M/s Indus Networks Ltd which was excluded in thesoftware development services segment by using this filter. 5. The learned CIT(A) erred in rejecting the diminishing revenue filter used by the TPO toexclude companies that do not reflect the normal industry trend. 6. The learned CIT(A) failed to appreciate that the different year ending filter applied by theTPO is necessary to exclude companies which do not have the same or comparable financialcycle as the tested party. 7. In facts and circumstances of the case, the learned CIT(A) erred in holding that M/s Avani Cincom Technologies Ltd cannot be taken as a comparable as t....
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....(4) of Explanation 2 below Sub-section (8) of section 10A and theTotal Turnover has not been defined in this Section. 16. For these and other grounds that may be urged at the time of hearing, it is prayed that theorder of the CIT(A) in so far as it relates to the above grounds may be reversed and that ofthe Assessing Officer may be restored. 17. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above." 32. From the above grounds, it is seen that ground no. 1 of revenue's appeal is general and ground nos. 2 to 12 are in respect of TP issues and in view of the MAP resolution, these grounds of revenue's appeal are to be rejected and we reject the same. 33. Ground nos. 13 and 14 of revenue's appeal are regarding allowability of deduction in respect of software expenses. The ld. DR of revenue supported the assessment order. The ld. AR of assessee supported the order of CIT(A). He also submitted that similar issue is involved in assessee's appeal for Assessment Year 2006-07 and 2007-08 and hence, this issue in present year may be decided on similar line. 34. We have considered the rival submission. While deciding ground no. 18 for Assessm....