TaxTMI 
TaxTMI 
2019 (5) TMI 1539
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....ent Year 2007-08, the appeal of the assessee 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 Ri....
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....on, and in doing so have grossly erred in interpreting the requirementof 'contemporaneous' data in 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 Datam....
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....of the Act, whiledetermining the arms' length price. [corresponding to ground 5] 9. That the Learned Assessing Officer erred in not allowing full deduction claimedunder section 10B of the Act for the entire profit of the undertaking amounting toINR15,114,000. [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....
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....o INR3,692,961 without considering the submissions made by the appellant, by treatingthe same as capital expenditure. [corresponding to ground 15] 19. That the Learned Assessing Officer erred in denying the claim under section 37(1) ofthe Act for advances written off amounting to INR 928,529 without considering thesubmissions 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 ....
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....,428/- and insurance charges of Rs. 24,70,891/- as being expenditure attributable to delivery of computer software outside India while computing deduction u/s. 10B of IT Act. However, the main grievance of the assessee as per ground no. 14 is this that the AO has reduced these expenses from export turnover only and not reduced the same from total turnover while computing deduction allowable to assessee u/s. 10B of IT Act. 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 t....
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....tory and the same does not provide any enduring benefit and hence, the same is revenue in nature. Reliance has been placed on the following judicial pronouncements. a) PCIT vs. Banco Aluminium Ltd (ITA No. 943 of 2017)(Guj) b) CIT vs. Aditya Ferro Alloys (P) Ltd (36 ITR 490 (Mad) c) CIT vs. ADI Artech Transducers (P) Ltd. (ITA Nos. 505 to 507 of 2013)(Guj) 10. In course of hearing, the bench wanted to know about the decision 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. ....
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....ed for statistical purposes. 13. In the remaining grounds, it is seen that ground nos. 21 and 22 are consequential grounds for which no separate adjudication is called for. Ground no. 23 is a general ground requiring no separate adjudication. 14. In the result, the appeal filed by the assessee for Assessment Year 2006-07 is partly allowed for statistical purposes in the terms indicated above. 15. Now we take up the cross appeals for Assessment Year 2007-08. For this year also, the assessee has submitted letter dated 13.12.2018 in which 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 re....
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....th price under the provisio to Section 92C(2) of the Act. 5. On the facts and in the circumstances of the case the learned CIT (A) erred inrejecting the companies M/s Oil Field Instrumentation India Ltd & M/s Celestial labs Ltd as com parables to R&D Service Segment of taxpayer. 6. On the facts and in the circumstances of the case the learned CIT(A) erred inholding that the TPO ought to have excluded comparables having any relatedparty transactions, not only those with more than 25% related partytransactions of sales. 7. The CIT(A) erred in holding that the size, turnover & 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 th....
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.... the revenue's grounds on TP issue should also be rejected and accordingly we reject ground nos. 1 to 4 and additional ground no. 1 of assessee's appeal and ground nos. 1 to 12 of revenue's appeal in view of MAP resolution. As per ground no. 5 of assessee's appeal, this is the grievance of the assessee that CIT(A) has erred in holding that expenditure towards Repairs and Maintenance charges amounting to Rs. 6,27,290/- was capital in nature without considering the submissions made by the assessee. In the chart submitted by ld. AR of assessee at the time of hearing, this is the contention raised that the expenditure in question was incurred 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 ben....
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....lready existing asset, in the course of such repairs, if they have upgraded the facilities to international standards, then that would not constitute a new asset and in the present case, in the absence of bills, we cannot examine the exact nature and hence, we restore this matter back to the file of AO for fresh decision after examining the facts in the light of this judgment of Hon'ble Karnataka High Court and other judgments cited before us as noted above. This ground is allowed for statistical purposes. 25. Ground nos. 6a and 6b of assessee's appeal are regarding disallowance in respect of broadband connectivity charges of Rs. 22,81,251/- u/s. 40(a)(ia) of IT Act for 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 wa....
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....tarried out in pursuance of a contract, which includes a sub-contract interms of clause (iii) of the Explanation. 294. The appellant's refrain for not making TDS under section 194C is thatthere was no contract and that the payment constituted a business income in the hands of the recipient. While the nature of the receipt in the hands of the recipient is entirely beside the point and has no relevance to the appellant'sliability or lack of it under section 194C, there is merit in the AO's argument thatthere is always an implicit contract with Internet Service Providers whoundertake to provide broadband connectivity services on pre-determined termsand conditions which the service receiver 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 o....
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....ent Year 2008-09. The grounds raised by revenue in this year are as under. "1. The order of the learned CIT(A) is opposed to law and facts of the case. 2. The learned CIT (A) erred in holding that the size and turnover of the company are deciding factors for treating a company as a comparable, and accordingly erred in excluding M/s Flextronics Ltd., M/s iGate Global Solutions Ltd., M/s Infosys Technologies Ltd., M/s Mindtree Ltd., M/s Persistent Systems Ltd., M/s Sasken Communications Technologies Ltd., M/s Tata Elxsi Ltd. and M/s Wipro Ltd. in Software development segment; M/s Aditya Birla Minacs Worldwide Ltd, M/s Coral Hubs Ltd, M/s Eclerx Services Ltd, M/s Infosys BPO Ltd, M/s Jindal Intellicom Pvt. Ltd, M/s Mold-tek Technologies 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. ....
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....for the purpose of allowing depreciation u/s 32 of the I.T.Act read with ITRules 1962 and therefore, the expenditure incurred on purchase of computersoftware/License to use computer software, either for one year or for more than one yearcannot be allowed as revenue expenditure. 15. The CIT(A) has erred in directing the AO to exclude a sum of Rs. 7,08,14,999/- incurredtowards freight, telecommunication and Insurance and Rs. 4,09,64,305/- incurred in foreigncurrency towards traveling expenses attributable to delivery of software outside India bothfrom the Export Turnover as well as from the Total Turnover for the purpose of computingdeduction u/s10A without appreciating the fact that the status allows exclusion of suchexpenditure only from Export Turnover by way of specific definition of Export Turnover asenvisaged by Sub-clause (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.....