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2019 (11) TMI 333
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....he international transactions of the appellant 3. That on facts and circumstances of the case and in law, the reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO did not record any reasons in the draft assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. Transfer Pricing Officer ("TPO") for computation of the arm's length price, as is required under section 92CA(1) of the Income Tax Act, 1961 ("Act"). 4. That on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO and Ld. DRP erred in enhancing the income of the appellant by Rs. 2,17,04,89,288 as the compensation for its Advertisement Marketing and Promotion ('AMP') Services by holding that the appellant incurs 'excessive' AMP expenses in relation to its distribution activities thereby qualifying as 'services' as per the arm's length principle envisaged under the Act, and in doing so have grossly erred in: 4.1 disregarding that the AMP expenses incurred by the appellant represent purely domestic transaction(s) undertaken towards third parties, not covered under the purview of Section 92 of....
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.... the appellant in respect of the "alleged excessive" AMP expenses; 4.8. in applying a mark-up of 15% on the "alleged excessive" AMP expenses, for determining the compensation/ service fee towards "alleged AMP service" by the appellant to its AHs: 4.9 That the Ld. AO and Ld. TPO, on the facts and circumstances of the case and in law have erred in not following the binding direction issued by the Ld. DRP regarding the inclusion of M/s Spice Mobility Ltd., M/s General Sales Ltd as comparables of the appellant for the purpose of computing the arm's length price of the alleged international transaction of "excessive" AMP expenses. 5. That on the facts and the circumstances of the case and in law, the Ld TPO/ Ld AO and Ld DRP erred in enhancing the income of the appellant by Rs. 1,01,18.80,848 while recomputing the arm's length price of the international transactions pertaining to its contract software development ('CSD') services and in doing so have grossly erred in: 5.1 disregarding the ALP as determined by the appellant in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('....
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....ing (i.e. not March 31, 2008); 5.6.6 adopting employee cost to revenues greater than 25% of their total revenues as a search criteria for short listing and evaluating comparables for software development services; 5.6.7 exclusion of companies with onsite revenues greater than 75% of their export revenues for selecting comparables for contract software development services; and rejecting, in particular, the following filters applied by the appellant in its TP documentation/ fresh search: 5.6.8 companies having other operating income (ie income other than manufacturing and trading income) to sales greater than 50% were accepted; 5.6.9 Companies with net worth less than zero were rejected; 5.6.10 companies having research & development costs to sales less than 3% were accepted; and 5.6.11 Companies having advertising, marketing and distribution costs to sales less than 3% were accepted. 5.7 ignoring the fact that the appellant receives payments for services within stipulated period of time and hence enjoys a favourable working capital position. Accordingly, a working capital adjustment vis-a-vis the comparables is essentia....
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....7,059 on account of an arm's length adjustment and in doing so grossly erred in: 6.1. rejecting comparability analysis in the TP documentation/ appellant's fresh search and in conducting a fresh comparability analysis based on application of the following additional/revised filters in determining the ALP for the administrative and marketing support services segment; 6.1.1 companies having other operating income (ie income other than manufacturing and trading income) to sales greater than 75% were accepted 6.1.2 exclusion of companies having different financial year ending (ie not March 31, 2008); 6.1.3 exclusion of companies with related party transactions greater than 25% of their sales; and rejecting, in particular, the following filters applied by the appellant in its TP documentation/ fresh search: 6.1.4 companies having other operating income (ie income other than manufacturing and trading income) to sales greater than 50% were accepted; 6.1.5 Companies with net worth less than zero were rejected; and 6.1.6 companies having research & development costs to sales less than 3% were accepted; 6.1.7 Companies h....
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....s availed fees/reimbursements to its Associated Enterprises (AEs) as NIL against the sum of Rs. 91,21,40,262/- incurred by the appellant and in doing so have grossly erred: 7.1. by not issuing a show cause notice to the appellant before disallowing the payment towards services availed and reimbursement paid and not giving reasonable opportunity to the appellant of refuting/ rebutting the basis on which adjustment was made in the TP order, thus violating the cardinal principle of natural justice; 7.2. in holding that neither the appellant has received any service and/ or benefit in lieu of the payment made by it for services availed and reimbursement of expenses nor was there was any need for such services/ payments; thereby challenging the commercial wisdom of the appellant in making such payments while passing the order in contrast with the recent judicial pronouncements in this regard; 7.3. by holding that the appellant has not furnished documentary evidence to demonstrate the benefits received from the AEs ignoring the fact that no opportunity of being heard was provided to the appellant on this issue during the assessment proceedings: 7.4. in....
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....and Ld. DRP erred both on facts and in law in holding that the claim for liquidated damages is a liability of future and not liability of present and thus does not represent liability for AY 2008-09. 11. That the Ld. AO and the Ld. DRP in complete disregard to the facts and legal position erred in disallowing the Computer Software expenses of Rs. 2,63,02,168/- (Rs. 1,05,20,867/- net of depreciation) on the ground that these are capital in nature. 12. The Ld. AO grossly erred in disallowing the claim of the appellant under sections 10A and 10B to the tune of Rs. 5,59,22,700/- and 4,56,88,686/-, respectively 12.1. The Ld. AO has erred in holding that the above deduction u/s 10A/10B claimed on account of suo-moto Transfer Pricing adjustments made by the appellant in return of income are not allowable 13. The Ld. AO has erred on the facts and the circumstances of the case and in law in arbitrarily initiating a penalty proceedings u/s 271(l)(c) against the appellant for furnishing inaccurate particulars of income. 3. The assessee company is a subsidiary of Motorola International Capital LLC, USA and Motorola Inc., USA is the ultimate holding compan....
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....tigation before the Tribunal and the Hon'ble High Courts. The Special Bench of this Tribunal in the case of L.G. Electronics [2013] 140 ITD 41 held that excessive expenditure could be treated as a separate international transaction that could be subjected to arm's length exercise on its own. While holding so, the Special Bench laid down extensive guidelines to determine the value of the international transaction and the ALP of the same. Subsequently, the Hon'ble Delhi High Court in the case of Sony Ericsson [2015] 374 ITR 118 held that the "Bright line test" was not a valid test of determining the ALP of the AMP transaction, as it was not statutorily mandated. The Hon'ble High Court further laid down numerous guidelines and principles to determine the ALP of AMP transaction. Subsequent to this, the Hon'ble Delhi High Court expanded the jurisprudence in this regard in cases of Maruti Suzuki [2016] 381 ITR 117, Whirlpool [2016] 381 ITR 154 and Bausch & Lomb [2016] 381 ITR 227 by holding that existence of an international transaction merely on the ground of excess AMP expenditure cannot be presumed. It has to be shown to be existing based on mutual understanding or arrangement between....
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.... way of AMP expense. Such AMP expenses cannot be an item for being subject to a separate adjustment on a standalone basis. Motorola is a globally well-known name in consumer goods industry and the strength of the brand enhances the sale of consumer goods by it in India, while competing with other domestic and global brands operating in the Indian market. It is the assessee, who is actually benefitted by being able to exploit the license for the use of brands granted by the licensor. Had the taxpayer sold these goods under an unknown brand name, products could not have stood in competition against other reputed brands in the market. The primary benefit is of the assessee who is selling the goods in India and the benefit obtained by the licensor is only incidental. After the decisions of Maruti Suzuki, Whirlpool and Bausch & Lomb (supra), there is no room for any confusion regarding the treatment of AMP expenditure as a separate international transaction. The Hon'ble Delhi High Court in these decisions has categorically held that for an international transaction to exist within the meaning of Section 92B, the Revenue has to show that there existed an agreement or understanding or arr....
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....uyer of the brand to the seller might be on the lower side, in case a significant value stands associated with the economic ownership thereof in the hands of the distributor. On the other hand, if during the course of transfer of the legal rights in the brand, the license enjoyed by the distributor is terminated or impaired in any way, then the distributor might seek compensation from the legal owner of the brand, depending upon the terms of the contract, level of investment put in by the distributor under the assumption of long-term rights in the license, practice/ custom followed in the relevant country, etc. This is the key aspect of "exit charge", which tax administrations across the worldwide for in the context of business restructuring transactions, on which the OECD and Australian Tax Office have brought out detailed guidelines. Any such consideration would arise only when one would need to cross the bridge, namely that if at any future stage, the rights of the licensee were impaired; and not at any time before that. The Ld. AR submitted that empirical and scholarly studies have shown that within a sector or industry there is huge variation of AMP expenditure among competito....
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....as disregarded in the case of Nikon India Pvt. Ltd. vs. DCIT (ITA No.6870/Del/2018). The Hon'ble Delhi High Court in Sony Ericsson (supra) has also laid down the permissibility and desirability of "set-off" between ALP of various international transactions. The Hon'ble High Court held that in cases where AMP is treated as a separate international transaction on a stand-alone basis, any adjustment made on this account by determining the ALP has to be necessarily set-off against any extra profit that is earned by the assessee which is over and above the mean profit margin of the comparables. The Ld. AR relied upon the following decisions of the Tribunal where existence of an international transaction of AMP expenditure has been negated: • Yakult Danone India P Ltd. v. DCIT: ITA No. 996/Del/2016 (Delhi- Trib.) • PepsiCo India Holdings (P.) Ltd. v. ACIT: [2018] 100 taxmann.com 159 (Delhi - Trib.) • L.G. Electronics India Pvt. Ltd. v. ACIT: ITA No. 6253/2012 (Delhi- Trib.) • BMW India Private Ltd. v DCIT ITA No. 1514/2016 (Delhi-Trib.) • M/s L'Oreal India Pvt. Ltd v. ACIT: ITA No. 1417/2017 (Mum- Trib.) • Nipp....
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....ny cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises is an international transaction. In this case, admittedly, the assessee has incurred the cost of AMP for the benefits of its AE; & thus the TPO rightly held AMP expenditure as international transactions. The Ld. DR further submitted that the assessee who is in the business of distribution of goods manufactured by its foreign controlling parent and did not own any trademark or brand, had performed significant functions like brand development, market development, marketing customer support, technical and administrative support on behalf of its AEs in India bearing cost, investing huge sum and using its skilled manpower and time. These facts clearly prove that the assessee had developed marketing intangible for brand owned and goods manufactured by its foreign AEs by bearing significant cost and risk. Accordingly, the assessee was entitled to get reimbursement of the cost incurred by it and was entitled to retain intangible income in India. As no independent person would undertake such activities without being compensated for....
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....ted, would have made the order of the Tribunal unworkable, which the lower authorities were rightly not competent to do. In our considered opinion the DRP has rightly followed the Tribunal order in the assessee's own case holding that excessive AMP spend is an international transaction. In such circumstances, the argument of the assessee again before us that AMP expenses is not an international transaction, does not require consideration as the same does not arise from the order passed by the Tribunal pursuant to which these proceedings have arisen. Such issues have been challenged by the assessee before the Hon'ble High Court, which is the right forum to deal with the same. We therefore, approve the view of the AO in not examining any fresh contentions de hors the remit order by the Tribunal. 11. The Ld. AR submitted that the assessee did not pay any royalty to its AE. It was pointed out that the Tribunal in the first round noted this fact in paras 18.3 and 18.4 of its order and thereafter directed the TPO to consider the impact of this factor on the determination of transfer pricing adjustment towards AMP expenses in the light of decision of the Special Bench in the case....
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.... by the Tribunal. Further, the contention of the assessee in respect of credit notes was recorded by the TPO in the order and was not controverted (or commented upon) either by him or the DRP. As per the Ld. DR's contentions, admittedly, the assessee incurred the cost of AMP for the benefits of its AE; & thus the TPO rightly held AMP expenditure as international transactions. The assessee who is in the business of distribution of goods manufactured by its foreign controlling parent and did not own any trademark or brand, had performed significant functions like brand development, market development, marketing customer support, technical and administrative support on behalf of its AEs in India bearing cost, investing huge sum and using its skilled manpower and time. These facts clearly prove that the assessee had developed marketing intangible for brand owned and goods manufactured by its foreign AEs by bearing significant cost and risk. Accordingly, the assessee was entitled to get reimbursement of the cost incurred by it and was entitled to retain intangible income in India. All these contentions of both the Ld. AR and Ld. DR has not been taken into account by the TPO/AO which nee....
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....able companies. There has been no change in the approach adopted by the TPO with respect to the application of filters from the previous year. In conduct of the fresh comparability analysis, the TPO used information received vide exercise of its powers u/s 133(6) from companies which was otherwise not available in the public domain. Based on the fresh comparability analysis carried out by the TPO, he identified 19 comparable companies (introduced 16 new comparables and accepted 3 comparable i.e. Bodhtree consulting Ltd, LGS Global Ltd and Mindtree Ltd (seg) selected by the assessee) with the mean margin to be at 26.20% (without allowing working capital adjustment) and proposed a transfer pricing addition of INR 127,47,23,744. Pursuant to the objections filed by the assessee before the DRP, the DRP directed the TPO to exclude Celestial Biolabs from the list of the comparable companies and to recompute the margin of Softsol India Limited (after excluding rental income and rental expenses). Thus, the revised mean margin came to be 21.85% and transfer pricing addition was re-computed at Rs. 1,01,18,80,848. 10. The Ld. AR submitted that the filters were wrongly applied by the TPO/DRP....
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....s regards to filter applied that of companies with diminishing revenue/companies consistently incurring losses were rejected, the said issue is held in favour of revenue in assessee's own case for Assessment Year 2007-08. The Ld. DR relied upon the order of the TPO and the directions of the DRP and further submitted that the findings and reasoning given by the revenue authorities be taken as the submissions of the revenue before us. 10.6 We have heard both the parties and perused all the relevant material available on record. The companies having diminishing revenue or consistent losses are definitely cannot be compared with the assessee company. Thus, this filter was rightly rejected. 10.7 As regards to related party transactions (both income and expenditure) being more than 25% of sales were excluded as against the threshold of 10% chosen by the assessee. The Tribunal held this issue in favour of the assessee in assessee's own case for A.Y. 2007-08 wherein it has been held that the threshold limit of 15% ought to be applied instead of 25% applied by the TPO. The Ld. DR relied upon the order of the TPO and the directions of the DRP and further submitted that the ....
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....ansfer pricing study. The object of selection of comparables is to find out companies which are performing similar functions as assessee with almost similar asset base and similar risks. These comparables are to be considered for finding out the arm's length price. If by applying a particular filter many, otherwise comparables, gets excluded then such a filter should be applied after making necessary adjustments for material factors. Thus, if a comparable has developed its own intellectual property right resulting into development of a patented product by incurring huge expenditure on R&D then even if it is performing software development functions, it has to be excluded. However, if a company is incurring huge expenditure on R&D only for improving the processes in delivering the software development services then the said comparable cannot be rejected merely because it is incurring R&D expenditure more than 3% of its total sales revenue because sufficient number of comparables are to be found for determining ALP. An objective decision has to be taken in each case. Ld. TPO has clearly demonstrated that by applying this filter even functionally similar companies gets excluded. This ....
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....pital adjustment cannot be denied if allowed in previous assessment year. The Ld. AR relied upon the decision of the Hon'ble Jurisdictional High Court in the case CIT vs. Dalmia Promoters Developers (P) Ltd. 281 ITR 346]. The said judgment was followed by the Delhi ITAT in Nokia India (P.) Ltd. v. DCIT IT A 4559 of 2011 (A.Y. 2007-08) and Nokia India (P.) Ltd. v. DCIT IT A No. 2445 of 2010 (A.Y. 2003-04). The Delhi High Court dismissed the appeal filed by the department against the case for A.Y.2007-08 in PCIT v. Nokia India (P.) Ltd. ITA 955 of 2018. The Ld. AR also relied upon the following decisions: PCIT v. M/s. Citrix R & D India Pvt. Ltd. (Para 4-6) ITA 533 of 016 (Karnataka HC). The SLP against this decision was dismissed by the Supreme Court in SLP (Civil) Diary No. 6045/ 2019; Brocade Communication IT(TP)A No. 71/Bang/2014. Appeal against this decision was dismissed by Karnataka High Court in PCIT v. M/s Brocade Communications Pvt. Ltd. ITA 309/2017; • Indigra Exports (P.) Ltd. v. DCIT [2016] 176 TTJ 384 (Bangalore - Trib.). • Appeal against this decision was dismissed by Karnataka High Court in Indigra Exports (P.) Ltd. v. DCIT [2018] 407 I....
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....nd 394/2016 as well as the decision of the Tribunal in case of Mentor Graphics (India) Pvt. Ltd. vs. DCIT for A.Y. 2008-09 and 2009-10 (ITA No. 410/Del/2013 and ITA No. 1484/Del/2014). 15.2 The Ld. DR relied upon the order of the TPO and DRP and further submitted that the findings and reasoning given by the revenue authorities be taken as the submissions of the revenue before us. 15.3 We have heard both the parties and perused all the relevant material available on record. This is a product based company as well. As per the Annual Report, Kals is engaged in the business of software services and software products. It is pertinent to note that this company is functionally different company. Besides that assets base of the company in this year is Rs. 40.26 lakhs which is very miniscule as compared to assessee company which is Rs. 288.2 crores. Therefore, the TPO is directed to exclude this company from the list of comparables. 15.4 Infosys Ltd.:- The Tribunal in assessee's own case rejected the comparable in A.Y. 2007-08. In this year also Infosys has a diversified business profile and owns various software products. The Company possesses brand value which t....
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....9 (ITA No. 1/Bang/2014 & 73/Bang/2014), this company is engaged in rendering product development services and high end technical services which falls under the category of KPO services and hence, not comparable. Further in point no. 2 of the auditors' report, it has been mentioned that there is no inventory with the company, however, in point no. 4 it has been mentioned that there are adequate international control for purchase of inventory. Also, inventory is appearing in Balance Sheet and Profit and Loss account of company. Thus, there is contradiction in the information provided in the financial statements. The Ld. AR relied upon the decision in case of DCIT vs. Verifone India Technology Pvt. Ltd. (supra) as well as Mentor Graphics (India) Pvt. Ltd. vs. DCIT for A.Y. 2008-09 and 2009-10 (ITA No. 410/Del/2013 and ITA No. 1484/Del/2014). 15.8 The Ld. DR relied upon the order of the TPO and DRP and further submitted that the findings and reasoning given by the revenue authorities be taken as the submissions of the revenue before us. 15.9 We have heard both the parties and perused all the relevant material available on record. This company is engaged in rendering p....
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....ns substantial patents, trademarks and rights in the form of intangible assets to the tune of Rs. 175 crore. Independent study done by Forrester Research where companies viz. Infosys, Tata Consultancy Services and Wipro Technologies have been identified as the top three companies reporting superlative performance with high revenue growth and sky rocketing profitability. The annual report of the company for AY 2007-08 provides the abridged financial data which does not provide the detailed financial information. Wipro has a diversified business profile and owns various software products. Thus, it is functionally different comparable than the assessee company. Wipro has substantial intangible assets in form of goodwill which is valued by the company at Rs. 42209 crore. During the year under consideration there was merger of Wipro Infrastructure Engineering Limited, Wipro Healthcare IT Limited, Quantech Global Services Limited with Wipro Limited. Thus, this comparable company is not only functionally different but also in the present assessment year it had merger which is an extra ordinary event. Therefore, we direct the TPO to exclude this comparable from the list of comparables. ....
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....007-08 on account of development and ownership of IPR. This year also Sasken had applied and acquired patents. As per the Annual Report for AY 2008-09, the company has filed for 41 patent applications out of which 19 has been granted (4 have been granted during current year). The Ld. AR submitted that this comparable be rejected as it has ownership of IPR which is not the activity of the assessee company. 15.17 The Ld. DR relied upon the order of the TPO/AO/DRP and further submitted that the findings and reasoning given by the revenue authorities be taken as the submissions of the revenue before us. 15.18 We have heard both the parties and perused all the relevant material available on record. The Tribunal in assessee's own case rejected the comparable in A.Y. 2007-08 on account of development and ownership of IPR. This year also Sasken had applied and acquired patents. As per the Annual Report for AY 2008-09, the company has filed for 41 patent applications out of which 19 has been granted (4 have been granted during current year). This fact is not denied by the Ld. DR. Thus, the Sasken has a different profile which cannot be compared with the assessee company. T....
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....ble High Court in case of Cash Edge India Pvt. Ltd. (ITA 279/2016 order dated 04.05.2016 as well as Mentor Graphics (India) Pvt. Ltd. Vs. DCIT for AY 2008-09 and AY 2009-10 (ITA No. 410/DEL/2013 and 1484/Del/2014). 15.23 The Ld. DR relied upon the order of the TPO/AO/DRP and further submitted that the findings and reasoning given by the revenue authorities be taken as the submissions of the revenue before us. 15.24 We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that this is product based company and the assessee company do not deal into business of product. Therefore, we direct the TPO to exclude this comparable from the final list of comparables. 15.25 LGS Global Ltd.:- This comparable company has abnormal increase in revenue from the previous year i.e. 200%. The Ld. AR submitted that TPO has used diminishing filter to reject companies with diminishing return and on other side selected this company as comparable with such a huge increase in revenue. The Company is engaged in multifarious activities including an end to end service provider and offers variety of services. It is involved in ....
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.... material available on record. It is pertinent to note that this comparable company is functionally different as the said company is engaged in providing open and end to end web solutions and various other activities which are totally different from the assessee company's profile. Thus, we direct the TPO to exclude this comparable from the final list of the comparables. 15.31 Softsol India Ltd.:- As per the website, the company provides highend services and is engaged in diversified operations including development of products. There is error in computing the margin of this company. The correct margin of Softsol after excluding rental income comes to be 15% (as directed by the DRP) instead of 25.59% as computed by the TPO in the revised order. The ratio of related party transactions to sales is more than 15%. The Ld. AR relied upon the decision in case of DCIT vs. Verifone India Technology Pvt. Ltd. (AY 2008-09 ITA No. 1/Bang/2014 & 73/Bang/2014). 15.32 The Ld. DR relied upon the order of the TPO/AO/DRP and further submitted that the findings and reasoning given by the revenue authorities be taken as the submissions of the revenue before us. 15.33 We have....
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....d both the parties and perused all the relevant material available on record. It is pertinent to note that this comparable company is engaged in software product and have diversified business. Besides this the company does not have segmental details available. Therefore, we direct the TPO to exclude this comparable company from the final list of comparables. 15.40 R Systems International Ltd. (seg): This comparable company follows different financial year ending i.e. December. Despite this the TPO has obtained data using Section 133(6), the same cannot be relied upon in the absence of audited data as per the Ld. AR. 15.41 The Ld. DR relied upon the order of the TPO/AO/DRP and further submitted that the findings and reasoning given by the revenue authorities be taken as the submissions of the revenue before us. 15.42 We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that this comparable company follows different financial year ending and there is no availability of the audited data. Thus, this company cannot be taken into account as comparable. Therefore, we direct the TPO to exclude this comp....
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....IPL, being a captive service provider, is insulated from virtually all risks due to its contractual arrangements, whereas the comparable companies are full risk bearing entities and therefore there should be some adjustments made to nullify this difference in risk profile. 17. The Ld. DR relied upon the order of the TPO as well as the Assessing Officer and further submitted that the findings and reasoning given by the revenue authorities be taken as the submissions of the revenue before us. 18. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the factual aspect in the present assessment year is similar to that of A.Y. 2007-08, therefore, we hereby direct the AO/TPO to consider computation of risk adjustment as per CAPM model by availing the services of technical experts which should be appointed by both the sides to come to an acceptable solution. Thus, Ground No. 5.13 is partly allowed for statistical purpose. 19. As regards to Ground No. 5.12, 5.14 & additional Ground filed on 5 May 2015 by the Ld. AR., the Ld. AR submitted that there is error in margin computation. The TPO while computing the adjustme....
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....m the previous year. The Assessee identified 4 comparable companies with the mean OP/TC margin of 4 18% against the margin of MSIPL at 3.53%. (4.04% after considering foreign exchange gain as operating) Thus, the international transactions with respect to "MSS" segment were considered to be at arm's length. The TPO rejected the TP study prepared by MSIPL stating that the quantitative filters are not correct, selection/rejection of comparables based on qualitative filter of "functionally different" is not objective and uniform, data for the current year is not used and RPT filter was not applied. The TPO rejected ail the 4 comparables selected by the Assessee and based on the fresh comparability analysis, identified 10 new comparable companies with a mean margin of 21.76% (without allowing working capital adjustment) and proposed a transfer pricing addition of Rs. 16,62,27,059. 23. As regards to Ground No. 6.1 relating to RPT filter more than (>) 25%, the Ld. AR submitted that this is wrongly applied by the TPO / DRP as the issue is covered in favour of the assessee in assessee's own case for AY 2007-08 (ITA No. 5637/DEL/2011). The Ld. DR relied upon the order of the TPO/AO/DRP a....
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....ion / management covering, Commissioning, operation, maintenance of rolling stock & workshop management, Training etc. The consultancy fees received by company also includes supplies. Apart from that, the company is in 'Construction management/supervision contracts', leasing services, receives mobilization fees. There is no separate segmental information and all the receipts have been classified under the primary segment of 'Consultancy services'. The company has a turnover of 353.14Cr and is not comparable to the assessee. The company is Government of India enterprise, thus, cannot be compared with the assessee. The Ld. AR relied upon the decision of the Tribunal in case of Rolls Royce India Pvt. Ltd. vs. DCIT (ITA No. 1310/DEL/2015) and Yum Restaurants India Pvt. Ltd. vs. ITO for A.Y. 2008-09 (ITA No. 6168/Del/2012) as well as M/s Shell India Markets Pvt. Ltd. vs. ACIT for A.Y. 2008-09 (ITA No. 193/Mum/2013). 28.2 The Ld. DR relied upon the order of the TPO/AO/DRP and further submitted that the findings and reasoning given by the revenue authorities be taken as the submissions of the revenue before us. 28.3 We have heard both the parties and perused all the rele....
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.... A.Y. 2007-08 as functionally different. The company has earned income from commission, consultancy and services. This year also the company has the same functional profile. The Ld. AR relied upon the decision of the Brown Forman Worldwide LLC India vs. DDIT for A.Y. 2007-08 and 2008-09 (ITA No. 433 & 6139/Del/2012). 28.8 The Ld. DR relied upon the order of the TPO/AO/DRP and further submitted that the findings and reasoning given by the revenue authorities be taken as the submissions of the revenue before us. 28.9 We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the company has earned income from commission, consultancy and services. Thus, the company cannot be compared with the assessee company. Therefore, we direct the TPO to exclude this comparable from the final list of comparables. 28.10 Apitco Ltd.:- The company operates in the diversified activities which includes Asset Reconstruction and Management Services, Project Related Services, Micro Enterprise Development, Infrastructure Planning and Development, research studies & Tourism, Skill Development, Environment. The Ld. AR reli....
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....e major source of income for the company is from consultancy income and contract income. Further, this company is Public Sector Company wholly owned by the Govt. of India and such companies cannot be compared with the assessee. In fact the DRP in A.Y. 2007-08 has excluded one of the comparables Vapi Waste and Affluent Management Company on the ground that it is a non-profit company. The Ld. AR relied upon the decisions in case of Actis Advisors Pvt. Ltd. (Del. HC) (ITA No. 952/2015) as well as Corning SAS-India Branch Office vs. DDIT for A.Y. 2008-09 (ITA No. 5713/Del/2012), Fujitsu India Pvt. Ltd. vs. DCIT for A.Y. 2008-09 (ITA No. 6280/Del/2012) and Ciena India Pvt. Ltd. vs. DCIT for A.Y. 2008-09 (ITA No. 3324/Del/2013). 28.14 The Ld. DR relied upon the order of the TPO/AO/DRP and further submitted that the findings and reasoning given by the revenue authorities be taken as the submissions of the revenue before us. 28.15 We have heard both the parties and perused all the relevant material available on record. The company is majorly engaged into consultancy services. The major source of income for the company is from consultancy income and contract income. Furthe....
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....essment Year 2007-08 as the company is non profit making company. The Ld. AR relied upon the decision of the Hon'ble Delhi High Court in case of Actis Advisors Pvt. Ltd. (ITA No. 952/2015) and M/s Intercontinental Hotels Group [India] Pvt. Ltd. vs. DCIT for A.Y. 2009-10 (ITA No. 5809/Del/2014). 28.20 The Ld. DR relied upon the order of the TPO/AO/DRP and further submitted that the findings and reasoning given by the revenue authorities be taken as the submissions of the revenue before us. 28.21 We have heard both the parties and perused all the relevant material available on record. From the perusal of records it can be seen that the company deals in the infrastructure sector and is engaged in undertaking high end technical services and project implementation on varied nature of infrastructure projects. The company's revenue streams include effluent treatment, common solid waste treatment and management. Thus, it is functionally different than the assessee company. Therefore, we direct the TPO to exclude this company from the final list of comparables. 28.22 Indus Technical and Financial Consultants Ltd.:- As per the website of the company, the company is....
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....of the company it can be seen that this company is engaged in providing premier valuation consulting, real estate advisory and chartered engineering certification company in India which is totally different from the assessee company. In fact, there is incorrect margin computation and the TPO included other income of Rs. 7.86 lacs as operating and excluded bank charges of Rs. 0.13 lacs and computed the margins at 12.85% instead of 4.97%. Besides this, the company did not have any employees during the year under consideration. Therefore, it will be appropriate to exclude this comparable. We direct the TPO to exclude this comparable from the final list of comparables. 28.28. We further note that since there is only one comparable left in the final list of the comparables selected by the TPO/DRP. Hence, the matter is remanded back to Assessing Officer /TPO to decide afresh by giving new set of comparables (including the one which is not challenged by the assessee) which are functionally similar to the Assessee company and the segmental data including other filters of the TPO are met with. Needless to say, the assessee will provide the new set of comparables which will be verif....
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....and Report referred in the DRP Order was never provided to the Assessee for rebuttal. The Ld. AR further submitted that additional evidence was submitted before the Tribunal on 08.04.2013 and 13.11.2013. The Ld. AR submitted that part of this cost has been recovered through cost plus (SDD and MSS). The Ld. AR further submitted that if this adjustment is upheld, then this would lead to double addition in the respective segments of SDD and MSS. An approximate analysis is provided below: and MSS. An approximate analysis is provided Amount allocated for Corporate recharges Amount allocated for reimbursements Total amount in the current year 622,140,262 290,000,000 Software Development segment (A) 368,386,758 33,582,060 Administrative and Marketing Support Services segment (B) 207,918,476 827,435 Total (A) +(B) 576,305,234 34,409,495 Balance amount to be considered 45,835,028 255,590,505 The above expenses allocated to the SDS and MSS segments have been recovered by the Assessee from the AE with mark up of 8.22% and 3.53% respectively amounting to a total of Rs. 65 crores approximately out of a total expense of Rs. 90 crores. In t....
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....t third party expenses that form a part of these recovery of expenses from the Assessee etc. The DRP as well as the TPO have not provided any comparable companies or data for arriving at the arm's length price to be nil. This is in violation of the Rules that prescribe as to how each method is to be applied. The Ld. AR further submitted that a part of the expenses claimed to be valued as "nil'' are in the nature of cost reimbursements. The TPO has not controverted this fact. It has been accepted that the cost to cost transactions amounting to INR 290,000,000 are without any mark-up. The Ld. AR submitted that these are third party expenses that have been recharged on a cost to cost basis. No adverse finding has been recorded by the TPO/DRP on this. Hence, in this scenario, it cannot be arm's length behaviour that the any independent company would incur expenses through unrelated enterprises and would not charge these expenses back to the beneficiary entity. 32. The Ld. DR relied upon the order of the TPO/AO/DRP. The Ld. DR further submitted that since the TPO/AO/DRP does not have access to these additional evidence, it will be appropriate to remand back the issue to the file of T....
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.... Assessee is sure that no further negotiation with the customers can be made on the damages, the amount is shown as utilized in the provision account. Any amount of provision which remains unutilized is reversed subsequently and is offered to tax as income. 35. The Ld. AR submitted that the fact that outflow has happened towards damages levied on the contract itself shows that the provisions made are genuine. The Ld. AR submitted that the Assessing Officer is incorrect in stating that provision for liability is a liability de future and not a liability de praesenti. The Assessee has a present liability because the event i.e. default in execution of the contract has happened due to which outflow of resource is expected and an estimate of such outflow can be made. Hence, it is an allowable expenditure. In the contracts entered into by the Assessee, the clause on liquidated damages clearly fixes amount of liquidated damages in delay and therefore liability of the Assessee to pay accrues immediately upon delay and such liability is fully ascertainable. 36. The Ld. DR relied upon the order of the TPO/AO/DRP and further submitted that the findings and reasoning given by the revenue....
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....in contract and assessee had denied its liability. In the present, case, however, as noticed earlier, the provision had been made on the basis of specific terms of contract in regard to liquidated damages. Therefore, this decision is of no assistance to the revenue. 170.1 The next decision relied upon by ld. DR is in the case of Navjivan Rollar Flour & Pulse Mills Ltd. (supra). In this case, the assessee company was engaged in the business of manufacturing of dal, besan, suji etc. On 23/07/1986, the assessee had entered into a contract with a foreign company for the import of yellow gram. Under the contract letter of credit were to be opened latest by 14/08/1986. The assessee, failed to open letter of credit. Protracted litigation ensued. The foreign party claimed damages for breach of the contract. The assessee disputed the payment of damages. There was no stipulation in the contract notes regarding the damages to be paid by the party breaching the terms of the contract. The Arbitrator on 25th May, 1987 awarded certain damages under the arbitration agreement. The assessee challenged the legality of the arbitration award and preferred appeal before the Board of appeal cons....
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....red towards liquidated damages would be deductible from the receipts of the year. This certain act or event of not completing the work within stipulated time has imported a definite and absolute liability on the assessee and merely because of the fact that liability would be discharged at a future dated and, there is difficulty in estimating the correct amount thereof would not convert this definite and absolute liability into conditional one as has been held by the Hon'ble Supreme Court in the case of Calcutta Co. Ltd. v. CIT (1959) 37 ITR 1 (SC), Metal Box Company India Ltd. v. Their Workment [1969] 73 ITR 53 (SC) and Bharat Earth Movers v. CIT [2000] 245 ITR 428 (SC). ......................... ............In the present case, the works have been executed after the expiry of the stipulated period. The stipulation as to the payment of liquidated damages towards delay in executing the contract work is related to the contract work, revenue thereof has been accounted for in the year under consideration. Although exact quantification of the claim of liquidated damages may be made at a future dated, the assessee payer was, in obligation to pay liquidated damages for t....
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....178.1 Having heard both the parties, we restore this issue to the file of AO to decide this in the light of guidelines laid down by Spl. Bench of ITAT Delhi in the case of Amway India Enterprises v. Dy. CIT [2008] 21 SOT. 179. In the result, this ground is allowed for statistical purpose." The Assessee claimed software expenses (comprising of AMCs, software purchases with less than 1 year life and software upgrades) amounting to Rs. 2,63,02,168/- as revenue expenditure while computing its tax liability for the year. The Assessing Officer disallowed the above expenditure alleging it to be capital in nature but allowed depreciation. Further, the DRP has not given any finding on this issue. It is the Assessee's case that these software expenses do not have a benefit of permanent or enduring nature and, therefore, are not a capital asset. These are only for updating and maintaining the existing software. It is pertinent to note that issue is identical. Therefore it will be appropriate to remand back this issue to the file of the TPO/AO. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 11 is partly allowed for ....