AI Drafter 
TaxTMI 
TaxTMI 
2018 (7) TMI 2209
X X X X Extracts X X X X
X X X X Extracts X X X X
....39;s international transactions with Associated Enterprises (-AEs-) of Rs. 948,385,734 with respect to the IT Enabled services ("ITeS") rendered by the tax payer u/s 92CA of the Income Tax Act. 2. The learned AO / learned TPO erred in rejecting the Transfer Pricing ('TP') documentation maintained by the Appellant on invoking provisions of sub-section (3) of 92C of the Act contending that the information or data used in the computation of the arm's length price is not reliable or correct. In doing so: 2.a the learned AO / learned TPO erred in rejection of comparability analysis carried in the TP documentation and in conducting a fresh comparability analysis by introducing various filters in determining the arm's length price. 2.b the learned AO / learned TPO erred in rejecting companies that are comparable to the Appellant while performing the comparability analysis. Specifically, the Appellant believes that the following companies should have been included as comparable * Lee & Nee Software (Exports) Limited * Caliber Point Business Solutions Limited * R Systems International Limited 2.c the learned AO /....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ure of lease option. 3. The Hon'ble DRP erred in concluding that the decision of Supreme court in the case of CIT v. BC Srinivasa Shetty (128 ITR 294) is distinguishable, whereas the principle arising therefrom. is squarely applicable to the case of the Appellant. 4. The learned AO has erred on facts in concluding that the Appellant has suppressed or concealed one of the crucial agreements executed on 8.5.2008, without appreciating the fact that, the information relating to such agreement is disclosed in the notes to accounts of the financial statements and the supplementary agreement dated 15.9.2008 furnished during the assessment proceedings summarizes the main terms of the alleged crucial agreement. 5. Without prejudice to the above, the learned AO has erred in considering Rs. 349,000,000/-being the initial compensation agreed upon, as consideration, without appreciating the fact final settlement amount received by the Appellant was Rs. 284,000,000. The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed the draft assessment order of AO and the directions of DRP. 5. We have considered the rival submissions and in view of this fact that in respect of TP adjustment for US transactions, the issue has been finalized as per MAP and now this is the request of ld. AR of assessee before us that the price adopted for US transactions may be adopted for non-US transactions also and in support of this contention, reliance has been placed on Tribunal order rendered in assessee's own case for Assessment Year 2006-07. We, therefore first reproduce the relevant paras of this Tribunal order being para nos. 5, 9 and 10 and these paras are as under. "5. Use of contemporaneous data a) The Honourable DRP and the learned AO erred in concluding that the appellant ought to have employed contemporaneous data in the preparation of the Transfer Pricing report. b) The Honourable DRP and the learned AO erred in interpreting the word "Shall" in Rule 10B (4) to mean that data for the same Financial Year in which the international transaction was actually entered into is a mandatory requirement. Also the Honourable DRP and the learned AO ought to have appreciated that the transfer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t qualify the revenue filter postulated by the learned Transfer Pricing Officer." 6. From the above paras reproduced from the Tribunal order in assessee's own case for Assessment Year 2006-07, it is seen that in that year also, the prices were fixed under MAP in respect of US AEs and this was the claim of the assessee before the Tribunal that the same price may be adopted in respect of non-US AEs. The Tribunal has restored back the matter to the file of AO/TPO for fresh decision with the direction that the matter should be analyzed by AO/TPO on the same line for non-US transactions and if it is found that factors influencing the price are similar between US and non-US transactions, the price adopted for US transactions may be adopted for non-US transactions also. This was also directed by Tribunal that it was open to TPO to examine the validity of the proposition that price adopted under MAP mechanism can be adopted in respect of other countries also where MAP was not resorted to. Respectfully following this Tribunal order, we restore the TP matter back to the file of AO/TPO for fresh decision with the same directions. The TP issue stands decided in this manner. 7. Regarding ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat, the assessee received payment of Rs. 5 Crores by way of DD No. 146818 dated 25.04.2009 drawn on ICICI Bank Ltd. and out of the balance amount of Rs. 11.95 Crores, it was agreed that Vipul Infracon will pay Rs. 5.95 Crores on 31.05.2009 and Rs. 6 Crores on 30.06.2009. He submitted that as per supplementary agreement and the amended and restated supplementary agreement, the total consideration received by the assessee has been reduced and therefore, such amount should be considered and not initially agreed amount. 8. As against this, the ld. DR of revenue supported the order of AO and DRP. Our attention was drawn to pages 13 to 22 of the final assessment order and it was pointed out that as per the agreement dated 08.05.2008, it is stated that the lessee i.e. the present assessee in consideration of the compensation of Rs. 34.90 Crores payable by the lessor has expressed its willingness to relinquish the lease option as envisaged in the Memorandum of Agreement dated 31.01.2006 and reaffirmed vide Lease Deed dated 10.08.2007. She submitted that in fact, the assessee has expressed its willingness to relinquish the lease option and it is not a fact that the lessor has violated t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the view that there are two types of tenancy agreements in India, Lease Agreements which are covered by rent control laws and Lease and License Agreement which are not. Thus tenancy or a lease is an arrangement whereby the owner of land, the landlord or the lessor, agrees to grant the right to exclusive possession of his land/building to the tenant or the lessee, for a fixed period, on the payment of rent. However, if the arrangement only gives a person a nonexclusive right to occupy another's land, it is a licence. The main difference between a tenancy/lease and a licence is that tenancy/lease creates an interest in land, whereas a licence does not. A licensee has only a personal interest and this interest can be revoked by the landowner at any time. 20.5 To further clarify that tenancy and lease are essentially the same. Reference is invited to the provisions of Transfer of Property Act, 1882, wherein lease is defined as under: "Lease defined: A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of cr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rises from the lease contract and the nature of lease option, lease and tenancy are same and all the above create a right to exclusive possession of land/building of lessor in favour of lessee. 20.11 Having clarified as above it is further stated that it is not in dispute that lease option is a capital asset as per the provisions of the act. The only dispute is as follows: 1. The definition of capital assets provided under section 55(2) does not specifically cover the capital asset in the nature of lease option. 2. The company was never a tenant in respect of the additional area which was yet to be built but it had only an option to take such additional area on lease once the building is complete. Further, no costs were incurred to acquire the lease option. 20.12 As discussed above the lease rights, tenancy rights as well as rights originatingfrom lease options are same and all of the above create a right to exclusive possession ofland/building oflessorin favourof lessee. Thustenancy rightsare inclusive of allsuch exclusive rights, including lease option rights, created in favour of lessee in the property of the lessor. Since section 55(2) provid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pital gains. Having regard to the nature of goodwill, it will be impossible to determine its cost of acquisition' But in the case of the assessee it is not in dispute that lease option rights are capital assets and it is not impossible to determine its cost of acquisition because the cost of acquisition is clearly ascertainable as assessee itself in its submission states that cost of acquisition to acquire lease option is NIL. Further the date on which such a lease option right was created is also ascertainable in the instant case. 20.17 So far as the alternative claim of the assessee that the full value of consideration should be taken as Rs. 28.4 crores being the final settlement amount and not Rs. 34.9 Crores is concerned, it is noted that the company has not received the entire compensation of Rs. 34.9 Crores as agreed in the relinquishment agreement dated 8th May 2008, and the assessee has received Rs. 15.9 Crores during the year under consideration and the final additional settlement amount of Rs. 12.5 Crores has been received during F.Y. 2009- 10. 20.18 Considering the above factual points, the AO is directed to verify the final consolidated am....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of 1956); (iii) agricultural land in India, not being land situate- (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand; or (b) in any area within the distance, measured aerially,- (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh. Explanation.-For the purposes of this sub-clause, "population" means the population according to the last precedin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ial asset ; or (B) is allotted any additional financial asset without any payment, then, subject to the provisions of sub-clauses (i) and (ii) of clause (b),- (i) in relation to the original financial asset, on the basis of which the assessee becomes entitled to any additional financial asset, means the amount actually paid for acquiring the original financial asset ; (ii) in relation to any right to renounce the said entitlement to subscribe to the financial asset, when such right is renounced by the assessee in favour of any person, shall be taken to be nil in the case of such assessee ; (iii) in relation to the financial asset, to which the assessee has subscribed on the basis of the said entitlement, means the amount actually paid by him for acquiring such asset ; (iiia) in relation to the financial asset allotted to the assessee without any payment and on the basis of holding of any other financial asset, shall be taken to be nil in the case of such assessee ; and (iv) in relation to any financial asset purchased by any person in whose favour the right to subscribe to such asset has been renounced, means the aggregate of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....exchange as on the 31st day of January, 2018 but listed on such exchange on the date of transfer; (B) listed on a recognised stock exchange on the date of transfer and which became the property of the assessee in consideration of share which is not listed on such exchange as on the 31st day of January, 2018 by way of transaction not regarded as transfer under section 47, an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the financial year 2017-18 bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the first day of April, 2001, whichever is later; (c) "Cost Inflation Index" shall have the meaning assigned to it in clause (v) of the Explanation to section 48; (d) "recognised stock exchange" shall have the meaning assigned to it in clause (ii) of Explanation 1 to clause (5) of section 43;] (b) in relation to any other capital asset,- (i) where the capital asset became the property of the assessee before the 1st day of April, 99[2001], means the cost of acquisition of the asset to the assessee or the fair market value of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in existence and the same is occupied by the tenant with a right to occupy the property as tenant but in the present case, the property is not even in existence and it is hypothetical right given to the assessee that in case the property is built by the developer, the lessee being the assessee will have an option to take an extra area on lease and therefore, this lease option cannot be equated with tenancy right. Hence we find that we have to decide first this aspect as to whether the lease option is a capital asset or not and the second issue to be decided is this as to whether the lease option can be equated to tenancy right and therefore covered by section 55(2). Regarding the first aspect as to whether the lease option is a capital asset or not, we are of the considered opinion that as per the definition of capital asset in section 2(14) as reproduced above, property of any kind held by the assessee whether or not connected with his business or profession is covered by the definition of the term capital asset. There are some exclusions such as stock in trade andconsumable stores or raw materials held for the purposes of his business or profession, personal effects excluding jew....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd will be available within a specific time period and under that situation, the landlord can enter into tenancy agreement for such building being constructed or to be constructed with an understanding that the tenant will get the occupation of the building within a given point of time. Hence in our considered opinion, this argument of the ld. AR of assessee that in the present case, lease option is given in respect of a building which is not in existence and therefore, this cannot be equated with tenancy right has no merit. In our considered opinion, the granting of lease option is equal to the granting of tenancy option of an existing property with the understanding that the actual possession will be given to the tenant within a specified time period. In the present case also, the assessee was given lease option which could be exercised within 24 months from 01.12.2006. As per the agreement dated 08.05.2008, it is stated that the lease option under the MOU and the lease Deed is supposed to expire on 01.09.2008 and the lessee in consideration of the compensation of Rs. 34.90 Crores payable by the lessor has expressed its willingness to relinquish the lease option as envisaged in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee has also received part payment of it and has relinquished its rights of lease option. By a subsequent event of reduction in agreed consideration, the accrued consideration does not get reduced and such reduction in accrued consideration in future has no relevance for the purpose of determining the capital gain in the present year. Hence on this aspect of the matter also, we find no merit in the claim of the assessee. Accordingly this issue is decided against the assessee. 15. The appeal filed by the assessee is partly allowed for statistical purposes. 16. Now we take up the appeal of the revenue. It was submitted by ld. DR of revenue that ground no. 1 is general. Regarding ground no. 2, she fairly conceded that this issue is covered in favour of the assessee by the judgement of Hon'ble Karnataka High Court rendered in the case of CIT vs. Tata Elxsi Ltd., 349 ITR 98. Ground No. 2 is rejected by respectfully following this judgment of Hon'ble Karnataka High Court. 17. Regarding ground no. 3, she submitted that this issue was decided by the DRP as per para 16.3 of its directions available on page no. 39 of DRP directions. She pointed out that from this para of DRP d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e copies and SOFTEX submitted by the assessee company did not mention about the particulars of computer software / IT enabled service. She further pointed out that this is also noted by AO in the same para that RBI has given certain codes to regularize the SOFTEX and export of computer software. As per the RBI code, the export computer software and IT enabled service are governed under the Code 907. But as per the SOFTEX submitted by assessee company of Pune unit, it did not mention about the nature of service rendered and the columns were not duly filled. She further pointed out that it is also noted by the AO that none of the invoices were raised against any IT enabled service listed in the notification SO890[E] dated 26.09.2000 and all the invoices were raised towards software solution. Thereafter she drawn our attention to page no. 11 of the draft assessment order and it was pointed out that it is noted by the AO on this page of the draft assessment order that in order to claim the tax benefit u/s. 10A of IT Act, the assessee company should have either developed software or rendered IT enabled service given in the notification referred on the same page of the draft assessment o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n Ink and Toner" relating to $3,18,150. He submitted that under these facts, the order of DRP should be affirmed. 21. We have considered the rival submissions. First of all we reproduce the relevant para from the draft assessment order which reads as under. "IV. As far as Pune unit is concerned it is to be mentioned here that this unit was registered initially on 5.3.2006. On 31.3.2007 i.e. 1.4.2007 the company has acquired net assets of ACS Info Solution Pvt Ltd and god fresh registration from 31.3.2007. The invoice copies and softex submitted by the company did not mention about the particulars of computer software / IT enabled service. The RBI has given certain codes to regularize the softex and export of computer software. As per the RBI code the export computer software and IT enabled service are governed under the Code 907. The softex submitted by assessee company of Pune unit did not mention about the nature of service rendered and the columns were not duly fined. Further it is also noticed that none of the invoices were raised against any IT enabled service Listed in the notification S0890[E] dated 26.9.2000. All the invoices were raised towards software solutio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the company has to be realized within 12 months from the end of the month. Hence this amount is also not eligible as export turnover." 22. Now we reproduce the reply of the assessee regarding its explanation in respect of "Bonus on Ink and Toner" from page no. 455 of paper book. The same is as under. "5. Bonus on Ink and toner In point "a" of the notice dated 20th March 2013, in the copy of invoices submitted your goodself has noticed certain invoices have a component of "bonus on ink and toner". Subsequently your goodself has sought clarifications on the nature of such component in the invoices. In this regards we submit that, in the concerned case the Company has raised the invoices based on the call log report, wherein the bill amount would be worked out as number of minutes of call multiplied by a fixed rate. Subsequently at the end of the year in March, an additional component (being referred to as "bonus") would be billed for the services rendered and billed already. Thus this is an additional billing done for services already rendered. Further the description is given as "ink and toner" based on the name of cost center under which the conce....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... mere error of not completing the information sought in the Softex forms cannot be considered as the ultimate test to disallow the deduction under section 10A of the Act. The software solution services are being rendered from Pune unit and the same is acknowledged and endorsed by the STPI authorities. Further it could be noted from the FIRC and Invoice mapping annexure submitted by the assessee that the Company has realized the entire amount against the invoices raised by the Pune unit. In view of the above, deduction claimed under section 10A of the Act, for the Pune unit is allowable. 19.5 In view of the above, the grounds of objections are accepted." 24. From the draft assessment order as reproduced above, we find that from the reply submitted by assessee before the AO which is reproduced by the AO also on pages 7 and 8 of draft assessment order as reproduced above, it is seen that this is the reply of the assessee that initially the company has raised the invoices based on the call log report, wherein the bill amount was computed on the basis of number of minutes of call multiplied by a fixed rate and subsequently at the end of the year in March, an additional compo....