TaxTMI 
TaxTMI 
2021 (1) TMI 1215
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....ivity charges. (d) Disallowance u/s. 40(a)(ia) of depreciation claimed on software purchases for non-deduction of tax at source. (e) In the alternative, the above disallowances will go to increase business profits eligible for deduction u/s. 10A of the Act. 3. The revenue is in appeal in respect of following issues:- (a) Granting of risk adjustment @ 1% arbitrarily without appreciating the facts of the case and its comparables. (b) Allowing deduction of expenditure 'deducted from Export turnover' from the Total turnover also while computing deduction u/s. 10A of the Act. 4. In the Cross objection, the assessee has only raised many general grounds relating to Transfer pricing adjustment. Hence, the Cross objection does not require any specific adjudication. 5. The facts relating to the case are set out in brief. The assessee is a subsidiary of Textron Atlantic Inc., USA (Textron US) and Textron Inc., USA. The assessee undertakes contract engineering design services (EDS) for its Associated Enterprises (AEs). The assessee also renders Marketing Support Services (MSS) to its AEs. During the year under consideration, the assessee had....
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....y the AO, the Ld. DRP directed the AO to follow the decision rendered by jurisdictional Karnataka High Court in the case of Tata Elxsi Ltd. ( (2012)349 ITR 98)(Kar) and deducted the expenses from both export turnover and total turnover while computing deduction u/s. 10A of the Act. 8. However, it appears that the TPO has given relief on account of risk adjustment. However, the AO retained the addition towards Transfer pricing adjustment made in the draft assessment order by observing that the Ld. DRP did not give any relief to the assessee. The AO also retained the addition u/s. 40(a)(ia) of the Act in respect of payment of broadband connectivity charges. In respect of addition of depreciation u/s. 40(a)(i) and the computation of deduction u/s. 10A of the Act, the AO did not follow the directions given by Ld. DRP. Accordingly, the assessing officer retained the addition made by him in the draft assessment order on both the issues. Aggrieved, both the parties have filed appeal before us. The assessee has also filed cross objections. 9. Before us, the assessee has filed a letter dated 4.12.2019, wherein it has stated that the assessee has settled the issue relating to transfer ....
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....ransfer pricing adjustment of Rs. 70,71,129/- instead of making adjustment of Rs. 40,71,129/-. When this mistake was pointed out, the DRP directed the A.O. to verify the claim of the assessee and take necessary action. However, the AO/TPO did not examine the claim of the assessee and accordingly retained the transfer pricing adjustment of Rs. 70,71,129/-. The Ld. A.R. explained this arithmetical error further, i.e., he submitted that the TPO had selected following comparable companies for marketing support services:- Sl.No. Name of the company OP/Cost (%) 1 Asian Business Exhibition & Conferences Ltd. 19.51 2 Cyber Media Research Ltd. 10.59 3 ICC International Agencies Ltd. 24.66 Average 18.25% 13. Even though the assessee asked for working capital adjustment, the TPO did not grant working capital adjustment and accordingly determined the ALP margin at 18.25% as mentioned in the table. Accordingly, he determined the arms length price at Rs. 5.05 crores. The assessee had received payment of Rs. 4.65 crores. However, the TPO deducted a sum of Rs. 4.35 crores from the AALP amount instead of Rs. 4.65 crores. Accordingly, ....
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....h the service provider. The AO has considered this in the assessment order. Since there is no specific contractual facility that has been obtained from M/s. Tata Indicom, the character of "service contract" is ruled out. It is evident that the assessee has utilised standard service ordinarily available to all and sundry and it is not a specific one. The assessee relied on CIT Vs. Bharthi Cellular (319 ITR 139)(Del), Asia Satellite Vs. DIT (332 ITR 340)(Del) &Skycell Communications Vs. DCIT (251 ITR 53)(Mad). The unanimous decision of the Hon'ble High Courts is that fee for providing internet/broadband facility is not technical services as contemplated under Explanation 2 to section 9(1)(vii) of the Act, and the payment made for interconnection provided, through ports is not liable for deduction of tax at source. The Delhi High Court emphasized that the services do not involve any human interface. Similar view was expressed by the Mumbai Bench of the Hon'ble Tribunal in [14 ITR (Trib) 349] & [3 ITR (Trib) 294]. After examining the facts and circumstances of the instant case, I find that the assessee has simply obtained broadband/Internet facility from the service provider M/....
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..... 40(a)(ia) of the Act. We find support by this proposition on the decision rendered by the coordinate bench in the case of UKN Properties Pvt. Ltd. in ITA No. 2012/Bang/2016 dated 2.7.2021. Accordingly, the disallowance of depreciation u/s. 40(a)(ia) of the Act is liable to be deleted. The Ld. DRP however has directed the A.O. to treat software purchases as revenue expenditure and disallow the same u/s. 40(a)(ia) of the Act. In this regard, the Ld. CIT(A) has followed the decision rendered by Hon'ble High Court of Karnataka in the case of Samsung Electronics Company Ltd. (supra) which has since been reversed by Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. (supra). Accordingly, in our view, the disallowance of entire amount of software purchases u/s. 40(a)(ia) of the Act treating the same as revenue expenditure requires fresh examination at the end of the A.O. by considering the decision rendered by Hon'ble Supreme Court referred above. Accordingly, we restore this issue to the file of the A.O. for examining it afresh. 24. We shall now take up the appeal filed by the revenue. The first issue relates to the granting of risk ....