TaxTMI 
TaxTMI 
2022 (5) TMI 1407
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....e date for filing of appeal before Hon ITAT was 22nd March 2017. The only female employee looking after taxation matters of the assessee company fell ill and was unwell from 9th March 2017 until 24th March 2017 and proceeded on leave. The CFO of the company had to travel to Germany to attend to some important and urgent matter in relation to the company restructuring and legal matters. Assessee company being corporate entity has to necessarily act only through human agency. In the midst of flurry of activities and the absence of the concerned staff looking after the taxation matters the due date for filing the appeal before the Hon'ble ITAT came to be lost sight of and the appeal papers came to be not filed within the stipulated period. If the concerned employee single handedly looking after the tax matters and working under aforesaid overwhelming circumstances inadvertently overlooks the last date of filing the appeal it would amount to a reasonable cause so far as the assessee company is concerned. On the backdrop of the aforesaid facts and circumstances it is manifest that there was just and sufficient cause for the delay due to an inadvertent error and there w....
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....ntrolled comparables selected by the appellant * In rejecting Onward Technologies Ltd. the learned AO and the DRP erred in confirming the mechanical application of the filter of 75% export sales by the TPO without appreciating the fact that the said comparable was carrying out the activity predominantly in off shore mode like the appellant and therefore the applicable basic criteria of functions performed, assets/ resources deployed and risks borne were satisfied being similar in nature and therefore comparable. The learned TPO and the DRP erred in not appreciating the fact that export incentives were not taken as operating income of the appellant's design engineering segment and the export filter of 75% was therefore not required to be applied in such a case . The learned DRP and the AO further erred in drawing an incorrect inference that merely because the exports sales figure of Onward Technologies Limited in the relevant previous year was less than that of the preceding year it was not a comparable. * In rejecting Cades Digitech Pvt. Ltd. as a comparable the learned DRP and the AO erred in drawing an incorrect inference that the said comparable carrie....
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....ailed to appreciate that the said expenses incurred by the appellant have not resulted into creation or acquisition of any asset, right or property or interest in any property in the hands of the assessee. The learned DRP and the AO failed to appreciate that the said expenses were not incurred in connection with development of a new product prior to commencement of business but were incurred on an ongoing basis every year for improvisation in existing products manufactured by it by making changes to remain price competitive and technically improvised in tune with the markets requirement. The learned AO merely followed orders passed for the preceding years and came to hold that the expenses represent capital expenditure in the nature of capital asset. 5. The learned DRP and AO erred in confirming disallowance of provision towards cost of software Rs. 14,28,021/- on the inference that the said amount represented excess provision, in-spite of the fact that the said expenses included in the total amount of Rs.2,43,57,884/- had suo motu been disallowed by the appellant u/s 40(a)(i) and therefore no separate disallowance/addition was called for. The learned DRP and AO f....
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....essing Officer, the TPO had proceeded with benchmarking of the international transactions. In the process, the TPO had called upon the assessee to furnish the segment-wise profitability of the appellant company. In compliance, the appellant submitted the segment-wise profitability, which reads as under :- :- Particulars Mfg. Activity Trading Export Engg. Services Total (Rs. Crores) Income from Operations 498.525 12.729 39.483 550.737 Add Other Operating Income 2.448 0.290 0.000 2.738 Operating Income (OR) 500.973 13.019 39.483 553.475 Total Expenditure 493.448 12.335 33.716 539.499 Less Interest 13.209 0.187 0.245 13.641 Less Forex Loss 6.136 -0.180 -0.936 5.020 Less Donation 0.0078 0.0002 0.000 0.008 Less Provisions 0.425 0.000 0.000 0.425 Operating Cost (OC) 473.6702 12.3278 34.407 520.405 Operating Profit 27.3028 0.6912 5.076 33.07 OP/OR 5.45% 5.31% 5.97% 5.45% OP/OC 14.75% 7. However, the TPO found that in respect of design....
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.... the exclusion of comparable 'Onwards Technologies Ltd.' chosen by the assessee on the ground that by applying the filter of export to total sales of 75% is not appropriate. However, the TPO rejected the contention of the appellant by holding that the filter of export to total sales of 75% is not appropriate placing reliance on the provisions of Rule 10B(2) of the Rules as well as contents of para 4.43 of the OECD Transfer Pricing Guidelines 2010, it provides 'foreign sales/total sales' as one of the quantitative filter. Similarly, the appellant company also objected before the TPO exclusion of comparable 'Cades Digitech Pvt. Ltd.' on the ground that the said company had not been merged with Axis Aerospace and Technology Ltd. in financial year 2011-12. However, the TPO rejected the same by holding that the decision of merger was taken in the year 2011 and the process of merger must have been going on much before that date. The appellant company also objected the inclusion of (a) Pentamedia Graphics Ltd., (b) Genesys International Corporation Ltd., (c) Acropetal Technologies Ltd., (d) Tata Elxi Ltd., (e) E Clerx Services Ltd. on the ground of functionality differences. However....
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....ever, the ld. DRP confirmed the inclusion of the comparable 'Onwards Technologies Ltd.' by holding that the filter of 75% of export to the total turnover is not appropriate. Similarly, the ld. DRP also confirmed the inclusion of 'Cades Digitech Pvt. Ltd.' by holding that the company is primarily engaged in on-site operations taking into consideration the total expenditure incurred in foreign currency and it cannot be compared with the company which is engaged in totally off-shore operations. The ld. DRP also confirmed the inclusion of 5 companies i.e. (a) Pentamedia Graphics Ltd., (b) Genesys International Corporation Ltd., (c) Acropetal Technologies Ltd., (d) Tata Elxi Ltd., (e) E Clerx Services Ltd. as such fell within the definition of software companies as defined under the Safe Harbour Rules. As regards the software license fees, the ld. DRP considering the fact that during the course of proceedings before him, the assessee could substantiate with supporting evidences for the balance of amount of Rs.1,80,65,636/- and directed the TPO to make addition only to the extent of Rs.14,28,021/-. 11. The appellant also objected the disallowance of 3,38,82,341/- claimed under the ....
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....f Rs.1,46,47,500/-. 14. Being aggrieved by the order of final assessment, the appellant is in appeal before us. 15. Ground of appeal no.1 challenges the exclusion/inclusion of the comparables for the purpose of benchmarking the international transactions of IT enabled design engineering services to its Associated Enterprises (AEs) and, Ground of appeal no.2 and 3 challenges the inclusion of comparables, namely, eClerx Services Ltd., Pentamedia Graphics Ltd., Tata Elxi Ltd. and Genesys International Corporation Ltd. in the list of comparables on the ground of functionality difference. 16. We have carefully gone through the orders of the TPO as well as the ld. DRP, we find that the lower authorities had included this four companies merely because these companies fall under the characterization of software companies as well as KPO companies as defined under Rule 10TA(g) of the Safe Harbour Rules. At the outset, we find that Safe Harbour Rules are applicable from 18.09.2013, we have serious doubt as to how the definitions given in Safe Harbour Rules can be applied for characterization of a particular company for the purpose of identification of set of comparable entities....
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.... its AEs. Since the R&D facilities for which the assessee incurred costs outside India are neither of the assessee nor approved by the prescribed authority, there can be no question of granting any weighted deduction on the expenses incurred outside India. To sum up, it is held that the assessee is entitled to weighted deduction u/s.35(2AB) on total amount of expenditure incurred in India amounting to Rs.5,45,58,297/-. Resultantly, no weighted deduction is admissible in respect of expenditure incurred outside India amounting to Rs.9,61,80,237/-." 19. Respectfully following the decision of the Co-ordinate Bench of this Tribunal in assessee's own case (supra), we uphold the action of the lower authorities in disallowing the expenditure incurred on in-house R&D facility. Accordingly, this issue stands dismissed. 20. The issue raised in Ground of appeal no.4 challenges the decision of the lower authorities in holding that the expenditure incurred on product development expenses is "capital expenditure". This issue is also covered by the Co-ordinate Bench of this Tribunal in assessee's own case for the assessment year 2011-12, wherein, the Co-ordinate Bench of this Tribunal held a....