TaxTMI 
TaxTMI 
2022 (8) TMI 624
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....ellant at Rs. 5,67,14,80,070 as against a returned income of Rs. 3,43,98,78,300. Part I - Transfer Pricing Matters 3. That on facts and in law, the Hon'ble DRP and the Ld. TPO/ Ld.AO erred in making an adjustment of INR 1,890,534,850 and INR 213,288,571 to the returned income of the Appellant in respect of the international transactions pertaining to contract software development services ('SWD' or 'Impugned Transaction I') and provision of IT enabled services ('ITES' or 'Impugned Transaction II') respectively. 4. The transfer pricing adjustments made to the Impugned Transactions by the Ld. AO based on the order of Ld. TPO giving effect to the directions issued of the Hon'ble DRP is bad in law inter-alia for the reason that: a) the order of the Ld. TPO is bad in law in as much as based on an invalid reference made by the Ld. AO without complying with the statutory requirements; b) the Appellant's AE being chargeable to tax at a higher rate in the US, there was no question of shifting of any profit from a low tax paying country to a high tax paying country. 5. That on facts and in law, the Hon'ble DRP and the Ld. TPO/ Ld. AO ....
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.... and in law, by wrongfully rejecting certain companies and adding certain companies to the final set of comparables for the impugned transactions of the Appellant, on an adhoc basis. Thus, they have resorted to cherry picking of comparables to determine ALP for the impugned transactions. 10. That on facts and in law, the Ld. TPO/ Ld. AO erred by not following direction of the Hon'ble DRP to include "Microland limited" in the final list of final comparables with respect to Impugned Transaction II since it is passing all the filters applied by the Ld. TPO. The said ground is submitted without prejudice to the arguments of the Appellant against erroneous approach of the Hon'ble DRP and the Ld. TPO/ Ld. AO. 11. That on facts and in law, the Hon'ble DRP and the Ld. TPO/ Ld. AO have grossly erred by computing the operating profitability of the comparable companies incorrectly. 12. The Hon'ble DRP and the Ld. TPO/ Ld. AO erred in law and in facts by selecting certain companies which are earning super normal profits, as being comparable to the Appellant. 13. That on facts and in law, the Hon'ble DRP and the Ld. TPO/Ld. AO have grossly erred by not apprec....
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....reign exchange loss on capital creditors amounting to Rs. 31,830,359 in view of the position taken by Ld. AO/ Hon'ble DRP in the earlier years. 18. That on facts and in law, the Ld. AO grossly erred n not granting credit for tax deducted at source amounting to Rs. 3,11,749. 19. That on the facts and in law, on disposal of this appeal material adjustment would be required in computing total income, tax, interest u/s 234B of the Act and refund added (along with Interest u/s 234D of the Act). Necessary directions may please be given to the Ld. AO in this regard. 20. That on the facts and in the circumstances of the case and n law, the Ld. AO has erred in initiating penalty under section 271(1)(c) of the Act." 3. The assessee is a Private Limited Company engaged in the business of software development and product support services. It filed its return for AY 2013-14 on 29.11.2013 declaring total income of Rs. 342,96,62,520/- which was subsequently revised to Rs. 3,43,98,78,300/- on 31.03.2015. The case was selected for scrutiny under CASS. The Ld. AO completed the assessment under section 143(3) r.w.s 144C of the Income Tax Act, 1961 (the "Act") on 29.08.20....
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....ready reference. The grounds of appeal (Ground No. 3 to 15 of the appeal filed) in the captioned appeal against the additions made on Transfer Pricing issues relate to determination of arm's length price of international transactions in respect of provision of Software Development services ("SWD") and IT Enabled services ("ITeS"). The Appellant's associated enterprise ("AE") in the United States of America ("USA"), namely Microsoft Corporation had also filed an application under Mutual Agreement Procedure ("MAP") before USA Competent Authority to resolve the dispute relating to determination of arm's length price for the transfer pricing adjustment made in the assessment order dated 29 August 2017 under Article 27 of India-USA Double Tax Avoidance Agreement. The Appellant has received a copy of the communication issued by the Indian Competent Authority on 04 April 2022 informing the Appellant about the resolution under MAP Proceedings for the captioned year. The MAP resolution has specified relief to be granted on account of transfer pricing adjustments in relation to the Appellant's AE i.e., Microsoft Corporation. In view of Rule 44G(7) of the I....
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....e said income in its return under the head "Income from other sources". During assessment proceedings the assessee was asked to show cause why the said income be not taxed under the head income from house property. The assessee furnished explanation vide letter dated 11.11.2016 which has been reproduced by the Ld. AO in para 4.1 of his order. However, the Ld. AO did not accept the explanation mainly for the reason that in preceding AYs the assessee had been claiming the taxability of similar income as 'income from other sources' during the assessment proceedings only which claim had been rejected by the Revenue but it is for the first time that the assessee has preferred the said claim by way of filing the revised return. Nonetheless, the Ld. AO proceeded with the observation that in the current year also the facts of the case are similar to that of the earlier years. 8.1 The Ld. AO distinguished the facts of the case of the assessee from the facts of Sultan Brothers Pvt. Ltd. vs CIT (1964) 51 ITR 353 (SC), the decision of Hon'ble Supreme Court relied upon by the assessee. After discussing the differential facts, the Ld. AO held that rental income earned by the assessee is asses....
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....osoft India Pvt. Ltd with its associated enterprises i.e. M/s Global Service Centre India Pvt. Ltd, it is stated that the assessee company has let out the "Building" along with the infrastructure facilities which includes Centralised Air Conditioning, DG Power supply and other electrical equipments which forms the part of the building and are necessary for the proper functioning of the said 'Building'. It is respectfully submitted that the facts in the case of Sultan Brothers Pvt. Ltd in & in Jay Metal Industries Pvt. Ltd. are different from Microsoft India (R&D) Pvt. Ltd. on following points:- Facts in the case of Sultan Brothers Pvt. Ltd. (SC) 'Annexure B' Facts in M/s Microsoft India (R&D) Pvt. Ltd. Facts in the case of Metal Industries Pvt. Ltd. (Delhi HC) 'Annexure C' * At page 9, the Hon'ble Supreme Court has referred to lease deed as- * "We will now refer to the provisions in the lease to see whether the parties intended that the furniture, fixtures and t h e building shall all be enjoyed tighter. Clause 1 of The lessee's covenant, in our opinion, puts the matter beyond doubt and it is as follows:- * (a) To use the demised ....
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....h Diesel Generator Sets and of such capacity as it may require in the BUILDING for exclusive use of the LESSEE. It is clarified that the LESSOR shall, without any extra cost provide appropriate and suitable space to the LESSEE in the BUILLDING for the aforesaid The LESSEE shall be entitle to deduct the cost and expenses incurred by the it for installation of the Diesel Generator Sets and cost of running and maintaining the same from the Rent payable by the LESSEE to the LESSOR. In the event the LESSEE Could not procure air conditioning and 100% power backup from third parties, the without any extra LESSEE shall be entitled to terminate this Lease Deed." * The Hon'ble High Court has stated at page 2 para 3- * Certain other clauses of the lease deed relevant to the present case read thus: * "2(c) The Lessor shall provide a sanctioned load of 210 KVA electricity connection through an independent transformer installed at the premises. The Lessee agrees to pay directly to the concerned department all charges for electricity and water consumed by the lessee in the premises. The electricity charges will be based on the consumption shown by the meter on the b....
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.... the services provided, then lessee is entitled to bring in his own infrastructure and lessee is entitled to deduct the cost and expenses from the rent payable. Moreover, at Para 7.7 of lease deed in M/s Microsoft India (R&D) Pvt. Ltd it is explicitly mentioned that on interruption of services, Lessee has the option to:- (1) Abatement of Rent. (2) Termination of lease deed. it is clear that the price of services is inbuilt in the rent, and in event of the services not provided, unsatisfactory and lessee bringing in own infrastructure in form of DG generator set, netting of such incurred cost with Rent is permitted in lease deed, which clearly shows that the rent is not composite as envisaged in the section 56(2) of the Act. The assessee company Microsoft India (R&D) Pvt. Ltd has leased out 'Building' along with infrastructure for providing certain services which can also be sourced by lessee in case of inadequacy. Thereby, the condition of the section 56(2) of the Income Tax Act is not satisfied. In the case of Sultan Brothers and Jay Metals Industries Ltd, the furniture and fixtures was composite with building rent as inseparabl....
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....ughtful consideration to the findings of the Assessing Officer but we do not concur with the findings. There is no dispute that the lease agreement is a composite lease agreement which included the inbuilt infrastructural facilities provided which included central air conditions with ducting, DG power supply, net work equipments, access control equipments, electrical equipments, VAVs and controllers, smoke detectors and occupancy sensors. 17. The agreement also included other amenities, namely installation of dish antenna/satellite, parking space, repair and maintenance which includes repairs, interior or exterior, electrical and plumbing work, repair and maintenance of common and open areas and facilities provided at the building like compounds, gardens, passage, elevators, lifts, terrace, DG sets etc and also 100% power backup and centralised air conditioning. 18. In our considered opinion, for similar set of amenities/facilities, the Hon'ble Supreme Court in the case of Sultan Brothers [supra] has laid down certain tests which have been followed by the Hon'ble High Court of Delhi in the case of Garg Dyeing & Processing Industries [supra] and later on in....
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....y. 24. As mentioned elsewhere, facts of A.Y 2012-13 being identical to A.Y 2011-12, we decide accordingly. 25. In the result, the grounds restored to the file of the Tribunal by the Hon'ble High Court are decided in favour of the assessee and against the Revenue." 12. We appreciate the efforts made by the Ld. DR to convince us that the lease deed in question is not composite and that the rental receipt does not answer the description under section 56(2)(iii) of the Act. We, however, do not subscribe to the views expressed by him in his written submission which are nothing but reiteration of what the Ld. AO has said in the assessment order which has been duly considered by the Tribunal in the order (supra). The Tribunal in para 18 has observed that for similar set of amenities/facilities, the Hon'ble Supreme Court in Sultan Brothers Pvt. Ltd. (supra) has laid down certain tests which have been followed by the Hon'ble Delhi High Court in Garg Dyeing & Processing Industries vs. ACIT (2012) (ITA 319/2012) (Del) and later in Jay Metals (supra). Testing the facts of the assessee's case on the touchstone of the decisions (supra) the Tribunal recorded its unequivocal f....