2022 (10) TMI 182

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....9;s length price The learned AO/TPO/DRP erred in making adjustments to the Arm's Length price as originally determined by the Appellant. Ground 2: Error in imputing notional interest The learned AO/TPO/DRP erred in imputing interest on advances granted by the appellant to the Associated Enterprises Ground 3: Error in computing royalty on sales a. The learned AO/TPO/DRP erred in imputing royalty and consequently making an adjustment for computation of tax. b. The Learned AO/TPO/DRP erred in contenting that the appellant had not established its claim before the panel with proper evidence. B. Corporate Tax adjustments Ground 4: Disallowance under section 14A of the Act Rs.97,52,724/- a. The learned AO/ DRP has erred in confirming the order of AO by disallowing expenses under section 14A, on the basis of Rule 8D instead of holding that no disallowance is warranted under section 14A. b. The learned AO/ DRP erred in applying Rule 8D for computing the disallowance under Section 14A as Rule 8D is prospectively applicable from March 24, 2008. c. The learned AO/DRP ought to have appreciated....

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....ftware and there was no outright purchase of software giving ownership to the assessee of the software so as to treat the same as a capital expenditure. d. The learned AO/DRP ought to have appreciated that the application software purchased by the assessee only facilitates the trading operations by enabling the management to conduct the business more efficiently, while leaving the fixed capital untouched. e. The learned AO/DRP ought to have appreciated that every advantage of enduring nature would not bring in a capital asset into existence except when there is enhancement in the capital structure of the assessee. f. The learned AO/DRP ought to have appreciated that the assessee did not acquire any asset of capital nature nor there is any change in the capital field of the assessee and thus the cost of the software would be revenue in nature and eligible for deduction under section 37 of the Act. Ground 7: Short grant of Tax deducted at source (TDS) amount: Rs. 93,683 The learned AO has erred in granting short credit of TDS amounting to Rs. 93,683/- while passing the assessment order. Ground 8: Calculation of Interest on resulti....

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....e advanced interest free advertising advances in earlier years to two of its AEs i.e., Titan International Marketing Ltd. (TIML), UK who traded in watches, jewellery & clocks and Titan Brand Holdings NV (TBHNV), Netherland (an investment company). These advances were recovered by the assessee during the year for Rs.630.63 Lacs from TIML and for Rs.109.80 Lacs from TBHNV. The assessee submitted that the advances were for the purpose of expenditure on advertising and related expenses outside India on behalf of the assessee and the said transactions need not be considered as a transaction with the AE. Therefore, these transactions were not international transaction and hence, not benchmarked. 4.3 However, Ld. TPO noted that the assessee charged interest on similar advances from another AE i.e., Tata International Holding BV (TIHBV), Amsterdam. In earlier year, the position of the assessee was accepted to be contract manufacturing and it was held that interest should have been charged on such advances. Applying rate of 6%, Ld. TPO computed aggregate TP adjustment of Rs.158.44 Lacs with respect of advances recovered from TIML and TBHNV and proposed the adjustment. The Ld. DRP, relyin....

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.... pricing scrutiny and such transactions were also to be treated as international transactions. Accordingly, similar royalty was computed by Ld. TPO on non-AEs sale also and TP adjustment was proposed. The Ld. DRP dismissed assessee's objections against which the assessee is in further appeal before us. 5.4 Before us, the assessee has filed application under Rule 29 of Income Tax Appellate Tribunal Rules, 1963 for admission of additional evidences which is supported by the affidavit of Managing Director of assessee company. By way of this application, the assessee seeks production of additional evidences which are in the form of sample distributor agreement entered into by the assessee with its non-AE customers along with website extracts in support of the fact that these were independent parties and therefore, such transactions could not be held to be international transactions. 5.5 After due consideration of factual matrix, we find that the assessee is acting as manufacturer and in this year, it has owned the brand also. The Ld. TPO has alleged that the assessee should received royalty from AEs as well as from non-AEs also. Similar royalty was being paid by other AEs in t....

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.... distributed by the revenue on the basis of turnover of the units. The assessee furnished revised working of profits u/s 80IC and accordingly, the excess claim of Rs.217.03 Lacs was added to the income of the assessee. The Ld. DRP, relying upon DRP order for AY 2006-07, dismissed the assessee's objections. 7.2 This issue has been adjudicated by us in ITA No.2192/Chny/2010 order dated 17.08.2022 as under: - 4.2 We find that all the other overhead expenses have been allocated by the assessee on the basis of turnover. Only design and development cost and assembly share of common facilities have been allocated on the basis of number of watches produced. The Ld. AO has apportioned the same on the basis of turnover. In our considered opinion, design and development cost and assembly share of common facilities are not proportional to the number of watches produced. The expenditure is largely salary expenditure of the two departments. It could not be said that the expenditure would be directly proportional to the number of watches produced. Rather, such expenditures would largely depend upon the decision of the management to decide as to how much expenditure was to be incurred ....

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....enduring benefit. Therefore, the expenditure of Rs.418.86 Lacs was held to be capital in nature on which the assessee would be entitled for depreciation of 60%. The differential i.e., Rs,.167.54 Lacs was added to the income of the assessee. The Ld. DRP confirmed the stand of Ld. AO. 8.2 We are of the opinion that though the software so purchased by the assessee may bring enduring benefit spreading over various years, however, the assessee acquires limited license to use the software. These are application software which are accessible to the assessee for a limited period of time. It could not be said that the capital base of the assessee has widened by acquiring such software. Rather the softwares are part of its trading operations only. Our view is fortified by the decision Hon'ble Delhi High Court in CIT V/s Asahi India Safety Glass Ltd. (15 Taxmann.com 382) wherein it was held as under: - 9. The revenue in support of its stand has taken recourse to the test of enduring benefit. It is in our view now somewhat trite to say that the test of enduring benefit is not a certain or a conclusive test which the courts can apply almost by rote. What is required to be seen is th....