TaxTMI 
TaxTMI 
2021 (11) TMI 1129
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.... (SWD services), to its wholly owned holding company. In terms of the provisions of Sec.92-A of the Act, the assessee and its wholly owned holding company were Associated Enterprises ("AEs"). In terms of Sec.92B(1) of the Act, the transaction of providing SWD Services was an "international transaction" i.e., a transaction between two or more associated enterprises, either or both of whom are nonresidents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. In terms of Sec.92(1) of the Act, the any income arising from an international transaction shall be computed having regard to the arm's length price. In this appeal by the assessee, the dispute is with regard to determination of A....
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....#39;s length price by TPO and the adjustment made: Arm's Length Mean Margin on cost 24.82% Less: Working Capital Adjustment 0.89% Adjusted mean margin of the comparables A 23.93% Operating Cost B Rs. 859,26,86,766/- Arm's length Price (123.93% of Operating Cost) C=B*123.93% Rs. 1064,89,16,709/- Price Received D Rs. 866,19,53,361/- Short fall being adjustment u/s. 92CA E=C - D Rs. 198,69,63,348/- Thus a sum of Rs. 198,69,63,348/- was added to the total income of the assessee on account of determination of ALP for provision of SWD services by the assessee to its AE. 6. The assessee filed objections before the Disputes Resolution Panel (DRP) against the draft assessment order passed by the AO wherein the addition suggested by the TPO as adjustment to ALP was added to the total income of the assessee by the AO. The assessee filed objections before the DRP and the DRP gave certain directions. Based on the directions of the DRP, the AO passed the final order of assessment. To the extent the assessee did not get relief from the DRP, the assessee has preferred appeal before the Tribunal. 7. The re....
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....s performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. (3) An uncontrolled transaction shall be comparable to an international transaction [or a specified domestic transaction] if- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reason....
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....rvices such as the assessee and in whose case also the very same 13 comparable companies chosen in the present case was chosen as comparable company. The functional profile of the said company and the assessee are identical. In the aforesaid decision, the Tribunal upheld exclusion of Sasken Communication Technologies Ltd., and Persistent Systems Ltd., with the following observations: "24. As far as exclusion of Persistent Systems Ltd., is concerned, the learne counsel for the Assessee brought to our notice a decision of the ITAT Bangalore Bench in the case of Electronics for Imaging India (P) Ltd. Vs. DCIT (2017) 85 taxmann.com 124 (Bangalore-Tribunal) rendered in the case of an Assessee rendering SWD services such as the Assessee. wherein comparability of this company with a SWD service provider was considered and this tribunal held paragraph 9.2.4 of its order held that this company is a SWD service as well as Software Product company and the segmental details of the various segments are not available. As far as exclusion of Sasken Communication Technologies Ltd.. is concerned. in the very same decision in the case of Electronics for Imaging India (P) Ltd., (supra), this....
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....ion of ALP. and it was also considered for inclusion in the case of VMware Software India Pvt. Ltd. in IT(TP)A No.1311/Bang/2014 dt.6.1.2017." 12. Respectfully following the aforesaid decision, we direct exclusion and inclusion of the comparable companies set out in Grd.No.2.6 and 2.7 respectively of the assessee's appeal. The connected TP issue in revenue's appeal is with regard to the order of the DRP in allowing risk adjustment, which in our opinion is correct and calls for no interference. In terms of Rule 10B(2)(b) of the Rules, it is necessary that comparability has to be done keeping mind the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions. The DRPs direction to allow working capital adjustment after considering the difference in different risk profile of the parties is therefore correct and hence upheld. Grd.No.2 raised by the Revenue in its appeal is therefore dismissed. No other grounds were pressed for adjudication with regard to transfer pricing issue. We direct the TPO to compute the ALP of the international transaction in accordance with the directions given in this orde....
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....ile doing so, all the conditions stipulated would be applied taking each unit as the reference point, i.e i. The additional wages are required to be restricted by excluding the additional wages payable to 100 workmen in respect of each unit. ii. There should be increase in workmen in each year to the extent of minimum 10% of the existing workmen at each unit level. iii. It is required to be seen that the workmen employed for less than 300 days during the previous year under reference to be excluded from the computation of additional wages payable. In the instant case, the assessee has not considered each unit as a basis for the purpose of fulfillment of conditions enumerated above as per working given in Form 10DA. In a sense, the assessee has considered total number of employees/workmen working in all the units put together as basis in order to reckon 10% increase in workforce during the year under reference, inclusion of only 100 employees in respect of all the units for the purpose of quantifying the additional wages paid instead of considering 100 employees for inclusion in each and every unit. 7.6 In view of the above, I am of the o....
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....r as deduction u/s.80JJA is concerned, a look at sub-section (1) of the said section is required, which is reproduced below : 80JJAA(1) : Where the gross total income of an assessee, being an Indian company, includes any profits and gains derived from any industrial undertaking engaged in the manufacture of production of article or thing, there shall, subject to the conditions specified in sub-section (2)m be allowed a deduction of an amount equal to thirty per cent of additional wages paid to the new regular workmen employed by the assessee in the previous year for three assessment years including the assessment year relevant to the previous year in which such employment is provided. 27. A reading of the above sub-section would clearly show that the deduction is given on profits and gains derived from industrial undertaking engaged in manufacture of production of article or thing. It is only for quantification of the amount that 30% is applied. In our opinion the deduction is very much linked to the profits of the undertaking. We are therefore unable to accept this line of argument taken by the counsel. In the result, we hold that assessee is not eligible for ded....
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....e conditions for claiming relief under s. 80JJAA. However, I find that the appellant has claimed deduction of Rs. 2,55,81,220 with reference to the additional wages of Rs. 8,52,70,736 which included the wages of Rs. 4,87,64,029 in respect of the new workmen employed during the year ended 31st March, 2000 relevant to the asst. yr. 2000- 01. As there was no claim for relief under s. 80JJAA for the asst. yr. 2000-01, the relief in respect of the workers employed in asst. yr. 2000-01 cannot be considered for relief under s. 80JJAA in the asst. yr. 2001-02. As such the appellant will be entitled for relief under s. 80JJAA of Rs. 1,09,52,012 being 30 per cent of the additional wages of Rs. 3,65,06,707 (Rs. 8,52,70,736 Rs. 4,87,64,029) in respect of the new workmen employed during the previous year relevant to the asst. yr. 2001-02. Similarly, for asst. yr. 2002-03 the appellant has claimed deduction of Rs. 4,78,05,176 being 30 per cent of the wages of Rs. 1,59,30,588 which also included the wages of Rs. 4,38,68,182 pertaining to the new workers employed in the previous year 1999- 2000. For the reasons mentioned above the appellant is not entitled for relief under s. 80JJAA in respect of ....
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....T(A) according relief to the assessee. In fact he had clarified the relevant portions related to Industrial Disputes Act, 1947 and IT Act while granting relief to the asssessee which are extracted at pp. 5 and 6 of this order. After carefully considering the same, we are inclined to accept the reasons shown by the learned CIT(A). The learned CIT-Departmental Representative could not assail the finding reached by the learned CIT(A) by bringing in any valid materials. The order of the CIT(A) is confirmed. It is ordered accordingly. There is no case for the Revenue that assessee had failed to file details of software engineers employed by it. In our opinion software engineers newly employed by it fell within the meaning of the word 'workmen'." 17. We are of the view that ground Nos.6 and 6.4 should be decided in the light of the directions given above by the AO afresh after affording opportunity of being heard to the assessee. 18. As far as Grd.No.7 of the rephrased ground of appeal of the assessee is concerned, the same can be conveniently discussed and decided together with Ground No.4 raised by the Revenue in its appeal. These grounds read as follows: ....
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.... Plus Jewellery India Ltd. (2010) 194 Taxman 192 (Born) and Hon'ble Gujarat High Court in the case of ITO vs. Kewal Construction, 354 ITR 13 (Gui) have taken the view that when disallowance u/s. 40(a)(ia) of the Act goes to enhance the profits that are eligible for deduction under Chapter VIA of the Act, the deduction under Chapter VIA should be allowed on such increased profit. This position has also been now confirmed by the CBDT in its Circular No.37/2016 dated 02.11.2016 wherein the Board has observed as follows:- "3. In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance". 21. Further the Hon'ble Karnataka in the case of CIT Vs. M/s.M.Pact Technology Services Pvt.Ltd. in ITA No.228/2013 order dated 11.7.2018 had to deal with admissibility of the following substantial question of law ....
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....tion needs to be allowed on the enhanced profits. Some illustrative cases upholding this view are as follows: [i] If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of non-deduction of TDS under law, such disallowance would ultimately increase assessee's profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40[a][ia] of the Act would qualify for deduction under section 80IB of the Act. This view was taken by the courts in the following cases: [a] Income-tax Officer-Ward 5[1] vs. Keval Construction, Tax Appeal No.443 of 2012, December 10 2012, Gujarat High Court [b] Commissioner of Income-tax-IV, Nagpur vs. Sunil Vishwambharnath Tiwari, IT Appeal No.2 of 2011, September 11 2015, Bombay High Court [ii] If deduction under section 40A[3] of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the Act." 7. Applying the same analogy, it can be held that if deduction u/s. 40[a][ia] of the Act is....
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....Fund / ESIC payments ought to be ignored cannot be accepted. No statutory provision to that effect having been made, the plain consequence of the disallowance made by the Assessing Officer must follow. The second question shall accordingly stand answered against the Revenue and in favour of the assessee." 22. In view of the aforesaid decisions and the CBDT Circular No.37/2020, we are of the view that there is no merit in ground no.4 raised by the revenue. As far as Grd.No.7 raised by the assessee, the same projects the grievance of the assessee that despite directions by the DRP to allow deduction on profits as enhanced by the disallowance u/s.40a(ia) of the Act, the AO in the order giving effect to the directions of the DRP, which is impugned in this appeal did not allow the claim of the assessee. The AO is directed to allow the claim of the assessee as directed by the DRP which is now confirmed by us. 23. As far as Grd.No.3 raised by the revenue is concerned, the same relates to the exclusion of expenses incurred in foreign currency from total turnover and export turnover while computing deduction u/s.10A of the Act. We have considered the rival submissions. Taking into con....