TaxTMI 
TaxTMI 
TaxTMI 
2021 (6) TMI 1129
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 2. That on the facts and circumstances of the case and in law, the Ld A.O erred in treating the payment of Rs 1,31,54,017 toward Retention Bonus as capital expenditure to be spread over five years and thereby allowing deduction of Rs 26,30,803, being only l/5th of the expenditure. 3. That the Ld. AO failed to appreciate that payment of retention bonus was pursuant to acquisition of SAIC India and hence the same, being distinct from the ordinary activities of the enterprise, has been accounted correctly in line with the provisions of section 145 of the Income-tax Act, 1961. II. Transfer Pricing Grounds 4. That on the facts and in the circumstances of the case and in law, the order passed by Ld. AO is bad in law and void ab-initio. 5. That on facts and circumstances of the case and in law, the reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO did not record any reasons in the draft assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. Transfer Pricing Officer ("TPO") for computation of the arm's length price, as is required under section 92CA(1) of the Income Tax Act, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts of the case is that assessee is a company part of SAIC Group, which is a leading provider of engineering and technology application solutions, headquartered in USA with Science Applications. The assessee was engaged in design, development, and maintenance of software for its group companies, which essentially includes requirement analysis, documentation of a system‟s software architecture, coding, compilation, software testing, engineering, or software documentation, digital integration, and software maintenance. Assessee charges its Group Companies on an hourly rate basis and provides some software development activity to its Indian customers under independent domestic contracts. 3. For the year assessee filed its return of income on 24th September, 2010 declaring income of Rs.10,08,27,749/-. However, the assessee with effect from 1st September 2011 has undergone name change and further pursuant to the order of the Hon‟ble Karnataka High Court this company is amalgamated with Wipro Ltd. 4. The assessee has entered into an international transaction of provision of software development services of Rs. 883715413/- . The assessee benchmarked above transaction adopting....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in nature and, therefore, should have been allowed 100%. Assessee submitted that in its own case for assessment years 2008-09 and assessment year 2009-10, identical issue arose and the same was allowed by the co-ordinate bench. He referred to the various paras of the order of ITAT in assessee‟s own case. Thus, he submitted that this issue is squarely covered in favour of the assessee. 10. With respect to the transfer pricing adjustment, he submitted that assessee is contesting exclusion of 3 comparables, namely, Thirdware Solution Limited, Wipro Technology Services Ltd. and E-Infochips Bangalore Ltd. With respect to the Thirdware Solution Limited, he submitted that the comparable company is engaged in development of software "PAPA‟. Further segmental information is also not available. He further stated that the comparable company is in export business from software zone ACD and SPP units. He also referred that purchases and sales of licence and subscription charges is the revenue stream of that company and, therefore, it is not comparable. He submitted that this comparable was tested in assessee‟s own case for assessment year 2009-10 and it was directed to be exc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....its own case for earlier years in WIPRO LIMITED C/O WIPRO ENERGY IT SERVICES INDIA PRIVATE LIMITED (FORMERLY KNOWN AS, SAIC INDIA PRIVATE LIMITED) VERSUS DCIT CENTRAL CIRCLE-7 (1) , NEW DELHI ITA No. 1594/DEL/2014 dated April 11, 2018 as under :- "3. As regards Ground No. 4 relating to Recruitment and Training employees for upgrading their skills, the Ld. AR submitted that the said issue is covered in favour of the assessee by Tribunal‟s order in assessee‟s own case 2008-09. The Ld. DR relied upon the orders of the Assessing Officer, TPO and DRP directions. 14. We have heard both the parties and perused all the relevant records. The Tribunal in para 20 held as under: "20. Now, adverting to the case at hand, when the assessee has come up with specific pleas that he has made payment of Rs. 37,89,007/- to the third party recruitment agency, access fee to various job sites like naukari.com etc. and Rs. 16,01,153/- for imparting raining to the new employees who have recently joined and on job training to existing employees, which have otherwise been not disputed by the AO/DRP, recruitment of employees for efficient profit earning through a recruitment agency is recur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng any enduring benefit. Since assessee company had undisputedly paid the retention bonus before filing the return of income of the relevant assessment year these expenditure are entitled to be allowed u/s 37 of the Act. So, we hereby determine ground no. 4 in favour of the assessee company." Thus, the issue is squarely covered by the order of the Tribunal in favour of the assessee in the present Assessment Year as well. Therefore, Ground No. 5 is allowed. 14. Thus respectfully following decision of coordinate bench in assessee‟s own case, we allow grounds of appeal Nos 1 -3 and direct ld AO to treat Training, staff Recruitment and retention bonus as revenue expenditure. 15. Ground no 4-6 and 8-11 are not pressed by assessee hence dismissed. 16. In fact before us assessee contested for exclusion of comparable companies sated above. 17. Regarding Thirdware solutions Pvt Ltd, this comparable has been considered in the case of assessee by Coordinate bench in WIPRO LIMITED C/O WIPRO ENERGY IT SERVICES INDIA PRIVATE LIMITED (FORMERLY KNOWN AS, SAIC INDIA PRIVATE LIMITED) VERSUS DCIT CENTRAL CIRCLE-7 (1) , NEW DELHI ITA No. 1594/DEL/2014 dated April 11, 2018 and has exclude....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e share of this activity in the total turnover was only 1.54%. As regards Thirdware Solutions Ltd. the same deals with sale of licenses Software, Services Export and Revenue from subscription. Thus, the Thirdware Solutions is not exclusively dealing with the Software Services. Infact, the TPO himself stated that majority of expenses are in the form of Software Service Charges and Salaries, but he has not considered exact expenses for the Software Charges and Salaries. This has not come up from the annual report to deal with the assessee company as a comparable as there is no segmental results provided by the said company. Thus, we direct the TPO/A.O to exclude this comparable as it is not having similar functions to that of the assessee company and also there is no segmental record given in the annual report of that company. Thus, we partly allowed Additional Ground No. 1." direct the ld TPO to exclude Thirdwave Technologies Limited. 18. Now we come to another comparable argued by the assessee for exclusion is Wipro technology services Ltd. This comparable is included by the learned transfer-pricing officer at the time of analyzing the additional companies requested by the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e financial statements it was submitted that various schedules of profit and loss account are not available in the annual report for financial year 2009 - 10. Before us, assessee also submitted the annual report of this comparable company at page number 92 - 109 of the paper book. This compilation has directors report, auditors report, balance sheet, profit and loss account, cash flow statement and schedules 1 - 6 and straight way schedule 11 notes forming part of the accounts. Though in profit and loss accounts there are set schedules mentioned from 7 to 10. However, same are not available. This fact is also stated by the assessee before the learned dispute resolution panel, which is evident at page number 8 - 9 of the direction of the learned dispute resolution panel. There is no finding of the learned DRP on this aspect of the argument. When the profit and loss account schedules are not available it is not possible to know about the revenue stream, the expenses incurred for software development, administrative expenses and other income of this comparable. This fact was also pointed out before the learned transfer-pricing officer, as it is clear on reading of para number 19.1 of ....