AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (3) TMI 352
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....r the ITA Nos 365 451 and 480 of 2015 and 118 of 2016 Brightcom A.Y 2011-12. Since identical issues are involved in all these appeals filed by the assessee, and the only appeal filed by the Revenue, therefore, for the sake of convenience, these appeals were heard together and are being disposed of by this common order. ITA 365/Hyd/2015 A.Y 2010-11 (By Assessee) 2. Facts of the case, in brief, are that the assessee is a company engaged in the business of export of articles or things and computer software. It filed its return of income on 24.9.2010 declaring income of Rs. NIL after claiming deduction u/s 10A of Rs.5,24,25,966/-. The case was selected for scrutiny and statutory notices u/s 143(2) and 142(1) were issued to which the AR of the assessee appeared from time to time and filed the details Since the assessee in this case has entered into certain international transaction with its AEs, the Assessing Officer referred the matter to the TPO for determination of the ALP. The TPO vide order dated 13.01.2014 passed u/s 92CA(3) of the Income Tax Act, 1961 proposed an upward adjustment of Rs.6,14,62,097/- being the ALP of the international transactions by treating the investment....
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....bsidiary and hence the same should have been Rs followed for the year under consideration. 4. The AO erred in re-categorizing the nature of asset by treating the| "Investment" as "Loan" which is not permissible u/s 145 of the Act. 5. Erred in not appreciating the fact that the transaction relating to investment doesn't fall under the purview of Transfer Pricing u/s 92B, as no income is generated from the transaction of providing Rs loans and advances to the subsidiaries of the appellant company. 6. Erred in treating the Investment in subsidiaries as "Interest free Loans" without appreciating the fact that the same is shown under the head "Investments" in the Balance Sheet as reflected from the Annual report of the assessee for the FY 2009-10. 7. Erred in not appreciating the statement of changes in stockholder's Equity in the financial statement of the AE viz., Global IT Inc, USA for the year ended 31.03.2010 wherein it is evident that the investment is disclosed as additional capital of the A.E. had increased by $1,08,82,000/-. 8. Ought to have appreciated that the assessee company has earned substantial profit from the AE (i.e.....
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....sessee has also raised certain additional grounds. However, since the learned Counsel for the assessee did not press these grounds, therefore, these are dismissed as not pressed. 6. So far as the grounds of appeal No.2 to 10 relating to part relief granted by the DRP on account of TP adjustment is concerned, the facts, in brief, are as under: 7. The TPO during the course of TP assessment noted that the assessee in its TP study has reflected the following international transactions: Name of the AE Nature of Transaction Amount in (Rs.) Method Lanco Global Systems Inc. USA Rendering of software development services 5477946 TNMM Global IT Inc. UISA - do - 541680 TNMM Techorbit Inc. USA -do- 1354200 TNMM Global IT Inc. USA Investment 501731400 CUP 8. He, therefore, asked the assessee vide show-cause notice dated 17.12.2013 to furnish the relevant details and documentary evidence with respect to investment in subsidiaries amounting to Rs.50,17,31,400/-. He also asked the assessee to explain as to why the investment should not be treated as interest free loan and interest @ 12.25% should not be charged. In re....
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....anced by the assessee, the DRP directed the Assessing Officer to adopt LIBOR+2% for interest receivables on loans given by the assessee to its AE by observing as under: "10.1 The panel has gone through the submissions of assessee and the order of the TPO/AO. The panel agrees with the views of the TPO that in respect of loans/ investments, Arms' Length interest rate to requires be determined. The transactions were entered by the taxpayer in foreign currency and the interest rates as applicable to the loans taken in the interest international financial markets should be adopted for bench marking in the rates. The panel does not agree with the contentions of the assessee. The loans were given international market by the assessee and the interest rate prevailing in the markets international should be adopted for the purpose of benchmarking the international the view of transactions. in the panel, the appropriate interest rate MUJRALT & receivable by assessee is the LIBOR. A mark up is also required on the LIBOR. The panel considers that a 2% markup on LIBOR is appropriate. Therefore, the interest rate that needs to be adopted for determination of the ALP in respect of loan....
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....bay High Court in the case of Vodafone India Services (P) Ltd vs. Union of India (2014) 50 Taxmann.com 300 (Bom.) ii) ITAT Hyderabad in the case of Prithvi Information Solutions Ltd vs. DCIT in ITA No.472/Hyd/2014. iii) ITAT Hyderabad in the case of Hill Country Properties vs. ACIT reported in 48 TAxmann.com 94 iv) ITAT Hyderabad in the case of Vijay Electricals Ltd vs. Add. CIT in ITA 842/Hyd/2012 dated 31.05.2013 v) ITAT Ahmedabad in the case of Micro Inks Ltd. v. ACIT in ITA No.1668/Ahd/2006 15. He accordingly submitted that the addition made by the Assessing Officer should be deleted. 16. The learned Counsel for the assessee submitted that recategorizing the nature of the asset by treating investment as loan is not permitted u/s 145 of the I.T. Act For the above proposition, he relied on the following decisions: i) DRP Hyderabad in the case of M/s. Visu International Ltd ii) ITAT Hyderabad in the case of Hill Country Properties vs ACIT (48 Taxmann.com 94) iii) ITAT Delhi in the case of CIT v EKL Appliances. 17. The learned Counsel for the assessee in another plank of his arguments referring to the following....
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.... the provisions of section 92C of the I.T. Act relating to the computation of ALP should be followed. 20. We find merit in the above arguments advanced by the learned Counsel for the assessee. We find before the TPO, the assessee vide its reply dated 26.12.2013 had categorically stated that during the financial year 2009-10, they made equity investment of Rs.50,17,31,400/- in their wholly owned subsidiary M/s Global Inc, USA and the investment in equity was made for the purpose of development of software products and new technology products. It was categorically stated that against this investment the company M/s. Global I.T. Inc, US has allotted the shares copy of which is placed at page 161 of the Paper Book. Under these circumstances, the allegation of the TPO that the taxpayer did not submit the details of the investment in the AE claimed as equity investment despite numerous opportunities given by the TPO is incorrect. 21. We further find the DRP in assessee's own case for the A.Y 2008-09, copy of which is placed at page 1 to 9 of the Paper Book, at Para 21 of the order has deleted the addition of Rs.2,56,18,200/- being the ALP of the international transaction pertaining....
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....the above discussion, the Panel feels that it is not correct to impute interest on the investments made by the assessee in its own subsidiary which in return fetched the assessee company to expand its business and enter into new space as well as earned the profits. It is not an idle investment made by the assessee to part its funds abroad without any benefit accruing to such transaction. Accordingly, the Assessing Officer/TPO is directed to delete the addition of Rs.2,56,18,200/-". 22. The Revenue has accepted the same and no appeal has been filed by the Revenue, a statement made by the learned Counsel for the assessee at the Bar which could not be controverted by the learned DR 23. Further, we find the Hon'ble Bombay High Court in the case of Vodafone India Services (P) Ltd vs. Union of India reported in (2014) 368 ITR 1 has held that the issue of shares at a premium by the assessee to its nonresident holding company does not give right to any income from an admitted international transaction and therefore, there is no occasion to apply Chapter X in such cases. 24. We find the Coordinate Bench of the Tribunal in the case of Prithvi Information Solutions Ltd vs. DCIT i....
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....ithin the extended time limit, if any supported by the relevant certificate and accordingly recompute the deduction allowable u/s 10A by observing as under: In view of the submissions of the assessee and in view of the conditions laid down in section 10A, we direct the A0 to verify export bill invoice wise export realised as claimed by the assessee with reference to the FIRCs and consider the export turnover to the extent the proceeds are released in convertible foreign exchange within the stipulated time limit or within the extended time if any given supported by relevant certificates and accordingly recompute the deduction allowable u/s.10A. For statistical purpose, we treat the grounds at S.No.15, 16 as partly allowed and ground No.12 is rejected considering as general in nature. 26. We have heard the rival arguments by both sides. We find the provisions of section 144C(8) reads as under: "(8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order." 27....
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....essing Officer regarding the details of onsite development charges and that the services rendered were only for the extension of services rendered in India. The grounds raised by the assessee are accordingly allowed for statistical purposes. 30. Ground of appeal No.1 was not pressed for which the same is dismissed. Ground of appeal No.18 being general in nature is dismissed. 31. In the result, appeal of the assessee is partly allowed for statistical purposes. ITA No.451/Hyd/2015 - A.Y 2010-11 (By assessee) 32. The grounds raised by the assessee are as under: "1. Erred in passing the order u/s 143(3) r.w.s 144C(13) on date 27.02.2015 which is beyond one month from the end of the month in which such DRP directions are received dated 24.12.2014. 2. Erred in making the addition of Rs.7,05,54,464/- u/s 92CA of the Act 2. in relation to the international transactions by charging interest on 3.34 (i.e. LIBOR + 2%) on investment in Associated Enterprises (AE's). 3.Erred in rejecting the TP documentation submitted by the assessee by showing inappropriate reasons and not supported by any material evidence, which is not correct. 4. The AO er....
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.... amount of Rs. 24,58,52,364/- as investment in subsidiaries and computing interest 3.34% (LIBOR + 2%) without, without appreciating the fact that the assessee company has incurred the above amount in the process of setting up of three locations towards initial set up cost in order to capture the market for growing business opportunities globally. 14. Erred in re-categorizing the initial set-up cost under the head "work in progress" of Rs.24,58,52,364/- as "Interest Free loan" which is not permitted u/s 145 of the Act. 15. Ought to have appreciated that the provisions of transfer pricing are not applicable to the transaction of Rs. 24,58,52,364/- towards initial set up cost, as there is no income. 16. Without prejudice to the above grounds, erred in applying interest rate3.34% (i.e. LIBOR + 2%) for the whole year on the consolidated amount of advances, without considering the actual date of advances. 17. Erred in treating gain on foreign exchange fluctuation of Rs.4,22,579/- as other income without appreciating that the gain is a notional income and not a real income. 18. The assessee may add, alter or modify any other point to the Ground....
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.... of Rs.4,22,579/- is restored to the file of the Assessing Officer with a direction to verify that the assessee has already offered the same to taxation and addition of the same will amount to double addition. The Assessing Officer shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the assessee on this issue are accordingly allowed for statistical purposes. 38. Ground of appeal No.2 by the Revenue relates to the exclusion of telecommunication charges from the total turnover for the purpose of computing deduction u/s 10B of the I.T. Act. 38.1 After hearing both sides, we find that the Assessing Officer while calculating the export turnover u/s 10A in the final order has excluded the communication expenses of Rs.33,21,679/- from the export turnover but has not excluded the same from the total turnover. When the assessee approached the DRP, the DRP directed the Assessing Officer to deduct the same from the total turnover while calculating exemption u/s 10A of the I.T. Act. We find the issue stands squarely covered in favour of the assessee and against the Revenue by a pleth....
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....nue on this issue is dismissed. 40. Ground of Appeal No.3 & 4 by the Revenue being general in nature are dismissed. ITA 118/Hyd/2016 - A.Y 2011-12 (By assessee) 41. The grounds raised by the assessee read as under: "1. Erred in law in making the reference to TPO without meeting the preconditions for such reference u/s.92CA of the I.T Act,1961 and not providing an opportunity of being heard. F.No. 500/9/2015 - APA-I1, Instruction No. 15/2015 dated 16.10.2015 2. Erred in making the TP addition where the assessee is entitled to deduction u/s 10A in India, or where the tax rate in the country of the AE's is higher than the rate of tax in India and where the establishment of tax avoidance or manipulation of prices or establishment of shifting of profits is not possible. 3. Erred in making the addition of Rs.3,35,01,076/- u/s 92CA of the| Act by charging interest @ 2.91% (i.e.LIBOR + 2%) on investment| of Rs. 115,05,06,437/- made in Associated Enterprises during the year under consideration. 4. Ought to have appreciated the fact that out of total investment of Rs. 115,05,06,437/- in AE's, an amount of Rs. 115,05,06,437/- and R....