TaxTMI 
TaxTMI 
2022 (2) TMI 1367
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....tion 144C(13) read with section 144B of the Income-tax Act. 1961 ('the Act'), by the National e-Assessment Centre ('the NeAC'), be struck down as invalid, as the order is bad in law and on facts. 1.2. The Hon'ble Dispute Resolution Panel ('ORP') has erred in completing the proceedings in undue haste and in violation of the principles of natural justice by not affording an opportunity to the Appellant to furnish additional submissions and documents which are pertinent to the additions made. thereby rendering the impugned order to be bad in law and liable to be quashed. 2. Reliance on the Draft Assessment Order (`DAO') of AY 2009-10 dated October 28, 2013 for making adjustments for AY 2015-16 2.1. The NeAC and the Hon'ble DRP have erred in law and on facts by placing reliance on the DAO dated October 28, 2013 of AY 2009-10. Specifically, the NeAC and Hon'ble DRP have erred: a) In not following the settled legal principle of res judicata not applying to income-tax proceedings; b) In not appreciating the facts that the order on which reliance is placed was a draft assessment order; c) In not a....
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.... held to be accurate/ appropriate. 3.7. The NeAC and Hon'ble DRP have erred on facts by relying on his analysis of Inter Company Agreements ('ICA') even though the Appellant has not submitted any ICA with the learned Jurisdictional Assessing Officer. Bangalore ('JA0')/ NeAC during the course of the assessment proceedings for the subject AY. 3.8. The Hon'ble DRP has erred on facts by concluding that the Appellant failed to match the accounting invoices with the SOFTEX forms without taking cognizance of the submissions made by the Appellant during the assessment proceedings for the subject AY. 3.9. The Hon'ble DRP has erred on facts by concluding that the Appellant failed to produce the relevant documents and cogent evidences in support of its claim, and has failed to prove receipt of sale proceeds of computer software exported out of India is being brought into India without taking cognizance of the submissions made by the Appellant before the Hon'ble DRP. and with the learned JAO during the DRP proceedings for the subject AY. 3.10 The NeAC and the Hon'ble DRP have erred on facts by concluding that the Appellant....
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....ssions for additional evidence filed before the Hon'ble DRP on reimbursement of immigration charges and the back-toback invoices for such reimbursement, details/ break up of reimbursements, sample copies of agreements/ purchase orders, etc. and concluding that the Appellant has not furnished evidences. 4.5. The NeAC has erred on facts and in law in not appreciating that certain sums paid are mere reimbursements and hence the Appellant was not required to deduct tax at source on such payments. 4.6. The NeAC has erred in law and on facts in placing reliance on the sworn statement of the CA issuing Form 15CBs which does not pertain to the current year to hold that the certificates issued by the CA are not reliable and disallowing the amount for the current year. 5. Disallowance of claim made under section 40(a) of the Act pertaining to AY 2014-15 5.1. The NeAC and the Hon'ble DRP have erred on facts and in law in disallowing a sum of INR 35.63,42,098 claimed under section 40(a) of the Act, holding the same was disallowed under section 37 of the Act in AY 2014-15. 5.2. Without prejudice to the above, the NeAC and the Hon'ble DRP ....
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....#39;ble DRP has erred on facts and in law in holding that if security premium is not taxable as capital receipt, then short collection of security premium is to be considered as capital outlay. and that shares allotted to garner and secure the services, knowledge and knowhow continuously for enduring benefit of the assessee. 7.7. The NeAC and Hon'ble DRP have erred on facts in not taking cognizance of the submissions by the Appellant that in the Advance Pricing Agreement entered into by the Appellant and the CBDT, ESOP expense has been considered as Operating cost. The NeAC and the Hon'ble DRP have erred on facts and in law in considering the same as capital in nature, as this would amount to the two arms of government treating the same transaction differently. 8. Assessment and reference to the Assistant Commissioner of Income-tax - Transfer Pricing - 1(3)(2) (`the then learned TPO') are bad in law 8.1. The final assessment order issued by the NeAC is bad on facts and in law and is in violation of the principles of natural justice. 8.2. The learned JAO erred in making a reference to the then learned TPO, inter-alia. since he did not ....
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....ng that the Appellant and its AE acted in concert. The Hon'ble DRP / NeAC erred in upholding the same. 9.6. The learned TPO/ learned JAO erred on facts and in law in applying the Other method (which is similar to bright line test). which is not a method prescribed under section 92C of the Act read with Rule 10B of the Income-tax Rules. 1962 ('the Rules.), and therefore, acted beyond the jurisdiction as prescribed under the provisions of the Act and the Rules. The Hon'ble DRP / NeAC erred in upholding the same. 9.7. The learned TPO/ learned JAO also erred on facts and in law, in presuming that the Appellant has incurred 'excessive expenditure' as part of its AMP function of promoting 'brand' of the AE. In this regard, the learned TPO/ learned JAO erred in questioning the commercial expediency of the Appellant. The Hon'ble DRP / NeAC erred in upholding the same. 10. Without prejudice to Objection in Ground No. 9 above, the learned TPO/ learned JAO erred in selecting functionally dissimilar companies while determining the arm's length price for the alleged AMP function performed by the Appellant. The learned TPO/ learned J....
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....he Hon'ble DRP 11.1. The learned TPO erred in not excluding warranty expenses amounting to INR 6,21,97,811 from the total AMP expenses - the Hon'ble DRP directed the learned TPO not to consider the same as brand promotion activities. The NeAC erred in upholding the same. 11.2. The learned TPO erred in not rectifying the cost plus mark-up of Pressman Advertising Ltd. the Hon'ble DRP directed the Ld. TPO to consider the rectified cost plus mark up as furnished by the Appellant. The NeAC erred in upholding the same. 12. The Hon'ble DRP has erred in law and on facts in not taking cognizance of the objections filed by the Appellant in relation to the draft assessment order issued by the learned JAO / transfer pricing order issued by the learned TPO and confirming the draft assessment order. 13. Non grant of credit for entire Tax Deducted at Source (`TDS') 13.1. The NeAC has erred in law and on facts in not granting credit for the entire TDS of INR 554.53.87.685 claimed in the return of income. 14. Short grant of Foreign Tax Credit (`FTC') 14.1. The NeAC has erred in law and on facts in restricting the....
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....ssment year 2008-09(supra), dealt with all objections raised by authorities below, which are common for year under consideration to deny deduction u/s.10AA. Ld.AO for year under consideration, has referred to final assessment order passed for AY:2008-09. Therefore, in our view, it will be a futile exercise to set aside the issue to Ld.AO for fresh decision as suggested by both sides, when the issue stands squarely covered order of this Tribunal in great detail, for AY:2008-09 (supra). Accordingly this objection raised by assessee stands rejected." Respectfully following the above view, this ground raised by assessee in both the appeals stands dismissed. 5. Ground No. 3 - It is submitted that, this Tribunal in Assessment Year 2013-14 had examined the various aspects of the relief claimed u/s. 10AA of the Act and held it in favour of assessee, subject to the proceeds having been brought into India in convertible foreign exchange. It is submitted that this Tribunal remanded only one aspect to the DRP i.e. to verify whether the sale proceeds have been brought into India in convertible foreign exchange by IBM India. On the contrary, the Ld.DR relied on the orders passe....
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.... to file invoices raised in support of payments made by assessee to relevant parties. Assessee is at liberty to file all relevant details/evidences to substantiate its claim. DRP is then directed to verify nature of payment in the light of invoices filed by assessee. DRP is also directed to analyse payment made to nonresidents on which tax has not been deducted at source in light of Explanation 2 to section 195. DRP shall grant proper opportunity of being heard to assessee. Accordingly this ground raised by assessee stands allowed for statistical purposes." Respectfully following the above, we remand the issue back to DRP. The DRP is also directed to verify the details filed by applying the principles laid down by Hon'ble Supreme Court in case of Engineering Analysis Centre of Excellence (P.) Ltd. reported in (2021) 432 ITR 471. Accordingly this ground raised by assessee stands allowed for statistical purposes. 7. Ground Nos. 5 & 6 is in respect of disallowance under section 37(1) in respect of amounts that was suo moto disallowed by assessee u/s. 40(a). We have perused the submissions advanced by both sides in the light of records placed before us. This issue has be....
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....d at the behest of IBM India to retain, motivate and award its employees. It is thus submitted that the ESBP costs are deductible as business expenditures. Reliance is placed on various decisions in favour of the assessee in this regard. 9. The AR relied on following decisions in support of the claim: * DCIT vs. Accenture Services (P) Ltd. in ITA No. 4540/M/2008 * Novo Nordisk India (P.) Ltd. vs. DCIT reported in [2017] 42 taxmann.com 168 (Bangalore Trib.) * CIT, LTU vs. Biocon Ltd. reported in [2020] 121 taxmann.com 351 (Karnataka) * Apollo Tyres Ltd. vs. CIT reported in [2002] 122 Taxman 562 (SC) On the contrary, the Ld.DR relied on orders passed by authorities below. The Ld.AR relied on the orders passed by authorities below. We have perused the submissions advanced by both sides in light of records placed before us. The Ld.AR submitted that, as per the APA, the operating expenses in relation to the export services include the ESBP cross charges and therefore, it was submitted that, if one arm of the Government accepted the transactions, the other arm of the Government must also respect the same. The revenue authorities however ....
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....e at which the option is exercised by the employees is to be debited to the profit and loss . . . the Tribunal in its order stated that it was a benefit conferred on the employee. So far as the company is concerned, once the option was given and exercised by the employee, the liability in this behalf got ascertained. This was recognised by the SEBI and the entire employees stock option plan was governed by the guidelines issued by the SEBI. On the facts thus found, the Tribunal held that it was not a case of contingent liability depending on the various factors on which the assessee had no control. The expenditure in this behalf was an ascertained liability, thus the expenditure incurred being on lines of the SEBI Guidelines, there could be no interference in the relief granted by the assessing authority for the expenditure arising on account of the employees' stock option plan. This expenditure incurred as per the SEBI Guidelines and granted by the Officer could not be considered as erroneous one calling for the exercise of jurisdiction under section 263 of the Act." * Bangalore Special Bench - M/s Biocon Ltd. v. DCIT [2013] 35 taxmann.com 335 (Bangalore - Trib.) (SB) ....
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....the expenditure which entails deduction u/s 37(1) subject to the fulfilment of other conditions. ....................................................................................... by undertaking to issue shares at discounted premium, the company does not pay anything to its employees but incurs obligation of issuing shares at a discounted price on a future date in lieu of their services, which is nothing but an expenditure u/s 37(1) of the Act 9.3.6 ........................if some of the options remain unvested or are not exercised, the discount hitherto claimed as deduction is required to be reversed and offered for taxation in such later year. We, therefore, hold that the discount in relation to options vesting during the year cannot be held as a contingent liability. 10.8 Reverting to the questions of 'when' and 'how much' of deduction for discount on options is to be granted, we hold that the liability to pay the discounted premium is incurred during the vesting period and the amount of such deduction is to be found out as per the terms of the ESOP scheme by considering the period and percentage of vesting during such period. We, therefore, agree with the conclusi....
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....eeds to be set right by apportioning the total amount of the discounted premium evenly over the vesting period of four years." To summarize, Special Bench held that discount on the issue of ESOPs cannot be inter-alia treated as capital expenditure and held that being part of package of remuneration to employees, the obligation incurred for issuing shares to employees at a discounted price at a future date in lieu of their services, is an allowable deduction under section 37(1) of the Act. The Hon'ble Tribunal further held that incurring liabilities towards the discounted premium, which is compensation to employees, is directly linked with the span of services put in by each employee and liability to issue stock options at discount is incurred during the vesting period and the amount of deduction is to be calculated as per the terms of the ESOP scheme, hence the discount was deductible over the vesting period. Further the Special Bench pointed out that the liability for discounts which arose or were incurred during the vesting period required adjustment due to the fact that the actual discount could only be determined at market price when the employees exercise their options. The as....
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....ber 27/B/2017 Essilor India Private Limited in IT (TP) to number 29/the/2014 and 227/B/2015 DCI to versus Nike India Private Limited in IT (TP) a number 232/B/2014 Himalaya drug company vs. DCI reported in (2020) 119 taxmann.com 421 On the contrary, the Ld.DR of revenue relied on the orders of the authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. 15. We refer to para 101 of the decision of the Hon'ble Delhi High Court in case of Sony Ericsson Mobile Communications India P. Ltd. v. CIT, 374 ITR 118 wherein the Hon'ble Court held that, once the TPO accepts and adopts TNM Method and then chooses to treat a particular expenditure like AMP as a separate international transaction without bifurcation and segregation, it would lead to an unusual and incongruous results as AMP is the cost or expense and is not diverse. It is factored in the net profit of the interlinked transaction. This would be also in consonance with Rule 10B(1)(e), which mandates only arriving at the net profit margin by comparing the profits and loss account of the tested party with the comparable. The TNM Meth....
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....son and the associated enterprise." 16. Thus, under Section 92B(1) an 'international transaction' means- (a) a transaction between two or more AEs, either or both of whom are non-resident (b) the transaction is in the nature of purchase, sale or lease of tangible or intangible property or provision of service or lending or borrowing money or any other transaction having a bearing on the profits, incomes or losses of such enterprises, and (c) shall include a mutual agreement or arrangement between two or more AEs for allocation or apportionment or contribution to the any cost or expenses incurred or to be incurred in connection- with the - benefit, service or facility provided or to be provided to one or more of such enterprises. Clauses (b) and (c) above cannot be read disjunctively. Even if resort is had to the residuary part of clause (b) to contend that the AMP spend of assessee is "any other transaction having a bearing" on its "profits, incomes or losses", for a 'transaction' there has to be two parties. Therefore for the purposes of the 'means' part of clause (b) and the 'includes' part of clause (c), the Revenue has to show that there exists an 'agreement' or ....