TaxTMI 
TaxTMI 
2022 (1) TMI 1374
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....f the case, the learned AO has erred in assessing the total loss at INR 6,72,99,740 as against returned loss of INR 24,98,75,085 (revised by the Appellant during the assessment proceedings) and arriving at an adjusted Book profit of INR 12,44,87,119 as against the Book profit of INR 12,12,87,119, as returned by the Appellant. (II) Corporate tax grounds 3. Export proceeds amounting to INR 2,27,59,326 realized after six months from the end of Financial Year 2009-10 3.1 The learned AO has erred in law and on facts, by reducing INR 2,27,59,326, being export proceeds realized after six months from the end of the relevant previous year, from both the Export turnover and Total turnover of Bangalore BPO unit (10A unit), without properly appreciating the directions of the DRP. 3.2 Without prejudice to the above, the learned AO has erred in law and on facts, by not considering the above mentioned export proceeds as part of Export turnover and Total turnover in light of provisions of Section 155(11A) of the Act, as the export proceeds were realized by the Appellant before the completion of assessment proceedings under Section 143(3) of the Act. 4. Non-reduction of telecommunica....
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.... at the source level. 6.3 The learned AO has erred in law by not considering Section 10A as a deduction section, having regard to Circular No. 07 dated 16 July 2013 issued by the Central Board of Direct Taxes ("CBDT") in this regard. 6.4 The learned AO has erred in law in excluding the profit and/or loss of units eligible for deduction under Section 10A of the Act from the source itself thereby, rendering the provisions of Section 10A(4) otiose. 6.5 The learned AO has erred in law and on facts, by not allowing carry forward of loss from Bangalore IT unit (10A unit) to subsequent years. 7. Disallowance of Provision for litigation amounting to INR 32,00,000 under normal provisions of the Act as well as upward adjustment to net profit while computing Book profit under Section 115JB of the Act 7.1 The learned AO has erred in law and on facts, by treating the Provision for litigation amounting to INR 32,00,000 as a contingent liability and thereby has erred in disallowing the same while computing total income of the Appellant under normal provisions of the Act. 7.2 The learned AO has failed to appreciate that the provision for litigation is an ascertained liability, no....
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.... provisions DTAA with Belgium and Singapore. Disallowance of Marked to market loss amounting to INR 29,08,450 9.1 The learned AO has erred in law and on facts, by holding that marked to market losses ("MTM loss" or "exchange loss") amounting to INR 29,08,450 claimed by the Appellant on account of restatement of forward contracts for hedging its foreign currency exposures at the end of the financial year, are notional, contingent and speculative in nature. 9.2 The learned AO has erred in law and on facts, by not considering the Appellant's submission that the CBDT Instruction No. 03 dated 23 March 2010 is not binding on the Appellant as the same is prejudicial to the interest of the Appellant and against the Honourable Supreme Court decisions in the case of Woodward Governor India Private Limited (162 Taxman 6) and ONGC Limited (2010-TIOL-20-SC-IT). 9.3 The learned AO has erred in law and on facts, by not considering the submission of the Appellant that since the forward contracts entered into by the Appellant, to hedge against exposure to exchange fluctuation loss, are settled by giving actual delivery of foreign exchange, the provisions of Section 43(5) of the Act are ....
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.... against loss of INR 14,19,45,354. (III) Transfer pricing grounds 12. Corporate guarantee commission imputed at INR 2,83,32,477 13.1 The learned TPO and the learned AO have erred, in law and in facts, by considering corporate guarantee transaction as an intra-group service, warranting an arm's length remuneration by ignoring the fact that such a transaction is a mere shareholder activity. 13.2 Without prejudice to the above, the learned TPO and the learned AO have erred, in law and in facts, in not objectively selecting the rate of commission for making the adjustment. (IV) Other grounds 13. The Learned AO has erred in law and on facts, by restricting credit towards tax deducted at source ("TDS") for an aggregate amount of INR 1,07,35,084 as against INR 1,25,98,389 claimed by the Appellant in its Return of income resulting into reduction of TDS claim by INR 18,63,305. 14. The Learned AO has erred in computing interest under Section 234C of the Act at INR 1,02,411 as against Nil computed by the Appellant having regard to "tax due" on "Returned income" while filing its Return of Income. The Appellant submits that each of the above grounds is independent and wi....
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....the material on record. These additional grounds are fundamental to the appeal and non-admission of the same would result in incomplete appreciation of facts. The facts material to this issue are already on record and there is no necessity of investigation into fresh facts. Placing reliance on the Hon'ble Supreme Court judgment in the case of M/s National Thermal Power Co. Ltd. Vs. CIT, 229 ITR 383 (SC), the additional grounds are admitted for adjudication. 5. At the time of hearing, ground Nos.1 to 3 were not pressed, accordingly they are dismissed. 6. Ground No.4 is regarding deduction u/s. 10A of the telecommunication expenses. It was submitted that pursuant to the rectification application of the assessee, the AO has issued rectification order u/s. 154 on this issue and hence this ground is not pressed. Accordingly, this ground is dismissed. 7. Ground No.5 was not pressed before us, hence dismissed accordingly. 8. Regarding ground No.6, it was submitted that in the draft assessment order, deduction u/s. 10A for Bangalore BPO Unit was restricted to total income (under the head business) after set off of losses from other units (10A and non-10A units). While the DRP accepted ....
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....ing before various courts and due to particular counsel. As such, we decline to entertain this ground and the same is rejected. 12. On the ground No.8 read with additional grounds 18 & 19, the contention of the ld. AR is that the issue in dispute is also subject matter of appeal in ITA No.2068/Bang/2019 against the order dated 31.3.2017 passed u/s. 201(1) & 201(1A) of the Act for not withholding tax on payments towards bandwidth and leased line charges. The issue has been settled by the assessee by availing VSVS, 2020 scheme. Also, that issue is directly related to the issue raised in this appeal. As such, this ground is to be allowed in favour of assessee. 13. We have heard both the parties and perused the material on record. At the time of passing the DRP order, the certificate under VSVS, 2020 was not made available before the lower authorities. Since the issue raised before us is directly related to the issue in the appeal in ITA No.2068/Bang/2019, if the issue was settled by the assessee by availing VSVS, 2020, the assessee is entitled for consequential relief. Accordingly this issue is set aside to the file of AO to consider the VSVS, 2020 scheme availed by the assessee and....
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....e export turnover. 3) The DRP erred in not appreciating the fact that the jurisdictional High Court's decision in the case of Tata Elxsi Limited 349 ITR 98 has not been accepted by the department and an appeal has been filed before the Hon'ble Supreme Court. 4) The DRP erred in not appreciating that the deduction U/s 10A has to be allowed from the total income of the assessee and as per the Section 2(45) of the I.T. Act the total income should be computed from various sources after set off of losses from one source against s .e income from other sources under the same head of income in terms of section 70(1) 5) The DRP also erred in placing reliance on the order of the Hon'ble High Court of Karnataka in the case of Yokogawa India Ltd which has not become final as the Department has preferred a SLP before the Hon'ble Supreme Court 6) The DRP erred in directing the AO to revise the computation of the eligible profit for the purposes of the deduction under section 10 A without appreciating the fact that the eligible profit for the deduction U/s 10A is already furnished by the assessee in the return of income / in respective Form and now on the findings of t....
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....ore IT unit, should also be reduced from total turnover of such unit for computing the deduction under Section 10A of the Act. 2. The learned AO has erred in law and on facts, by reducing INR 10,01,27,982 (foreign travel expenses including foreign per-diem allowances of INR 2,71,91,800 and project work expenses of INR 7,29,36,183) from export turnover of Bangalore BPO unit and that by reducing INR 27,61,593 (foreign travel expenses including foreign per-diem allowances of INR 22,76,169 and project work expenses of INR 4,85,424) from export turnover of Bangalore IT unit on the ground that such expenses were incurred towards providing technical services outside India. The learned AO has erred in law and on facts, by making the above adjustment without appreciating the fact that the Appellant is engaged in Software development and IT enabled Services and hence, the services rendered by the Appellant do not constitute technical services. 3. The learned AO has erred, in law, and on facts, in computing interest under Section 234B of the Act at Rs.36,37,685 as against Rs.36,01,814, computed by the Appellant at the time of filing its Return of Income. Transfer Pricing matters ....
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....erred, in law and in facts, by rejecting the following comparable companies identified by the assessee on the ground that the data is not available in the public domain: ► Ancent Software International Limited ► Caliber Point Business Solutions Limited ► KPIT Cummins Infosystems Limited v. the learned AO and the learned TPO have erred, in law and in facts, by rejecting the following comparable companies identified by the Assessee using employee cost lesser than 25% of the total revenues as a comparability criterion: ► CG - VAK software & Exports Limited ► Ybrant Digital Limited (Formerly LGS Global Limited) vi. the learned AO and the learned TPO have erred, in law and in facts, by rejecting the following comparable companies identified by the Assessee using export sales less than 75% of the operating revenues as a comparability criterion: ► Goldstone Technologies Limited ► Maveric Systems Limited ► Thinksoft Global Services Limited ► Zylog Systems Limited 9. The learned AO and the learned TPO have erred, in law and in facts, by treating foreign exchange fluctuation as nonoperating in nature while....
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....penses made to AEs. The Appellant submits that each of the above grounds are independent and without prejudice to one another. The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with the law." 25. The assessee has filed petition for admission of additional grounds stating that the same were not raised on the earlier occasion due to inadvertence and it relates to the issues fundamental to the appeal and prayed that it may be admitted in the interest of justice. 26. The additional grounds read as under:- "Ground No. 19: Without prejudice to our contention that the provision for onerous lease is an ascertained liability, the provision reversed during the year amounting to INR 3,74,90,455, out of provision of INR 6,41,61,438 created during Assessment Year 2009-10 and added to book profit for that year, should be excluded in book profit computation for Assessment Year 2011-12 in terms of clause (i) of Explanation I to Section 115JB(2) of the Act." 27. We have heard both the parties....
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....and perused the material on record. 31. However, we find that the assessee has not put any objections about exclusion of these comparables before the DRP, but raised this issue for the first time before us. Hence, we remit this issue in respect of above comparables to the file of DRP for adjudication of this issue after considering the submissions and case laws cited by the assessee. 32. By ground No.8, the assessee wants to include the companies viz., R. Systems International Ltd. and Helios and Matheson Information Technology Ltd. 33. This issue was considered by this Tribunal in the case of Cisco Systems (India) (P.) Ltd. v. DCIT, IT(TP)A No.271/Bang/2014 dated 14.10.2014 wherein it was held as under in respect of R. Systems International Ltd.:- "(C) These companies were rejected by the TPO/DRP for the reason that these companies have different accounting year. On this issue, the submission of the ld. counsel for the assessee was that the data for each quarter of both the aforesaid companies were available and from that data, the TPO could have culled out the financial results of the two companies to match with the accounting year of the assessee. Our attention was drawn to....
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....the calendar year ending 31.12.2008. Since the assessee is closing its accounts as on 31.3.2009, naturally, the data of R. Systems does not pass the test laid down in sub-rule (4) of Rule 10B. The ld. AR invited our attention towards the Annual accounts of R. Systems available at page 144 of the assessee's paper book. It can be seen from the audited accounts of R. Systems that the data for year ending 31.12.08 has been given under one column and the data for quarter ending 31.3.09 and 31.3.08 (both audited) has been given in the other two columns. This shows that if we take up the yearly data ending 31.12.08 and exclude the results of quarter ending 31.3.08 and include the results of quarter ending 31.3.09, what we get is the data for the financial year ending 31.3.09, being the same financial year in which the instant international transactions were entered into by the assessee. 11.6 The ld. DR relied on an order passed by the Mumbai Bench of the Tribunal in ACIT v. Hapag Lloyd Global Services Ltd. 2013-TII-68-ITAT-MUM-TP (authored by one of us, namely, the AM) in which it has been held that a company with a different financial year ending cannot be compared and is likely t....
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....of software development services and he submitted that in the light of the order of the Tribunal in the case of DCIT v. Mckinsey Knowledge Centre India Pvt. Ltd. in ITA No.2195/Del/2011 dated 13.9.2013, the data could be extrapolated relating to the assessment year under consideration and the above company be considered as a comparable. 36. We have heard both the parties on the issue. In the case of Mckinsey Knowledge Centre India Pvt. Ltd. (supra), the Tribunal observed in para 23.1 as follows:- "23.1 Keeping all these principles in mind, we find that this rule only prescribes a methodology to be followed for utilizing the current year's data of a comparable with the tested party. If the data for a financial year can be extra-polated with credible accuracy on the basis of data available on record then there is no reason why the said comparable should be rejected. Moreover, there is no dispute that data for nine months is common for both the comparable and the tested party and since it is not a case of seasonal industry, therefore, reliance can be placed on the data for nine months after making adjustments for extra ordinary items. At the cost of repetition, we may reiterate tha....
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....view, the corporate guarantee is very much incidental to the business of the assessee and hence, the same cannot be compared to a bank guarantee transaction of the Bank or financial institution." 6.2 It has also been submitted by the assessee that the transaction arising on account of ownership linkage and which derives largely from the reputation of the group necessarily implies that there can be no guarantee acceptable to the banker which can be provided by the independent third party. The guarantee provided by financial institutions are characteristically different compared to the guarantee provided by the parent. The advantages arising to the parent itself from providing guarantee in lieu of equity support or financial support is also not capable of being evaluated satisfactorily. These differences between the alleged controlled transaction and the guarantee provided by independent parties in the uncontrolled transaction are not capable of being evaluated so as to arrive at determination of the fair uncontrolled price. In the circumstances, computation methodology of TP exercise may fail. It is undisputed that failure of computation mechanism results in failure of the charge....
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....nation (i)(c) to section 92B also has not enlarged the scope of the 'international trans action' to include the corporate guarantee in the nature provided by the assessee. The learned AR further contended that the issue is covered in favour of the assessee by virtue of the order passed by the Tribunal in assessee's own case for AY 2006-07 (supra). 25.1 The learned DR, on the other hand, submitted that by virtue of the amendment made to section 92B of the Act with retrospective effect from 01/04/2002, the corporate guarantee provided by the assessee is to be considered as an international transaction, and, therefore, the Assessing Officer was justified in determining arm's length price of such transaction. 25.2 Having considered the submissions of the parties, we are unable to accept the contention of the learned AR that corporate guarantee of the nature provided by the assessee will not come within the meaning of international transaction in terms with section 92B of the Act. It is not disputed that section 92B of the Act has been amended by the Finance Act, 201 2 with the insertion of Explanation I(c) with retrospective effect from 01/04/2002. Explanation (i)....
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....ysing the facts in that case had held that 0.53% corporate guarantee rate in that case was appropriate. The ITAT Hyderabad Bench in case of Infotech Enterprises Ltd. in ITA No. 115/Hyd/2011 and in ITA No. 2184/Hyd/2011, dated 16/01/2014 while considering identical issue of determining ALP of corporate guarantee provided by the assessee to its AE followed the ratio laid down in case of Glenmark Pharmaceuticals v. ACIT (supra) and remitted the issue back to the TPO to decide the quantum of corporate guarantee rate by following the method adopted in case of Glenmark Pharmaceuticals (supra). 26. Since the issue in the present case is identical to the issue decided by the ITAT, Hyderabad Bench in case of Infotech Enterprises (supra), following the same, we also remit this issue to the file of the TPO to decide the quantum of corporate guarantee rates accordingly. If the assessee is able to bring on record any comparables with regard to corporate guarantee, the TPO may also consider the same while determining ALP of corporate guarantee. The TPO must provide a reasonable opportunity of being heard to the assessee before deciding the issue. This ground is allowed for statistical purpose....
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....AEs were not benefited by the guarantee so given and it was the assessee who benefited as a result of commercial benefits secured for future. In support of this stand of the assessee, the ld. counsel for the assessee has contended that business strategy should be taken into consideration while making any TP adjustments in respect of such transactions and has relied on the OECD Transfer Pricing Guidelines issued in 2010. As stated in para 1.59 of the said guidelines, the business strategies should also be examined in determining comparability for transfer pricing purposes and certain illustrations of such business strategies are also given therein. As stated in para 1.60 of the said guidelines which has been relied upon by the ld. Counsel for the assessee, business strategies also could include market penetration schemes and taxpayer seeking to penetrate a market or to increase its market share might temporarily charge a price for its product that is lower than the price charged for otherwise comparable products in the same market. As explained further, a tax payer seeking to enter a new market or expand (or defend) its market share might temporarily incur higher costs and hence ach....
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.... as arm's length price. The ld. CIT(A) upheld the CUP method applied by the TPO but adopted the rate of 0.25% of guarantee fee as arm's length price relying on the decision of French Court in the case of Societe Carrefour. The ld. D.R., at the time of hearing before us has relied on the decision of the co-ordinate Bench of this Tribunal in the case of M/s Everest Kanto Cylinder Ltd. (supra) wherein while accepting the CUP method as the most appropriate method for benchmarking the guarantee fee, the Tribunal accepted 0.5% guarantee fee/commission to be at arm's length after taking into consideration the rates of guarantee commission charged by various banks including the guarantee commission charged by the HSBC Bank in the range of 0.15% to 3%. Since the facts involved in the present case are materially similar to the facts involved in the case of Everest Kanto Cylinder Ltd. (supra), we prefer to follow the decision rendered by the co-ordinate Bench of this Tribunal in the said case over the decision of French Court in the case of Societe Carrefour (supra). We, accordingly modify the impugned order of the ld. CIT(A) on this issue and direct the A.O. to recompute the comm....
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....submit the same, the TPO proposed to apply CUP method and treat the payment towards the Re-imbursement as NIL and made adjustment in the intragroup payment made by the assessee. The assessee has mentioned in the TP document that Re-imbursement payments have been made by the CSL at actuals and these payments are expenses incurred by the AE's on behalf of the Cambridge Solutions Limited and cross charged to Cambridge Solutions Limited. The TPO agreed that ideal condition is that the ALP of each international transaction should be determined separately. Only when it is not possible to do so and the international transaction are intricately related to each other, one should see the level of aggregation of international transaction at which the TP method can be applied. The Act does not say that ALP should be done at the enterprise level or the segment level or once the TNMM or any other method is applied at the segment level, ALP of all the international transactions is established. As payments made towards intra group service charges is a class of transaction of its own, it requires separate analysis. The Act does not preclude TPO to apply appropriate method for each class of tran....