TaxTMI 
TaxTMI 
2022 (1) TMI 1374
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.... bad in law. 2. On the facts and in the circumstances of 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 asse....
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....(10A unit) and profit of INR 1,42,23,652, post Section 10A deduction, pertaining to Bangalore BPO unit (10A unit) should not be excluded 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....
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....isions of the Double Tax Avoidance Agreements ("DTAA") entered into between India and Belgium and that entered into between India and Singapore while holding that such payments are in the nature of royalty in terms of relevant 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 subm....
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....not considering the apportionment of disallowances, made in the assessment order, between 10A units and non-10A units while computing income from STPI business and domestic business. 12.2 The learned AO has, therefore, erred in computing income from 10A eligible units at a loss of INR 13,89,18,621 as 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 i....
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....ecifically by Explanation 5 to Section 9(1) inserted only vide Finance Act, 2012 with effect from 1976. The learned AO's disallowance would therefore lead to violation of a fundamental tenet of law being the "impossibility of performance" doctrine that has been upheld by plethora of Tribunals and Hon'ble Courts including the Hon'ble Apex Court." 4. We have heard both the parties and perused 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 g....
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.... towards legal fees or out of pocket expenses and the lump sum provision is made without specific production of details of litigation pending at various courts. As such, he relied on the order of DRP. 11. We have heard both the parties and perused the material on record. Even before us, the ld. AR could not establish that this provision has been made on a scientific basis relating to particular cases pending 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 cert....
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....de Communication and travel expenses incurred in foreign currency from the total turnover also while computing the deduction u/s 10A of the I.T. Act as the decision of the High Court is binding, without appreciating the fact that there is no provision in section 10A that such expenses should be reduced from the total turn° ,er also, as clause (iv) of the explanation to section 10A provides that such expenses are to be reduced only from the 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 th....
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.... as against Nil returned income, computed by the Appellant. Corporate Tax matters 1. The learned AO has erred in law and on facts, by disregarding the directions, issued by the Hon'ble Dispute Resolution Panel, basis the jurisdictional Karnataka High Court decision in the case of CIT and ACIT vs. Tata Elxsi Ltd and others (349 ITR 98) and accordingly, has erred in law and on facts, by not considering that the telecommunication expenses amounting to INR 57,82,839 reduced from export turnover of Bangalore 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 ....
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....ements were for a period other than 12 months): ► R Systems International Limited ► Helios and Matheson Information Technology Ltd ii. the learned AO / TPO erred in rejecting the following comparable company identified by the Appellant where consolidated results had been used for analysis: ► Saven Technologies Limited iii. the learned AO / TPO erred in rejecting the following comparable companies identified by the Appellant on the ground that the comparables are functionally different: ► Akshay Software Technologies Limited iv. the learned AO and the learned TPO have 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 re....
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.... detailed submissions made by the Appellant demonstrating the benefits received from the incurrence of the expenses, the other documentary evidences placed on record and passing a summary order without providing appropriate reasons for upholding the adjustment. 17. The learned AO and the learned TPO have erred, in law and in facts, by incorrectly applying the CUP method for determining the ALP of the impugned transaction and overlooking the fact that TNMM is most appropriate under the facts and circumstances since the expenses are closely linked to provision of services. 18. The learned AO and the learned TPO have erred, in law and in facts, by not taking into consideration the fact that there is no element of service involved in the reimbursement of expenses 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 ....
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....oduct development and break up of revenue between services and products is not provided in the annual report. 28.3 ICRA Techno Analytics Ltd. is engaged in wide array of services like engineering services, web development and hosting, business analytics and BPO services and revenue break up of the same is not provided in the Annual report and hence functionally different from the assessee company. 28.4 Persistent Systems & Solutions Ltd. also is functionally different for the reason that it is engaged in diversified activity i.e., rendering of software development services, licensing of products and royalty of software products. There is no segmental break up of various services provided by this company. 29. The ld. DR relied on the orders of lower authorities. 30. We have heard both the parties 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 a....
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....analysing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into.' 11.4 On circumspection of the above part of this sub-rule, it comes to fore that the comparability of an uncontrolled transaction can be analysed with the 'data relating to the financial year' in which the transaction has been entered into. As per this mandate, it is clear that if the tested party has March ending, then the comparables must also have the data relating to the financial year ending on 31st March itself. If such a data is not available, then the case should be disqualified from the list of comparables. 11.5 Turning to the facts of the instant case, we find that the assessee has adopted the figures of this company for 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....
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....ms International Ltd. in the list of comparables by working out the figures relevant to the financial year ending 31.3.09 from the audited accounts of R. Systems International Ltd." 27.7 Following the aforesaid decision of the Tribunal, we direct the TPO to cull out the financial results of these two comparable companies for the period relatable to the assessee's financial year and thereafter consider these two companies as comparables. We hold and direct accordingly." 34. Following the above order of the Tribunal, we remit this issue to the file of AO/TPO for fresh consideration with similar directions. 35. With regard to Helios and Matheson Information Technology Ltd., the ld. AR submitted that the company satisfies all the comparability criterion and should not be rejected on the filter of different financial year ending. The company is engaged in the business 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 compa....
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....a corporate guarantee to a third party bank on behalf of an AE but failed to charge a fee for the guarantee. The assessee conducted a TP study and concluded that this transaction was at arm's length however during audit proceedings the TPO rejected the analysis of the assessee and made adjustments to this transaction. The taxpayer cites the order of Four soft Ltd wherein the Hon'ble ITAT Hyderabad observed as under: "We find that the TP legislation provides for computation of income from international transaction as per section 92B of the Act. The corporate guarantee provided by the assessee company does not fall within the definition of international transaction. The TP legislation does not stipulate any guidelines in respect to guarantee transactions. In the absence of any charging provision, the lower authorities are not correct in bringing aforesaid transaction in the TP study. In our considered 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 transacti....
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.... worked out the TP adjustment of Rs.2,61,79,350/-. The DRP also rejected assessee's objection on the issue. 25. We have heard the parties and perused the material on record. The sum and substance of the submissions made by the learned AR is, the corporate guarantee provided by the assessee cannot be equated to bank guarantee and resultantly the commission rate for bank guarantee cannot be applied to the corporate guarantee. It was submitted that the corporate guarantee is nothing but an additional guarantee provided by the parent company and it does not involve any cost or risk to the share holders. It was submitted that since the corporate guarantee was given keeping in view paramount business interest of the parent company it has to be allowed as business expenditure. It is the further submissions of the learned AR that the retrospective amendment effected to section 92B of the Act, by Finance Act, 2 012 by insertion of Explanation (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 favo....
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....e Bill of 2012 is passed by the Parliament amending the provisions of section 92B, with effect from 1st April, 2002, he will have to ignore the decision of the ITAT Hyderabad. In case section 92B is not amended with retrospective effect, he should grant relief to the appellant." 25.4 In the aforesaid view of the matter, we agree with the TPO that ALP of the corporate guarantee has to be determined as it falls within the scope and ambit of an international transaction after the retrospective amendment to section 92B. However, it appears that the TPO has applied the rate of 3.75%, which is applicable to bank guarantee issued by the bank. As the corporate guarantee is not in the nature of bank guarantee, the rate applicable to bank guarantee provided by the bank cannot be applied to corporate guarantee which is provided by a group company. In case of Glenmark Pharmaceuticals v. ACIT in ITA No. 5031/M um/2012, dated 13/11/2013, the Mumbai Bench of the Tribunal after analysing 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/....
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....nication Ltd. v. ACIT in ITA Nos.6816/Mum/2010 and 7105/Mum/2011, the Tribunal vide order dt.7.8.2013 has considered an identical issue in paras 4 & 5 as under : '4. As regards the issue raised in ground No. 2 relating to TP adjustment made on account of guarantee commission in respect of corporate guarantee given by the assessee to its Associated Enterprises (AEs) for obtaining bank loans, the ld. representatives of both the sides have agreed that a similar issue was involved in assessee's own case for the immediately preceding year i.e. A.Y. 2005-06 and the Tribunal vide its order dated 12-06-2013 passed in ITA No. 3664 & 2359/Mum/2010 has already decided the same vide para No. 9 & 10 which read as under:- "9. We have considered the rival submissions and also perused the relevant material available on record. For the guarantee given to the bank against the financial assistance given to its AEs, no commission was charged by the assessee company on the ground that the said 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, th....
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.... member, such association positively enhances the profit making potential of that Associated Enterprise. We, therefore, find ourselves in agreement with the contention of the ld. D.R. that there was a clear benefit accrued to the Associated Enterprises by the guarantee provided by the assessee and when such benefit was passed on by the assessee to the said Associated Enterprises, guarantee commission should have been charged at arm's length price. The commercial relationship between the assessee and its Associated Enterprises is distinct and separate from the transactions of giving guarantee and such transactions have to be considered and examined independently in order to determine the arm's length price. 10. As regards the rate of guarantee commission, it is noted that the arm's length price of guarantee commission was determined by the TPO by applying CUP method and the arithmetic mean of 1.5% of the guarantee commission charged by the HSBC Bank in the range of 0.15 to 3% was taken 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....
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....aid direction of DRP as under : "2.9 As far as the argument of corporate guarantee received by the taxpayer is concerned the same carries merit. In the interest of fairness, the TPO is directed to provide adjustment for the value of corporate guarantees received by the taxpayer form its AEs after verification of individual transactions." Accordingly, we set aside this issue to the record of the A.O./TPO to recompute the ALP by considering the arm's length guarantee fees at 0.5% and further by providing appropriate adjustment for corporate guarantee received by the assessee from its arm's length." 40. Accordingly, we remit this issue to the AO/TPO to consider this issue afresh with similar directions as in the above order of the Tribunal. Accordingly, this ground of the assessee is partly allowed. 41. Ground Nos. 13 to 18 is regarding the reimbursement transactions. The DRP noted that the assessee was requested to submit the details / documents in support of these payments but as the assessee has failed to 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....