TaxTMI 
TaxTMI 
TaxTMI 
2023 (1) TMI 1263
X X X X Extracts X X X X
X X X X Extracts X X X X
....39;) adjustment on account of benchmarking and allocation of royalty in respect of provision of scientific and technical services ('Contract R&D') On the basis of Benchmarking: 3. On the facts and in the circumstances of the case and in law, the learned AO/ TPO erred in making a TP adjustment of Rs. 9,38,84,840/- to the arm's length price of the international transaction relating to scientific and technical services for contract R&D activity recovered by the appellant. 2.1 Without prejudice to the other grounds, the learned AO/TPO/DRP erred in disregarding a functionally comparable company merely because it had incurred Losses. They failed to appreciate that the Appellant has followed a structured benchmarking methodology in selecting comparables and benchmarking the transaction and which has been applied consistently. 2.2 The Ld. AO/TPO/DRP erred in holding that, for calculating the operating margins of the Appellant, bought-in-costs is not to be excluded from the operating revenues and operating costs. They failed to appreciate that, such bought-in- costs are pass through in nature and therefore, no mark-up ought to be charged on the same. Further, the Ld.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is engaged into 'contract research services' and is bearing limited risk and therefore ought to have held the cost plus mark-up received by the Appellant is at arm's length. 3.2 The Appellant prays that the book value of the said transactions be held to be the arm's length price of the transactions, and the adjustment on account of allocation of royalty be deleted. Provision of Support services. 4.1 On the facts and circumstance of the case and in law, the Ld. AO/TPO/DRP erred in holding that, for calculating the operating margins of the Appellant, bought-in-costs is not to be excluded from the operating revenues and operating costs. They failed to appreciate that, such bought-in-costs are pass through in nature and therefore, no mark-up ought to be charged on the same. Conditions mentioned in Section 92C(3) not satisfied 5. On the facts and in the circumstances of the case and in law, the learned AO/TPO/DRP erred in arriving at the arm's length price of the international transactions without appreciating the fact that none of the conditions set out in Section 92C (3) of the Act are satisfied. Part II - CORPORATE TAX GROUNDS: Disallowance u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssed by the Ld.AR. Accordingly, the grounds of appeal no 1 to 5 & 8 are withdrawn and are dismissed. 3. The Brief facts of the case are that the assessee company is engaged in the business of providing research and technology services to group companies. The assessee has filed the return of income for the A.Y 2016-17 on 30.11.2016 disclosing a total income of Rs. 116,80,08,280/- and under the provisions of section 115JB of the Act Book Profit worked out to Rs. 128,54,54,042/-.Subsequently the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act along with questionnaire was issued. Whereas the case was selected for complete scrutiny under e-assessment scheme 2019 on the fallowing issues as under: i. Whether double taxation relief (and income) has been shown correctly in the return income. ii. Whether refund claim is justified. iii. Whether value of international transactions are correctly shown in Form 3CEB and return of income. iv. Whether sales turnover/receipts has been correctly offered for tax. v. Whether deduction under Chapter VIA has been claimed correctly. vi. Whether deduction claimed on account of loss from currency fluctuations is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s.) Adjustments after giving effect to the DRP 1. Scientific and technical services - R&D benchmarking following TNMM 9,38,84,840/- 5,43,29,788/- 2. Enterprise support service 48,61,66,505/- 0 3 Share in Royalty Income From AE 98,10,00,000/- 0 Total 156,10,51,345/- 5,43,29,788/- 6. Further the AO has dealt on the corporate tax issues and made disallowance of unrealized foreign exchange loss as the assessee has claimed an amount of Rs. 2,78,362/- in the A.Y 2016-17 on account of foreign exchange loss / translation loss ( unrealized loss). The Assessee has filed the reply on 06.12.2019 referred at Para 7.3 of the order and the AO has not considered the assessee's submissions and made addition of Rs. 2,72,362/-. Similarly the AO on second disputed issue, found that the assessee has debited/claimed in the profit and loss account ESOP expenses of Rs. 30,41,00,000/-,and the A.O. required the asssessee to explain the nature of ESOP expenditure and the TDS deducted. In response the assessee has filed a letter on 06.12.2019 referred at 8.2 of the order. Finally the AO has dealt on the provisions of the Act, judicial decisions, ESOP Scheme, and came to conclusi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9;expenditure' as used in section 37 may, in circumstances of a particular case, cover an amount which is really a 'loss', even though said amount has not gone out from pocket of assessee - Held, yes - Whether loss suffered by assessee on account of foreign exchange difference as on date of balance sheet is an item of expenditure under section 37(1) - Held, yes - Whether accounting method followed by an assessee continuously for a given period of time needs to be presumed to be correct till Assessing Officer comes to conclusion for reasons to be given that said system does not reflect true and correct profits - Held, yes - Whether an enterprise has to report outstanding liability relating to import of raw material using closing rate of foreign exchange and any difference, loss or gain, arising on conversion of said liability at closing rate should be recognized in profit and loss account for reporting period - Held, yes II. Section 43A of the Income-tax Act, 1961 - Foreign currency, rate of exchange, change in - - Assessment year 1998-99 - Whether amendment to section 43A by Finance Act, 2002 with effect from 1-4-2003 is amendatory and not clarificatory - Held, yes -....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Act. The primary object of the aforesaid exercise is not to waste capital but to earn profits by securing consistent services of the employees and therefore, the same cannot be construed as short receipt of capital. The tribunal therefore, in paragraph 9.2.7 and 9.2.8 has rightly held that incurring of the expenditure by the assessee entitles him for deduction under Section 37(1) of the Act subject to fulfillment of the condition. 11. The deduction of discount on ESOP over the vesting period is in accordance with the accounting in the books of accounts, which has been prepared in accordance with Securities And Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. 12. So far as reliance place by the revenue in the case of CIT VS. INFOSYS TECHNOLOGIES LTD. is concerned, it is noteworthy that in the aforesaid decision, the Supreme Court was dealing with a proceeding under Section 201 of the Act for non deduction of tax at source and it was held that there was no cash inflow to the employees. The aforesaid decision is of no assistance to decide the issue of allowability of expenses in the hands of the employer. It is al....