TaxTMI 
TaxTMI 
TaxTMI 
2024 (7) TMI 211
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....certain Transfer Pricing (TP) adjustment. Incorporating the same, a draft assessment order was passed on 27.12.2016 which was subjected to assessee's objections before Ld. DRP. Pursuant to the directions of Ld. DRP, final assessment order was passed against which the assessee is in further appeal before us. 1.2 The Revenue has filed cross-objection against the additional grounds of appeal filed by the assessee. In these additional grounds, the assessee has raised the ground of limitation. However, these grounds have not been pressed by the assessee vide its letter dated 04.12.2023 which render cross-objection infructuous. 1.3 The grounds raised by the assessee read as under: - 1. The learned Assessing Officer (learned AO'), learned Transfer Pricing Officer (learned TPO') and the Honourable Dispute Resolution Panel ('Hon'ble DRP') have grossly erred in determining an adjustment of INR 540,439,874 to the revenue earned from Associated Enterprises (AEs") in the engineering design services segment, INR 45,489,196 to the revenue earned from AEs in the Information Technology ('IT") segment and INR 4,295 955 to the revenue earned from AEs in the IT enable....
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....RP have erred in accepting companies that ought to have not been accepted as comparable to the engineering design services segment of the Appellant: Vama Industries Ltd. 10. The learned AO, learned TPO and the Hon'ble DRP have erred in rejecting companies that ought to have been accepted as comparable to the engineering design services segment of the Appellant: Babcock Borsig Softech Private Ltd. Tismo Technology Solutions Private Ltd. 11. The learned AO, learned TPO and the Hon'ble DRP have erred in accepting companies that ought to not have been accepted as comparable to the IT services segment of the Appellant: Larsen & Toubro Infotech Ltd. Thirdware Solutions Ltd. 12. The learned AO, learned TPO and the Hon'ble DRP have erred in accepting companies that ought to have been accepted as comparable to the IT segment services of the Appellant: Akshay Software Technologies Ltd. Helios & Matheson Information Technology Ltd. Cigniti Technologies Ltd. Kals Information Systems Ltd. CTIL Ltd. Cat Technologies Ltd. Sankhya Infotech Ltd. Evoke Technologies Private Ltd. 13. The learned AO, learned TPO and the Hon'ble DRP erred in accepting comp....
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....e Hon'ble DRP have erred in not appreciating the Accounting Standards issued by Institute of Chartered Accountants of India and more specific AS - 11 (Effects of changes in foreign exchange rates), which mandates to recognize loss on restatement of interest on ECB loan on the Balance sheet date. The learned AO and the Hon'ble DRP have erred in not relying on the following judicial precedents submitted by the Appellant and summarily rejecting the below stating the same were rendered in different facts: CIT v. Woodward Governor Ltd. [2009] 179 Taxman 326 (SC) India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC) The learned AO and the Hon'ble DRP have erred in treating the foreign exchange as capital in nature The learned AO and the Hon'ble DRP have erred in not appreciating the provisions of Section 43(1) of the Act, wherein all the costs incurred after the put to use of the asset are to be treated as revenue in nature The learned AO and the Hon'ble DRP ought to have appreciated that the restatement of ECB would qualify as an interest cost which is allowed on actual basis. Notwithstanding the above, where the learned AO and the Hon'ble DRP have ....
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....red in disallowing an amount of Rs. 27 ,27,050 owing to stamp duty charges paid by the Appellant on registration of rental agreement entered into by the Appellant. The learned AO and the Hon'ble DRP ought to have appreciated the fact that office premises were taken with a view to carry on the business activity and had not resulted in creation of any advantage of enduring nature. The learned AO and the Hon'ble DRP have erred in concluding that the expenditure was to acquire benefits of right of property and any expenditure incidental to the acquisition of the lease is to be considered as capital in nature. 24. Ground on Disallowance of depreciation on printers, scanners and UPS Rs. 5,02,541 The learned AO has erred in disallowing depreciation of Rs. 5,02,541 on the printers, scanners and UPS by treating the servers as 'plant and machinery' instead of 'computers'. The learned AO has erred in limiting the allowance for depreciation on printers, scanners and UPS to 15% of the cost as against the depreciation rate of 60% permitted under the Rules. The learned AO further erred in not granting relief as per the Hon'ble DRP directions to the Appellant ....
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.... the above issue is already covered in the Appellant's favor by the ruling of Hon'ble Bangalore ITAT in a similar case for A Y 2008-09. The learned AO and the Hon'ble DRP ought to have appreciated that service provided DY The associated entity does not make available technical knowledge, experience, skill, knowhow or processes, for it to be taxable under the India - USA Double Taxation Avoidance Agreement ('tax treaty'). The learned AO and the Hon'ble DRP ought to have appreciated that once a service is not taxable under the tax treaty, the need for disallowance under Section 40 (a) (i) does not arise. > Notwithstanding and without prejudice to the above, the Appellant submit that the actual payment towards reimbursement of salary of seconded employees made by the Appellant is Rs. 28,37,93,461 whereas the learned AO and the Hon'ble DRP have erred in disallowing a sum of Rs. 77,97,40,472. As is evident, the assessee is aggrieved by confirmation of certain Transfer Pricing Adjustments as well as certain corporate adjustments. The issues that fall for our consideration are: (i) Transfer Pricing Adjustment in three segments; (ii) Disallowance of forex....
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.... a draft assessment order was passed by Ld. AO on 27-12-2016. In this order, Ld. AO made some other corporate disallowances and adjustments. 2.5 The assessee preferred objections against draft assessment order before Ld. DRP which were partly accepted vide directions dated 23-06- 2017. Pursuant to the same final assessment order was passed on 12- 09-2017. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication TP Adjustments under EDS Segment 3.1 In this segment, Ld. TPO has worked out assessee's Profit Level Indicator (PLI) as 16.79% as against mean margin of 28.07% reflected by 4 comparable entities. Under this segment, Ld. AR has sought exclusion of two comparable entities viz. Acropetal Technologies Ltd. and Vama Industries (segment). Acropetal Technologies Ltd. This entity has reflected margin of 61.11%. The Ld. AR seek exclusion of the same on the ground that financial results of this entity are window- dressed and this entity is primarily engaged in outsourcing its activities to third-parties. This is abnormal year of operation and this is high risk bearing entity with significant R&D activities. The Ld. AR has relied on the decision of Ch....
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....sified businesses and segmental breakup of software product segment and software development segment is not available. The Ld. AR has also submitted that this entity has brand and intangibles. Further, the segment turnover of this entity is more than 36 times as that of the assessee. This entity is stated to be excluded by various benches of Tribunal. We find that for AY 2013-14, this entity has been excluded by Bangalore Tribunal in the case of Evolving Systems Networks India P. Ltd. (130 Taxmann.com 212) on the ground of large turnover. Since similar facts are there in the present case, we direct for exclusion of this entity. Thirdware Solutions Ltd. The Ld. AR seeks exclusion of the same on the ground that this entity is primarily into ITeS services. Further, segmental information of this entity is not available. This entity is stated to be excluded by various benches of Tribunal. We find that for AY 2013-14, this entity has been excluded by Mumbai Tribunal in the case of Lionbridge Technologies P. Ltd. (101 Taxmann.com 41) on the ground this entity was into acquisition / purchase of hardware and software including software as a service. This entity was also engaged in softwar....
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....e assessee claimed deduction of Rs. 2020 Lacs which represent foreign currency loss. The Ld. AO held the same to be notional loss and observed that the same would accrue only at the time of repayment of loan. Therefore, the deduction was denied. The Ld. DRP held that the loss was capital in nature. The said loss could not be adjusted to WDV of fixed assets also. The loan was utilized for purchase of fixed assets. Aggrieved, the assessee is in further appeal before us. 4.2 The assessee, in its written submissions, has stated that it was incurred net forex loss of Rs. 2022.55 Lacs after reversal of opening forex losses. It has also been stated that these losses have similarly been reversed in succeeding AY. The said methodology is stated to be in accordance with applicable accounting standards. Another submission is that the assessee has followed consistent accounting policy in this regard. In AY 2015-16, the assessee has earned similar gains which have been offered to tax. 4.3 We find that Ld. DRP has rendered a finding that the loans have been utilized towards fixed assets and therefore, the loss is capital in nature. From the facts, it is not clear as to how the loan has been ut....
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....d that the aforesaid expenditure has enabled the assessee to add more work space which would mean that there is enlargement of profit-making apparatus for the assessee. The mere fact that the same was carried out on a leased space would not materially affect this fact. The assessee has added more floors to the existing office space which is nothing but capital in nature. The expenditure would bring enduring benefit to the assessee in future. Therefore, the directions of Ld. DRP could not be faulted with. 7. Disallowance of Stamp Duty Charges 7.1 An amount of Rs. 27.27 Lacs was paid as stamp duty towards registration of rental agreement for office premises. The agreement was for 3 years whereas entire stamp duty was claimed in the year of incurrence which was not correct methodology. The Ld DRP held that the expense was towards acquisition of lease and therefore, it was capital in nature. Accordingly, the same was disallowed. Aggrieved, the assessee is in further appeal before us. 7.2 We find that the liability to pay stamp duty has crystallized only during this year. The lease agreement may be for more than on year, however, the expenditure is mere a revenue expenditure an....
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....t certain services from its group entity (AE) and the said AE agreed to provide such services through secondment of employees. The function of such employees was defined in the agreement. It was AE who was the employers and providing services to the assessee through these employees. Further, these employees had specified skills and expertise. The purpose of secondment was to utilize technical as well as leadership skills of the group entities for specific time and establishing the global practices in the assessee company. Therefore, the provision of services was nothing but technical services being provided by AE to the assessee. The mere fact that the employee worked under control and supervision of the assessee would not change their status of employment with AE. Considering various judicial decisions, such payments were held to be fees for technical services. Accordingly, Ld. AO was directed to make disallowance u/s 40(a)(i). Aggrieved, the assessee is in further appeal before us. 10.3 Upon perusal of agreement, it emerges that the assessee has availed services of employees of its group entities. The same was to facilitate business operations of the assessee. These seconded emp....