TaxTMI 
TaxTMI 
2024 (7) TMI 211
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.... order u/s 92CA(3) on 25.10.2016 proposing 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 4,2....
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.... Larsen and Toubro Infotech Ltd.- IT segment Infosys BPO Ltd. - ITeS segment 9. The learned AO, learned TPO and the Hon'ble DRP 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 T....
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....st Rs. 20,20,00,000. The learned AO and the Hon'ble DRP have erred in disallowing foreign exchange loss of Rs. 20,20,00,000 on interest accrued on External Commercial Borrowing ('ECB') under Section 36 of the Act. The learned AO and the Hon'ble DRP have erred in treating the foreign exchange loss as a notional loss and consequently denying deduction under the provisions of the Act. The learned AO and the 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 ....
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.... The learned AO and the Hon'ble DRP have erred in disallowing the repair and maintenance expenses based on the representations made by third parties under notice issued by the learned AO under section 133(6) of the Act without granting the Appellant the reasonable opportunity of hearing. The learned AO and the Hon'ble DRP have erred in concluding that the said expenditures resulted in enduring benefit to the Appellant. 23. Ground on Disallowance of stamp duty charges Rs. 27,27,050 The learned AO and the Hon'ble DRP have erred 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....
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....#39;ble DRP have erred in holding that the services rendered by Associated Enterprises (AEs") to the Appellant was in the nature of Fee for Technical Services taxable under Section 9 (1) (vii) of the Act. The learned AO and the Hon'ble DRP ought to have appreciated that the payments made to AEs by the Appellant are mere reimbursement of salary expenses of the seconded employees and not fees for technical services. > The learned AO and the Hon'ble DRP have erred in not appreciating the fact that the employer-employee relationship existed between the Appellant and seconded employees. The learned AO and the Hon'ble DRP have erred in not appreciating the fact that 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....
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....t. The Ld. TPO, applying certain filters disturbed the comparable entities by rejecting some of the entities as selected by the assessee and by introducing certain new comparable entities. The Ld. TPO also denied certain economic adjustment viz. risk adjustment, working capital adjustments as claimed by the assessee. The forex gains / losses were treated as operating in nature. 2.3 The Ld. TPO proposed TP adjustments in each of these three segments as under: - Segment Assessee's PLI Average PLI of comparable entities TP Adjustments (Lacs) EDS Segment 16.79% 28.07% 5404.39 IT Segment 14.90% 19.69% 395.44 ITes Segment 14.66% 18.76% 34.04 Total 5833.88 2.4 Incorporating the above adjustments, 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. Ou....
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....submitted that after exclusion of two entities, the margins of the assessee would be much more than comparable entities and therefore, other grounds in this segment need not be adjudicated. Considering the same, delving into the other arguments, on this issue, has been rendered mere academic in nature. TP Adjustments under IT Segment 3.3 In this segment, Ld. TPO has worked out assessee's Profit Level Indicator (PLI) as 14.90% as against mean margin of 19.69% reflected by 8 comparable entities. Under this segment, Ld. AR has sought exclusion of two comparable entities viz. Larsen and Toubro Infotech Ltd. and Thirdware Solutions Ltd. The same are adjudicated as under: Larsen and Toubro Infotech Ltd. The Ld. AR seek exclusion of this entity on the ground that this entity is into diversified 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 h....
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.... Ltd. was also directed to be excluded on the ground that this entity had diversified operations which could not be compared with ITeS segment. Further, during this year, there were extraordinary operations and therefore, it could not be taken as comparable entity. Respectfully following the same, we direct for exclusion of both these entities. 3.6 The Ld. AR has submitted that after exclusion of two entities, the margins of the assessee would be within tolerance range and therefore, other grounds in this segment need not be adjudicated. Considering the same, delving into the other arguments, on this issue, has been rendered mere academic in nature. 3.7 In the result, The TP grounds stand partly allowed in terms of our above order. Corporate Tax Grounds 4. Disallowance of notional loss 4.1 The 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 wa....
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....under this head which represent interior work, modular partition, strengthening of building pillars, interiors, routine maintenance etc. as tabulated in para-8 of final assessment order. It transpired that the assessee constructed first and second floor of 1250 sq. meter on each of floor on PMG building. The entire project was carried out by various parties. The assessee added additional capacity to the office spaces. All these facts led to a conclusion that the expenditure was capital in nature. The assessee created a new-assets and installed furniture and fittings. The Ld. DRP directed Ld. AO to delete an amount of Rs. 31.99 Lacs since the same was not debited to the Profit & Loss Account. The Ld. DRP also directed Ld. AO to allow depreciation on the same. Accordingly, Ld. AO disallowed amount of Rs. 152.72 Lacs. 6.2 We find 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 capit....
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.....7797.40 Lacs to its AE on account of Salary expenses of seconded employees and the amounts were stated to be in the nature of reimbursements. The Ld. DRP proposed to treat the same as Fees for Technical Services. The assessee submitted that it entered into secondment agreement with group companies for deputation of employees to facilitate the business operations of the assessee. Pursuant to the same, actual salary was reimbursed to Group Company. The same were in the nature of reimbursements only and do not include any element of income. The seconded employees were under the control and supervision of the assessee. The risk and reward of the worked performed by the deputed employees was with assessee. Further, due Tax at source was deducted u/s 192 against these payments. 10.2 The Ld. DRP, upon perusal of agreement, observed that the assessee sought 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 ex....