TaxTMI 
TaxTMI 
2023 (2) TMI 1318
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.... medical diagnostic imaging equipment, therapy equipment and life sciences products ("medical products"). The following additions have been made by the Assessing Officer (in short ''AO'') on which the assessee is in appeal: Particulars As per Final Assessment order (Rs.) As per Draft Assessment order (Rs.) Transfer Pricing adjustments: 383,84,57,641 3,83,84,57,641 Royalty 20,27,37,762 20,27,37,762 Distribution segment 253,10,21,733 2,53,10,21,733 Software Development segment 110,46,98,146 110,46,98,146 Distribution 253,10,21,733 253,10,21,733 Other Issues: 87,38,88,152 87,38,88,152 Disallowance u/s 37 of the Act - Disallowance of lease payment on financial lease 26,12,77,130 26,12,77,130 Disallowance u/s 37 of the Act - Miscellaneous expense 16,27,83,384 16,27,83,384 Disallowance u/s 36(1)(vii) of the Act - Doubtful Advances 1,63,36,390 1,63,36,390 Disallowance u/s 37 of the Act - Disallowance of Provisions 41,76,13,362 41,76,13,362 - Legal and Professional expenses 23,65,54,350 23,65,54,350 - Advertisement and sales promotion 10,92,813 &nb....
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....thout jurisdiction, against the law, facts, circumstances, natural justice, equity and all other known principles of law. 9. The learned DRP erred in overlooking the fact that the entire objections filed by the appellant have not been considered by the TPO befog passing order u/s 92CA. 10. The appellant denies the tax liability on the alleged surplus arising on the computation of arms length price for, the impugned assessment year. 11.(i) The Learned AO erred in bringing to tax a sum of Rs.383,84,57,64 /- as outlined below in the table under section 92CA of the Act as per the communication/order of the Transfer Pricing Officer and the directions of DRP. SI.No Description Amount 1 Arm's Length Price difference in the royalty paid Rs.20,27,37,762/- 2 Arm's Length Price difference in distribution segment Rs.253,10,21,733 / - 3 Arm's Length Price difference in the Software services segment Rs.110,46,98,146/- (ii) The learned TPO/ DRP erred in disregarding the use of multiple year data and ought to have accepted the use of contemporaneous data as per the transfer pricing regulations due to non-avai....
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....e and untenable grounds/reasons while considering comparables which failed to meet the filters /criteria as required under law. xii) The AO/TPO/DRP erred in considering the following comparables overlooking/rejecting the objections made by the assessee 1) Deccan Dental Depot Pvt Ltd 2) Covidien Healthcare India Pvt Ltd 3) Vinod Medical Systems Pvt Ltd 4) Indian Hospitex Systems Pvt Ltd 5) India Medtronic Pvt Ltd 6) Sandor Medicaids Pvt Ltd 7) Iris Healthcare Technologies Pvt: Ltd 8) Medicept Dental India Pvt Ltd 9) IDS Denmed Pvt Ltd 10)Affiance Medi Tech Pvt Ltd 11)Olympus Medical Systems India Pvt Ltd 12)Weldon Biotech (India) Pvt Ltd 13)Pinnacle Biomed Pvt Ltd 14) Schiller Healthcare India Pvt Ltd 15) Stryker India Pvt Ltd 16)Everest Instruments Pvt Ltd 17)Confident Sales India Pvt Ltd 18)Narang Medical Ltd 19)Indifoss Analytical Pvt Ltd xiii) The Learned AO / TPO / DRP erred in failing to rely on decision of the ITAT in assessee's own case for the years 2002 - 03 to 2004 - 05 and subseque....
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....r law. vi) The Learned AO / TPO / DRP erred in not granting the variances deduction envisaged in the Act and Circular. vii) The Learned AO/TPO/DRP have failed to apply the provisions of Rule 10B(4)86(5) and 10CA(2) while selecting the criteria and filters. viii) The learned AO/TPO/DRP erred in rejecting R D expense more than 3% on turnover to eliminate companies engaged in R 86 D activities. ix) The learned AO/TPO/DRP erred in applying the software development service income threshold of 75% to sales to select comparable companies. x) The learned AO/TPO/DRP erred in applying export 'turnover threshold of 75% to sales to select comparable companies. xi)The learned AO/TPO/DRP erred in rejecting the comparable companies having ratio of employee cost to sales less than 25%. xii) The learned AO/TPO/DRP erred in applying the Related party transactions threshold of 25% to revenues to select comparable companies. xiii) The learned AO/TPO/DRP erred in not applying the Turnover filter as per law. xiv)The Learned AO/TPO/DRP erred in not considering the company Taal Tech India Pvt Ltd as comparable rejecting t....
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.... the above disallowances requires to be deleted. 22.The Learned AO/DRP erred in not giving TI)S credit amounting to Rs. 1,58,77,886/- and no reasons or explanations have been given for denying the credit. ISSUE OF INTEREST U/S 234A, B & C 23.The appellant denies the liabilities for interest u/s 234A, B 86 C of the Act. Further prays that the interest if any should be levied only on returned income. No opportunity has been given before the levy of interest u/s 234A, B 8s C of the Act. 24.Without prejudice to the appellant's right of seeking waiver before appropriate authority the appellant: begs for consequential relief in the levy of interest u/s 234A, B 86 C of the Act. 25. For the above and other grounds and reasons which may be submitted during the course of hearing of this appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered." 3. Ground Nos.1 to 7 are general in nature, which do not require any adjudication. 3.1 Ground Nos.8 o 11 are general grounds relating to TP matters, which do not require any adjudication. Ground No.12: 4. The ground raised in ground No.12 is as follows: ....
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....sessee and the customers and the prices are market driven. The distribution of medical equipment along with its service component will help the Assessee in the long-term business with the customers. Further, in terms of the arrangement with the affiliates, Wipro GE is responsible for local pricing in the domestic market." 4.2 The TPO observed that the arguments of the assessee are fallacious for the following reasons. As per the TP study report and the submissions made by the assessee, WGE identifies the customers and forecasts the demands of the customers for the products of the AEs in Indian Market. Most of the goods imported from the AEs are delivered directly to the customers. This basically means that the customer is ordering for the equipment knowing very well that it is a GE product. Moreover, once the order is placed with the AE, WGE places the order on behalf of the customer and that too for a GE product. Everyone involved knows very well what they are negotiating for. Moreover, when GE sells the product to the customer, it would have already included in its price the cost of the trademark and the trade name. Additionally, the trademark is owned by a different entity an....
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....gh Court in knorr-Bremse India Pvt. Ltd. held that "It further laid down emphatically tit: 'the contention that as the services and goods are utilized by the assessee for the manufacture of the final product they must be aggregated and considered to be a single transaction and the value thereof ought to be computed by the TNMM is acceptable. Merely because the purchase of each item and the acceptance of each service is a component leading to the manufacture/production of the final product sold or service provided by the assessee, it does not follow that they are not independent transactions for the sale of goods or provision of services. When 'we consider more than one separate transaction under the combined umbrella of TNMM on an entity level, it is quite possible that a probable addition on account of transfer pricing adjustment arising from one international transaction may be usurped by the income from the other international transaction giving higher income on transacted value. That is the reason for which the legislature has provided for determining the ALP of each international transaction separately, from the others. As the international transactions of payment of r....
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.... paid royalty of Rs.1,74,04,730/-. Royalty has been paid having regard to the support services by the Group company. The assessee is in the business of advanced diagnostic equipment. After sales support becomes a critical component for the equipment sold. The assessee's group affiliates have extended a unique condition wherein the equipment is under constant monitoring through the network of satellites. The advantage of such a system is that it allows remote monitoring besides remote maintenance. The assessee is a beneficiary of such facility. It would have cost hundreds of millions of dollars to have an own exclusive facility besides the assessee also does not have such technology to put up the facility. It would not have made any economic sense to facilitate such facility independently. Thus, the payment of royalty enhances the commercial value for the business of the assessee. 3.3 The Tribunal for AY 2005-06 and 2006-07 in IT(TP)A 40/B/11 & 1647/B/13 dt.21.04.2017 has set aside the issue of royalty to the file of the TPO/AO for reconsideration in the light of the directions of the Tribunal for the AY's 2002-03 to 2004-05. The Tribunal has dealt with the issue in para 16....
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....ied as required in law by the TPO. In the absence of comparable transaction, the Tribunal has held as extracted supra that the royalty payment be considered as operating cost in the trading segment. The TPO has adopted M/s Advanced Micronic Devices Ltd as a comparable in the trading segment. By applying the same, the assessee in its reply dt.05.06.2019 has worked out the margin by considering royalty as part of the trading segment. The margin of the assessee in the trading segment works out to 39.49% after considering royalty as operating cost as against the margin of the comparable M/s Advanced Micronic Devices Ltd being 28.06%. Since the margin of the assessee is higher than that of the comparable, the transaction is at arm's length and consequently the addition requires to be deleted. 3.6. The Ld. D.R. submitted that there is no proof of any services having actually been rendered by the A.E. The facts of issue shows that the services, even if any, rendered by the A.E. were mere duplication of the functions being carried out by the tax payer on its own and independently. The assessee did not get any economic value from the alleged trade mark/trade name fee paid. The ALP ....
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....on. The assessee vide replies dt.27.11.2019 & 11.12.2019 submitted the party wise details of provision and payments along with the details of deduction of TDS and prayed that the same should be allowed as business expenditure. However, rejecting the details and information provided and the practice consistently followed by the assessee, the AO has disallowed the dealer commission as not incurred wholly and exclusively for the purposes of business and disallowed the same u/s 37 of the Act. 4.2 The assessee disagrees with the findings of the AO as he has erred in wrongly interpreting the facts, submissions, method of accounting and the practice consistently followed by the assessee. The sales are booked by various dealers appointed by the assessee and commission is paid on the sales made by them, however, the actual payment is made upon realization of the sales proceeds and on fulfilling other concomitant services / obligations. At the time of booking sales, the quantification of commission to each dealer is uncertain in nature, hence the amount of dealer commission expense is not booked against particular dealer account, but carried in the books under "Other Liabilities" ac....
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....of appeal taken by the assessee. 4.5 In the result, the appeal of the assessee in ITA No.701/Bang/2021 is partly allowed for statistical purposes. 6.1 Same view was taken in assessee's own case in A.Y. 2012-13 in IT(TP)A No.703/Bang/2021 dated 7.10.2022. 6.2 In view of the above decisions, taking a consistent view, we allow the ground taken by the assessee. Distribution Segment: Ground No.13: 7. Ground No.13 of the assessee's appeal is reproduced as under: 13. i) The Learned AO / TPO / DRP erred in making adjustment towards the Arm's Length Price difference in the distributor segment amounting 253,10,21,733/-. ii) The Learned AO / TPO / DRP erred in making adjustment on transactions beyond AE transactions, thus, the adjustment proposed includes non AE transactions. iii) The Learned AO / TPO / DRP erred in wrongly adopting the financial results of the assessee. iv) The Learned AO / TPO / DRP erred in comparing the appellant's distribution margin with comparables which are not in the business of trading/distribution. v) The Learned AO / TPO / DRP erred in not following their own orders passed for the earlier....
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....ustment carried out by the appellant xviii) The learned AO/TPO/DRP erred in rejecting the import duty adjustment carried out by the appellant. xix) The learned AO/TPO/DRP erred in not considering the after sales support service segment while determining operating margin of distribution segment. xxi) The learned AO/TPO/DRP erred in rejecting the corroborative analysis provided by the appellant. xxii) The Learned AO/TPO/DRP erred in applying the trading income threshold of 75% to sales to select comparable companies. - xxiii) The learned AO/TPO/DRP erred in applying the Related party transactions threshold of 25% to revenues to select comparable companies. xiv) The learned AO/TPO/DRP erred in not applying the Turnover filter as per law. 7.1 Facts of the issue are that Wipro GE markets, distributes and services the complete range of GE's medical diagnostic imaging and therapy equipment in the Indian market. Based upon customer requirements, Wipro GE imports medical systems from other GE Healthcare global entities. Wipro GE also caters to the after sales market segment by way of supply of spare parts and service of equipment. Bas....
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....ice Received Rs.1902,13,13,780/- Adjustment u/s 92CA Rs.253,10,21,733/- 7.2 The adjustment made by the TPO of Rs.253,10,21,733/- in the Distribution Segment has been adopted by the AO in the Draft assessment order u/s 143(3) rws 144C(1) of the Act dated 30.12.2019. The assessee filed objections before DRP on 27.01.2020. The assessee filed its written submissions before DRP on 29.01.2021 emphasizing on the binding decisions of the Tribunal in assessee's own case for earlier years. Without appreciating the submissions of the assessee, the DRP passed its directions u/s 144C(5) on 11.02.2021 rejecting the grounds. The AO passed the final assessment order u/s 143(3) rws 144C(13) and 144C(13) rws 143(3A) & 143(3B) of the Act dated 30.03.2021 retaining the TP adjustment in Equipment segment of Rs.253,10,21,733/- as per draft assessment order. 7.3 The AO/TPO/DRP has erred in not relying on decision of the CIT (A) / ITAT in assessee's own case for the years 2002 - 03 to 2004 - 05, 2005-06, 2006-07 and subsequent orders of the ITAT for other assessment years. The direction of the ITAT to restrict the adjustment to the international transaction i.e, AE purchases of Rs.964,72,92....
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....mparables selected by the Assessee, the TPO accepted the 1 highlighted above, viz. Advanced Micronic Devices Ltd and rejected the other 5 comparables. 28.4 Final Comparables selected by TPO and their arithmetic mean: Sl No Company Name (OP/OR) (in%) 1 Maestors Medline Systems Ltd (seg) 29.57 2 Advanced Micronic Devices Ltd (seg) 7.29 Average 18.43 Computation of arm's length price by the TPO and the adjustment made: PLI Margin 18.43 OR 1388,87,76,432 ALP* 81.57% 1132,90,74,935 OC 1341,57,47,576 Shortfall 208,66,72,641 Value of International Transaction (to be benchmarked) 791,22,27,227 Percentage to Total Cost 43.80% Proportionate adjustment 91,39,62,617 28.5 The adjustment made by the TPO of Rs.91,39,62,617/- in the Distribution Segment has been adopted by the AO in the Draft assessment order u/s 143(3) rws 254 rws 144C(1) of the Act dated 30.12.2019. The assessee filed objections before DRP on 27.01.2020. The assessee filed its written submissions before DRP on 11.01.2021 emphasizing on the binding decisions of the Tribunal in assessee's own case for earlier years....
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....nal transaction and in this case to be confined to the purchases made from AE. Relevant portion is extracted hereunder: ''15. Having considered the rival submissions as well as the relevant material on record, we find that the TPO while computing the ALP has apparently taken the gross profit margin of the AMDL at entity level by assuming that the entire activity of AMDL is only trading in the medical equipments. So far as the issue of considering the segmental details of the comparable companies, on principle we do not find any error on this point as the comparability of the assessee's trading segment in medical equipment has to be determined by considering the same segment of the comparable companies in the same activity. Therefore if the comparable company is having more than one segment as considered by the CIT (Appeals) then only the trading segment of the said company has to be compared with the assessee. Further the CIT (Appeals) has also recomputed the gross margin of the assessee and again held that the adjustment is required to be made only in respect of purchases made from the AE and not on the entire transaction in the trading segment. There is no quarrel on....
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....he same TPO i.e, DCIT, TP-2(2)(1), Bangalore passed the Order giving effect for both AY 2005-06 and AY 2012-13 on the same day 28.10.2019. Though TPO followed the specific direction of the ITAT for AY 2005- 06, the same was not followed for the AY 2012-13. Thus the TPO has been inconsistent in her own approach. The TPO is in error in not following the orders of the Tribunal in assessee's own case which is a binding precedent. The TPO has tried to take a contrary position on an issue which has been overwhelmingly settled in the earlier years. There being no change in fact or law it was imperative for the TPO to follow the same method of computation as done earlier. Not doing so amounts to violation of law as explained by Hon'ble Madras High Court in L.G. Ramamurthi 110 ITR 453. Relevant portion extracted hereunder: ''Appeal(Tribunal)-Precedent-Tribunal coming to conclusion that gifts were sham-In subsequent assessment year a differently constituted Tribunal came to a different conclusion, viz., gifts were real Tribunals is not right in taking an altogether different view in later year on same set of facts when there was no fresh material before it.'' 28.13 In the i....
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....ght on record any change in circumstances to deviate from earlier order of the Tribunal for the assessment year especially 2005- 06 and 2006-07 in IT(TP)A No.40/Bang/2011 & 1647/Bang/2013 dated 21.4.2017 wherein the Tribunal followed the earlier order of the Tribunal for the AY 2002-03 and 2004-05, which has been reproduced in earlier para of this order. Being so, we direct the AO/TPO to pass fresh order in the light of above observation of the Tribunal in AY 2005-06 and 2006-07. Once the AO/TPO pass the order in conformity with earlier order of the Tribunal, other issue raised by the assessee with regard to comparables is infructuous. This ground of assessee is partly allowed for statistical purposes." 10.1 Same view was taken in assessee's own case in A.Y. 2012-13 in IT(TP)A No.703/Bang/2021 dated 7.10.2022. 10.2 In view of the above order of the Tribunal this ground is remitted to the file of AO/TPO on similar lines. This ground of appeal is partly allowed for statistical purposes. Software Development Segment: Ground No.14: 11. Ground No.14 of the appeal of the assessee is reproduced as under: 14 i) The Learned AO / TPO / DRP erred in making adjustment t....
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....es Pvt Ltd d) Harbinger Systems Pvt Ltd e) Orion India Systems Private Limited f) Nihilent Technologies Ltd g) Inteq Software Pvt Ltd h) Persistent Systems Ltd i) Infobeans Technologies Ltd j) Thirdware Solutions Ltd k) Infosys Ltd l) Aspire Systems (India) Pvt Ltd m) Cybage Software Pvt Ltd n) C G VAK Software & Exports Ltd o) R S Software (India) Ltd p) Larsen &, Toubro Infotech Ltd 11.1 Facts of the case are that the assessee is engaged in providing software services and technology solutions to its parent for products manufactured worldwide. 11.2 Wipro GE has entered into a master development agreement with GE Healthcare (GEHC), whereby Wipro GE provides software services. The software services are part of the GEHC Global Technology Operations. The services pertain to the development of software, which is vital in terms of the functionality of the medical products manufactured by GEHC. The services rendered are in the nature of coding to sub-system work and providing image solutions as well as IT service solutions including base support, business, product an....
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.... Ltd 20.87 8 Larsen and Toubro Infotech Ltd 24.83 9 Orion India Systems Private Limited 25.64 10 Nihilent Technologies Ltd 26.36 11 Inteq Software Pvt Ltd 28.20 12 Persistent Systems Ltd 30.89 13 Infobeans Technologies Ltd 32.42 14 Thirdware Solutions Ltd 36.90 15 Infosys Ltd 38.61 16 Aspire Systems (India) Pvt Ltd 39.28 17 Cybage Software Pvt Ltd 66.45 35th Percentile 18.50% Median 25.64% 65th Percentile 30.89% 11.6 The Computation of arm's length price by the TPO and the adjustment made is as under: Particulars Rs. Arm's length price 851,20,33,963/- Price received 740,73,35,817/- Shortfall 110,46,98,146/- 11.7 The adjustment made by the TPO of Rs. 110,46,98,146/- in the Software Development Segment has been adopted by the AO in the Draft assessment order u/s 143(3) rws 144C of the Act dated 30.12.2019. The assessee filed objections before DRP on 27.01.2020. The assessee filed its written submissions before DRP on 29.01.2021 seeking inclusion and exclusion of comparables interalia on various filters. ....
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....he conclusion that - turnover was relevant criteria in choosing comparable companies and that a company, whose turnover is more than Rs. 200 Crores, cannot be compared with the company, whose turnover is less then Rs. 200 Crores. In Coming to the aforesaid conclusion, the Tribunal relied on the decision rendered by the ITAT, Bangalore Bench in the case of Autodesk India P. Ltd., Vs. DCIT (2018) [96 taxmann.com 263] (Bangalore-Trib) reviewing all the conflicting decisions on the point, and concluding that the application of turnover filter still holds good and has not been in any manner diluted by the decision of Hon'ble Karnataka High Court in the case of M/s. Acusis Software (I) Pvt. Ltd., Vs. ITO in ITA No. 223/2017, dt. 14-08-2018, following the relevant observations of the Tribunal, held as under:..'' 11.12 Applying the said decision, the companies having turnover less than Rs.200 crores and more than Rs.2000 crores should be eliminated from the list of comparables as the assessee's turnover is Rs.740.73crores. 11.13 The assessee is seeking exclusion of the following 11 comparables on account of turnover filter. Sl no Company name Turnover (in Crores) ....
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....foresaid 5 companies in ground No. 2(f), the ld. counsel for the assessee has brought to our notice a decision of Bangalore Bench of ITAT for the very same Assessment Year 2014-15 in the case of LG Soft India (P.) Ltd. v. DCIT [IT(TP) Appeal No. 3122 (Bang.) of 2018, dated 28-5-2019]. In this order rendered in a case of assessee rendering SWD services such as the assessee, the Tribunal excluded 3 out of 5 companies referred to in the earlier paragraph and remanded 1 company for fresh consideration with the following observations:- "5. The Ld A.R submitted that M/s Infosys Ltd, M/s Persistent Systems Ltd and M/s Thirdware Solutions Ltd have been excluded by the co-ordinate bench in the assessee's own case in AY 2008-09 in IT(TP)A No. 1673/Bang/2012. 6. We notice that the co-ordinate bench has excluded M/s Infosys Ltd in AY 2008-09 by following the decision rendered by another co-ordinate bench in the case of 3DPLM Software Solutions Ltd (IT(TP)A No. 1303/Bang/2012 dated 28-11-2013, wherein the decision rendered in the case of Triology E Business Software India P Ltd (ITA No. 1054/Bang/2011) was followed and it was held that M/s Infosys Technologies Ltd is not f....
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....ce provider which functions at the strict supervision and instructions by the AE's. Further we note that turnover criteria has to be applied with an upper limit which is not been considered by the Ld. TPO. The TPO has applied less than 1 crore turnover limit to eliminate the comparables however it failed to apply upper limit considering the functions performed assets owned and risk assumed by assessee under this segment for the year under consideration." 17.8 Before us, the Ld. DR has not been able to place anything on record contrary to the above observation. We therefore respectfully following the above view, direct the Ld.AO/TPO to exclude Persistent Systems Ltd., L& T Infotech Ltd., Thirdware Solutions and Infosys Ltd. from the final list.'' In view of the above decision, it is requested that the companies Persistent Systems Pvt. Ltd. and Thirdware Solution Ltd be removed from the list of comparables. Regarding the comparable Nihilent Technologies Ltd the assessee had objected before the TPO and DRP that the same is not functionally comparable and regarding the comparable Aspire Systems (India) Private Limited the assessee had objected it is functionally dissi....
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.... + markup model. Hence, Nihilent is ordered to be excluded as a comparable. Nihilent Ltd. 46. The assessee sought exclusion of Nihilent Ltd. as a comparable on the ground that it is functionally dissimilar vis-à-vis assessee. This objection was also raised before the Ld. DRP but rejected. The assessee relied upon website of the company which is made available at page A412 of the paper book wherein Nihilent Ltd. is shown to be engaged in providing advanced analytics, artificial intelligence, blockchain, business intelligence, data signs, cloud services etc. The annual financials of this company available at page A412 & A413 of the paper book shows that it is rendering Enterprise transformation and change management, Digital transformation services and Enterprise IT services but segmental financials are not available as is apparent from its financials available at page A305, A412 & A413 of the paper book. When this company is into various segments but segmental financials are not available it cannot be a valid comparable vis-à-vis assessee which is a routine software development service provider working on cost + markup model, hence ordered to be excluded....."....
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....xtracted hereunder: ''4.3. Next come M/s.Thirdware Solution Limited and M/s.Cybage Software Private Limited which have already have been ordered to be excluded by the tribunal after holding the same to be functionally different than software development services and having abnormally average high margin; respectively.'' In view of the above decisions, it is requested that the company Cybage Software Pvt Ltd. be removed from the list of comparables. The assessee has sought for inclusion of the following companies: 1) Sasken Communication Technologies Ltd. - This company has been considered as a comparable in the TP report by the assessee. The TPO rejected this as a comparable on the basis of functional dissimilarity. The assessee prayed for inclusion of the company before the DRP. The DRP vide its directions dated 11.02.2021 in para 3.9.2 directed the AO/TPO to include the software services segment margin for the purpose of comparability. Relevant portion is extracted hereunder: '' 3.9.2.1 Panel: Having considered the submissions, and on perusal of the annual report, we note that this company is engaged in providing Software serv....
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....ustment is required and he drew our attention to the following chart:- WIPRO GE HEALTHCARE PVT LTD ITA 285/B/2021 ; ASSESSMENT YEAR 2016-17 Assessee's Turnover - Rs.740,73,35,817/- FINAL LIST OF COMPANIES SELECTED BY TPO AS COMPARABLE IN SOFTWARE SEGMENT ( KINDLY REFER PAGE 60 OF TP ORDER, PB-I page 199) Assessee's OP/OC - 9.33 % (PB-I page 146) Sl. No. Name of company Comparable of Turnover (in crs) Operating Revenue OP/OC % Comparable margin Rejected as comparable On Grounds Rejected as comparable in Page/ Para 1 Kals Information Systems Pvt. Ltd. TPO 2.88 8.60% Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 675, para 7.3.1 2 E-Zest Sloutions Ltd. TPO 56.51 10.87% Functionally different Rejected by the DRP on the ground of functional dissmilarity PB-I , page 46 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 675, para 7.3.1 3 Rheal Software Privaate Limited ('Rhe....
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.... 675, para 7.3.1 14 Thirdware Solution Ltd. TPO 213.89 36.9 Functionally different & Lack of segment details SanDisk India Device Design Centre Pvt. Ltd - IT(TP)A 288/Bang/2021 dt.30.06.2022 PB-III page 1105 to 1107, para 17.7 & 17.8 15 Infosys Ltd. TPO 54,153.00 38.61 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II page 675, para 7.3.1 16 Aspire Systems (India) Private Limited TPO 230.80 39.28 Fails RPT filter SanDisk India Device Design Centre Pvt. Ltd - IT(TP)A 288/Bang/2021 dt.30.06.2022 PB-III page 1107 to 1109, para 17.9 & 17.10 17 Cybage Software Pvt. Ltd. TPO 726.48 66.45 Functionally different Optiva India Technologies Pvt Ltd - ITA 194/Pun/2021 dt.21.07.2022 PB-III page 1132, para 17.1 Abnormal High Margins Infor (India) Pvt Ltd - IT(TP)A 198/Hyd/2021 dt.06.10.2021 - 35th Percentile 18.50 Median 25.64 65th Percentile 30.89 LIST OF COMPANIES SEEKING INCLUSION AS COMPARABLE IN SOFTWARE SEGMENT Sasken Communication Technologies L....
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....omply with the voluminous data and information sought by your good selves. The assessee submits that sufficient and reasonable opportunity and time be given as required under law so as to enable it to comply with notice as the required information is voluminous: not available in the required format and not readily available as the the same has to be sourced / assimilated from various departments, within the organisation. Hence the assessee request your goodselves to kindly grant three weeks time to .furnish the same in the interests of justice and oblige." 14.2 The assessee has claimed before the panel that deduction of Rs.26,12,77,130/- is towards lease payment on assets taken on lease whose life is short tenure in nature. The entire lease payment has been claimed as allowable expenditure in the computation of income. Such claim is consistent with the past practice for the earlier years which has been accepted by the department. The assessee claimed that it has followed the Accounting Standard -19-Leases issued by the ICAI. The assesses has submitted before the ld. DRP that the amount of Rs.26,12,77,130/- consists of Rs.22,10,20,121/- towards principal repayment of lease and Rs....
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....ove, the learned AO has erred on facts in disallowing an amount of Rs 25,500,765 pertaining to lease rentals on equipment as against the amount of Rs 23,059,332 claimed by the Appellant in the computation of income. 6.3. The learned CIT(A) and the AO have erred in law and on facts in disregarding the reliance placed by the Appellant on the decision of the Honourable Supreme Court in the case of M/s ICDS Limited Vs CIT (350 ITR 527). 6.4. Without prejudice to the above, the CIT(A) and the AO have erred in law and on facts in failing to allow depreciation in respect of such assets even though it has been held that lease rentals are capital expenditure in nature. 6.5. The learned AO has erred in law and on facts in proposing to disallow the lease rentals under section 40(a)(ia) of the Act by concluding that the lease rentals, if treated to be as revenue expenses would be liable to Tax Deduction at Source ("TDS") under section 1941 of the Act, without appreciating the fact that the expense does not warrant tax withholding under the provisions of section 1941 of the Act." 40. As far as this ground is concerned, the material facts are....
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....m the lessor's account in the books of the lessee; - Any profit / loss on account of disposal of the leased asset are to be charged to the profit and loss account. 42. As far as Tax treatment of finance lease for income tax purposes is concerned, as per Circular No. 2 dated February 9, 2001 ("the Circular") issued by the Central Board of Direct Taxes ("CBDT"), pertaining to finance lease arrangements, it has been clarified that the provisions of AS 19 shall not be applicable for tax purposes. This Circular seeks to confirm that the introduction of AS-19 will not have any impact on the tax treatment for finance leased assets in as much as the depreciation allowance will be available to the lessor, if he is the owner of the asset (in accordance with the contract between the lessor and the lessee) and if he satisfies the provisions of section 32 of the Act. The Circular therefore, essentially confirms that the tax treatment for leased assets will not get affected by accounting treatment prescribed by AS-19. The above tax treatment has also been upheld by the Supreme Court in its decision in the case of ICDS Limited Vs CIT (350 ITR 527) wherein Hon'ble Supreme Cou....
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....ction 40(a)(ia) of the Act; > The Assessee and the lessor have collided with each other, wherein both the parties have made undue claims with an intention to suppress their profits. 45. On appeal by the assessee, the CIT(A) upheld the order of the AO. Aggrieved by the order of the CIT(A), the assessee has preferred ground No.6 before the Tribunal. 46. We have heard the rival submissions. We have also perused copies of the lease agreement entered into between the assessee and the lessor. It is clear from the terms of the agreement that the assessee was only a lessee and the lessor was the owner of the equipment as well as the vehicles. The AO in the order of assessment has culled out certain clauses of the agreement and came to the conclusion that the assessee is the owner of the assets and the lease rentals paid was nothing but an expenditure paid for acquiring an asset which was to be regarded as a capital expenditure. This conclusion of the AO, in our view, is clearly erroneous. Even assuming that the expenditure has to be regarded as a capital expenditure, the AO ought to have allowed depreciation to the assessee. In this regard, we find that in the co....
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.....16: 16. Ground No.16 of the assessee's appeal is reproduced below: The Learned AO/DRP erred in disallowing Miscellaneous Expenses of Rs. 16,27,83,384/- under section 37 of the I T Act. 16.1 Facts of the case are that during the course of assessment proceedings the AO noticed an expense of Rs.16,27,83,384/- classified as "miscellaneous expenses" under the head "other expense". In response to AO's notice asking why such expenses should be allowed, no reply was furnished by the assessee. As no reply was furnished, the assessing officer added back the amount of Rs 16,27,83,384/- being not laid out wholly and exclusively for the purpose of business. Before the ld. DRP, the assessee has summited that the details sought were voluminous in nature and time given to comply with the notice was very short. Therefore, the assessee sought time vide its reply dated 26.12.2019. The assessee has submitted before the ld. DRP the details of the miscellaneous expenses of Rs 16,27,83,384/- along with TDS details in an email. The assessee submitted that the same is provided only in soft copy as there are 4.72 lakh line items (approx.) On Perusal of the submissions made by the assessee, the....
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..... The details furnished by the assessee are self-explanatory and has been incurred wholly and exclusively for the purpose of business and is allowable u/s 37 of the Act. Hence the addition has to be deleted. 65. After hearing both the parties, we are of the opinion that assessee has to establish the genuineness of the expenditure by filing the requisite details. In the present case, assessee produced the recipient's details along with details of TDS. Had the AO have any doubt, he should have made further enquiry by summoning the respective party, which he failed to do so. Hence, in our opinion, the expenditure cannot be disallowed only on surmises and conjectures. Accordingly, we allow the ground taken by the assessee." 17.1 In view of the above order of the Tribunal, we remit this issue to the file of AO/TPO to verify in the light of above decision. Ordered accordingly. Ground No.17: 18. Ground No.17 of the assessee's appeal is reproduced as under: 'The Learned AO/DRP erred in disallowing the written off receivables and advances of Rs. 1,63,36,390/- without objectively considering the explanation offered by the assessee. 18.1 The ld. DRP observed ....
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....ry onus, ld. DRP found it difficult to agree with the contention of the assessee. Accordingly, the ld. DRP upheld the disallowance of Rs. 1,63,36,390/-made by the Assessing Officer. 19. We have heard the rival submissions and perused the materials available on record. The main contention of the ld. A.R. is that the AO has not followed the ld. DRP's order and requested to give a direction to AO/TPO to pass consequential order in conformity with the ld. DRP's order. We accede to the request of th assessee's counsel and accordingly, the issue is remitted to the AO/TPO to pass consequential order in conformity with the order of the ld. DRP. Ground Nos.18 to 20: 20. Ground No.18 to 20 of the assessee's appeal are reproduced as under: 18. The Learned AO / DRP erred in disallowing the following provisions for expenses amounting to Rs. 41,76,13,362/- on an entirely unsustainable reason. Legal and Professional fees 23,65,54,350/- Advertisement and sales . 10,92,813/- Repairs and maintenance 59,19,766/- Dealer's Commission 17,40,46,433/- Total 41,76,13,362/- 19.Without prejudice, the AO having held that the aforesaid Rs.41,76....
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....t year it had made provisions for expenses of Rs.42,16,77,863 in the nature of legal & professional fees, Advertising and sales promotion, Repairs and maintenance and dealer commission. Such amount has been reversed in the subsequent year and offered to tax in the year of reversal. Based on the above, the assessee submitted that the aforesaid amount, being in the nature of provision, the same should not be disallowed on the ground of non-deduction of taxes at source. The provision made was not credited to any party's or individual account, as it was not clear to whom payment was required to be made. Further, if the assessee was required to deduct TDS, it would not be able to issue Form 16A to the payee as the payee were not known while reating such provisions. 20.5 Reliance in this regard is placed by the ld. A.R. on the decision of Delhi Tribunal in the case of Apollo Tyres Ltd vs. DCIT [2017] 78 taxmann.com 195 wherein it was held that where assessee-company could not ascertain identity of payees while making provision for expenditure under several heads of income at year end, assessee was not required to deduct tax at source on such provision. 20.6 Also, reliance is placed....
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....dicate the issues raised before them after affording opportunity of being heard to the assessee. Copies of the orders of the Tribunal are placed on record. From a careful perusal of the orders of the TPO, we find that he started the proceedings from 28.07.2016 and concluded it on 25.10.2016 within a period of less than 3 months; whereas the DRP started its proceedings on 30.01.2017 and concluded it on 22.09.2017 after taking almost 8 months. Before the DRP the assessee has filed additional evidence on 29.08.2017 but it was not admitted by the DRP having observed that these evidence should have been filed before the TPO. Without looking to the additional evidence, the DRP has adjudicated the issues and confirmed the order of the TPO. In the earlier years also, the DRP did not admit the additional evidence and confirmed the order of the AO and the Tribunal in all these years set aside the order of the DRP and restored the matter to the AO/TPO to re-adjudicate the issues raised before the Tribunal afresh, after affording opportunity of being heard to the assessee. In all these years, the issues are almost common, therefore, we are of the view that if we express our views on any of the....
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....judicate these issues at this stage. Accordingly, following earlier orders passed by this Tribunal in assessee's own case, we set aside all issues to Ld.AO for readjudication of issues in the light of the findings given in earlier years.(Refer Annexure - I) 6. In the result appeal filed by assessee stands allowed for statistical purposes." 21.2 Keeping in view of the above decision, we remit this issue in ground No.19 to the file of AO/TPO for reconsideration in the light the above decision. 21.3. Ground No.20:- We are of the opinion that this issue came for consideration in assessee's own case in IT(TP)A No.2442/Bang/2019 dated 11.12.2020 for the AY 2015-16, wherein held as under: "5. We have perused submissions advanced by both sides in the light of the records placed before us. 6. It has been submitted that Ground no. 1-12 are general in nature and therefore, do not require adjudication. Ld.AR has filed before us a chart detailing manner in which the grounds in present appeal are covered by orders of this Tribunal for earlier assessment years annexed as Annexure-I. As submitted by Ld.AR, we have perused all decisions passed by this Tribunal in as....
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....sis of TDS deduction made by the respective parties. Accordingly, this issue is remitted to the AO to verify the same and grant the eligible TDS to the assessee. 24. The last grounds in this appeal in ground Nos.23 & 24 are with regard to charging of interest u/s 234A & 234B of the Act. According to the ld. A.R., the assessee filed return of income within the time stipulated in section 139(1) of the Act and as such there was no delay in filing the return of income. The levy of interest u/s 234A of the Act is bad in law. In our opinion, this requires to be verified at the end of the AO if the return has been filed within the due date prescribed u/s 139(1) of the Act. If return for this year has been filed within due date u/s 139(1) of the Act, there cannot be any levy of interest u/s 234A of the Act. With regard to levy of interest u/s234B of the Act, which is consequential and mandatory in nature and to be computed accordingly. 25. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 3rd Feb, 2023 ============= Document 1 TPO's FINDINGS: ISSUE NO. 1-INTERNATIONAL TRANSACTIONS AY-2002-03: T....
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....ed by the TPO in his order. The Margin earned by Wipro GE Medical Systems is as under: Total Sales of Trading Less: Local Purchases & Imports from Non Affiliates Import Non Affiliates/Local Purchase Other local costs-Installation and warranty Costs, accessories, etc., 608,430,485 Rs. 3,128,534,719 200,619,363 Less: Paid to affiliates as purchase price 1.749.384.171 2.558.434.019 Margin earned 570,100,700 Margin as % of purchase Margin as % of sales 32.59% 18.22% The margin earned by Advanced Micronics Devices Limited is as under (Rupees in Crores) Trading Sales Less: Purchase of traded goods Margin as % of purchase Margin as % of sales 27.27 21.03 6.24 29.67% 22.88% As the margin earned by the taxpayer is not less than the TPO's comparable margin, the international transactions are treated as at arm's length. AY-2004-05 As per the directions of the Ld CIT(A), the international transactions from the AEs toward purchases consists of 1. Manufacturing segment 2. Services segment 3. Trading segment 66,73,73,612 43,44,23,435 159,83,78,273 The purchases from AEs of Rs....