TaxTMI 
TaxTMI 
TaxTMI 
2023 (5) TMI 1352
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....le 10B(3). c) The Learned AO / TPO / DRP erred in failing to rely on decision of the ITAT in appellant's own case for the years 2002 - 03 to 2004 - 05 and subsequent orders of the ITAT for AY: 2005-06 & 2006-07." 4. Facts of the case are that the assessee M/s.Wipro GE Healthcare Pvt Ltd is a Joint Venture between General Electric Company, USA ("GE'' or "the parent'') and Wipro Limited. The assessee is engaged in contract manufacturing of medical diagnostic imaging equipment, ultrasound systems, patient monitoring and Xray systems ("medical equipment"), provision of engineering and software services and distribution of medical diagnostic imaging equipment, therapy equipment and life sciences products ("medical products"). The following additions have been made by the Assessing Officer on which the assessee is in appeal: Particulars As per Final Assessment order (Rs.) As per Draft Assessment order (Rs.) Transfer Pricing adjustments: 2,19,25,70,261 2,21,03,46,332 Royalty 9,41,83,707 9,41,83,707 Distribution segment 1,24,42,65,469 1,24,42,65,469 Software Development segment 85,35,47,785 87,13,23,856 Interest on delayed trade receivables 5,73,300 5,73,300....
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....gin in the trading segment.'' 4.3 In the impugned year the TPO has neither found a comparable nor has considered royalty as part of international transaction in the trading segment. Thus, without adhering to the orders of the ITAT in assessee's own case, the TPO made the Royalty adjustment in para 23.6 of the TP order extracted as under: "23.6 Regarding the taxpayer's contention that the TPO has to follow a proper benchmarking and the ALP of Royalty cannot be held as NIL, it is stated that, the DRP in its order for the AY 2014-15, in the taxpayer's own case has held that when the taxpayer is not eligible to pay Royalty itself, then to find a comparable as per the taxpayers contention becomes superfluous. Hence the entire amount of Rs. 9,41,83,707/- is treated as adjustment u/s 92CA of the Income Tax Act 1961." 4.4 The TPO in the second round of proceedings for AY 2005-06 & 2006-07 did not follow the direction of the ITAT and upon appeal the Tribunal in IT(TP)A 701 & 702/Bang/2021 dated 05.08.2021 has held as extracted hereunder: "3.7 We have heard the rival submissions and perused the materials available on record. In earlier occasion, assessee came in appeal before th....
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....sessee'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.'' 4.8 The ld. A.R. submitted that the Tribunal in assessee's own case for AY 2017-18 in ITA 291/Bang/2022 dated 15.03.2023 has followed the order for AY 2016-17 in IT(TP)A 285/Bang/2021 dated 03.02.2023. Relevant portion extracted hereunder: "5. We have heard both the parties and perused the materials available on record. After hearing both the parties, we are of the opinion that this issue came for consideration before this Tribunal in assessee's own case in assessment year 2016- 17 in ITA No. 285/Bang/2021 dated 03.02.23, wherein held as under:- ....... 5.1 In view of the above decision of the Tribunal in assessee's own case, we allow the ground taken by the assessee. This ground of assessee is allowed." 4.9 In view of the above, the ld. A.R. requested that the orders of the Tribunal for AY 2005-06 & AY 2006-07 in IT(TP)A 701 & 702/Bang/2021 dated 05.08.2021, for AY 2012-13 in IT(TP)A 703/Bang/2021 dated 07.10.2022, for AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 an....
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....ibility and without the trademark and trade name of the GE company the products sold by WGE will be a generic product which will neither command the price it is currently sold at nor have any buyers in the highly technology driven precision industry and also in gaining demand for its product. Therefore, as Wipro GE uses the 'GE' trademark and tradename which is owned by GE Company, Wipro GE is able to sell its products in the Indian market and meet the growing demand in the medical equipment industry. The Assessee also submits that, the Assessee is able to sell its products because of the GE brand associated with the products. The customer places its order with the Assessee and the Assessee in turn places the orders with the AEs to meet the customers demand. The prices are negotiated between the Assessee 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 ....
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....hat in the case of Sony Ericson Mobile Communication India Pvt. Ltd. it has been held that 'it would not be proper and appropriate to apply the TNMM method in case of Indian assessed is engaged in manufacturing activities and distribution and marketing of imported and manufactured products as interconnected transactions. Import of raw material for manufacture would possibly be an independent transaction viz., marketing and distribution activities or functions. 'A careful perusal of the judgment of the Hon'ble jurisdictional High Court divulges that though a number of closely linked transactions can be aggregated, but, the transactions which are not closely related to each other would require determination in a segregated manner. 4.6 Further, the ld. TPO observed that the Punjab &..Haryana High 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....
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....perused the materials available on record. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in assessee's own case in assessment years 2005-06 & 2006-07 in ITA Nos. 701&701/Bang/2022 dated 5.8.2022, wherein held as under: 3. Ground No. 5 & 6 are with regard to TP adjustment of Rs. 1,74,04,730/- towards royalty payment. 3.1 This issue was considered by this Tribunal on earlier occasion in assessee's own case and this Tribunal in IT(TP)A No. 40/Bang/2011 for the assessment 2005-2006 and the Tribunal vide order dated 21.4.2017 set aside this issue to the file of AO/TPO for fresh consideration, of which the TPO/AO sustained addition of Rs. 1,74,04,730/-. Against this assessee is in appeal before us. 3.2 The assessee has 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 monito....
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.... Royalty/ trademark Net sale Mar gin over sale 1 Advanced Micronic Devices Ltd. 0 0 2684.7 5 lakhs 0% Average 0% The computation of ALP of the royalty payment is made using CUP/CUT method using the above-mentioned comparable as follows:'' 3.5 From the above, it can be seen that the AO has chosen M/s Advanced Micronic Devices Ltd as a comparable which has not incurred any royalty payment as the company has no trademark licensed to it. Due to lack of comparable transaction, ex-facie the company cannot be considered as a comparable with the assessee. The adoption of CUP method is also not as per law in the absence of comparable transaction. Hence in the impugned case, there is no comparable identified 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....
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....ition of Rs. 2,42,33,641/- u/s 37 of the Act by holding that it was wholly and exclusively incurred for the purpose of business. Facts of this case are that this issue has been set aside by the Tribunal vide order cited (supra) for reconsideration by the AO/TPO. On set aside assessment the addition has been sustained by AO. Since the assessee has not substantiated those expenses as incurred wholly and exclusively for the purpose of business. Hence, the assessee once again in appeal before us. 4.1. The Ld. A.R. submitted that the impugned issue was set aside by the Tribunal in IT(TP)A 40/B/11 dt.21.04.2017 to the AO for reconsideration and adjudication. The AO vide his notice dt.11.11.2019 sought details of dealer commission. 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 disall....
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....cording to the assessee, it is wholly and exclusively incurred for the purpose of business. Further, assessee submitted the list of payments made to various parties and also furnished the details of deductions of TDS at the time of payment of commission to various dealers. It was also noted that in the case of receipt of this commission by those parties, the department has accepted it. However, in the hands of assessee it was treated as not incurred by the assessee, which is incorrect. Further, the books of accounts of the assessee is not rejected by challenging the entries in the books of accounts. On this point also, we are of the opinion that the claim of assessee is to be allowed as genuine. Accordingly, we allow this ground 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." 5.1 In view of the above decision of the Tribunal in assessee's own case, we....
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.... DRP erred in failing to rely on decision of the ITAT in assessee's own case for the years 2002 - 03 to 2005 - 06, subsequent orders of the ITAT for other assessment years. n) The Learned AO / TPO / DRP erred in adopting TNMM as the MAM ignoring the findings of ITAT in the appellant's own case for earlier years and accepted by department on the same issue. o) 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. p) The Learned AO/TPO/DRP erred in not carrying out the adjustments like risk, working capital, etc., as required under law as well as the facts. q) The learned AO/TPO/DRP erred in not considering the after sales support service segment while determining operating margin of distribution segment. r) The learned AO/TPO/DRP erred in rejecting the corroborative analysis provided by the appellant. s) The Learned AO/TPO/DRP erred in applying the trading income threshold of 50% to sales to select comparable companies. t) The learned AO/TPO/DRP erred in applying the Related party transactions threshold of 25% to revenues to select comparable companies. u) The learned AO/TP....
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....n 20.10.2021. The assessee filed its written submissions before DRP on 25.05.2022 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 16.06.2022 rejecting the grounds. The AO passed the final assessment order u/s 143(3) rws 144C(13) of the Act dated 25.07.2022 retaining the TP adjustment in Distribution segment of Rs. 124,42,65,469/- as per draft assessment order. 8.3 The ld. A.R. submitted that 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. 1057,23,13,092/- has not been adhered to by the TPO. The TPO yet again has made the adjustment on domestic sales of Rs. 2207,96,53,929/- which is not an international transaction. 8.4 The ld. A.R. further submitted that the TPO/DRP have adopted TNMM as the MAM to benchmark the transaction. It was submitted to the TP....
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....urther 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 this issue that the adjustment on account of transfer pricing can be made only in respect of the international transactions. In the case on hand, the international transactions in trading segment is confined only to the purchases made from the AE. Since there are other transactions of import and procurement from domestic market therefore the adjustment cannot be made by considering the entire trading segment of the assessee. Thus on principle, we do not find any error on these points however, the CIT (Appeals) has undertaken to recompute the margins of the comparable as well as assessee by considering the fresh material which was not available with the TPO/A.O. which it is not permissible to the CIT (Appeals) to do this exercise of recomputation without giving an opportunity to the TPO/A.O. The proper course of action on the part of CIT (Appeals) would have been to ask the TPO/A.O. for remand report by considering all the r....
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....in IT(TP)A 703/Bang/2021 dated 07.10.2022 has dealt with this issue and the operative portion is extracted hereunder: "30. We have heard both the parties and perused the materials available on record. The main grievance of the Ld. A.R. on this issue is that AO/TPO/DRP has not considered the earlier decision of Tribunal in A.Y. 2002-03 to 2004-05, 2005-06, 2006-07, as such order passed by the lower authorities is bad in law. The Judicial discipline requires consistency in its proceedings. The AO/TPO what criteria followed in earlier year for determining the ALP, the same to be followed in next assessment year unless and until there is a change in facts of the case. In the present case, the Ld. D.R. not brought 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 2....
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..... a) The Learned AO / TPO / DRP erred in making adjustment towards the Arm's Length Price difference in the Software Development Segment amounting Rs. 85,35,47,785/-. b) The Learned AO / TPO / DRP erred in selecting the comparables. The selection of comparables does not confirm to the I.T. Rules. Further it also does not comply with the case laws on this point. c) The Learned AO / TPO / DRP erred in not carrying out the adjustments like risk, working capital, etc., as required under law as well as the facts. d) The Learned AO / TPO / DRP erred in wrongly adopting the financial results of the assessee. e) The Learned AO/TPO/DRP have failed to identify a comparable in terms of Rule 10B(3). f) The Learned AO/TPO/DRP erred in rejecting certain comparables on unsustainable and untenable grounds/reasons while considering comparables which failed to meet the filters /criteria as required under law. g) The Learned AO / TPO / DRP erred in not granting the variances deduction envisaged in the Act and Circular. h) The Learned AO/TPO/DRP have failed to apply the provisions of Rule 10B(4)&(5) and 10CA(2) while selecting the criteria and filters. i) The learned A....
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....f 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 and infrastructure software across all technologies and home grown or purchased software. It also includes expertise in various technologies, implementation, monitoring and support of IT infrastructure and software solutions. Wipro GE also carries on operations by way of providing online support and developing support platforms. 12.2 Wipro GE provides engineering services including valueengineering services for Wipro GE product design and solving Wipro GE global's customer related design problems and issues. The services are in the nature of providing engineering drawing/designs (both 2D and 3D models) by using software like CAD, CAM etc. Wipro GE does not create any engineering software but utilizes the engineering software to generate designs/drawings. 12.3 The Margin of the Assessee as computed by the TPO in the TP Order Particulars Rs. Operating revenue 937,19,25,706 Operating Cost 846,47,95,936 Op....
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....Mindtree Ltd. 24.17 9 R Systems International Ltd. 24.4 10 Persistent Systems Ltd. 26.17 11 Tata Elxsi Ltd. 26.19 12 Infobeans Technologies Ltd. 26.44 13 Aptus Software Labs Pvt. Ltd. 26.46 14 Nihilent Ltd. 29.82 15 OFS Technologies Ltd. 29.93 16 Cygnet Infotech Pvt. Ltd. 30.19 17 Infosys Ltd. 39.5 18 Threesixty Logica Testing Services Pvt. Ltd. 41.94 19 Cybage Software Pvt. Ltd. 57.82 20 Consilient Technologies Pvt. Ltd. 65.14 35th Percentile 21.24 Median 26.18 65th Percentile 26.46 12.7 The Computation of arm's length price by the TPO and the adjustment made is as under: Particulars Rs. Arm's length price 1024,32,49,562/- Price received 937,19,25,706/- Shortfall 87,13,23,856/- 12.8 The adjustment made by the TPO of Rs. 87,13,23,856/- 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 25.09.2021. The assessee filed objections before DRP on 20.10.2021. The assessee filed its written submissions before DRP on 25.05.2022 seeking inclusion and exclusion of comparables interalia on various filters. The DRP passed its directions....
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....td. TPO & Assessee 6906.4 18.94 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page para 7.3.1 634, 10 Great Software Laboratory Pvt. Ltd. TPO 138.27 19.73 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page para 7.3.1 634, 11 Elveego Circuits Pvt. Ltd. TPO 6.64 20.19 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 634, para 7.3.1 12 Black Pepper Technologies Pvt. Ltd. TPO 46.56 20.62 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 634, para 7.3.1 13 L & T Technology Services Ltd. TPO & Assessee 3,747.00 20.8 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 634, para 7.3.1 14 Mindtree Ltd. TPO 5,325.00 21.21 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt....
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.... 291/B/2022 dt. 15.03.2023 PB-III, page 937 to 939, para 9.10, 9.11 & 10 23 Threesixty Logica Testing Services Pvt. Ltd. TPO 27.41 36.58 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 634, para 7.3.1 24 Infosys Ltd. TPO 61,941.00 37.38 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 634, para 7.3.1 25 Cybage Software Pvt. Ltd. TPO 737.41 56.81 Functionally different and Abnormal High Margins Rejected by the Hon'ble ITAT in assessee's own case for AY 2016- 17 in ITA 285/B/2021 vide order dated 03.02.2023 based on the decisions in Optiva India Technologies Pvt Ltd - ITA PB-III, page 871 to 875, para 13 Rejected by the Hon'ble ITAT in assessee's own case for AY 2017- 18 in ITA 291/B/2022 dt. PB-III, page 941, para 9.14 & 10 14.1 On the issue of turnover filter, the TPO has excluded companies having turnover of less than 1 crore. It is the view of the TPO in para 16 of the TP order that t....
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....ld be eliminated from the list of comparables as the assessee's turnover is Rs. 937.19 crores. 14.4 The assessee is seeking exclusion of the following 16 comparables on account of turnover filter. Sl No Company name Turnover (in Crores) 1 Infomile Technologies Ltd. 3.25 2 Harbinger Systems Pvt. Ltd. 72.87 3 Taal Tech India Pvt Ltd 104 4 Tech Mahindra Ltd 2438.37 5 Larsen & Toubro Infotech Ltd. 6906.4 6 Great Software Laboratory Pvt. Ltd. 138.27 7 Elveego Circuits Pvt. Ltd. 6.64 8 Black Pepper Technologies Pvt. Ltd. 46.56 9 L & T Technology Services Ltd. 3747 10 Mindtree Ltd. 5325 11 Aptus Software Labs Pvt Ltd 3.57 12 Acewin Agritech Ltd. 9.99 13 Wipro Ltd. 4327 14 Infobeans Technologies Ltd. 80.12 15 Threesixty Logica Testing Services Pvt. Ltd. 27.41 16 Infosys Limited 61941 14.5 The turnover of the above companies are far higher/lower than that of the assessee company. Since the assessee falls under category of companies having turnover between Rs. 200 crores to Rs. 2000 crores, the above comparables needs to be excluded. 14.6 Regarding the comparables Persistent Systems Ltd and Nihilent Ltd. the assessee had ob....
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....the assessee's own case in AY 2008-09, we direct exclusion of M/s Persistent Systems Ltd. ...... 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. 17.9 In respect of Nihilent Ltd., Infobeans Technologies Ltd. and Aspire Systems (India) Pvt. Ltd., Hon'ble Mumbai Tribunal in case of Red Hat India Pvt. Ltd. vs. Addl. CIT (supra) observed as under: "Comparable Sought to be excluded by the assessee Aspire System India Pvt. Ltd. (Aspire) ...... "Nihilent Analytics Ltd. (Nihilent) 44. The assessee sought exclusion of Nihilent on ground of its functional dissimilarity vis-à-vis assessee. We have examined the website information of Nihilent, made available by the assessee at page No. 405 of the paper book, wherein it is mentioned that it is engaged in providing advanced analytics, artificial intelligence, blockchain, business intelligence, data science, cloud services etc. 45. Perusal of the disclosure of enterp....
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.... in assessee's own case for AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 considering the above decision in Sandisk has rejected Persistent Systems Ltd. and Nihilent Ltd as comparables. The Tribunal in assessee's own case for AY 2017-18 in ITA 291/Bang/2022 dated 15.03.2023 has rejected these companies as comparables. In consideration of the same, we direct the ld. DRP to remove the companies Persistent Systems Ltd. and Nihilent Ltd. from the list of comparables for the impugned year. 14.8 Regarding the comparable Tata Elxsi Ltd., the assessee had objected before the TPO and DRP that the same is not functionally comparable. However, the TPO and DRP rejected the objections of the assessee. The ld. A.R. submitted that the TPO in assessee's own case for earlier assessment years 2013-14 and 2016-17 has rejected Tata Elxsi as functionally dissimilar to that of the assessee. Further the company Tata Elxsi has been rejected as functionally dissimilar in a catena of decisions till date for all the assessment years. Recently, the Hyderabad Tribunal in the case of ADP Pvt Ltd vs DCIT - ITA 227 & 228/Hyd/2021 dt.03.02.2022 for AY 2016-17 has rejected Tata Elxsi as a comparable. Re....
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.... the case of Infor (India) (P) Ltd vs. ACIT in ITA No. 2307/Hyd/2018, the Coordinate Bench of the Tribunal has considered similar objections of the assessee therein and has held that these two companies along with Thirdware Solutions Ltd is not comparable to the software development company like the assessee before us. The relevant portions has been reproduced by us in the above paras. Respectfully following the same, these two companies are also directed to be excluded from the final list of ITA No 2233 of 2018 ADP Private Ltd Hyderabad comparables. Thus, assessee's ground of appeal No. 2 is partly allowed." 5.3 In the said decision, it has been held that the company is functionally different and engaged in diversified activities and since the revenue could not controvert the said decision nor brought any contrary decision, following the same, we direct the AO/TPO to exclude this company from the final list of comparables.'' 14.9 The Tribunal in assessee's own case for AY 2017-18 in ITA 291/Bang/2022 dated 15.03.2023 considering the above decision in ADP Pvt Ltd has rejected Tata Elxsi as comparable. In consideration of the same, we direct the ld. DRP to rem....
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....to remove the company Cybage Software Pvt Ltd. from the list of comparables for the impugned year. 14.13 The final list of comparables after considering the above arguments of ld. A.R. are as hereunder: Sl. No Name of the Comparable company (OP/OC)% before WC Adjustment 1 Issumation Technologies Pvt Ltd 2.37 2 Maveric Systems Ltd 6.82 3 Axiscades Engineering Technologies Ltd 8.59 4 Exilant Technologies Pvt Ltd 17.17 5 Sagarsoft (India) Ltd. 21.92 ARITHMETIC MEAN 11.37 14.14 The aforesaid margins are arrived by the TPO without providing for working capital adjustment. The working capital adjustment has not been allowed by the TPO for reasons mentioned in para 18 of the TPO order. The Tribunal in a host of cases has allowed the working capital adjustment on actual basis. Reference is drawn in the case of EIT Services India Pvt Ltd vs JCIT in ITA 3399/Bang/2018 dt.28.09.2021 wherein the Tribunal has held as under: "4.4 We have perused submissions advanced by both sides in light of records placed before us including the decision relied upon by Ld.AR in case of Huawei Technologies India Pvt. Ltd. (supra). 4.5 A reading of Rule 10B(1)(e)(iii) of the Rul....
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.... payables. An amount of Rs. 141 lacs is outstanding as receivable as on 31 March 2018. The assessee also highlighted that the total payables with these parties itself is Rs. 248 lacs. The snapshot of the total receivables vs. total payable as per the Form 3CEB is tabulated below- Particulars Amount as per Form 3CEB Trade Receivables 14,19,19,482 Trade Payables 24,84,58,382 Difference 10,65,38,900 16.1 Thus the ld. A.R. submitted that there is no receivable by the assessee, on the contrary it is the assessee who is due which is evident from the table above. The argument of the assessee that the issue of interest adjustment arises only on a net basis and if the net is negative as in this case no interest should be charged has been rejected by the TPO on a very unsustainable and perfunctory reason. Even the ld. DRP has not appreciated the submissions of the assessee and rejected the contentions. The ld. A.R. submitted that ITAT Hyderabad in the case of Satyam Venture Engg. Services Pvt. Ltd vs ACIT in ITA Nos. 431 & 432/Hyd/2015 dated 30.11.2015 has held as under: "18. We have heard the arguments of both the parties and perused the material on record as well ....
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....both the parties and perused the material on record. The Id. AR fairly conceded that outstanding amount on account of sales/services billed to AE akin to loan advanced by assessee is an international transaction. As held by the Hon'ble Delhi High Court in the case of Avenue Asia Business Advisors (P.) Ltd. v. DCIT [2017] 398 ITR 120 (Del), there should be TP adjustment on this count after making proper TP study by the TPO after considering the period of credit enjoyed by the comparables and also applicable LIBOR rate in the place of AEs for benchmarking the rate of interest to arrive at the ALP. With these observations, we remit the issue in dispute to the file of AO/TPO to benchmark the interest rate in the light of the decisions cited by Id. DR. Further, we make it clear that the TPO should compute the interest only for the relevant assessment year after going through the relevant agreements entered by the assessee with AEs while computing the ALP." 18.1 In view of the above, we remit this issue to the file of AO/TPO for fresh consideration and interest should be charged on net amount of receivables/payables only. 19. Ground No. 16 is with regard to disallowance of le....
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....ndia) Pvt Ltd vs JCIT in ITA 852 & 831/B/2017 dt.29.06.2022 has allowed the lease payment on finance lease as revenue expenditure and negated the contention of the department of considering the payment as capital expenditure. Relevant portion is extracted hereunder: "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 computation of total income which is at page 52 of the assessee's PB that the assessee has added to the profi....
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....f the Act Rs. 10,08,65,471/- be deleted in the interest of justice. 21. The ld. D.R. relied on the orders of the lower authorities. 22. After hearing both the parties, we are of the opinion that this expenditure has been disallowed since the assessee has not produced the details of the expenditure inspite of giving sufficient opportunity to the assessee. Before us, the assessee prayed for remitting the issue to the file of AO to examine the issue in the light of earlier decision in assessment year 2017-18 in assessee's own case in ITA No. 291/Bang/2022 dated 15.3.2023, wherein held as under: "11. The ld. A.R. submitted that during the course of assessment proceedings the AO vide his show cause notice dt.03.02.2021 asked to substantiate the payment of Rs. 18,69,97,941/- towards lease payment on financial lease. The assessee vide reply dt.08.03.2021 provided the explanation. However, the AO disallowed the sum of Rs. 18,69,97,941/- u/s 37 of the Act holding the expenditure as capital in nature which was confirmed by the DRP. 11.1 The assessee explained that it has claimed deduction of Rs. 18,69,97,941/- towards lease payment on assets taken on lease who....
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....d 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 computation of total income which is at page 52 of the assessee's PB that the assessee has added to the profit as per the P&L A/c the finance charges on lease and reduced lease rentals paid. Therefore, whatever be the position with regard to the books of account in compliance with AS-19; as far as computation of the total income for the purpose of the Act is concerned, the assessee has made claim only for deduction on account of lease rentals paid. There is no basis for the Revenue authorities to come to a conclusion that the assessee has adopted a colourable device with a view to gain tax advantage. In this regard, we find that the AO as well as the CIT (A) have quoted various clauses of the lease agreement out of context, ignoring the main clause in the agreement which clearly lays down that the assessee is only a lessee and the lessor is the owner of the assets leased. In such a scenario, the conclusion of the Revenue ....
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....der: 'The above dated notice has been served on the assessee on the same day at 13.19.33 IST seeking compliance by 26.12.2019 at 4.00pm, thus giving hardly any time for the assessee to comply with the notice as 25th being Christmas holiday and 26th is the only working day available for the assessee to comply 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 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 t....
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.... learned CIT (A) and the AO have erred in law and on facts in disallowing an amount of Rs 25,500,765 and Rs 77,520,788 pertaining to lease rentals paid by the Appellant on account of assets taken on lease being equipment and motor car respectively by treating the same as capital in nature. 6.2. Without prejudice to the above, 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 ....
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.... in the books of the lessee (ie finance lease): - The monthly instalments paid by the lessee are towards principal and interest charges components - - The interest component is booked as finance charges in the books of accounts; and The principal amount is reduced from 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....
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....unt cannot be claimed as revenue expenditure; > The assessee has not deducted tax on the lease rental paid under section 1941 of the Act. Therefore, lease rentals are disallowed under section 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.....
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....y allowed. 15.1 In view of the above, taking a consistent view, we remit this issue to the file of AO/TPO on similar lines. This ground of appeal is partly allowed." 13.1 In view of the above order of the Tribunal, taking a consistent view, we remit this issue to the file of AO/TPO on similar directions. This ground of appeal is partly allowed." 22.1 In view of the above, we remit the issue in dispute to the file of AO/TPO on similar directions. 23. Ground No. 17 is with regard to disallowance of Rs. 36,52,52,459/- u/s 37 of the Act under the head "Any other amount allowable as deduction", which is reproduced below:- 17. "The Learned AO erred in disallowing the claim of deduction under the head 'Any other amount allowable as deduction' amounting to Rs. 36,52,52,459/- under section 37 of the IT Act overlooking the details and clinching evidence submitted by the assessee. The Learned AO further erred in ignoring specific direction of the DRP and to that extent it amounts to non-adherance to the judicial discipline. The AO erred in treating the direction of the DRP as picayune in nature." 24. Facts of the case are that during the course of assessmen....