TaxTMI 
TaxTMI 
2023 (5) TMI 1352
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....O/DRP have failed to identify a comparable in terms of Rule 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 Develo....
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....ational transactions under trading segment and then determine the ALP by considering the royalty as part of operating cost for the purpose of computing the margin 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 ....
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....his Tribunal in assessee's own case in assessment years 2005-06 & 2006-07 in ITA Nos. 701&701/Bang/2021 dated 5.8.2021, wherein held as under: ......... 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.'' 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.....
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.... selling price of products and services for using the licensed name of the AE in the applicable jurisdiction. The trademark is used in packaging, advertising, instruction book and other literature relating to the product. The trademark and the trade name of the GE company helps WGE add credibility 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 equip....
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....n in question was to be determined separately under CUP method. Even though in transfer pricing proceedings, aggregation of related transactions is permissible, -yet there is no rule that all related and unrelated transactions can be combined and shown at ALP under TNNM entity level." 4.5 The ld. TPO observed that 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 f....
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....up services and goods are utilized by the assessee for the manufacture of the final product, cannot be treated decisive to consider such separate transactions as a single transaction. 5. The ld. DRP confirmed the findings of the ld. TPO. Against this assessee is in appeal before us. 6. We have heard the rival submissions and 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 roya....
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....of the royalty payment. Since the TPO has chosen the company, M/s Advanced Micronic Devices Ltd., as a comparable to the taxpayer, in the trading segment, the same is considered as comparable for the royalty transaction also. 4.6 The R&D expenses of the comparable & royalty over net sale is considered as per the annual report for the current year is: Sl No Company name R&D Exp 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 r....
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....nsider this royalty payment as an operating cost and has to verify whether the margin of assessee is higher than the margin declared by the comparable company i.e. M/s. Advance Micronic Devices Ltd. and decide accordingly. In view of this, the issue in dispute is set aside to the file of AO/TPO for the limited purpose for comparison of margins with the comparable company and decide accordingly. 4. Next ground No. 8 is with regard to sustaining addition 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 deale....
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....ishing the identity and the genuineness of the transaction. In view of the circumstances, Ld. DRP held that the assessing officer has correctly held that the dealer commission amounting to Rs. 2,42,33,641/- has not been incurred wholly and exclusively for the purpose of business. 4.4. We have heard the rival submissions and perused the materials available on record. The assessee claimed that it has paid a sum of Rs. 2,42,33,641/- towards commission to dealers and according 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. Accord....
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....ns made by the 1. ADS Diagnostic Ltd 2. Pika Medical Pvt Ltd 3. Ark Diagnostics Bangalore Pvt Ltd 4. Hicks Thermometers (India) Ltd l) The AO/TPO/DRP erred in considering the following comparables overlooking/rejecting the objections made by the appellant. 1. MDD Medical Systems India (Pvt.) Ltd. 2. Frontline Electro Medical Ltd. 3. Schiller Healthcare India Pvt. Ltd. 4. Hospimax Healthcare Pvt. Ltd. 5. Dental Avenue (India) Pvt. Ltd. 6. IDS Denmed Pvt. Ltd. 7. Peerless Biotech Pvt. Ltd. 8. Narang Medical Ltd. m) 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 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) ....
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....33 5. Dental Avenue (India) Pvt. Ltd. 8.99 6. IDS Denmed Pvt. Ltd. 9.5 7. Peerless Biotech Pvt. Ltd. 11.31 8. Narang Medical Ltd 13.30 35th Percentile 7.31 Median 8.16 65th Percentile 9.50 Computation of arm's length price by the TPO and the adjustment made: Operating Revenue (OR) Rs.2207,96,53,929/- Operating Cost (OC) Rs.2152,22,19,637/- Median Margin of Comparable set (M) 8.16% Arm's Length Price (ALP) = (1-M)*OR Rs.2027,79,54,168/- Price Paid Rs.2152,22,19,637/- Adjustment u/s 92CA Rs.124,42,65,469/- 8.2 The ld. A.R. submitted that the adjustment made by the TPO of Rs. 124,42,65,469/- in the Distribution 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 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....
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....tional 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 ....
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....pugned year the AE purchases are Rs. 1057,23,13,092/- in the trading segment. The assessee's margin for the impugned year as calculated by applying RPM method and considering AE purchases as the international transaction in the manner directed/accepted by the Tribunal and lower authorities in earlier years is hereunder: 8.10 In line with the treatment given to AY's 2002-03 to 2004-05, AY 2005-06 & 2006-07 the margin of the assessee has been calculated at 86.80%. As mentioned supra, the TPO for the impugned year has considered 8 comparables at a median margin of 8.16%. Since the assessee's margin is higher than that of the comparables chosen by the TPO, the ld. A.R. argued that no adjustment is required in the trading segment. 9. The ld. D.R. relied on the orders of the lower authorities. 10. We have heard the rival submissions and perused the materials available on record. The Tribunal in assessee's own case for AY 2012-13 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 t....
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....ailable on record. After hearing both the parties, we are of the opinion that same issue came for consideration before this Tribunal in assessee's own case in AY 2016-17 in IT(TP)A No. 285/Bang/2021 dated 3.2.2023 wherein held as under: .......... 8.1 In view of the above order of the Tribunal, the issue is remitted to AO/TPO on similar directions. The ground of appeal is partly allowed for statistical purposes.'' 10.3 In view of the above, since the facts and law are the same and on the parity of reasoning the TP adjustment in the trading segment is to be deleted. Alternatively, the direction given by the Tribunal for AY 2012-13 in IT(TP)A 703/Bang/2021 and AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 and for AY 2017-18 in ITA 291/Bang/2022 dated 15.03.2023 extracted supra be followed for the impugned year as well. 11. Ground No. 14 (a) to 14(p) are with regard to Software Development segment at Rs. 85,35,47,785/-, which reads as follows: 14. 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 ....
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....e by the appellant. 1. In fomile Technologies Ltd. 2. Harbinger Systems Pvt. Ltd 3. Taal Tech India Pvt. Ltd. 4. Exilant Technologies Pvt. Ltd. 5. Tech Mahindra Ltd. 6. Larsen & Toubro Infotech Limited 7. Great Software Laboratory Pvt. Ltd. 8. Elveego Circuits Pvt. Ltd. 9. Black Pepper Technologies Pvt. Ltd. 10. L &, T Technology Service Ltd. 11. Mindtree Ltd. 12. Aptus Software Labs Pvt. Ltd. 13. Acewin Agriteck Ltd. 14. Persistent Systems Limited 15. Wipro Ltd. 16. Tata Elxsi Limited 17. thfobeans Technologies Limited 18. Nihilent Technologies Limited 19. Three-sixty Logica Testing Service Pvt. Ltd 20. Infosys Limited 21. Cybage Software Private Limited 12. Facts of the case are that the assessee is engaged in providing software services and technology solutions to its parent for products manufactured worldwide. 12.1 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 Gl....
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....oubro Infotech Ltd 18.24 Accepted. 12. Maveric Systems Ltd 0.19 Failed Export filter, hence rejected 13. O F S Technologies Ltd 22.38 No data available, hence rejected 14. R Systems International Limited 24.17 Different FY; Hence rejected 15. Rheal Software Ltd. -4.26 Failed persistent loss filter; hence rejected. 16. Sagarsoft (India) Ltd 5.89 Functionally different: hence rejected 17. Sasken Technologies Ltd 6.52 Failed Export filter, hence rejected 18. Satyam Venture Engineering Services Pvt Ltd 16.35 Failed Export filter, hence rejected 19. Celstream Technologies Pvt. Ltd 4.84 Failed persistent loss filter; hence rejected. 20. Evoke Technologies Limited 4.04 Failed Export filter, hence rejected 21. Exilant Technologies Limited 20.86 Accepted. 22. Tata Elxsi Ltd 27.19 Accepted. 12.5 Out of the 22comparables selected by the assessee, the TPO accepted 7comparables and rejected 15 comparables. 12.6 The final list of Comparables selected by TPO and their margins are as under: Sl No. Name of the comparable OP/OC (%) Weighted ....
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....rities. 14. We have heard the rival submissions and perused the materials available on record. Before the Tribunal the assessee is not seeking for inclusion of any of the comparables. The assessee has filed a chart seeking exclusion of comparables on various grounds. The same are outlined hereunder. Sl. No. Name of company Comparable of Turnover (in crs) OP/OC % Comparable margin Rejected as comparable On Grounds Rejected as comparable in Page/ Para 1 Issumation Technologies Pvt Ltd Assessee 2.37 2.37 Accepted 2 Maverick Systems Ltd. Assessee 6.82 6.82 Accepted 3 Axiscades Technologies Ltd. TPO & Assessee 8.59 8.59 Accepted 4 Infomile Technologies Ltd TPO 3.25 9.89 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, 5 Harbinger Systems Pvt. Ltd. TPO & Assessee 72.87 11.65 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 252....
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.... TPO 9.99 24.51 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 18 Persistent Systems Ltd. TPO 1,792.35 24.98 Functionally different 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 decision in SanDisk India Device Design Centre Pvt. Ltd - IT(TP)A 288/Bang/2021 dt.30.06.2022 PB-III, page 866 to 875, para 11.16 to 13.1 Rejected by the Hon'ble ITAT in assessee's own case for AY 2017-18 in ITA 291/B/2022 dt. 15.03.2023 PB-III, page 937 to 939, para 9.10, 9.11 & 10 19 Wipro Ltd. TPO 4,327.00 26.83 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 20 Tata Elxsi Ltd. TPO & Assessee 1,361.33 28.24 Functionally different Rejected by the Hon'ble ITAT in assessee's own case for AY 2017- 18 in ITA 291/B/2....
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....emini India Pvt Ltd vs ACIT in ITA 7861/Mum2011. The DRP has held that comparables cannot be excluded on the ground of size and level of operations. 14.2 The ITAT Bangalore in the case of Fulcrum Fund Services (India) Pvt Ltd vs ITO in IT(TP)A 2521/B/2017 dt.12.04.2019 by considering wide range of decisions on this issue including that of Chryscapital Investment Advisors India (P) Ltd vs DCIT (held as obiter dicta) and the other decisions mentioned supra has held that the law laid down in Genisys Integrating System (India) Pvt Ltd. V. DCIT, ITA No. 1231/Bang/2010 dt.05.08.2011 [152 TTJ 215/53 SOT 159] is the correct law on the application of turnover filter. In the case of Genisys the Tribunal has held that companies having turnover in the range of Rs. 1crore to Rs. 200 crores cannot be compared with companies having turnover above Rs. 200 crores. The relevant observations of the Tribunal in the case of Fulcrum is extracted as hereunder: "7.3. We have given a careful consideration to the rival submissions. The Bangalore Bench of the ITAT had an occasion to deal with an identical issue in the case of DCIT Vs. M/s. Northern Operating Services (supra), ....
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....P rejected the objections of the assessee. The Bangalore Tribunal in the case of SanDisk India Device Design Centre Pvt. Ltd in IT(TP)A 288/Bang/2021 dt.30.06.2022 has directed to exclude both the comparables Persistent Systems Pvt. Ltd. and Nihilent Ltd from the list on the ground of functional dissimilarity. Relevant portion is extracted hereunder: "17.7 He placed reliance on the decision of Coordinate Bench of this Tribunal in case of OLF (India) Software Pvt. Ltd. vs. ACIT (supra) wherein this Tribunal following its decision in case of LSI India research development (P.) Ltd. vs. DCIT reported in [2021] 124 taxmann.com 83, excluded Persistent Systems Ltd., L&T Infotech Ltd., Thirdware Solutions and Infosys Ltd. by observing as under: "3.2 This Tribunal in LSI India research development (P.) Ltd. v. DCIT (supra) observed in respect of persistent systems, L & T Infotech, Thirdware Solutions, Infosys Ltd. as under: 16. As far as the challenge by the assessee on exclusion of aforesaid 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-....
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....rise's reportable segment explanatory available at page No. A406 of the paper book shows that Nihilent is engaged in software development and consultancy, engineering services, web development and hosting and subsequently diversified itself into the domain of business analytics and business process outsourcing and financials of Nihilent available at page No. A304, A405-A406 of the paper book shows that Nihilent has only one business segment and in the absence of segmental financials, as it is into diversified business, this company cannot be a valid comparable vis-à-vis assessee, who is a low risk entity working on cost + 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 sign....
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.... comparable. Relevant portion is extracted hereunder: "5. Tata Elxsi Ltd. (Segmental): The ld. AR of the assessee submitted that this company renders high-end KPO services i.e. digital content creation, technology and product engineering, chip design, embedded production design, visual computing lab, AI design services. He further submitted that this company earns revenue from sale of trades goods of Rs. 33.74 crore and the same corroborated by existence of inventory in P&L statement about Rs. 2.89. He, therefore, submitted that this company may be excluded as comparable in the comparable list for determining ALP. He relied on various decisions of ITAT including the decision in ITA No. 2233/Hyd/2018 for the assessment year 2014-15 wherein this company is excluded as comparable. 5.1 The ld. DR, on the other hand, besides relying on the orders of revenue authorities, submitted that this company Tata Elxsi is engaged in rendering of software services and, hence, functionally comparable to the assessee company. 5.2 We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authoriti....
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.... Ltd has rejected Tata Elxsi as comparable. In consideration of the same, we direct the ld. DRP to remove Tata Elxsi Ltd. from the list of comparables for the impugned year. 14.10 Regarding the comparable Cybage Software Pvt. Ltd., the assessee had objected before the TPO and DRP that the same is not functionally comparable, lacks segmental information and has extra ordinary high margins. However, the TPO and DRP rejected the objections of the assessee. The Pune Tribunal in the case of Optiva India Technologies Pvt Ltd in ITA 194/Pun/2021 dt.21.07.2022 has directed to exclude comparable Cybage Software Pvt. Ltd on the ground of functional dissimilarity. Relevant portion is extracted hereunder: "Cybage Software 17.1 The assessee contends that this company is mainly Onsite service provider whereas the assessee is offsite service provider and therefore, functionally different. Further, there is incorrect reporting figures which are unreliable. This company is product development as well as R & D Intensive Company. The arguments of the assessee were not accepted by the A.O/T.P.O and the company was held to be comparable. The ld. A.R demonstrated through Annual Repo....
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.... 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 Rules read with sec. 92CA of the Act, would clearly shows that the net profit margin arising in comparable uncontrolled transactions has to be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, which could materially affect the amount of net profit margin in the open market. 4.6 Chapters I and III of OECD Transfer Pricing Guidelines contain guidelines on comparability analyses for transfer pricing purposes. Guidlines on adjustments to be provided is found in paragraphs 3.47-3.54 and in the Annex to Chapter III. The guidelines must be followed for computing arm's length principle, and for comparing comparable uncontrolled transactions. Reasonably accurate adjustments should be made to eliminate effect of any such differences. Accordingly we direct Ld.AO/TPO to grant working capital adjustment in accordance with law.'' 14.15 In view of the said decision, we direct the ld. DRP to allow the working capita....
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....e 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 as the orders of revenue authorities. From the above, it may be perceived that assessee has not charged any interest to AE as well as non-AE entities. Moreover, the TPO has considered only the account receivable of AE without considering the account payable to AEs. It is pertinent to note that account payable to AE and its affiliates are Rs. 28,58,98,204 compared to account receivables from AE and its affiliates of Rs. 26,88,97,856. We find that the account payables are more than the account receivables from AE. Hence, charging of notional interest does not arise. Therefore, we are inclined to remit the issue back to the file of DRP to give their findings clearly in this matter after going through the material available on record and give their findings according to the provisions of the Income-tax Act.'' 16.2 In view of the above, ld. A.R. submitted that since the assessee has payables higher than receivables charging of notional interest does....
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....ng 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 lease payments on financial lease at Rs. 10,08,65,471/- u/s 37 of the Act and the ground is reproduced below: "16. The Learned AO/DRP erred in disallowing deduction claimed of Lease payments on financial lease of Rs. 10,08,65,471/- under section 37 of the IT Act. 20. Facts of the case are that during the course of assessment proceedings the AO vide his show cause notice dt.20.09.2021 asked to substantiate the payment of Rs. 10,08,65,471/- towards lease payment on financial lease. The assessee vide reply dt.11.09.2021 provided the explanation. However, the AO disallowed the sum of Rs. 10,08,65,471/- u/s 37 of the Act holding the expenditure as capital is nature which was confirmed by the DRP. 20.1 The assessee explained that it has claimed deduction of Rs. 10,08,65,471/- towards lease payment on assets taken on lease whose life is short tenure in nature. The entire lease payment has been claimed as allow....
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....us. 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 authorities cannot be sustained. The assessee is entitled to claim deduction on accoun....
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....eply 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 whose life is short tenure in nature. The entire lease payment has been claimed as allowable expenditure in the computation of income. In the books of accounts, the assessee has followed the Accounting Standard -19-Leases issued by the ICAI. The assessee has disallowed the sum of Rs. 16.78 crores in the computation of income, the break-up of which is as under: 11.2 Interest on finance lease - Rs. 3,49,11,983 /- (debited as finance cost in note 2.28 of the financial statements) Depreciation on assets taken on finance lease - Rs. 13.29 crores (Rs.13.26 crores on Vehicles + Rs. 0.03 crores on Office Equipment debited in the books of accounts, note 2.1 Fixed Assets of the financial statements). Thus in total assessee has disallowed Rs. 16.78 crores (Rs.3.49 crores +Rs.13.29 crores). As against such a disallowance it....
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.... 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 authorities cannot be sustained. The assessee is entitled to claim deduction on account of lease rentals paid as it is a Revenue expenditure.'' 11.5 The ld. A.R. further submitted that the issue has been dealt by the ITAT in assessee's own case for AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 in para 14 & 15. Relevant portion extracted hereunder: "15. We have heard the rival submissions and 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 the case of Texas Instruments (India) Pvt. Ltd. Vs. JCIT in ITA Nos. 852 & 831/Bang/2017 dated 29.6.2022, , wherein held as under: --------- 15.1 In view of the above, taking a consistent view, we remit this issue to the fil....
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....lves 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. 4,02,57,009/- towards interest paid on finance lease. The assessee has disallowed the sum of Rs. 4,02,57,009/- paid towards interest on finance lease. The assessee is aggrieved as neither lease rental is allowed nor the payment of interest and depreciation on the assets, 14.3 The ld. DRP observed that the contention of the assessee is that the AO has not given sufficient time to file the details and the details are....
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....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 that the assessee entered into a lease agreement with IBM Global Services India Pvt. Ltd., whereby it took certain equipment on lease. This agreement is dated 29.08.2005. A copy of the lease agreement is available on pages 181 to 189 of the assessee's PB. The assessee also entered into a lease agreement in respect of certain vehicles with GE Capital Transportation Financial Services Ltd. This agreement is dated 28.12.20....
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....nance 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 Court has held that in a leasing transaction, the lessor would be entitled to claim depreciation under section 32 of the Act on the leased assets and the lessee would be entitled to deduction with respect to the lease rentals. Given the above, the tax treatment of the assets taken on finance lease (both equipment and car lease) in the case of lessee was as summarised below. * The depreciation....
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.... 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 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 cl....
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....he 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 assessment proceedings the AO asked to furnish details of other deductions claimed in Schedule BP of the ITR alongwith documentary evidence. The AO mentioned that he issued a SCN dt.20.09.2021 alongwith draft assessment order for which there was no compliance. The assessee submitted that during the period when the notice was apparently issued, due to covid-19 the assessee company offices were not functioning and the draft order was passed without any response from the assessee for the SCN. The ld. A.R. for the assessee requested that the authorit....
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....nses that they are incurred in the ordinary/regular course of business and for the purpose of business. 24.2 In view of the above, the ld. A.R. prayed that the disallowance being unwarranted be deleted in the interest of justice or in the alternative may be set aside to the file of AO to verify and decide the issue afresh in the light of the decisions given in earlier years. 25. The ld. D.R. relied on the orders of the authorities below. 26. After hearing both the parties, we are of the opinion that before the lower authorities, the assessee has not produced entire documentary evidence in support of claim of expenditure. In view of this, we remit the entire issue to the file of AO/TPO for fresh consideration after giving opportunity of hearing to the assessee. 27. Ground No. 18 is with regard to non-giving TDS credit, which reads as follows:- 18. "The Learned AO erred in not giving TDS credit amounting to Rs. 24,17,326/- and no reasons or explanations have been given for denying the credit." 28. After hearing both the parties, we remit the issue to the file of AO/TPO to give TDS credit in accordance with law after verifying the records. 29. In t....
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.... 2. Services segment 3. Trading segment 57,93,88,134 26,38,69,630 174,93,84,171 The purchases from AEs of Rs.174,93,84,171/- is adopted in making the ALP adjustment towards Trading segment instead of Rs.3128,65,34,719/- adopted by the TPO in his order. The Margin earned by Wipro GE Medical Systems is as under: Total Sales of Trading Rs. 3,128,534,719 Less: Local Purchases & Imports from Non Affiliates Import Non Affiliates/Local Purchase Other local costs - Installation and wamanty Costs, accessories, etc.. 608,430,485 200,619.363 1,749,384,171 Less: Paid to affiliates as purchase price Margin earned Margin as % of purchase Margin as % of sales 1 2.558.434.019 570,100,700 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 2727 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 dir....