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2024 (8) TMI 1167
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....l (NCLT). The assessee filed the return of income for AY 2018-19 on 30.11.2018 declaring total income of Rs. 35,56,75,590/-. The return was proceed under section 143(1) of the Act assessing the income at Rs. 35,84,34,480/- after making certain adjustments including the addition towards delayed remittance of employee contribution to PF/ESI. Subsequently, the case was selected for scrutiny under CASS and the statutory notices were duly served on the assessee. Since the assessee had certain international transactions with its AE, a reference was made to the Transfer Pricing Officer (TPO) in order to determine the Arms Length Price (ALP) of the transaction. The TPO passed an order under section 92CA(3) dated 28.07.2021 in which TP Adjustment of Rs. 4,02,88,853/- was determined. The AO passed a draft assessment order incorporating the TP Adjustment. Additionally the AO also made the below adjustments while passing the draft assessment order. 1. Addition on account of accretion to reserve under section 68 Rs. 48,21,24,652/- 2. Disallowance of finance cost under section 37(1) Rs. 31,97,466/- 3. Disallowance of installation support service charges and warranty servi....
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....electing Transaction Net Margin Method (TNMM) with PLI of OP/OC. The assessee selected the following comparables in the transfer pricing report: 6. The assessee's PLI is computed as under as per the TPR: Particulars Amount in INR Income Sales 1,052,858,961 Operating Income 1,052,858,961 Expenditure Employee benefits expense 543,468,846 Other Expenses 274,423,150 Depreciation and amortization expense 98,570,761 Operating Cost (OC) 916,462,758 Operating Profit (OP) 136,396,203 OP/OC 14.88% 7. Since the PLI of the comparables is in the range of 9.2% to 15.54% and assessee's PLI being 14.88%, the assessee treated the transactions with the AE to be at ALP. The TPO rejected five (5) of the comparables as selected by the assessee in serial no. 1, 3, 4, 9 & 12. The TPO made a fresh search of comparables to add Twelve (12) more comparables by relying on the T.P. order for the AY 2017-18 and accordingly arrived at the following list of final comparables: Sl. No. Name of the Company OP/OC 1 Evoke Technologies Pvt. Ltd. -0.15% 2 Maveric Systems Ltd. 6.97% 3 Harbinger S....
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.... AY 2017-18 in assessee's own case will be applicable for the year under consideration for the purpose of exclusion of comparables on the similar ground. 10. The ld. Departmental Representative (DR) on the other hand, submitted that each AY is separate and therefore, the decision of the Co-ordinate Bench in earlier AY cannot be directly applied for the year under consideration for the purpose of exclusion of comparables. The ld. DR further prayed that the specific finding with regard to the comparables by the TPO need to be considered while deciding the exclusion/inclusion of the comparables. The ld. DR also prayed that the order of the Co-ordinate Bench for AY 2017-18 would be challenged by the Revenue before the Hon'ble High Court and therefore, the decision cannot be treated as final. 11. We have heard the parties and perused the material on record. We noticed that out of the final list of comparables selected by the TPO as listed in the earlier part of this order Sonata Software Ltd., Dynamic Digital Technology Pvt. Ltd., Endeavour Software Technologies Pvt. Ld., and Gislen Software Pvt. Ltd., are sought to be excluded for the reason that they fail the RPT filter.....
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....velopment and related technology services and solutions. 33.3 Interglobe Technology Quotient Pvt. Ltd. is not functionally comparable since it is engaged in data processing export services travel technologies, and other support services. Further it is noted that the employee cost to total sales ratio of this company is less than 25% which shows that the business model of this company is different. 33.4 Cybage Software Private Limited is not functionally comparable since it is a technology consulting company specializing in outsourced product engineering services. 33.5. **** 33.6 Cadsys (India) Ltd. is not functionally comparable since it is engaged in providing solutions for GIS & mapping services, Telecom & CATV services, Engineering and project management services and digital media & Project management services and balancing Cognitive strength of human mind and computing power of Machine to its clients. 33.7 Cygnet Infotech Pvt. Ltd. is not functionally comparable as it is engaged in the business of providing enterprise solutions, Application, Content Management services and IT enabled services and no separate segment are reported by t....
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....nd Varian Medical Systems, GMBH, Germany are less than 20 days. The assessee further submitted that it is also having outstanding payable to AEs for which no interest is charged. Accordingly, the assessee submitted that no interest shall be charges on the outstanding receivables. The TPO accepted the submission of the assessee with regard to Varian Medical System Inc,. USA and Varian Medical Systems, GMBH, Germany and held that no interest is attributable on these receivables. However, with regard to outstanding receivable from other AEs, the TPO made a T.P Adjustment of Rs. 98,89,700/- by applying Swiss LIBOR+400 basis points. 17. On further appeal the DRP gave partial relief to the assessee by holding that the interest should not be applied on the closing balance but on the invoice-wise ageing of the receivables and according the TP adjustment was reduced to Rs. 35,49,775. 18. The ld. AR in this regard submitted that the similar is considered by the Co- ordinate Bench in assessee's own case where it has been held that "42. We have considered the facts of the case and the arguments of both the sides. It is not the argument of the Ld. AR that there is no internat....
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....r section 2(24)(x) r.w.s. 36(1) (va) of the Act. The ld. AR in this regard submitted that the disallowance could not be made in the intimation under section 143(1) as a prima facie adjustment. The ld. DR on the other hand submitted that the issue is squarely covered by the decision of the Hon'ble Supreme Court in the case Checkmate Services Pvt. Ltd. Vs. CIT (2022) 448 ITR 518 (SC) 21. We heard the parties and perused the material on record. With regard to contention of the assessee that adjustment made by way of addition is beyond the scope of section 143(1)(a) of the Act meaning thereby addition/adjustment could not have been made by the CPC by taking refuge of the provisions of section 143(1)(a) of the Act we notice that Pune Bench of Tribunal in the case of Cemetile Industries vs. ITO in ITA No.693/PUN/2022 and others dated 23.11.2022, has considered the similar issue issue and held that - 6.. ......................................................................................................... ......................................................................................................... ......................................
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....d; or (iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction;' 9. Clause (i) of Explanation (a) refers to a situation in which there is a claim of income or expenditure at two places in the return of income and there is inconsistency in them. For example, if deduction is claimed under a specific section for a sum of Rs.100/- in the Profit and loss account accompanying the return, but in the computation of income, the amount has been taken as Rs.110/-, leading to inconsistency, requiring an adjustment. Clause (ii) of Explanation (a) covers a situation in which claim is made, say, for a deduction u/s.80IA for which audit report is required to be furnished, but such report has not been furnished along with the return. Clause (iii) contemplates a situation in which deduction exceeds specified statutory limit. For example, section 24(a) provides for a standard deduction for a sum equal to 30% of the ITA No.1242/Del/2022 National Housing Bank vs. ADIT 9 annual value, but the assessee has claimed deduction at 40%. These situations warrant an adjustment. It is obvio....
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....isallowance. However, the indication must be clear and not vague. If the indication in the audit report gives a clear picture of the violation of a provision, there can be no escape from disallowance. Turning to the facts of the case, it is clear from the mandate of section 36(1)(va) that the employees' share in the relevant funds must be deposited before the due date under the respective Acts. If the audit report mentions the due date of payment and also the actual date of payment with specific reference in column no. 20(b) having heading: 'Details of contributions received from employees for various funds as referred to in section 36(1)(va)', it is an apparent indication of the disallowance of expenditure u/s 36(1)(va) in the audit report in a case where the actual date of payment is beyond the due date. Though the audit report clearly indicated that there was a delay in the deposit of the employees' share in the relevant funds, which was in contravention of the prescription of u/s. 36(1)(va), the assessee chose not to offer the disallowance in computing the total income in the return, which rightly called for the disallowance in terms of section 143(1)(a) of the Act. 11....
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....hallenge by the assessee throughout has been to the disallowance of expenditure made by the AO. It set up a case before the authorities below, including the ld. CIT(A), taking shelter of section 43B of the Act by arguing that the disallowance cannot be made because such payment was made before the due date u/s.139(1) of the Act. As such, the contention of adjustment u/s 143(1)(a)(iv) due to 'increase in income' is jettisoned. 12. Another argument point was put forth on behalf of the assessee that the assessee did not claim any deduction in the Profit and loss account of the amount under consideration and hence no disallowance should have been made. This argument is again bereft of force. The assessee claimed deduction for salary on gross basis, inclusive of the employees' share to the relevant funds. To put it simply, if gross salary is of Rs. 100, out of which a sum of Rs.10 has been deducted as contribution to relevant fund, then the debit of Rs. 100 in the Profit and loss account means deduction has been claimed for Rs.10 as well. Ex consequenti, if deduction of Rs. 10 is not allowed u/s 36(1)(va) for late deposit of the amount before the due date under the respective A....
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....atutes, which resulted into making the disallowance/addition of Rs. 27,58,890/- u/s. 36(1) (va) read with section 2(24)(x) of the Act. The Hon'ble Apex Court in the case of Checkmate Services Pvt. Ltd. (supra) has laid down the dictum that payment towards Employees' contribution on account of PF/ESIC made after the due dates, as prescribed under the relevant statutes, is not allowable as deduction under section 36(1)(va) of the Act, by concluding as under: "52. When Parliament introduced section 43B, what was on the statute book, was only employer's contribution (Section 34(1)(iv)). At that point in time, there was no question of employee's contribution being considered as part of the employer's earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting section 36(1)(va) and simultaneously inserting the second proviso of section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions - especially s....
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.... (albeit deemed), by virtue of section 2(24)(x) - unless the conditions spelt by Explanation to section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts - the employer's liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees' income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under section 43B. 54. In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer's obligation to deposit the amounts retained by it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which....
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....No.6 (6.1 to 6.6) 25. During the year under consideration Varian Medical Systems India Software Pvt. Ltd. (VMSS) was merged with assessee w.e.f. 01.04.2017 the said scheme of amalgamation was approved by the National Company Law Tribunal vide order dated 20.12.2017 pursuant to such merger all assets and liability of VMSS were transferred to assessee against which the assessee allotted shares in the ratio of 1:2 to the shareholders of VMSS whereby 315000 shares in assessee company at a face value of Rs.10 were allotted. The assessee recorded the said transactions in the books of accounts following the "pooling of interest method" as per the Accounting Standard (AS) issued by the Institute of Chartered Accountants of India (ICAI). The above transactions were also duly disclosed in the TPSR of the assessee. The AO after perusing the financial statements observed that the assessee has not given proper explanation for the adjustment to and accretion to capital reserve and security premium reserve. The AO further held that the transfer in assessee's case does not fall within the purview of section 47(vii), (vi), (v) of the Act and therefore, not exempt. Therefore the AO proceeded ....
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....the amount as capital gain and making addition under section 68. 28. The ld. DR on the other hand vehemently supported the order of the AO. The ld. DR further submitted that the assessee has submitted additional evidences before the DRP and the AO did not get an opportunity to examine these additional evidences and therefore, prayed that the issue should be remitted back to the AO for re-examination. 29. We have heard the parties and perused the material on record. During the year under consideration the assessee has merged with VMSS pursuant to which the shares of the assessee were allotted to the shareholders of VMSS. The face value of the shares of VMSS was Rs. 100/- per share whereas the share value of the assessee is Rs. 10/- per share. As per the scheme of amalgamation the shares were issued to the shareholders of the VMSS at 1:2 ratio. Accordingly the shareholders of VMSS were allotted 315000 shares against 157500 shares of VMSS. The difference arising in the face value of shares i.e. Rs. 80/- multiplied by the numbers of shares issued i.e. 1,57,500 totaling to Rs. 1,26,00,000/- was shown under Capital Reserve which was treated as a capital gain to be charges to tax as....
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.... treated as transfer and therefore does not result in capital gains. In view of these discussions, we hold that the addition made towards amount credited to capital reserve account as part of merger of assessee and VMSS cannot be treated as LTCG and the addition made in this regard is hereby deleted. This ground is held in favour of the assessee. 32. Through Ground No. 6.6 the assessee is contending that the AO while preparing the computation statement of assessed income has considered the addition of Rs.1,26,00,000/- sustained by the DRP twice. In this regard our attention was drawn to page no.14 of the final assessment order wherein the AO has computed the proposed total income at Rs. 40,58,90,210/- (page 14 of final assessment order) which includes the addition of Rs. 1.26 crores. Our attention was further drawn to the computation-sheet of the AO (page 1 of PB3) wherein the AO has considered the income from Business or Profession at an amount as mentioned in the assessment order and has further made an addition of Rs. 1.26 crores under the head "Income from Capital Gains". We have already held that the addition of Rs. 1.26 crores is not tenable and that the same does not resu....
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....the interest on receivables has already held that the amount outstanding from Varian Medical Systems Inc. is less than 20 days thereby accepted that no interest is attributable on the amount outstanding. The ld. AR in this regard drew our attention to the relevant observations of the TPO which is extracted below: "6.4 Rebuttal of the Reply and Comments of the TPO: The issue of charging interest on receivables has been examined with reference to the above submissions of assessee. The contention of the assessee that credit period issued to Varian Medical Systems Inc, USA and Varian Medical Systems Pt Gmbh, Germany are less than 20 days is accepted and no interest is attributable on these receivables, as the credit period allowed is reasonable. In respect of other receivables, the contentions of the assessee are found to be not acceptable for the following reasons:" 35. Therefore, the ld. AR argued that the amount of interest levied on the amount outstanding from Varian Medical Systems Inc. should also be deleted. The ld. DR on the other hand, supported the order of the DRP. 36. We have heard the parties and perused the material on record. The AO levied interes....