TaxTMI 
TaxTMI 
2024 (8) TMI 1167
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....come 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 services Rs. 1,43,72,205/- 4. Addition towards recovery of warr....
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....ng 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 Systems Pvt. Ltd. 8.24% 4 8K Miles Software Services Ltd. 9.20% 5 Orangescape Technologies Ltd. 9.74% 6 Asite Solutions Pvt. Ltd. 11.74% 7 C G-V A K Software & Exports Ltd. 12.31% 8 Fuzen So....
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....se 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. On the examination of the T.P. Report (page 26 to 135 of PB), we noticed that the assessee while choosing the comparables has applied RPT filter of more than 25%. The TPO while choosing the said comparables has simply relied on the T.P. order for AY 2017-18 and has not examined the RPT figures of the comparables for the year under consideration. It is well settled position that the companies having....
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....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 the Company. The list of services provided by Cygnet pertains to blockchain, Artificial Intelligence, Robotic process Automation, Cloud, Internet of Things, Tax Technology, Augmented / Virtual Reality, Digital Transformation, Content Management, Microsoft, etc. 33.8 InfoBeans Technologies Limited is not functionally comparable as it is engaged in the software engineering services primarily in Custom Application Development ITA No.510/Mum/2022 ....
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....s. 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 international transaction. Therefore, the short point to be decided here is (a) the amount and days on which the interest should be charged; (b) the grace period and (c) the rate of interest applicable. 43. As far as the amount and days on which the interest should be charged there is no doubt that the interest can be charged only on the actual amount outstanding for each and every invoice beyond the grace period. Charging of interest by the TPO on the closing balance without looking into d....
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....e 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.. ......................................................................................................... ......................................................................................................... ..............................................................................It was argued that no prima facie adjustment can be made in the Intimation issued u/s 143(1) of the Act unless a case is covered within the specific four corners of the provision. It was stressed that the action of the AO in making the extant disallowance does not fall in any of the clauses of section 143(1). 7. We fully agree with the proposition bolstered by the ld. AR that adjustment to the total income or loss can be made only in the terms indicated specifically u/s.143(1) of the Act....
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.... 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 obvious that none of the three clauses of Explanation (a), defining an incorrect claim apparent from any information in the return, gets magnetized to the facts of the present case. 10. Now we turn to clause (iv) of section 143(1)(a) which provides for 'disallowance of expenditure or increase in income indicated in the audit report but not taken into account in computing the total income in the return'. The words "or increase in income" in the above provision were inserted by the Finance Act, 2021 w.e.f. 01- 04-2021. As such, this part of the provision ....
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....ributions 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. The ld. AR vehemently argued that it was a case of "increase in income" which has been enshrined in clause (iv) of section 143(1)(a) w.e.f. 01-04-2021 and hence cannot be take note of for the year under consideration. In our considered opinion, the contention is ill-founded. We have noted above that clause (iv) of section 143(1)(a) talks of two different limbs, namely, 'disallowance of expenditure' and 'increase in income' by means of indication in the audit report. Both the limbs are independent of each other. The indication in the audit report for 'Increase o....
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....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 Act, it would mean that the claim of Rs.10 included in Rs.100 is not allowed deduction. 13. The ld. AR referred to section 5 of the Payment of Wages Act, 1936, to contend that deduction made from an employee's salary for the month of October should suffer disallowance only if it is not paid by 15th December. This argument was premised on the language of section 5, which says that the wages of every person employed upon or in any railway, factory or industrial or other ITA No.1242/Del/2022 National Housing Bank vs. ADIT 12 establishment upon or in which less than one ....
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....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 second proviso to Section 43B - was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts ....
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....very 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 are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees' contributions- which are deducted from their income. They are not part of the assessee employer's income, nor are they heads of ....
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....terest 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 to make an addition of Rs. 48,12,24,652/- as tabulated below under section 68 r.w.s. 115BBE on account of non-furnishing of information / documents in relation to accretion to reserves and surplus. Particulars Amount (Rs.) Closing reserves and surplus balance as on March 31st 2018 (including securities premium reserves of Rs. 6,04,36,500 109,13,37,797/- (-) Opening reserves and surplus balance as 1sat April 2017 50,99,52,664/- (-) Profits for the year (AY 2018-19) 15,96,97,018/- Total 42,16,88,112/- Securities Premium Reserve 6,04,36,500/- Total addition 48,21,24,652/- 26. The assessee raised objections....
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....s 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 confirmed by the DRP. The AO made the addition of the said amount under section 68 for the reason that the assessee has not produced any documentary evidence in support of the scheme of amalgamation. The claim of the assessee is that the said amount is credit to the capital reserve as part of the scheme of amalgamation and therefore, should not be treated as capital gain. During the course of hearing our attention was drawn to Note No.3 of statement of financials for the year ended 31.03.2018 (page 11 of PB), as per which the reserves and surplus of the assessee includes a capital reserve on account of merger of Rs. 1,26,00,000/-. Our attention was als....
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....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 result in capital gains. We therefore direct the AO examine the issue of double addition claimed to be made in the statement of computation and to give relief to the assessee accordingly. Disallowance of Finance Cost under section 37(1) of the Act - Ground No.7 (7.1 to 7.3) 33. The AO based on the information furnished by the assessee with regard to the amount reflected as outstanding from the AEs disallowed the finance cost incurred by the assessee to the tune of Rs. 31,97,466/- by adopting SBI Prime Lending Rate at 11%. The assessee raised objections before the DRP submitted that the amount outstanding from AEs is towards receivables and are not in the nature of loans and adv....
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....ceivables, 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 interest by applying SBI Prime Lending Rate on the amount outstanding from Varian Medical Systems International AG and Varian Medical Systems Inc. The DRP gave relief to the assessee stating that no interest is leviable on the amount outstanding from Varian Medical Systems International AG and sustained the interest on amount outstanding from Varian Medical Systems Inc. However from the above extracted observations of the TPO, we noticed that the TPO did not propose any TP Adjustment towards interest on amount receivable from Varian Medical Systems Inc. for the reason that the aging of amount outstanding is less than 20 days. Therefore, we see merit in the contention of the ld. AR that the interest levied by the AO ....