TaxTMI 
TaxTMI 
2023 (4) TMI 1363
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....-18, grounds are - "Based on the facts and circumstances of the case and in law, SAP India Private Limited (hereinafter referred to as 'SAP India' or 'Company' or the 'Appellant'), respectfully craves leave to prefer an appeal against the appeal order passed by the DC/ACIT Circle 6(1)(1), BLR [hereinafter referred to as the learned AO'] under section 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 ('Act') pursuant to the Directions issued by the Dispute Resolution Panel (Hon'ble DRP') under section 144C(5) of the Act on the following grounds: On the facts and circumstances of the case and in law, the leaned AO has erred on the following: 1. Disallowance of ESOP expenses of Rs. 25,65,94,500 1.1. The learned AO has erred, in law and in facts, in contending that ESOP expenditure are capital in nature and accordingly not allowable under section 37 of the Act, ignoring the fact that said expenses has been incurred wholly and exclusively for the purpose of the business of the Appellant. 1.2. The learned AO has erred in law and in facts in disallowing the ESOP expenditure on the basis that the ....
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.... other sources at arrive at the total income under the provisions of the Act. 5. Non-grant of Tax Deducted at Source (TDS)/ Tax Collected at Source (TCS) credit 5.1. Based on the facts and circumstances of the case, the Appellant respectfully submits that, the learned AO has erred, in law and in fact, in not granting full TDS credit of Rs. 270,09,01,239 claimed in the return of income. 5.2. The learned AO has erred in law and in facts, in not granting full TCS credit of Rs. 11,925 claimed in the return of income. 6. Levy of interest 6.1. The learned AO has erred, in law and in facts, in levying interest under section 234B of the Act amounting to Rs. 73,58,29,568. 6.2. The learned AO has erred, in law and in facts, in levying interest under section 234C of the Act amounting to Rs. 4,47,15,835. 7. Initiation of Penalty proceedings under section 270A read with section 274 of the Act 7.1. The learned AO has erred, in law and on facts, in initiating penalty proceedings under section 274 read with section 270A of the Act. The Appellant submits that each of the above grounds is independent....
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....ed AO has erred, in law and in facts, in not appreciating the principles laid down by the Hon'ble Bangalore ITAT in the case of Novo Nordisk India (P.) Ltd. (2014) 63 SOT 242 which is squarely applicable to the case of the Appellant. 2. Notional interest on delayed receivables from AEs 2.1. The learned TPO/ AO has erred, in law and on facts, by determining a transfer pricing adjustment of Rs. 4,12,67,948 on account of interest on outstanding receivables, not appreciating the fact that such receivables are closely linked to the primary transactions and should not be tested separately or recharacterized as a loan transaction. 2.2 Without prejudice, the learned TPO/AO has erred, in law and on facts, by using the SBI Short term deposit interest rate as against using of LIBOR rates. 3. Initiation of Penalty proceedings under section 270A read with section 274 of the Act 3.1. The learned AO has erred, in law and on facts, in initiating penalty proceedings under section 274 read with section 270A of the Act. The Appellant submits that each of the above grounds is independent and without prejudice to one another. The A....
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....pany. The difference between the fair market value of the shares of the price at which shares were issued to the employees was met by the Assessee. This factual position is not disputed at any stage by the revenue. In such circumstances, we do not see any basis on which it could be said that the expenditure in question was a capital expenditure of the foreign parent company. As far as the assessee is concerned, the difference between the fair market value of the shares of the parent company and the price at which those shares were issued to its employees in India was and employee cost which is a revenue expenditure incurred for the purpose of the business of the company and had to be allowed as deduction. There is no reason why this expenditure should not be considered as expenditure wholly and exclusively incurred for the purpose of business of the assessee. With regard to the observations of the Commissioner (Appeals) that the ESOP actually benefits only the parent company, it can be said that the expenditure in. question is wholly and exclusively for the purpose of the business of the assessee and the fact that the parent company is also benef....
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....just to remit the matter back to the file of ld. AO for consideration of the issue afresh in the light of the outcome of decision of the Special bench of ITAT on the issue, after affording a reasonable opportunity to the assessee. Accordingly, ground no. 2 is allowed for statistical purpose for both the years under appeal. 5. Ground no. 3 is in respect of disallowance towards delay in deposit of employees' contribution to Provident Fund before the due date. This issue is covered against the assessee by the decision of Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT (2022) 143 taxmann.com 178 (SC) wherein it has been held that "deduction u/s 36(1)(va) in respect of delayed deposit of amount collected towards employees' contribution to PF cannot be claimed when deposited within the due date of filing of return even when read with Section 43B of the Income tax Act, 1961." Respectfully following the decision of Hon'ble Supreme Court, this ground of appeal is dismissed. 6. Ground no. 4 is in respect of disallowance of notional IND-AS (Accounting Standards issued by Institute of Chartered Accountants of India) adjustment of Rs. 1,30,60,532/-while arri....
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.... verification of the documents and records and in accordance with the provisions of law. We also direct the assessee to furnish all the relevant documents and records to substantiate its claim in this respect. Accordingly, this ground of appeal is allowed for statistical purposes. 8. Ground nos. 6 and 7 taken by the assessee are consequential in nature and accordingly does not call for any specific adjudication. 9. Now we take up ground No. 2 specific to AY 2018-19 which relates to transfer pricing adjustment of Rs. 4,12,67,948/-in respect of notional interest on delayed receivables from Associated Enterprise (AEs), Ld. Counsel for the assessee submitted that these receivables are closely linked to the primary transactions and should not be tested separately, nor these can be re-characterised as loan transactions. In this respect assessee had furnished details of realisation of the receivables according to which the weighted average realisation of receivables for the relevant year is 47 days for the software distribution segment. Ld. TPO levied interest on outstanding receivables for more than 30 days by treating it as a separate international transaction. Ld. Couns....
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....r adjudication is ground No. 15 with regard to re-characterizing certain trade receivables as unsecured loans and computing notional interest on such trade receivables. The main contention of the ld. AR is that deferred receivables would not constitute a separate international transaction and need not be benchmarked while determining the ALP of the international transaction. In our opinion, this issue was considered by the Tribunal in assessee's own case for AY 2014-15 and in para 23 to 23.9 of the order dated 21.5.2020 this Tribunal held as under:- "23. Ground No. 14-17 alleged by assessee against adjustment of notional interest on outstanding receivables. From TP study, it is observed that payments to assessee are not contingent upon payment received by AEs from their respective customers. Further Ld.AR submitted that working capital adjustment undertaken by assessee includes the adjustment regarding the receivables and thus receivables arising out of such transaction have already been accounted for. Alternatively, he submitted that working capital subsumes sundry creditors and therefore separate addition is not called for. 23.1. Ld. TPO compu....
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....ransaction" shall include- . . . . . (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;. . . . ' 23.5. Ld. CIT. DR submitted that expression 'debt arising during the course of business' refers to trading debt arising from sale of goods or services rendered in course of carrying on business. Once any debt arising during course of business is an international transaction, he submitted that any delay in realization of same needs to be considered within transfer pricing adjustment, on account of interest income short charged or uncharged. It was argued that insertion of Explanation with retrospective effect covers assessment year under consideration and hence under/non-payment of interest by AEs on debt arising during course of business becomes international transactions, calling for computing its ALP. He referred to decision of Delhi Tribunal in Ameriprise (supra), in which this issue has been discussed at length and eventually interest on tr....
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....also perused decision relied upon by Ld.AR. In our considered opinion, these are factually distinguishable and thus, we reject argument advanced by Ld.AR. 23.8. Alternatively, it has been argued that in TNMM, working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables and loans and advances to associated enterprise would amount to double taxation. Hon'ble Delhi Tribunal in case of Orange Business Services India Solutions (P.) Ltd. v. Dy. CIT [2018] 91 taxmann.com 286 has observed that: "There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which would have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee would have to be studied. It went on to hold that, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an AE, the arrangement reflected an international transaction intended to benefit the AE in some way. Similar matter once a....
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.... an independent international transaction and the same is required to be benchmarked independently. Respectfully following the above stated decision of the Coordinate Bench of ITAT Bangalore in the case of Swiss Re Global Solutions India Pvt. Ltd. (supra), in the present case before us, we held that the outstanding receivables of the assessee from its AEs constitute international transactions liable to be benchmarked independently. However, in the present case, while arriving at the quantum of the said receivables, we do accept the contention of the ld. Counsel of the assessee for netting off the outstanding payables by the assessee to the AEs so that interest is computed on the net outstanding receivables for the year under consideration. Ld. Counsel has stated that the weighted average realisation of receivables for the relevant year is 47 days for the software distribution segment against which ld. TPO levied interest on outstanding receivables for more than 30 days by treating it as a separate international transaction. We are in concurrence with the ld. TPO taking 30 days as normal credit period for computing the interest on outstanding receivables which are to be netted off w....