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2016 (1) TMI 1513
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....y the appellant in this appeal are as under: "1. That the Assessing officer erred on facts and in law in proposing to complete the assessment under section 144C/143(3) of the Income Tax Act, 1961 ('the Act") at an income of Rs. 243,55,56,670/- as against the income of Rs. 17,64,76,208/- returned by the assessee. 2 That the Assessing Officer erred on facts and in law in proposing an adjustment of Rs. 8,96,40,636 to the arm's length price of the 'international transaction" of "payment of corporate charges" on the basis of the order passed under section 92CA(3) of the Act by the Transfer Pricing Officer("TPO"). 2.1 That the Assessing Officer/the TPO erred on facts and in law in holding that arms length price of the international transactions regarding payment of corporate charges is at nil allegedly concluding that no recognizable benefit has been passed to the assessee and therefore there is no rationale for paying corporate charges the AE. 2.2 That the Assessing Officer/the TPO erred on facts and in law in not appreciating that the payment of corporate charges was validly benchmarked applying TNMM as most appropriate method and that....
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....claim of deduction under section 10B of the Act by the assessee was in accordance with the provisions of that section and the disallowance of deduction under that section by the Assessing Officer was unlawful. 5 That the Assessing Officer erred on facts and in law in levying interest under section 234B and section 234C of the Act. 6 That the Assessing Officer erred on facts and in law in initiating penalty proceedings under section 271(1)(c) of the Act." 3. Ground 1 is general in nature and therefore does not require any adjudication. 4. Ground No. 2 to 2.7 relate to adjustment of Rs. 8,96,40,636/- to the arm's length price of the 'international transaction" of "payment of corporate charges" under the cost allocation agreement entered into between the assessee and its AE (Aricent Inc.) 5. Briefly stated the facts are that assessee was formerly known as Hughes Software Services Ltd. It is a closely held public limited company incorporated on December 30, 1991. It was promoted by Hughes Network Systems Corporation Inc. USA and its subsidiaries. The erstwhile promoters of the assessee company, i.e., HNS Mauritius Holdings and Hughes Network Systems....
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....recasting, etc. b) Tax-Tax, regulatory compliance c) legal-Customer contracts, global compliance assurance d) Treasury-cash management, banking (loan syndication), debt management e) Corporate marketing-developing marketing content, PR road shows website design etc. f) Insurance for global operations 7. As per the appellant the corporate management costs incurred by the Aricent USA relate to the entire group and not specifically to the operations in USA. It has been claimed that nature of costs being incurred by Aricent USA for the aforesaid services are payroll, insurance, general office running expenses, etc. and in terms of cost sharing arrangement with the assessee, the aforementioned costs are allocated to various group entities including the appellant company. As per the appellant, the allocation of cost is on a rational basis to result in allocation of expenses in proportion to the benefit accruing to each group entity and, such allocation is also consistent with the US Transfer Pricing Regulations. 8. The TPO in his order, has held that there were no rendering of such services by the AE to the appellant for which any paymen....
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....inancial project forecasting etc. h) Tax - Tax, regulatory compliance. i) Legal - Customer contracts, compliance assurance. j) Treasury - cash management, Banking (loan syndication), debt management. k) Corporate marketing - developing marketing content, PR, road shows website design, etc. l) Insurance for global operations. The corporate management cost incurred by the Aricent USA relate to the entire group and not specifically to the operations in USA. Nature of costs being incurred by Aricent USA for the aforesaid services, are, payroll, insurance, general office running expenses, etc. In terms of cost sharing arrangement with FSS, the aforementioned costs are charged out on allocation basis to the various group entities including FSS. The allocation of cost is on a rational basis to result in allocation of expenses in proportion to the benefit accruing to each group entity. Such allocation is also consistent with the US transfer Pricing Regulations. ........ The TPO contention that the AE has pool of the Indian management, the top management, i.e. CEO, CFO, Corporate Finance Director, Head HR, VP-IT etc., i....
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....eting services shall be shared on the basis of sales for the relevant period/quarter of the participants. b All costs on personnel related expenses viz, salaries and benefits incurred by Aricent in providing the accounting and finance, executive management, tax, legal treasury and corporate marketing services would be shared on the basis of sales plus a markup of 10% of such costs. c Insurance costs relatable to a particular geographical area shall be allocated to that area and then shared between all participants located in that area on the basis of sales. The costs not identifiable to any particular area shall be shared on the basis of sales of the participants. Cost specifically identifiable to the recipient will be charged only to the recipient. It would be appreciated from the cost sharing agreement, that the AE is charging a nominal amount of markup form the assessee and further only from the employee cost. On the other side, the assessee is availing wide range of expert managerial and administrative services from the AE on a cost sharing basis, as the actual cost is shared between a number of subsidiary companies of Aricent, USA. Further, ....
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....uilders Ltd. vs. CIT 288 ITR 1 (SC) - UOI vs. Azadi Bachao Andolan 263 ITR 706 (SC) iv) No application of transfer pricing method by the TPO "It is submitted that the expenditure on payment of administrative/ corporate fee of Rs. 89,640,636 were incurred by the assessee, in the course of its business of provision of software development. In consideration of the administrative and marketing services rendered to the assessee company, Aricent, USA charged a corporate fee calculated on actual plus 10% mark-up. The said transaction was bench marked by the assessee applying TNMM as the most appropriate method and OP/TC as the PLI. The OP/TC margin of the assessee is 27.01% against the average of OP/TC of 28 comparables using current year data at 13.69%. However, in the present case, the TPO disallowed the payment of the corporate charges on ad hoc basis without applying any of the prescribed method for benchmarking the aforesaid international transaction. Reliance is also placed on the decision of Mumbai Bench of the Tribunal in the case of CA Computer Associated Pvt. Ltd. vs. DCIT (ITA Nos. 5420 and 5421/Mum/2006), wherein, while deleting the adjustm....
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....marked aggregating it with closely linked transactions In this regard, it would be appreciated that Aricent USA charged a share of administrative expenses as corporate charges from the assessee only on actual basis plus 10% mark - up and the assessee is making such payment in lieu of receiving a wide scope of services from Aricent, USA. The all such services as rendered by Aricent USA is a necessary expense for the business of assessee for development of computer software products. The OECD guidelines provide that in order to arrive at the most precise approximation of fair market value, the arm's length principle should, ideally be applied on a transaction- by- transaction basis. However, there are often situations where separate transaction are so closely linked or continuous that they cannot be evaluated adequately on a separate basis. vii) Adjustment on account of arms length price cannot exceed the maximum arms length price "It is respectfully submitted that the assessee has paid markup of 10% only on salary cost and no mark up has been paid on other expenses. The aforesaid markup of 10% on the salary cost has been paid in terms of benchmark....
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....the order of TPO. The objections are rejected." 12. Before us during the course of hearing the learned counsel moved an application for admission of additional evidence in terms of Rule 29 of the Income Tax Rules 1963 wherein it has been stated as under: "In this regard, the assessee seeks to place on record the following by way of additional evidences: 1. Affidavit of Mr. Richard Katz, Vice President - Finance, Aricent Group declaring the work performed by him during the year 2007-08 for the assessee- Annexure-1 2. Affidavit of Mr. Lydia Brown, Vice President - Global controller Finance declaring the work performed by him during the year 2007-08 for the assessee - Annexure-II 3. Affidavit of Mr. Eric D Buhrfeind, Senior Vice President - Human Resources, Aricent Group declaring the work performed by him during the year 2007-08 for the assessee - Annexure-III 4. Affidavit of Mr. Amit Shashank, Executive Vice President - Legal, Aricent Group declaring the work performed by him during the year 2007-08 for the assessee - Annexure-IV It is respectfully submitted in this regard as under:- Aricent US Inc. was formed in Augu....
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....subsidiary, c) The scale of resources, and d) The choice of a variety of locations around the world (lowcost and/ or near shore at which services could be performed for customers) Consequently, the US associated enterprise, viz. Aricent Inc. USA was formed on 1st September, 2006 for the providing following corporate management support services to the group companies including the assessee: i) Business Development Services: ii) Corporate Management Services iii) Finance Services: iv) HR Services: v) IT Services: vi) Legal Services: vii) Marketing Services: viii) Sales Support Services: It is respectfully submitted that, Aricent USA has the CEO,CFO, General Counsel, VP of Worldwide Sales, VP of marketing, Treasure, VP of Business Development, VP of IT on its payroll who are engaged in for provision of such services. The executives in India are, in turn, the Vice Presidents for the various departments/ functions which were reporting to these functional heads. The TPO, however, concluded that there was no evidence for rendering of such management support services by the ....
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....ies and the alleged finding of the TPO that there was no evidence of receipt of such services by the assessee does not hold good. The aforesaid affidavit of the key managerial personnel, on the pay roll of Aricent Inc., USA, is being placed on record by way of additional evidence in order to rebut the finding of the TPO and to demonstrate that facts that the entire activities of such individuals based in US, were devoted to business operation of the assessee in India. It would be appreciated that the assessee in order to rebut the finding of the assessing officer/ TPO and to support the arms length price of international transaction of payment of corporate charges to the associated enterprise has collected the aforesaid additional evidence from its associated enterprise, which is now placed before the Hon'ble Panel by way of additional evidence. Prayer: It is respectfully submitted that if subsequent events occur, the appellate authority has to examine and evaluate the same and mould the relief accordingly (ref. Pasupuleti Venkateswarlu vs. The Motor & General Traders. AIR 1975 SC 1409). Reliance is also placed on the decision of Hon'ble....
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....w effective light to reject the assessee's CUP method. The plea of the assessee is that the documents have been subsequently procured and are necessary for proper ascertainment of T.P. adjustment. Under these circumstances, we are of the view that assessee's application for admission of additional evidence deserves to be admitted. The assessee was prevented by sufficient cause as these documents could not be procured before the assessment proceedings. After having admitted the additional evidence, the question before us is whether to consider the additional evidence at our level or send it back to TPO for consideration of this material and decide the issue afresh. On this score, we find merit in the alternate plea raised by ld. CIT(DR) that in this eventuality the issue about T.P. adjustments should be restored back to the file of TPO. Assessee has no objection on that. In view thereof, we set aside ground nos. 2 & 3 above in respect of T.P. adjustments for both the years back to the file of TPO to decide the issues afresh after giving the assessee an opportunity of being heard and give proper reasons if the CUP method is proposed to be not considered." 16. Accordingly we set as....
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.... for acquisition of any capital asset nor resulted in enduring benefit of capital field to be recorded as capital expenditure. The Assessing Officer did not accept the above submission. He proceeded to hold the same to be capital expenditure and disallowed the same. 12. Against this order, assessee is in appeal before us. 13. We have heard both the counsels and perused the record. We find that assessee vide its letter dated November 6, 2009 submitted in the paper book page no.229 and duly explained that Rs. 1,93,12,834 was in respect of training of various personnel and such expenses were routine expenses incurred in the course of carrying on software business. In this connection, assessee also referred to Hon'ble Apex Court decision in the case of Empire Jute Mills, 224 ITR 1, and several other case laws. We have carefully considered the submissions. It is undisputed that the aforesaid amount was spent for training of the personnel. By any stretch of imagination, these expenses cannot be said to have resulted in enduring benefit to be classified as capital expenditure. Hence, we set aside the order of the Assessing Officer on the issue and decide the issue in favour o....
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....ed to the filed AO by observing in order dated 21.1.2011 as under: "8. It was submitted by the learned counsel for the assessee that the issue is squarely covered in favour of the assessee by the decision of Hon'ble jurisdictional High Court in the case of CIT vs. Legato Systems India Pvt. Limited, 203 CTR 101 (Del.). The order of Hon'ble High Court in this regard is as under :- "The Tribunal has recorded a finding of fact that the respondent assessee was not an old unit already in existence so as to be disentitled to the benefit of exemption under s. 10A of the IT Act. It has, on that finding, remitted the matter back to the AO with the following directions : "We, therefore, set aside the orders of the authorities below on this point and restore the matter back to the file of the AO with a direction to allow exemption under s. 10A in both the years in case the assessee is found to have satisfied all other requisites envisaged in the scheme of s. 10A of the Act. In case the exemption under s. 10A cannot be allowed for the reasons of not satisfying the requisites, the claim of deduction under s. 80HHE shall be allowed after providing opportunity to meet the....