AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 287
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 1,64,75,839/- on account of interest on trade receivables from AEs. Ground No.5: Transfer Pricing Issue - Upward adjustment of Rs. 53,58,144/- on account of fees chargeable on the Corporate Guarantee given by the Assessee to its AEs. Ground No.6: General ground on Corporate Tax Issues Ground No.7: Corporate Tax Issue - Disallowance of depreciation claimed @ 40% on ATM machines by restricting it to 15% chargeable on 'Plant & machinery' amounting to Rs. 46,56,30,577/- Ground No.8: Corporate Tax Issue - Disallowance of Rs. 36,20,000/- pertaining to deduction claimed on account of gratuity. Ground No.9: Corporate Tax Issue - Disallowance of Rs. 7,16,76,685/- towards bad debts written off. Ground No.10: Corporate Tax Issue - Additional claim of Loss of Rs. 19,45,70,000/- not made in the Return of Income filed. Ground No. 11: Corporate Tax Issue - Additional claim of Rs. 4,02,70,000/- pertaining to additional deduction towards ATM site rent charges paid. For this, assessee has raised various sub-grounds which are factual, argumentative and hence, need not be reproduced. 3. The brief facts of the case are that the assessee M/s.Financial Software and Systems Private Limi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for gratuity. * Issue 6: Disallowance of Rs. 7,16,76,685/- towards bad debts written off debited to Profit & Loss account. * Issue 7: Disallowance of loss on financial assets amounting to Rs. 24,05,80,000/- * Issue 8: Rejection of claim made of Rs. 19,45,70,000/- pertaining to loss as per the Audited Financials omitted to be claimed in the Return of Income that was filed based on Unaudited Financial Statements. * Issue 9 : Rejection of claim made of Rs. 4,02,70,000/- pertaining to additional deduction towards ATM site rent charges paid derecognized for 'Right of Use' Assets (IND AS) adjustment omitted to be claimed in the Return of Income. 5. Aggrieved by the Draft Assessment Order, the assessee had preferred an application before the Hon'ble Dispute Resolution Panel ("DRP") against the abovementioned issues except Issue no.7. The Hon'ble DRP had then issued directions u/s. 144C(5) of the Act vide Order dated 09.09.2024, wherein: a. the additions/disallowances in dispute were directed to be sustained; b. an enhancement pertaining to above mentioned Transfer Pricing Issue 2 by directing an addition of a markup of 100 basis points over and above that made if the Assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rent from record. 8. Aggrieved by the aforesaid Assessment Order, the assessee had preferred this appeal before us, disputing the additions/disallowances/rejection of claims made therein excepting Issue No.7 on 'Disallowance of loss on financial assets' of Rs. 24,05,80,000/-. In this regard, the ld.AR submitted as under: 9. Ground No.1 : General Since the ground is general in nature, no specific submission made in this regard. 10. Ground No. 2 : General ground on Transfer Pricing Issues Since the ground is general in nature, no specific submission made in this regard. Ground No.1 and 2 are general in nature and hence not adjudicated. 11. Ground no.3: Transfer Pricing Issue - Downward adjustment of Rs. 45,28,07,087/- on Marketing services fees : DRP / Transfer Pricing Officer's ("TPO") contention: The Assessee has made payment to its AEs towards 'Marketing Services received' amounting to Rs. 45,28,07,087/-. The Assessee has aggregated these transactions and benchmarked the same under TNMM along with other international transactions. In transfer pricing, the ALP is to be determined on a transaction to transaction basis and not on a consolidated basis. The very term 'Most Ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... responsible for executing the projects/ rendering the services and bears the contractual liability related to the same. 13. Accordingly, the AEs function as marketing service providers bearing risks lower than those normally borne by an entity operating in the marketing services industry. For the services rendered, the AEs are compensated with an arm's length mark-up on the operating expenses incurred. 14. The ld.AR stated that the assessee, in the TP documentation, had benchmarked the above transactions of receipt of software support fee, provision of software services, sale of software licenses and payment of marketing service fee under the combined transaction approach using TNMM as the most appropriate method for Net margins earned by comparable companies performing activities similar to those of AEs are available in the public domain and can be easily established, thus facilitating a more reliable comparability analysis. Further, it is a well-accepted principle that net margins are less affected by transactional differences than are prices (as in the case of CUP) and gross margins (as in the case of CPM). In this case, since the functions performed by comparable identified ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee. Also, while aggregation approach had been rejected for marketing fees paid by the assessee, the TPO had accepted the same with reference to other transactions wherein the same aggregation approach was followed. In support of the same the ld.AR placed reliance on the decision of the ITAT Delhi in the case of Denso Haryana (P.) Ltd. v. Deputy Commissioner of Income-tax [2023] 156 taxmann.com 573 (Delhi - Trib.). 18. With respect to the TPO's contention that the assessee has not substantiated the need for the services and provided evidence to that effect, the ld.AR submitted that there is no legal requirement or mandate for any assessee to necessarily undertake a cost-benefit analysis and a mere absence of such analysis should not necessarily lead to a pre-conceived notion that no benefits have been received by the assessee and should not form a basis to disallow the said payment. 19. With respect to the TPO's contention that the marketing services received by the assessee constitute 'shareholder activity' that does not require separate payment, the ld.AR submitted that reliance is placed on Para 7.9 and 7.10 of OECD Transfer Pricing Guidelines 2022 and United Nations Practic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ove that such services were rendered during the relevant previous year. - Copy of the sample Invoice copies raised by the Associated Enterprises on the assessee company with respect to their Marketing support services rendered during the subject FY 2020-21. 24. Further to the above, in support of the assessee's contention, the ld.AR also relied on the decision of the Jurisdictional Madras High Court in the case of Virtusa Consulting Services (P.) Ltd. v. Deputy Commissioner of Income Tax, Company Circle 5(2), Chennai [2021] 124 taxmann.com 309 (Madras) wherein it had been held that where assessee considered its AEs to be tested party to determine ALP of its international transactions and also submitted relevant evidences and documents to establish functional profile and risks assumed by its AEs, however, TPO rejected same and undertook a fresh search for external comparable, since TPO himself had not attached any sanctity to TP documentation as submitted by assessee, he could not foreclose assessee from canvassing issue that subsidiaries were least complex entities which should be taken note of and, thus, matter was to be remanded back to TPO. The said case-law is applicable to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n significant intangibles, where the 'Tested Party' would be the least complex of the transacting entities, hence the assessee has chosen AEs as the 'Tested party' and their margins earned were compared to that of independent comparable companies operating in similar geographies/jurisdictions under TNMM. 30. Our above view is supported by the decision of the Calcutta High Court in the case of PCIT v. ITC Infotech India Limited [2024] 159 taxmann.com 323 (Calcutta) wherein it had been held that Foreign AE can be taken as a tested party for purpose of establishing ALP of assessee and also that of the Mumbai ITAT in the case of Tata Consultancy Services Ltd. v. Deputy Commissioner of Income-tax [2024] 163 taxmann.com 671 (Mumbai - Trib.). 31. On perusal of the order of the TPO, we find that no cogent reasoning for rejecting the aggregation approach adopted by the assessee. Also, while aggregation approach had been rejected for marketing fees paid by the assessee, the TPO had accepted the same with reference to other transactions wherein the same aggregation approach was followed. 32. On examination of the Transfer Pricing Study Report submitted, wherein the reasons behind not adopt....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... trade receivables from AEs: DRP / Transfer Pricing Officer's contention: As a sequel to the AE transaction, the outstanding receivable constitutes another set of transactions which has an impact on the Profit and Loss Account of the Assessee in the form of opportunity cost of funds and indirectly conveying the benefit to the AEs in the form of interest free advances. There are two limbs involved in the transaction, one being the remuneration for provision of services and the other being the compensation for providing credit. Accordingly, the receivables transaction shall be treated as separate international transaction. With the retrospective amendment (Inserted by the Finance Act, 2012, w.r.e.f. 1- 4-2002) in the Act, the definition of the term 'international transaction' is incorporated which is an inclusive definition including "...receivable or any other debt arising during the course of business; ........" It is important to note that the above-mentioned Explanation is clarificatory in nature and hence the legislature has given it retrospective effect from 01.04.2002. Thus, receivables or other debt arising during the normal course of business are to be mandatorily treate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0 (Chennai - Trib.) - ITAT Ahmedabad in the case of Toshiba Technical Services International Corporation v. ACIT, International Taxation [2022] 145 taxmann.com 474 (Ahmedabad - Trib.) - ITAT Mumbai in the case of WNS Global Services (P.) Ltd. v. Income-tax Officer, Ward- 10(2)(4), Mumbai [2019] 103 taxmann.com 75 (Mumbai) 39. If the ALP in respect of an international transaction is determined, then there can be no question of treating non-receipt of interest in such transaction as separate international transaction warranting any further adjustment. Once ALP is determined in respect of the sale transaction, it would be deemed to be covering all the elements and consequences of such transaction of provision of services. Hence, after having determined the ALP in the primary transaction, it cannot be assumed that separate adjustment is required in respect of interest therefrom, since outstanding receivables emanate from the main transactions itself (which has already been benchmarked). Reliance in this regard is placed on the following decisions: - M/s. Indo American Jewellery Limited (TS-107-ITAT-2012(Mum)) - Information System Resource Centre private Limited [TS-252-ITAT-20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....les. 43. Moreover, the TPO had suo-moto adopted a calculation method for computation of interest by considering credit period to be at 30 days and the interest rate at LIBOR plus 350 BPS (0.686% + 3.50%) without providing any appropriate reasoning / furnishing the basis on which such number was arrived at for adopting the same. The assessee was not given an opportunity of being heard against adoption of the same which defies the principles of natural justice. 44. Similarly, the DRP had also proposed an enhancement of a markup of 100 basis points over and above the upward adjustment proposed on account of interest on trade receivables from AEs if the assessee was bearing the risk on foreign currency exchange fluctuation without giving an opportunity of being heard against the same which is in violation of the principles of natural justice that amounted to a further addition of Rs. 31,76,984/- made in the impugned Assessment Order in this regard. 45. Per contra, the ld.DR submitted that the assessee has not furnished any details or statement to prove that the sales / billing are charged equally to the AE and non-AEs, hence it is not acceptable. 46. We have heard both the parties ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s that substantiate the said facts: a) Copy of the Standby Letter of Credit issued by the Assessee company's Bank - IDFC Bank to the Associate Enterprise's bank i.e., First Abu Dhabi Bank as a security for the loan availed by the FSS Technologies FZE ("FSS FZE") for a sum of AED 11,000,000. b) Copy of the relevant extract of the Financial Statements of M/s FSS FZE for the year ended 31.03.2021 - disclosing the utilized Loan at AED 3.1 million. DRP / Transfer Pricing Officer's contention : The Corporate Guarantees ("CG") were issued to further the business prospects of the assessee through its AE. Both the assessee and the AE invested in the loan transactions, and both benefitted. The TPO had relied upon Para 7.13. of "Chapter - VII Special Considerations for Intra-Group Services" of OECD Transfer Pricing Guidelines 2010. Reliance placed upon the Jurisdictional Hon'ble Madras High Court's decision in the case of Reddington India Ltd. for AY 2009-10 in TCA Nos. 590 and 591 of 2019 dated 10.12.2020, wherein it was held that the amendment brought in by explanation to Section 92B by Finance Act, 2012 is retrospective and that as per the amended provision of clause 'e' of explanat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nvolve any cost to the assessee and did not have any bearing on the profits, income, losses or assets of the assessee, whereby it fails to fall under the definition for 'international transaction'. Further, even after the amendment in Section 92B, a corporate guarantee issued for the benefit of the AEs, which does not involve any costs to the assessee, does not have any bearing on profits, income, losses or assets of the enterprise and, therefore, it is outside the ambit of 'international transaction' to which ALP adjustment can be made. 52. Such bearing or impact may happen in the future, but, would not cover situations where the impact is contingent as in the assessee's case in hand. Such support/guarantees often serve strategic, business-driven purposes and may not have immediate financial implications. 53. The assessee, being a shareholder, considering the same as a part of its shareholder function as well as to safeguard its own business, which was undertaken through FSS FZE, had decided to provide corporate guarantee, in line with the OECD TP Guidelines, 2022 wherein 'shareholder activity' means "An activity which is performed by a member of an MNE group (usually the pare....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mbai in the case of Crayon Group AS vs ACIT (IT) [2023] 153 taxmann.com 345 (Mumbai - Trib.) wherein it was held that bank guarantee rates could not be considered for benchmarking corporate guarantee fee and it depends on creditworthiness of parties and benefit arising out of same in hands of parties to transaction; therefore, benchmarking of TPO was incorrect. 60. Alternatively, the fees chargeable on Corporate Guarantee could be restricted to 0.5% of the Corporate Guarantee provided by the Assessee as held in a plethora of decisions including the following recent ones: - The Jurisdictional Chennai ITAT in the case of Mega Soft Ltd. vs DCIT [2022] 145 taxmann.com 111 (Chennai - Trib.) - Delhi ITAT in the case of Havells India Limited vs DCIT (LTU) [2023] 156 taxmann.com 486 (Delhi - Trib.) - ITAT Guwahati in the case of Greenply Industries Ltd. vs ACIT [2022] 143 taxmann.com 364 (Gauhati) - ITAT Kolkata in the case of DCIT vs Mcleod Russel India Ltd. [2023] 154 taxmann.com 396 (Kolkata - Trib.) - ITAT Mumbai in the case of J.B. Chemicals and Pharmaceuticals Ltd. v. Deputy Commissioner of Income-tax [2021] 128 taxmann.com 439 (Mumbai - Trib.) - ITAT Vishakapatanam in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ure and hence not adjudicated. 67. Ground No. 7 : Corporate Tax Issue - Disallowance of depreciation claimed @ 40% on ATM machines by restricting it to 15% chargeable on 'Plant & machinery' amounting to Rs. 46,56,30,577/- DRP / Assessing Officer's contention: During the course of scrutiny proceedings, it has been noticed that the assessee has claimed depreciation on ATMs at the rate of 40%, as is applicable to computers, for the A.Y. 2020-21. The assessee was claiming depreciation only at the rate of 15% on ATM machines till the assessment year 2012-13. Only from A.Y.2013-14 onwards, the assessee has claimed depreciation at 60% (till the A.Y. 2017-18 and 40% from the A.Y. 2018-19) treating the ATM machines as computer. From the A.Y. 2012-13 to 2013-14, the configuration or the working of the ATM machines had not undergone any change in order to classify the ATM as a computer from electronic equipment. 68. Reliance is placed on the decision of Hon'ble Karnataka High Court in the case of Diebold Systems (P) Ltd. Vs Commissioner of C.T. [2006] 144 STC 59 (Kar), wherein it was examined whether an ATM machine was a computer with reference to Entry 20(2)(b) of part C of the second s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bank's customers to access the bank at places other than the normal bank without having to take the trouble to go to the bank in person and collect the cash as is done under the conventional method of withdrawing money from the bank. The ATM machines are computerized machines which not only allow the customers to withdraw money, but they can check the account balance, pay bills, purchase goods and services, and therefore, unless it is computerized and linked with the main server, it is not possible to operate the ATM. Hence, the ATMs can never be held at par with normal plant & equipment. 73. In support of the above argument, the ld.AR stated that the issue of depreciation on ATM at the rate as applicable to computers is addressed by the Hon'ble ITAT, Kolkata Bench in the case of Royal Bank of Scotland N.V. vs DDIT (International Taxation) reported in (2017) 88 taxmann.com 330 (Kolkata - Trib.) dated 13.4.2016 and similarly, the decision of Hon'ble Bombay High Court on the very same issue is in favour of the Assessee in the case of CIT vs Saraswat Infotech Ltd in Income Tax Appeal (L) No. 1243 of 2012 dated 15.1.2013. 74. Further, it is imperative to note that the Hon'ble Tribuna....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... per the provisions of section 2(i) of the Information Technology Act, 2000. ATM is the computerized telecommunication device that allows bank's customers to access the bank at places other than the normal bank without having to take the trouble to go to the bank in person and collect the cash as is done under the conventional method of withdrawing money from the bank. The ATM machines are computerized machines which not only allow the customers to withdraw money, but they can check the account balance, pay bills, purchase goods and services, and therefore, unless it is computerized and linked with the main server, it is not possible to operate the ATM. In support of the claim the assessee relied on the decision of the ITAT, Kolkata in the case of Royal Bank of Scotland N.V. vs DDIT (International Taxation) reported in (2017) 88 taxmann.com 330 (Kolkata - Trib.) dated 13.4.2016 and similarly, the decision of Hon'ble Bombay High Court on the very same issue is in favour of the Assessee in the case of CIT vs Saraswat Infotech Ltd in Income Tax Appeal (L) No. 1243 of 2012 dated 15.1.2013. 80. We also note that the issue in assessee's own case has been decided in favour of the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vision was disallowed in the preceding AY 2020-21, the reversal thereon was claimed as deduction in the subject AY 2021-22. Copy of the computation of Taxable income statement for the preceding AY 2020-21 had been submitted to substantiate the same. 85. Per contra, the ld.DR relied on the orders of the authorities. 86. We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with the paper books filed and the case laws relied. On perusal of the above, it is evident that the said sum of Rs. 36,20,000/- pertains only to reversal of excess provision and not payment warranting disallowance u/s. 43B of the Act for want of documentary evidence. 86.1 The issue of disallowance of gratuity provision during the year as per the computation of income filed by the assessee is with regard to reversal of excess provision made in the earlier assessment year i.e. A.Y. 2020-21 on account of the Actuarial Valuation Report for the relevant FY 2020-21, the provision for gratuity at 31.03.2021 stood at Rs. 3,35,36,226/-. On perusal of the computation of income (Page No.964 of the paper book) for the year ending 31.03.2020 (A.Y. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s have also been submitted. On perusal of the ledger extract itself, the income offered to tax in earlier years, and the bad debt written off during the subject FY 2020-21 on non-realisation of the receivable is clearly understood. 90. The ld.AR stated that the AO, in fact, in the show-cause notice issued dated 23.12.2023, had called for details of bad debt claimed, details as to when the same was offered to income and supporting ledger in support of its claim had been called for as 'documentary evidence' -all of which had been duly submitted by the assessee vide its submission dated 27.12.2023 filed in response to the same as also stated by the AO in the impugned Assessment Order. In spite of submission of details called for, the AO had made this addition for want of documentary evidence which is incorrect and unwarranted. 91. Hence, the ld.AR submitted that the AO's contention that 'no credible documentary evidence to substantiate its claim of these income being offered in earlier years' is erroneous and ought not be upheld. 92. Per contra the ld.DR relied on the orders of the authorities. 93. We have heard the rival contentions perused the material available on record and go....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing the expenditure claimed by the assessee and hence we are inclined to direct the AO delete the addition of Rs. 7,16,76,685/- by allowing the related grounds of the appeal filed by the assessee. 95. Ground No. 10 : Corporate Tax Issue - Additional claim of Loss of Rs. 19,45,70,000/- not made in the Return of Income filed : DRP / Assessing Officer's contention : The Assessee claimed a net loss of Rs. 99,15,26,555/- in its Return of Income filed for the subject AY 2021-22, while its Audited Financial statements for the relevant FY 2020-21 disclose a loss of Rs. 118,61,00,000/-, whereby the loss claimed was less by about Rs. 19.46 crores. The said loss omitted to claim was asked to be allowed during the assessment proceedings. The reliance was placed upon the Supreme Court decision in the case of Goetz (India) Limited vs CIT (284 ITR 323) and the AO had contended that only those claims that were made in the original Return of Income can be claimed before the AO and that where the return had not been revised by the assessee for the subject AY 2021-22, the claim of additional loss made is not acceptable. 96. Assessee's contention : The ld.AR placed on record the facts behind the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntrol which ought to be given due consideration. The ld.AR filed Additional Evidence Petition before us under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 in this regard, submitting the Copy of the relevant Memo of computation of Taxable income and the relevant extract of the Provisional Financial Statements of the assessee for the subject FY 2020-21 forming the basis for the Return of Income filed for the subject AY 2021-22. The said additional evidence is placed in the respective Additional Evidence paper-book from pages 39 to 41. 98. Further in support of the above claim the ld.AR submitted that the judicial forums have time and again upheld the power of the Appellate Authorities in admitting a fresh claim when the relevant details are available on record. Reliance in this regard is placed on the following decisions: - Jurisdictional Madras High Court in the case of Ramco Cements Limited vs DCIT, Special Range-I, Madurai [2015] 55 taxmann.com 79 (Madras) - Calcutta High Court in the case of Commissioner of Income-tax v. Hindustan Pilkington Glass Works Ltd. [1994] 73 TAXMAN 631 (CAL) - ITAT Mumbai in the case of Givaudan Flavours (India) (P.) Ltd. v. Deputy ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ther services' as reported in Note 19 - 'Purchase and service charges' to the Audited Financial Statements for the FY 2020-21 (Page No.39 of the Paper book). 102. The same being, an IND AS adjustment entry had to be deducted while arriving at the Taxable income. However, while reporting the same as a deduction in the Return of Income filed for the relevant AY 2021-22, the said sum that was included in 'Any other amount allowable as deduction' in Schedule - BP, Table A, Sl.No.33 of the Income Tax Return, was inadvertently reported at Rs. 567.54 million, whereby the deduction claimed was less by Rs. 40.27 million [(ie) 607.81 million - 567.54 million] or Rs. 4,02,70,000/-. The same was claimed by the assessee during the assessment proceedings. 103. Relying upon the Supreme Court's decision in the case of Goetz (India) Limited vs CIT (284 ITR 323), the AO had contended that only those claims that were made in the original Return of Income can be claimed before the AO and that where the return had not been revised by the Assessee for the subject AY 2021-22, the claim of additional loss made is not acceptable. 104. Further, the AO had contended that the Assessee had not provided any ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urn of income of paper book). The ld.AR stated that the assessee had thus omitted to claim the deduction for about Rs. 40.27 million [(ie) 607.81 million - 567.54 million] or Rs. 4,02,70,000/- in its Income Tax Return filed for the subject AY 2021-22. The AO had erroneously construed the deduction of Rs. 567.54 million claimed on IND AS adjustment entry as towards rent. In this regard, it is clarified that the sum pertained to IND AS adjustment entry only and not otherwise whereby such documentary evidence as required by the AO would not be applicable and hence could not be provided. 107. The Ld.AR stated that the judicial forums have time and again upheld the power of the Appellate Authorities in admitting a fresh claim when the relevant details are available on record. 108. We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with the paper books filed and the case laws relied on. On perusal of the audited financial statements and return of income filed for the impugned assessment year, we find that the assessee has shown an amount of Rs. 4,031.64 million as Purchase and service charges in Note No.19 t....