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2015 (5) TMI 70 - ITAT MUMBAITransfer pricing adjustment - Aggregated price charged by the assessee from AE was not accepted by the TPO and the TPO has selected only those prices which are found less than the arm’s length price - Disallowance of bad debts written off on account of non receipt of TDS Certificate from debtors - Disallowance of staff advances written off - Disallowance of advances given to Australian branch by US branch - Exclusion of certain expenses incurred in foreign currency from the total turnover for the purpose of computation of deduction u/s 10A of the Act - Transfer pricing adjustment on account of notional interest on free advance granted to the AE - Held that:- The case of the assessee is at better footing than the various closely linked and continuous nature of transactions because the man hour rates are only the bais of price charged by the assessee and not the independent price for an independent service. Accordingly, we are of the view that the price charged by the assessee for rendering the final composite work of software development service is the aggregate price and cannot be bifurcated on the basis of the man hour rate of each member of the team. As we have already observed that the assessee is providing the software development services and not the man hour to its clients, thereore, in view of the facts and circumstances of the case as well as the above discussion, we set aside the orders of authorities below and direct the Assessing Officer/TPO to recomputed and determine the ALP in respect of software development services by taking into consideration the aggregated price charged by the assessee from AE as well as non AE and not by selecting the independent man hour rate based on which, the assessee charged price from AE and non AE. Disallowance of bad debts written off on account of non receipt of TDS Certificate from debtors - The non realization of the sum represented by the TDS receivable is clearly a loss suffered in the course of business and, therefore, is an allowable claim of the assessee. An identical issue has been considered by the Delhi Benches of this Tribunal in the case of Kelly Services India Pvt. Ltd.[2013 (1) TMI 83 - ITAT DELHI]. Disallowance of staff advances written off - We are of the view that if the advances were given by the assessee under some specific scheme or for specific purposes as per the policy of the assessee and, thereafter, if the recipient employee has left the service of the assessee then the said advance which becomes irrecoverable and consequently is an allowable claim. Since the fact on this point has neither been recorded nor discussed by the authorities below, therefore, this issue requires proper verification and examination. Accordingly, we set aside this issue to the record of Assessing Officer to verify whether the advances in question were given to the staff who has already left the service of the assessee and further whether the claim of the assessee is allowable in view of the decisions relied upon by the assessee. Needless to say the Assessing Officer should give a proper opportunity of hearing to the assessee. Alternatively, the assessee has also submitted that even if the claim of the assessee is disallowed then the said amount is eligible for deduction u/s 10A. Since this issue has not been examined by the authorities below, therefore, the alternative plea of the assessee shall also be considered and examined by the Assessing Officer. Disallowance of advances given to Australian branch by US branch - The assessee claimed to have given a loan of ₹ 7,20,886/- to its Australia based subsidiary. The assessee claimed that the said loan was given for meeting the working capital requirement of the assessee subsidiary which was also engaged in the same business of software development as of the assessee. The subsidiary has suffered a huge loss and consequently the business was closed. Accordingly, the assessee written off the amount and claimed as bad debt. We find that the facts of the said loan was given by the assessee to meet the requirement of working capital of the subsidiary and the subsidiary was engaged in the same business as of the assessee has not been considered and discussed by the authorities below. The issue has been considered by the various decisions as relied upon by the assessee and found to be an allowable claim when the amount was given for expenses and working capital of the subsidiary which was considered to be for commercial expediency of the assessee’s business. Accordingly, we direct the Assessing Officer to verify the fact as claimed by the assessee that the amount in question was advanced to the subsidiary of the assessee for meeting the working capital requirement and the subsidiary was also engaged in the same business and then decide the matter in the light of various decisions as relied upon by the assessee. Transfer pricing adjustment on account of notional interest on free advance granted to the AE - We note that this issue has been considered by the Tribunal in the number of decisions where the arm’s length rate of interest is considered as LIBOR +2%. In the case of Aurionpro Solutions Ltd.[2013 (11) TMI 806 - ITAT MUMBAI], the Tribunal has held that the loan given to the AE is an international transaction. however, by following the various Judgments of the Tribunal on the issue of rate of interest being arm’s length interest. Exclusion of certain expenses incurred in foreign currency from the total turnover for the purpose of computation of deduction u/s 10A of the Act - The view which we have taken is consistent with the view which was taken, though in the context of section 80HHC, by a Division Bench of this Court in Sudarshan Chemicals Industries Ltd. [2000 (8) TMI 73 - BOMBAY High Court].This decision has been cited with approval by the Supreme Court in Lakshmi Machine Works [2007 (4) TMI 202 - SUPREME Court] . The same view has been taken by the Supreme Court in Catapharma (India) (P.) Ltd. [2007 (7) TMI 203 - SUPREME Court ] in which the decision of the Division Bench in Sudarshan Chemical Industries Ltd.'s case has also been adverted to. Accordingly, in view of the judgment of Hon’ble Jurisdictional High Court, we do not find any error or illegality in the impugned order of CIT(A). - In the result, appeals of the assessee are partly allowed.
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