Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2021 (8) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (8) TMI 911 - AT - Income TaxTP Adjustment - Comparable selection - exclusion of the comparables directed by Ld.CIT(A) i.e. Exensys Software Solutions Ltd.; Thirdware Solutions Ltd., Visualsoft Technologies (Seg.); Sankhya Infotech Ltd. from the final list of the comparables - HELD THAT - We find that the Ld.CIT(A) after considering the material placed on records and has given finding on facts in respect of the functional comparability of the comparables selected by the TPO. The Revenue has failed to effectively rebut the finding of Ld.CIT(A). Moreover, this issue has already been examined in the case of Colt Technology Services India Pvt.Ltd . 2012 (10) TMI 1025 - ITAT DELHI - No reason to interfere in the findings of Ld.CIT(A). Claim of depreciation on software - no ownership claim of the assessee proved - HELD THAT - Undisputedly in this case, the invoices were raised after 15 months as observed by the Assessing Officer. Further, the Assessing Officer has categorically observed that invoices reflected that sales tax/VAT has been charged on sale of goods. Such taxes have been charged in August 2005. He observed that without invoices and charging of sales tax, sale could have not been affected. The assessee had not become the owner of the software wholly or partly before 31.03.2005 hence, on account of ownership claim of the assessee is failed. We are in agreement with the view expressed by the Assessing Officer in our considered view merely downloading of software and providing key to use by the vendor would not ipso facto entitle the assessee for claiming depreciation. Section 32 of the Act provides depreciation on the eligible assets owned wholly or partly by the assessee and used for the business or profession. Hence, the law is clear. There is no ambiguity under the law. Without proper sale, the assessee could not have owned wholly and partly the assets on which depreciation have been claimed. We, therefore, set aside the finding of Ld.CIT(A) on this issue and restore the finding of the Assessing Officer. Working capital adjustment while benchmarking the international transaction of provision of software services - HELD THAT - In view of the direction given by Ld.CIT(A), we hereby direct the TPO to allow working capital adjustment to the assessee. Addition on account of liabilities returned back in relation to acquisition of fixed assets - HELD THAT - applying the ratio laid down by Hon ble Supreme Court in the case of CIT vs Mahindra Mahindra Ltd 2018 (5) TMI 358 - SUPREME COURT and Nectar Beverages Pvt.Ltd. 2009 (7) TMI 5 - SUPREME COURT hence, the amount written back in respect of purchase of fixed assets, being capital in nature, is not a write back of trading liability covered u/s 41(1)We find merit in contentions of the assessee. We, therefore, direct the Assessing Officer to delete the addition made on account of liability written back related to capital assets.
Issues Involved:
1. Exclusion of comparables in Transfer Pricing. 2. Depreciation on software. 3. Retention of Bodhtree Consulting Ltd. as a comparable. 4. Risk adjustment in Transfer Pricing. 5. Working capital adjustment in Transfer Pricing. 6. Taxability of liabilities written back under Section 41(1). Issue-wise Detailed Analysis: 1. Exclusion of Comparables in Transfer Pricing: The Revenue challenged the exclusion of Exensys Software Solutions Ltd., Thirdware Solutions Ltd., Visualsoft Technologies (Seg.), and Sankhya Infotech Ltd. as comparables by the CIT(A). The CIT(A) relied on the decision in the case of Colt Technology Services India Pvt. Ltd. The Tribunal found that the CIT(A) had made a factual determination regarding the functional comparability of the excluded companies and upheld the CIT(A)'s decision, dismissing the Revenue's ground. 2. Depreciation on Software: The Revenue contested the CIT(A)'s decision to allow depreciation on software amounting to ?7,69,371/-. The CIT(A) had allowed the depreciation based on the assessee's claim that the software was downloaded and used in FY 2004-05, despite the invoices being received later. The Tribunal, however, found that the invoices were raised 15 months later and that without proper sale documentation, the assessee could not be considered the owner of the software before 31.03.2005. The Tribunal set aside the CIT(A)'s finding and restored the Assessing Officer's decision to disallow the depreciation. 3. Retention of Bodhtree Consulting Ltd. as a Comparable: The assessee's cross-objection challenged the retention of Bodhtree Consulting Ltd. as a comparable. The CIT(A) retained Bodhtree Consulting Ltd. because it was initially selected by the assessee in its Transfer Pricing documentation. The Tribunal upheld the CIT(A)'s decision, noting that the assessee did not provide sufficient evidence to demonstrate that the initial selection was erroneous. 4. Risk Adjustment in Transfer Pricing: The assessee did not press this ground, and it was dismissed as not pressed. 5. Working Capital Adjustment in Transfer Pricing: The assessee argued that the TPO did not allow the working capital adjustment as directed by the CIT(A). The Tribunal directed the TPO to grant the working capital adjustment, as the CIT(A) had instructed, noting that the CIT DR could not rebut the assessee's contentions. 6. Taxability of Liabilities Written Back under Section 41(1): The assessee contested the addition of ?15,87,816/- on account of liabilities written back related to fixed assets. The CIT(A) had upheld the addition, reasoning that the liability pertained to fixed assets on which depreciation had been claimed. The Tribunal, however, found merit in the assessee's argument that depreciation is neither a loss, expenditure, nor a trading liability under Section 41(1). Citing the Supreme Court's decisions in Mahindra & Mahindra Ltd. and Nectar Beverages Pvt. Ltd., the Tribunal concluded that the written-back liability related to capital assets is not taxable under Section 41(1) and directed the Assessing Officer to delete the addition. Conclusion: The Tribunal partly allowed the appeals of both the Revenue and the assessee, affirming some findings of the CIT(A) and reversing others based on the legal and factual analysis presented.
|