2023 (6) TMI 1118 - ITAT BANGALORE

Capitalisation of Salaries and Wages - HELD THAT:- As respectfully following the above judgment in assessee’s own case for the AY 2015-16 [2022 (5) TMI 1560 - ITAT BANGALORE] in which the expenses incurred by the assessee have been held that “these expenses are revenue in nature, the question of allowability of depreciation or the question of allowing it u/s 35(1)(iv) as Scientific research expenses shall become academic and we are not adjudicating them”. Accordingly we partly allow the ground raised by the assessee.

TP adjustment - addition made to the software development segment (‘SWD’) - HELD THAT:- We deem it fit and proper to restore this issue to the TPO / AO with a direction to the TPO / AO to re-compute the TP adjustment, if any, to the assessee’s SWD segment after including CG Vak Software and Exports Ltd. and RS Software (India) Ltd. in the final list of comparables to this segment.

TP adjustment to its SWD segment is that while computing the ALP of the SWD services segment, the TPO has not considered the segmental date pertaining to the SWD segment - We note from the order passed by the TPO on this application u/s. 154 that the said request for recomputing the TP adjustment has not been considered by the TPO. We deem it fit and proper to restore this issue to the TPO / AO with a direction to the TPO / AO to recompute the TP adjustment, if any, to the Assessee’s SWD segment after taking into consideration only the amounts pertaining to the Assessee’s SWD segment and not to take into account the entity-level data as has mistakenly been done in the TP order.

Adjustment for interest on advances given to overseas subsidiaries and Adjustment made for Corporate guarantee commission - HELD THAT:- We dispose of the grounds raised in this appeal pertaining to two international transactions above by directing the TPO / AO to pass an order in terms of the above provisions modifying the total income of the Appellant in terms of the aforesaid APA subject to the Appellant having filed a modified return of income as is required in law.

TP adjustment on interest on delayed receivables to Overseas subsidiaries - HELD THAT:- As we think it will be appropriate to grant credit period of 45 days and interest is to be calculated using LIBOR 6 months+350 basis points. Accordingly this is sent back to TPO/AO to recalculate the interest on delayed receivables afresh following the LIBOR 6 months+350 basis points. This ground is allowed for statistical purpose.

Disallowance of expenses u/s 14A against exempt income - HELD THAT:- Since Rule 8D has been amended, the AO has to follow the amended Rule 8D. This ground is allowed for statistical purpose.

Taxability of Marked to Market income on reinstatement of forward contracts - HELD THAT:- As relying in the assessee’s own case in AY 2009-10 to 2015-16 [2020 (10) TMI 605 - ITAT BANGALORE],[2022 (5) TMI 1560 - ITAT BANGALORE] we restore this issue to the file of AO with similar directions. The assessee is directed to furnish relevant details to prove that the value of underlying assets is more than the value of outstanding forward contracts as on the balance sheet date.” Accordingly this ground is allowed for statistical purpose.

Disallowance of Setting off the loss arising from SEZ units against income earned by non-tax holiday units - HELD THAT:- As relying assessee's own case in AY 2009-10 to 2015-16 [2020 (10) TMI 605 - ITAT BANGALORE], [2022 (5) TMI 1560 - ITAT BANGALORE] we hold that the loss arising in eligible SEZ/STPI undertakings are not required to be adjusted against the profits arising from other SEZ/STPI undertakings and the said loss can be adjusted against profits arising from non-SEZ/non-STPI units this issue is decided in favour of the assessee.

Taxability of profits from development centers located outside India - HELD THAT:- As CIT(A) has not recorded a finding that such goods or services have been transferred at the market value. In absence of such a finding, it is not possible to uphold the finding of the learned CIT(A). This issue is required to be remitted back to the assessing officer and the assessee will be required to file the relevant details as required by the assessing officer so that the assessing officer can ascertain the market value of such goods or services transferred by arriving at the profit of the eligible business.

Exclusion of “other income” for the purpose of computing deduction u/s 10AA - HELD THAT:- As the income generated on sale of scrap/newspaper should be included in the profits of the undertaking eligible for deduction u/s 10AA - In this year also, the break-up details of “Other income” are not available. Accordingly, we restore this issue to the file of AO with the direction to examine the break-up details of other income which were debited into the profit & loss account in earlier years and decide the issue in accordance with the discussions made supra. Accordingly this issue is partly allowed for statistical purpose.

Rejection of claim for deduction u/s 10AA of the Act in respect of interest income earned by the assessee - HELD THAT:- During the year under consideration, the assessee had earned interest income on short term deposits made out of PCFC Loan and also from Surplus funds. After deducting the interest expenses, there was net surplus of 2.19 crores. AO held that the same is not eligible for deduction u/s 10AA of the Act by observing that there is no relation of interest income with the Software Development Activity of the units claiming deduction u/s 10AA. It is also not akin to investment of surpluses earned and generated from Software Development Activity, which may be regarded as profits and gains of the undertaking to the extent they are held for working capital purpose of the undertaking or units distributed to the shareholders of the company. - As per assessee own case we restore this issue to the file of AO for examining it afresh with similar directions. This ground is allowed for statistical purpose.

Eligibility of the assessee to claim deduction u/s 10AA for deemed exports, i.e., sales made to own units located in SEZs and Indian subsidiaries of Foreign MNCs - claim of the assessee was rejected by the AO by observing that only turnover pertaining to sales outside India is being taken as export sales - HELD THAT:- As relying on Tata Elxsi [2015 (10) TMI 634 - KARNATAKA HIGH COURT] we direct the AO to include deemed exports to SEZ as part of turnover while computing deduction u/s 10AA of the Act. Accordingly this ground is allowed.

Deduction u/s 10AA - whether reimbursements received by the assessee are required to be excluded from the export turnover for the purpose of computing deduction? - HELD THAT:- We restore this issue to the file of AO with the direction to examined the break-up details of reimbursements and follow the directions given in AY 2009-10 to 2014-15 for computing deduction u/s 10AA of the Act. Accordingly, the grounds raised by the assessee is allowed for statistical purpose.

Deduction u/s 10AA - whether the expenditure incurred in foreign currency is required to be deducted from the export turnover while computing deduction - HELD THAT:- We observe that the expenditure incurred outside India for onsite development of computer software is not to be deducted from export turnover. Only the expenditure on telecommunication charges or insurance attributable to the delivery of the computer software outside India or expenses, if any incurred in foreign currency in providing technical services outside India also are required to be excluded from the export turnover. Further , if any amount excluded from the export turnover is required to be deducted from total turnover. An identical issue was examined by the coordinate bench in the assessee’s own case in AY 2009-10 to 2014-15 [2020 (10) TMI 605 - ITAT BANGALORE] Thus we set aside the order passed by AO on this issue and direct him to compute deduction u/s 10AA.

Eligibility of the assessee to claim deduction u/s 10AA of the Act in case of Delayed collections of export proceeds - A.O. rejected the claim of the assessee on the reasoning that mere submission of application by the assessee to RBI is not sufficient to infer that RBI has allowed extension of time for realizing sale proceeds in foreign exchange - HELD THAT:- Since this issue has been decided as stated above for the AY 2015-16 in assessee’s own case [2022 (5) TMI 1560 - ITAT BANGALORE] accordingly, we direct the AO to allow the foreign tax & State Tax paid by the assessee, to the extent not allowed as tax credit u/s 90 & 91 of the Act, as deduction from the business income of the assessee from the respective units.

TDS u/s 195 - disallowance of payment made to M/s. Gartner Group u/s 40(a)(i) for non-deduction of tax at source - assessee submitted that it is covered under exclusion clause of royalty as per section 9(1)(vi) wherein royalty paid for the purpose of business or profession carried outside India or for the purpose of making or earning any income from any source outside India is not regarded as royalty - HELD THAT:- As decided in assessee own case this issue requires fresh examination at the end of AO. If the AO comes to the conclusion that the decision rendered in the case of Engineering Analysis Centre of Excellence P Ltd [2021 (3) TMI 138 - SUPREME COURT] is applicable to the payments made to Gartner group and there is no requirement to deduct tax at source, then there is no requirement of making any disallowance u/s 40(a)(i) - if the AO comes to the conclusion that the above said decision of Hon’ble Supreme Court is not applicable and the assessee is liable to deduct tax at source, then the AO shall grant enhanced deduction u/s 10A/10AA/10B of the Act by increasing the profits of undertaking by the amount of disallowance so made. The assessee is given liberty to raise all contentions in this regard before the AO.

Disallowance of interest expenditure incurred on investment in Foreign Subsidiary u/s 115BBD - HELD THAT:- We are of the view that the A.O. was not justified in invoking the provisions of sec.115BBD for making the impugned disallowance, accordingly, we direct the AO to delete the disallowance u/s 115BBD of the Act, if the assessee has not received any dividend during the year under consideration.

Claim for deduction of Education Cess as expenditure - HELD THAT:- This ground is liable to rejected in view of the amendment brought in by Finance Act 2022 inserting specific provision in the Income tax Act providing for disallowance of Education Cess. A similar issue has been decided against the assessee by the co-ordinate bench of the Tribunal in assessee’s own case - dismiss the ground raised by the assessee.

AO not following the directions issued by the DRP vide its Directions - assessee is contending that although the DRP directed that the deduction u/s 10AA ought to be recomputed by adding back the disallowance of wages capitalized, the AO did not give effect to the said direction - HELD THAT:- On examining the DRP’s directions, we find that such a direction was in fact issued by the DRP. However, we find that while computing the deduction allowable under S.10AA, the said direction of the DRP has not been given effect to. We, therefore, direct the AO to comply with the aforesaid direction of the DRP of the directions and to, accordingly, recompute the deduction allowable to the assessee u/s10AA of the Act.

DRP’s direction that foreign taxes in the nature of VAT or GST have not been added back to the Export Turnover while computing the deduction under S.10AA which has however not been given effect to by the AO in the final assessment order - On examining the DRP’s directions, we find that such a direction was in fact issued by the DRP, we find that while computing the deduction allowable under S.10AA, the said direction of the DRP has not been given effect to. We, therefore, direct the AO to comply with the aforesaid direction of the DRP and to, accordingly, recompute the deduction allowable to the assessee under S.10AA of the Act.

Credit of TDS credit on the basis of additional TDS certificates - AO denied grant TDS credit on the reasoning that the said TDS amount were not reflected in Form 26AS and the ld. DRP has also rejected the objection filed before them - HELD THAT:- If the deductor of TDS has filed the Statement of TDS with the Income tax department, then the said TDS will automatically reflect in Form 26AS. If there is failure on the part of the deductor to file statement of TDS, then it will not be reflected in Form 26AS. In our considered view, the assessee cannot be penalised for the fault of the TDS deductor in not filing statement of TDS. It is also possible that the deductor of TDS would have filed the statement of TDS belatedly - This issue requires verification at the end of AO - we restore this issue to the file of AO with the direction to examine the claim of the assessee and allow TDS credit in accordance with law.

Denial of grant MAT credit of brought forward losses from the previous years when the tax liability was determined under the normal provisions of the Act - HELD THAT:- We find that when this issue was raised before the DRP, the DRP did not examine the Assessee’s claim on the ground that it did not amount to a variation made by the AO to the returned income and that, therefore, it could not adjudicate upon the same. Without going into the merits of the matter, we find that this is an issue that requires to be examined by the AO afresh - restore this issue to the file of AO with the direction to verify the claim of the assessee and accordingly grant MAT credit in accordance with law.