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2023 (11) TMI 1203 - MADRAS HIGH COURT
Suppressed turnover or not - Mismatch of turnover with the data received from Mines Department - tax on on reverse charge for seigniorage fees - Details of computation and information not provided to the petitioner - HELD THAT:- Considering the submissions made by the learned counsel for the petitioner as well as the learned Government Advocate (Taxes) appearing for the respondent, since the petitioner has restricted his submission to the extent of disposal of the rectification application dated 30.05.2023 filed by him or any other applications, if any already filed, the respondent is directed to dispose of the rectification application filed by the petitioner, within a period of three months from the date of receipt of a copy of this order.
All these writ petitions are disposed of.
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2023 (11) TMI 1202 - MADRAS HIGH COURT
Rejection of petitioner's appeal filed under Section 107 of the TNGST Act, 2017 against the order cancelling the petitioner's GST registration - appeal rejected by the second respondent on the ground of limitation as the appeal was admittedly beyond the condonable period of limitation under Section 107 of the TNGST Act, 2017 - HELD THAT:- The petitioner has filed the Appeal on 23.05.2023, when, the amnesty scheme under Notification No.25/2023 – Central Tax dated 17.07.2023 was still in force. Considering the above, Court is inclined to direct the second respondent to dispose of the appeal in the light of the amnesty Scheme. It is made clear that the petitioner shall however comply with the other conditions of the Scheme and also deposit the arrears of tax, forthwith. Subject to such compliance the appeal shall be disposed within a period of four weeks from the date of receipt of a copy of this order.
Petition disposed off.
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2023 (11) TMI 1201 - MADRAS HIGH COURT
Validity of impugned Assessment order - seeking to demand the input tax credit availed by the petitioner on the strength of invoices raised by one M/s.C.A.Gowtham Steels - HELD THAT:- Although the order passed by the respondent cannot be faulted as the petitioner has failed to respond to notice in DRC -01 dated 11.03.2023 issued for the respective Assessment years, the fact remains that the dispute pertains to input tax credit availed by the petitioner on the suppliers allegedly made by M/s.C.A.Gowtham Steels to the petitioner.
Considering the fact that the order has been passed in favour of the petitioner's sister company namely M/s.Tarsun Steels India (P) Limited, Court is inclined to set aside the impugned order and remits the cases back to the respondent to pass a fresh order on merits and in accordance with law. It is open for the respondent to pass a fresh order on merits after considering the aforesaid order of the Central Authority dated 10.02.2023.
Petition disposed off.
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2023 (11) TMI 1200 - AUTHORITY FOR ADVANCE RULING, TAMILNADU
Exemption from GST - hostel accommodation being provided by the Applicant to students and working women - residential dwelling for use as residence or not - tariff heading and the rate of taxability of the supply of service - incidental activity of supply of in-house food to the inmates of the hostel - composite exempt supply.
Whether the hostel accommodation extended by the Applicant hostel would be eligible for exemption under Entry 12 of Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017 and under the identical Notification under the TNGST Act, 2017, and also under Entry 13 of Exemption Notification No. 09/2017-IT (Rate) dated 28.06.2017, as amended? - HELD THAT:- The term ‘residential dwelling’ has not been defined either under CGST Act or under Notification No. 12/2017. However, under the erstwhile service tax law, in paragraph 4.13.1 of the ‘Taxation of Services: An Education Guide dated 20.06.2012’, issued by the CBIC, the expression residential dwelling’ has been interpreted in terms of the normal trade parlance as per which it is any residential accommodation, but does not include hotel, motel, inn, guest house, camp - site, lodge, house boat, or like places meant for temporary stay - It is observed that hostels are nothing but accommodations which provide temporary lodging to the inmates, whether students or working people. Similar to converting a residential dwelling into a hotel and providing hotel services, which eventually makes the same dwelling “non-residential” and taxable, in the instant case, the residential homes (for use as a residence) have been converted into a commercial premises ic., hostel accommodation, thereby losing its status as ‘residence dwelling’ and has become a business premises comparable to a hotel.
The hostel accommodation is not equivalent to residential accommodation and hence the services supplied by the Applicant would not be eligible for exemption under Entry 12 of Exemption Notification No. 12/2017-CT(Rate) dated 28.06.2017 and under the identical Notification under the TNGST Act, 2017, and also under Entry 13 of Exemption Notification No. 09/2017 IT(Rate) dated 28.06.2017, as amended.
Tariff heading and the rate of taxability of the supply of service - HELD THAT:- It is observed that hotels are meant for a temporary stay (2-5 days) and have lot of facilities and staff, but hostels are used for a longer period and have basic facilities with minimal staff required by the inmates to stay at a reasonable rate. Therefore, hostel services cannot be equated to a hotel accommodation and hotel GST rates cannot be applied to a hostel. Therefore, we hold that supply of hostel accommodation services (Tariff heading 9963) is taxable (a 9% CGST + 9% SGST under SI.No. 7(vi) of the above Notification (SI.No. 7 (ix) as per original notification).
In the event of the hostel accommodation being an exempt activity, whether the incidental activity of supply of in-house food to the inmates of the hostel would also be exempt being in the nature of a composite exempt supply? - HELD THAT:- The natural bundle has the characteristic of where one service is the main service and the other services are ancillary services which help in better enjoyment of the main service. Further, there is a single price for the combined services. The principal activity of the Applicant is supply of accommodation Services. While providing such services, the charges are being realised in a consolidated manner for the value of food and other like services rendered. The Applicant has stated that they do not charge separately for the other services provided by them. Thus, the services provided by the Applicant are composite in nature - As per Section 8 of the CGST Act, 2017, for a Composite supply, the tax rate on the principal supply will be treated as the tax rate on the given composite supply. Since the Applicant provides a number of services in a composite manner, the hostel accommodation services provided by the Applicant, being the principal supply, which is taxable @18%, will be tax rate for the composite supply provided by them.
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2023 (11) TMI 1199 - SC ORDER
Constitutional Validity of New Provision 271(1B) - Initiation of Penalty Proceedings - Satisfaction of the AO - Retrospective Amendment by Finance Act, 2008 - appellant and respondent jointly submitted that this appeal has been rendered infructuous in view of the subsequent development namely that the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961 has been deleted and the said order has attained finality.
Taking note of the said fact and also the order of this Court in the case of Union of India and Anr. vs. Ms. Madhushree Gupta [2023 (9) TMI 1046 - SC ORDER] the instant appeal is dismissed as having become infructuous.
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2023 (11) TMI 1198 - SC ORDER
Application filed u/s 154 - seeking tax on interest income at 15%/10% under the DTAA regime by virtue of the Notification No.11438 issued with France - contention of the assessee was also that although the assessee(s) was not having any contract as such during the relevant period it was nevertheless engaged in business in the country and therefore, it was entitled to the benefit of deduction insofar as the expenses incurred are concerned.
HELD THAT:- What is necessary to ascertain at this stage is the reason as to why the assessee(s) sought for rectification u/s 154 of the Act seeking a lesser rate of taxation to be imposed under the DTAA regime if the assessee(s) was not seeking to be taxed under the said regime.
In response to the query of this Court, assessee(s) submitted that although such an application seeking rectification was made nevertheless the assessee(s) was being taxed under the provisions of the Act and was filing returns under the said Act.
We direct the appellant/assessee(s) to produce the copy of the application or petition filed u/s 154 of the Act seeking rectification and also any other pleading or document which can enable this Court to come to a conclusion as to whether the assessee(s) intended to be taxed under the DTAA regime or under the provisions of the Income Tax Act. The order made by the Department u/s 154 of the Act also to be produced by the next date of hearing.
List on 29.11.2023.
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2023 (11) TMI 1197 - ORISSA HIGH COURT
Nature of loss - provisions of diminution of Government of India Fertilizer Bonds [GoI Bonds] - GOI Fertilizer bonds were provided to the respondent in lieu of cash subsidy, thus the reduction in the value of the bonds was claimed as a revenue loss by the respondent as it was incurred in the course of business - HELD THAT:- In DCM Shriram case [2015 (12) TMI 1769 - DELHI HIGH COURT] the Delhi High Court as well as the tribunal from which the appeal was preferred held that the fertilizer bonds were accepted in the course of business in lieu of fertilizer subsidy by the Government of India. The company had no intention to hold bonds as such and the same had been received by the company under compulsion in lieu of cash fertilizer subsidy amount.
Thereby, the loss incurred due to the diminution in the value of the bonds may be regarded as a revenue loss and can be claimed as deduction while computing taxable income for the period under consideration.
The Supreme Court in the case of Patnaik Company Limited [1986 (7) TMI 6 - SUPREME COURT] held that since the investment in the fertilizer bond was made by the respondent under commercial expediency it did not bring an asset of a capital nature and the diminution in the value of the said bond are allowable as revenue loss.
Having regard to the facts of the present case and after placing reliance on the above decisions the claim by the respondent as revenue loss on account of the diminution in the value of the GOI Bonds is held in favour of the Respondent. Thus, the appeal of the appellant on this ground is dismissed.
Nature of expenditure - expenditure on school for the benefit of its employees - whether “school expenses” can be treated as business expenditure? - HELD THAT:- As the words "for the purpose of business" used in section 37(1) should not be limited to the meaning of "earning profit alone". Business expediency or commercial expediency may require providing facilities like school, hospital, etc., for the employees of their children or for the children of the ex-employees. The employees of today may become the ex-employees tomorrow. Any expenditure laid out or expended for their benefit, if it satisfied the other requirements, must be allowed as deduction under section 37(1) of the Act. It may also be stated, as observed in Season J. David and Co. P. Ltd. [1979 (5) TMI 3 - SUPREME COURT] that the fact that somebody other than the assessee is also benefited or incidentally takes advantage of the provision made, should not come in the way of the expenditure being allowed as a deduction under section 37(1) of the Act. But, nevertheless, it must be an "expenditure" allowable as deduction under the Act.
"Expenditure" primarily denoted the ideal of "Spending" or "paying out or away". It is something which is gone irretrievably, but should not be in respect of an unascertained liability of the future. It must be an actual liability in present, as opposed to a contingent liability of the future.
As decided in P. Balakrishnana, CIT v. Travancore Cochin Chemicals Ltd. [1999 (10) TMI 33 - KERALA HIGH COURT] this payment was made towards contribution of the share of expenditure in running of the FACT School, wherein the children of the employees were studying. The expenditure met wholly and exclusively for the welfare of the employees of the assessee not covered under Sections 30 to 36 of the Act and not in the nature of capital expenditure or personal expenses is allowable under Section 37(1). Moreover, the expenditure of this nature leads to an increase in efficiency of the business. Thus, the court held this to be a business expense under 37(1) and also outside the purview of 40A(9).
Tribunal is fully justified in allowing the above expenditure towards contribution for the running of the school, as an expenditure for the smooth functioning of the business of the assessee and also an expenditure wholly and exclusively for the welfare of the employees of the assessee and, thus, allowable under Section 37(l) as well as Section 40A(10) as business expenditure. Thus, the tribunal decided correctly and there is no reason to set aside the orders of the Tribunal.
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2023 (11) TMI 1196 - MADHYA PRADESH HIGH COURT
Reopening of assessment u/s 147 against dead person - obligation on the part of the legal representatives - HELD THAT:- The notice issued in the name of the dead person is unenforceable in the eyes of law. See Savita Kapila Vs. Asstt. CIT [2020 (7) TMI 441 - DELHI HIGH COURT] held that in the absence of a statutory provision it is difficult to cast a duty upon the legal representatives to intimate the factum of death of an assessee to the income tax department - Consequently, the legal heirs are under no statutory obligation to intimate the death of the assessee to the revenue
The notice issued to a dead person for reopening of assessment of a dead person is null and void, this Court holds that the notice and all consequential proceedings arising therefrom in the name of the deceased assessee are not sustainable.
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2023 (11) TMI 1195 - KERALA HIGH COURT
Violation of the procedure prescribed u/s 250 - petitioner’s husband had died and the petitioner being the wife and legal heir of her late husband has filed impleadment application - as alleged no notice of hearing after filing written submission by the petitioner was given to the petitioner fixing the date and place of hearing -- HELD THAT:- From the facts as narrated in the impugned orders itself is evident that after 12.06.2023, no notice of hearing was issued to the petitioner though she had replied to Exhibits P-15 to P-20 Show Cause Notices as well as filed the written submissions on 16.08.2023.
Commissioner (Appeals) was aware of the fact that the petitioner’s husband had died on 09.05.2018 and the petitioner being the wife and legal heir of her late husband has filed impleadment application and also has filed the written submission and responded to the Show Cause Notices. It is therefore incumbent on the Commissioner (Appeals) to fix the date and place of hearing in the appeals and for that purpose a notice ought to have been issued to the petitioner herein as per the provisions of Section 250 of the Income Tax Act. No such notice fixing the date and place of hearing was issued after filing of the written submission by the petitioner.
The present writ petition is allowed and the impugned orders in Exhibits P-34 to P-39 are set aside. The matter is remanded back to the file of the respondent to pass fresh order in accordance with the law. The petitioner is directed to appear before the respondent on 04.12.2023.
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2023 (11) TMI 1194 - ITAT MUMBAI
Allowability of Interest expenses on non-convertible unsecured debentures - Interest rate on a secured loan comparison with interest on unsecured non-convertible debentures for determining the interest rate on different instruments - rate of interest for secured loan at the time of issuance of debentures was 14.10%, however, the assessee has issued debentures at the rate of 21.3% which is much more than the market rate of interest - assessee submitted that during a period of 2014, the interest rate against the secured term loan was in the range of 14%-16.5% and the assessee has itself borrowed a loan on 19/09/2013 at the rate of 14.10% - CIT(A) allowed the ground raised by the assessee on this issue and held that the interest rate on a secured loan cannot be compared with interest on unsecured non-convertible debentures, as for determining the interest rate on different instruments, various factors comes into consideration - HELD THAT:- On the basis of the documents submitted by the assessee, it is sufficiently evident that the interest expenditure on non-convertible debentures was either not debited to the profit and loss account or not claimed to be for the purpose of the project in earlier years unlike in the year under consideration. Thus, we are of the considered view that the issue of allowability of interest on non-convertible debentures, which arose in the present case, did not come up for consideration before the lower authorities in earlier years and therefore, we find no merits in the plea of the assessee that the interest paid on non-convertible debentures has been allowed in the preceding years and following the principle of consistency should be allowed in the year under consideration.
We find that the AO has compared the rate of interest paid on unsecured redeemable cumulative non-convertible debentures with the rate of interest at which the secured loan was borrowed by the assessee, which in our considered view is wholly erroneous as various risks factors associated with unsecured debentures such as credit risk, liquidity risk, etc. cannot be compared with secured interest rate.
Therefore, in order to decide whether the assessee has paid a higher interest rate on non-convertible debentures it is necessary to determine the interest rate on unsecured non-convertible debentures at the relevant time in an arm’s length situation. Accordingly, we deem it appropriate to restore this issue to the file of the AO for de novo adjudication after determining the arm’s length interest rate during the relevant period in case of issuance of unsecured redeemable cumulative non-convertible debentures.
We further find that while making the disallowance AO considered the entire interest at the rate of 21.30%. However, it is to be noted that out of the total finance cost which comprises interest expenses on debentures of Rs. 7851 lakh the assessee has only debited Rs. 4646 lakh to the profit and loss account and the balance amount of Rs. 3387 lakh has been allocated to the capital work in progress. Thus, while adjudicating this issue if it is found that the assessee has paid higher interest than the arm’s length rate of interest then the disallowance of excess interest paid on non-convertible debentures be made proportionate to the interest debited to the profit and loss account and not the entire interest at the rate of 21.30% on non-convertible debentures.
During the hearing, the assessee also placed reliance upon CBDT Circular No. 6P dated 07/06/1968 to submit that there is no tax evasion as Kapstone Construction Pvt. Ltd. is also taxed at a maximum rate of tax. We direct the AO to examine this aspect while conducting the de novo assessment on this issue. With the above directions, this issue is restored to the file of the AO, and the impugned order passed by the learned CIT(A) is set aside to this extent. Accordingly, grounds no. 1 and 2 raised in Revenue’s appeal are allowed for statistical purposes.
Disallowance of deduction claimed u/s 80G - Corporate Social Responsibility (“CSR”) expenses not allowed u/s 37 - AO held that the amount has not been paid by the assessee voluntarily to become eligible for entity specified u/s 80G - HELD THAT:- We find that the coordinate benches of the Tribunal have consistently taken the view in favour of the taxpayer and held that the CSR expenses even though not allowed under section 37 of the Act pursuant to insertion of Explanation-2 to section 37 vide Finance Act, 2014 with effect from 01/04/2015. However, the said expenditure is allowable under section 80G of the Act. No infirmity in the impugned order passed by the learned CIT(A) in allowing the claim of deduction under section 80G of the Act on CSR expenses incurred by the assessee
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2023 (11) TMI 1193 - ITAT BANGALORE
Estimation of income from contract business - splitting of turnover/business income - declaring profit @ 6% u/s 44AD - whether reference can be drawn from the rate specified under the provisions of section 44AD in order to estimate income from contract business? - as submitted that the AO has accepted business income offered by the assessee @ 6% on the part turnover and for the rest of turnover he fairly submitted that Net Profit @ 8.5% may be adopted in the absence of books of account and audit report - DR objected that assessee has wrongly field return of income and split its turnover in two parts - assessee has offered Income from Other sources showing gross receipt and claimed expenditure u/s. 57, for which the assessee was unable to produce any documentary evidence
HELD THAT:- Assessee is a contractor and has received payment from Mysore City Corporation for which the contractee has deducted TDS u/s. 194C. In the assessment order the AO has noted that assessee has split business income which shows that the AO has accepted that it is business income of the assessee.
There is no doubt that the amount received by the assessee from Mysore City Corporation should be considered under Chapter IV – Part D - Profits & gains of business or profession. We further note that on the amount the assessee has offered it as business income during the impugned assessment year declaring profit @ 6% u/s 44AD to which the AO has accepted.
Therefore, the rest of the amount should have also been considered by the AO under Chapter IV – Part D - Profits & gains of business or profession. During the hearing, the ld. AR fairly offered 8.5% Net Profit rate looking to the past trend of the assessee which is fair enough as profit of the business of the assessee shown under the head Income from Other Sources and accordingly in the peculiar facts of this case, we hold that Net Profit @ 8.5% is to be adopted on the balance turnover of Rs. 3,09,23,045. Appeal by the assessee is partly allowed.
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2023 (11) TMI 1192 - ITAT MUMBAI
MAT computation u/s 115JB - quantification the brought forward book losses or unabsorbed depreciation in arriving at the taxable book profits of the appellant for the concerned assessment year - HELD THAT:- As we find that assessee has submitted calculation of book profit and losses according to form number 29B certified by the chartered accountant as per letter dated 28/4/2023 wherein the computation of details of brought forward losses/unabsorbed depreciation as per books of accounts is certified by the chartered accountant. Therefore, we direct the learned assessing officer to compute the book profit in accordance with the law and grant deduction to the assessee of brought forward losses as per books of accounts or unabsorbed depreciation as per books of accounts whichever is less.
The computation of the book profit made by the assessee shows that the net profit as per profit and loss account is ₹ 61,405,646/-. If brought forward of unabsorbed depreciation, which is lower of the brought forward losses and unabsorbed depreciation of ₹ 315,453,321/– is allowed, the book profit would be, subject to taxation under section 115JB of the act is Rs Nil. Even if all the issues with respect to book profit computation were held against assessee, the Income U/s 115JB would be Nil. Therefore we set-aside the issue back to the file of the learned assessing officer to compute the book profit or loss after verification of the above certificate in form no 29B u/s 115JB of the Act, after giving an opportunity of hearing to the assessee.
Addition u/s 68 being share application money received by the assessee - assessee has received share application money through bank remittance from NSR PE Mauritius LLC - AO held that it is not accepted that any wise business-persons will invest huge money in such apparently loss making company and held that the nature and source of funds received by the assessee have not been offered to his satisfaction - HELD THAT:- Irrespective of the newspaper reports, irrespective of violation of FEMA , unless it affects the issue under The Income tax Act, addition under section 68 of the income tax act is required to be tested based on identity and creditworthiness of the investor as well as the genuineness of the transaction.
Before us, the revenue authorities are only aggrieved with the genuineness of the transaction. Despite our query, we have not received any communication such as due diligence made by the PE investor, which is the main price negotiation therefore it is clear that such an investor does not make investments without appropriate due diligence.
Further correspondences made with investor are also not shown to us. It is also not shown that how the investors were identified and invited for making investments. However, investor is stated to be a leading PE investor in the country, but it is clear that such investors make investments after putting lot of activities, price negotiation, etc. Therefore, this issue needs to be seen in totality of the facts.
Absence of one evidence or presence of some other evidence is crucial to decide the genuineness of the transaction. As the coordinate bench has already directed the revenue in the order for the earlier assessment year, therefore, we set-aside this issue back to the file of the learned assessing officer to consider all these evidences furnished by the assessee, information received from Mauritius tax authorities, investment strength of the investor, investment made by the investor etc. Thus, ground numbers 1 – 3 of the appeal of the learned AO are restored back to the file of the learned AO to examine the transaction as per parameters of section 68.
Nature of expenditure - animated character episodes and in-house cost of production programme - direction of CIT – A to consider 85% of the amount as revenue expenditure and the rest of the amount to be allowed over a period of three years in three equal installments - AO holds that assessee has acquired perpetual rights and the same constitutes intangible assets to be categorized as a capital asset and therefore 85% of the cost cannot be allowed as revenue expenditure - HED THAT:- Sum representing the spending on animated character episodes needs to be allowed fully in the current year. These episodes are produced by third party at a fixed cost per episode and provided to the company monthly for telecasting on the channels. Thus, it is clear that that animated character episodes are telecast on the channel in the same month of delivery. Therefore to that extent the learned assessing officer is directed to follow the order of the coordinate bench for assessment year 2008- 2009 [2017 (5) TMI 527 - ITAT MUMBAI] and allow the cost which has been telecast in the same year.
With respect to the in-house production cost should also receive the same treatment i.e. that if the in-house production programs are telecast, the cost of such production should be allowed to the assessee in the year in which it is telecast. Therefore, we hold that the direction of the learned CIT – A to consider 85% of the amount as revenue expenditure and spread the rest of the amount over a period of three years in three equal installments is without any logic and support of law.
The revenue expenditure incurred by the assessee should be allowed in the year in which those expenses are incurred and if there is capital expenditure than they are subject to depreciation. There cannot be any formula to allow expenditure in various years in equal installments because it does not have support of law. Whenever the honourable courts have taken such a view is only because of the concession of the assessee as alternative.
Decision of Madras Industrial Investments corporation [1997 (4) TMI 5 - SUPREME COURT] also supports this view where in it has been held that Ordinarily, the revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. Facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years.
Disallowance u/s 40 (a) (ia ) - TDS u/s 194C or 194J - carriage fees and channel placement fees - claim of the revenue is that those payments are made for use/right to use of process are royalty as per explanation 6 to section 9 (1) (vi) of the act and therefore such payments are covered under section 194J - claim of the assessee is in this case the tax has been deducted under section 194C of the act at the rate of 1% whereas the learned assessing officer felt that it should have been at the rate of 10% under section 194J - HELD THAT:- This issues is covered in favour of the assessee by the decision of NGC Networks (India) Pvt. Ltd [2018 (5) TMI 1148 - BOMBAY HIGH COURT] wherein it has been held that a party cannot be called upon to perform an impossible Act i.e. to comply with a provision not in force at the relevant time but introduced later by retrospective amendment. Honourable court relied upon the co-ordinate bench decision in the case of Cello Plast [2012 (8) TMI 527 - BOMBAY HIGH COURT] wherein the legal maxim lex non-cogit ad impossibilia (law does not compel a man to do what he cannot possibly perform) was applied.
Honourable High court noted that Explanation 6 to Sec.9(1)(vi) was introduced in 2012 w.r.e.f 1976. Therefore, it was held that the assessee could not have contemplated at the time of deduction of tax u/s 194C that deduction of tax would be required u/s 194J due to future retrospective amendment. It was also noted that Sec.40(a)(ia) refers to Explanation 2 to Sec.9(1)(vi) and not Explanation 6 to Sec.9(1)(vi) for the meaning of royalty. Thus, Honourable High court held that the disallowance of expenditure u/s 40(a)(ia) can only be if the payment is 'Royalty' in terms of Explanation 2 to Sec.9(1)(vi). Since, the payment made for channel placement as a fee, is not royalty in terms of Explanation 2 to Sec.9(1)(vi), no disallowance of expenditure can be made u/s 40(a)(ia). No infirmity can be found in the order of the ld CIT [A]. Accordingly, ground number 5 – 7 of the appeal of the learned assessing officer is dismissed.
Addition being the surplus on demerger of entertainment channel undertaking to the book profit computed u/s 115JB - HELD THAT:- Appropriation account is the part of profit and loss account. If the same amount is credited to the profit and loss account, why it is not considered for the purpose of provisions of section 115JB of the act is not comprehensible. Undisputedly the assessee has sold its general entertainment channel business and has earned a profit, which is credited to the profit and loss account whether below the line or above the line does not make any difference. Further, there is no direction of the honourable High Court approving the scheme that the amount requires to be credited below the line and not in the normal profit and loss account. Further we found support from the decision of Varun Corporation [2023 (8) TMI 884 - BOMBAY HIGH COURT] where in loss arising on demerger was not allowed to be added to increase the book profit. In view of above, we do not find any infirmity in the order of the learned CIT – A. Accordingly we dismiss ground number 1 of the appeal of the assessee.
Addition to the book profit of amount representing provision for doubtful advances to the book profit - HELD THAT:- As claim before us that the "book debt" is not an asset which can diminish in value and hence the provisions thereof is not covered by the requirement of disallowance of such provision for deduction to the value of the asset. We do not find any reason to agree with the argument of the learned authorized representative because the "book debts" are the assets of the company and by making a provision for bad and doubtful debts, there is a provision of diminution in the value of such book assets. Accordingly we do not find any infirmity in the order of the learned CIT – A and ground number 2 of the appeal is dismissed.
Addition to the book profit on account of disallowance u/s 14A - HELD THAT:- As there is no exempt income earned during the year. If there is no exempt income earned during the year, there cannot be any disallowance under section 14 A of the act for the impugned assessment year. Therefore, naturally, there is no adjustment required to the book profit as such.
Disallowance of legal and professional fees paid to Ernst & young for services rendered in connection with providing assistance in relation to the demerger of general entertainment channel business of the appellant - AO applying the provisions of section 35DD of the act disallowed the above sum and allowed 1/5th of such expenditure as deduction - HELD THAT:- We find that the expenditure incurred by the assessee admittedly is in case of demerger. According to provisions of section 35DD if the assessee incurs any expenditure only and exclusively for the purpose of demerger of an undertaking, the assessee shall be allowed deduction of an amount equal to 1/5 of such expenditure for each of the five successive previous years beginning with the previous year in which demerger takes place. Accordingly, the lower authorities are correct in applying the provisions of section 35DD of the act. However, the assessee should be allowed balance 4/5th of such expenditure in successive previous years.
Mismatch between the books of the assessee as well as in information contained in form number 26AS - HELD THAT:- Many of the parties did not respond and to many of the parties the enquiry letters could not be served. The outcome of this enquiry was made known to the assessee. Despite this, no effort was made to reconcile the amount, therefore, we do not find any reason to interfere in the findings of the lower authorities. However, it has been claimed before us that there is no transaction entered into by the assessee with some of the parties. Further, it was stated that the total receipts shown by the assessee is ₹ 78.23 crores whereas the AIR information is with respect to only ₹ 16.49 crores. We restore ground back to the file of the learned assessing officer directing the assessee to produce the reconciliation of the above amount and to show that how the assessee says that it has not transacted with some of the parties. Assessee is also directed to show whether in the total receipts shown in books of accounts, all the receipts mentioned in form no 26 As is included. Therefore, one more opportunity is granted to the assessee to explain the difference with the parties with which it has transacted.
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2023 (11) TMI 1191 - ITAT MUMBAI
Estimation of income - bogus purchases - CIT(A) has restricted the addition to the extent of 25% of the bogus purchases - revenue has filed appeal before the ITAT Pune which was dismissed because of low tax effect - HELD THAT:- After perusal of the material on record we find that before the CIT(A) assessee has produced copy of purchase register, sale register, ledger purchase invoices stock movement, copy of bank statement etc. to prove the genuineness of the purchases. It is also noticed that assessing officer has not doubted the corresponding sales made by the assessee. If such purchases are treated as non-genuine then the corresponding sales should also be considered as non-genuine.
Therefore, we consider that in such types of transaction only the profit margin embedded in such transaction could be taxed. In such type of cases the assessee procures the material from the grey market by paying cost and as the bills are not available for such transaction, obtains bills from third party who after receipt of cheque from the assessee making him available the cash after deducting its commission. Since the sales were not doubted therefore it was proved that assessee was actually in possession of goods. The assessee has been benefitted by receiving margin of grey market.
We consider that the addition to the extent of profit element embedded in the amount of purchases made from the said party is to be added. We consider it fair and reasonable to restrict the disallowance in the case of the assessee to the extent of 4% of the impugned purchases made by the assessee from the said party. Accordingly, the appeal of the assessee is partly allowed.
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2023 (11) TMI 1190 - ITAT PUNE
TP Adjustment - Allocation of Common Cost - Assessee while working out the allocation has considered the number of manhours spent on Direct cost as the basis for allocation - assessee had applied Technical Manpower-Ratio for allocation of G & A expenses - HELD THAT:- G&A expenses are general in nature like Legal, Audit, HR, Corporate Planning, Finance, Communications cost, Cost of Laptop computers used, etc., therefore the application of Technical Manpower ratio by the assessee in its working submitted to TPO is, conceptually wrong and the formula applied by the assessee may not be able to arrive at an appropriate profit level indicator.
Therefore, for all the reasons discussed, the working submitted by the assessee is rejected. These services have been provided by 415 employees of the assessee from India. However, nowhere the Assessee has submitted Actual Number of Employees working in various branches situated outside India. The Actual Number of employees working in various branches situated outside India, are important because the man-hour spent by HR team, manhour Spend by Account Team to prepare the monthly payment sheet, etc depend on the actual number of employees working in these branches.
The communication expenses which is part of G & A depends on the number of employees of the Branches who availed these services. Also, the actual number of employees in the Branches are required to understand the utilisation of Communication Cost. We have already made it clear that all these details have nowhere been placed on records on behalf of the assessee. We have already mentioned that the Assessee has not categorically mentioned the basis of Common Cost Allocation in the Transfer Pricing Study Report, to that extent the Transfer Pricing report is unclear.
Therefore, we agree with the TPO’s calculation of allocation based on the direct cost as it is the best suitable basis for allocation of Common Cost of G&A. Because the direct cost is easily available and verifiable. The onus is always on the assessee to file all necessary details before the TPO to prove the allocation. In this case the assessee failed to file all the essential details even before us. Therefore, the allocation made by the TPO is sustained. Accordingly, the Ground Number 5 of the assessee is dismissed.
Entity Level PLI - It is an accepted fact that there are independent different Segments. The assessee during Transfer Pricing Proceedings had submitted Segmental PLI working. This explains that there are different segments. In this case the transactions with the Non-AE are 89.59%, it means the transactions with the Non-AE independent entities are almost 90%. It means the entity level profit is mainly influenced by the 90% transactions which are with the Non-AE. Therefore, considering the Entity Level PLI will give distorted results as it is affected by 90% transactions which are with the Non-AE. Therefore, in these facts and circumstances of the case we reject the Assessee’s plea that Entity Level PLI shall be considered for bench marking transactions with the AE.
Comparable selection - Exilant Technologies Pvt. Ltd's Annual Report is only for the period 01.04.2017 to 14.02.2018. It is also observed that during the year 99% of its shares have been acquired by Quest Global Engineering. There are also another extraordinary events like sale of subsidiaries during the year. It is also observed neither TPO, nor DRP has discussed these events in the orders, though they are very much obvious from the Annual Report. In these facts and circumstances of the case, since Annual Report is not available for the entire year and presence of extraordinary events, we hold that Exilant Technologies Pvt. Ltd., cannot be included in the comparables for the present year. Accordingly, the TPO is directed to exclude Exilant Technologies Pvt. Ltd., from the list of comparables.
E-Infochips Pvt. Ltd - There is Revenue from Sale of Products. It is also having the activity of ITES as mentioned in the Annual Report filed by the assessee. However, the assessee is not into any trading activity. Therefore, assessee’s segment of software development cannot be compared with E-Infochips Pvt. Ltd., as it also has trading activity and ITES, in the absence of segmental accounts. TPO and DRP has not discussed these issues. However, on the facts and circumstances of the case, we hold that E-Infochips Pvt. Ltd., is not comparable to Software Development Segment of the assessee. Accordingly, TPO is directed to delete the E-Infochips Pvt. Ltd., from the list of comparable.
Nihilent Ltd. as seen from the description of the services provided in the Annual Report that these services are functionally dis-similar to the services provided by assessee, hence, it is not functionally comparable. Hence, the TPO is directed to delete it.
Cybage Software Pvt. Ltd is also into ITES, BPO Services. It is also mentioned that Cybage Software (P) Ltd., is also involved in branding creative production, content marketing, campaign management.Therefore, we are convinced that Cybage Software (P) Ltd., is functionally dis-similar and hence cannot be accepted as comparable. Accordingly, TPO is directed to delete Cybage Software (P) Ltd., from list of comparables.
Ninestars Information Technologies Ltd. - We could not specifically observe that Ninestar Information Technologies Private Ltd., is in the business of Software Development Services. Therefore, based on the cryptic information available in the Audit Report, it is not possible to understand actual functions performed by Ninestar Information Technologies Pvt. Ltd. Hence, Ninestar Information Technologies Pvt. Ltd., is held to be functionally not comparable with the assessee. Accordingly, the TPO is directed to delete the comparable.
Disallowance u/s 14A - mandation of recording of satisfaction by AO - HELD THAT:- As respectfully following Hon’ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd [2023 (2) TMI 868 - BOMBAY HIGH COURT] ITAT Pune’s decision in assessee’s own case [2020 (3) TMI 222 - ITAT PUNE] since no satisfaction has been recorded by the AO the disallowance u/s14A is not sustainable. Accordingly, the AO is directed to delete the addition made u/s 14A of the Act.
Additional claim of deduction u/s 90 by filing a letter before AO which was not claimed in the Return of Income - AO rejected the said claim as it was not claimed in the Return of Income - HELD THAT:- We set-aside the issue to the Assessing Officer for de-novo verification. Accordingly, Ground No.10 is allowed for statistical purpose.
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2023 (11) TMI 1189 - ITAT JAIPUR
Foreign tax credits u/s 90/90A - claim rejected as not claimed in the original return of income - assessee has filed Form 67 for claiming relief - Assessee argued even the filling the revised ITR time was not available to the assessee when the assessee got the information for the foreign tax credit to be claimed on the same income offered in the Indian tax return, so moved the rectification application which was rejected even though the assessee filed the form no.67 to claim the credit on the ground that the claim is not in the ITR filed - HELD THAT:- Considering the claim of the assessee a fresh is decided in the judgment of the co-ordinate bench in the case M/s. Rajasthan State Seeds and Organic Production certificate Agency [2016 (3) TMI 1469 - ITAT JAIPUR] CIT(A) being an appellate authority ought to have considered the assessee's claim which was purely legal in nature and the reservation as contemplated by in the Goetze India Ltd. vs. CIT [2006 (3) TMI 75 - SUPREME COURT] is applicable to AO and not to the appellate authority. We are of the view that assessee's claim should have been considered and appropriate relief in accordance with law may be provided. In view thereof, we set aside the matter to the file of the Id. AO to consider the assessee's claim afresh by providing adequate opportunity of being heard.
Also decided in Juan Miguel Guerrero Ferrer [2023 (9) TMI 1401 - ITAT JAIPUR] as held neither section 90 nor DTAA provides that FTC shall be disallowed for non compliance with any procedural requirements. Since FTC is assessee’s vested right as per Article 22(2) of the DTAA read with section 90 and thus same cannot be disallowed for non compliance of procedural requirement that is prescribed in the Rules.
Rule 128 is a procedural provision and not a mandatory provision - it provides that Form 67 should be filed on or before the due date of filing the return of income as prescribed u/s 139(1) - said Rule nowhere provides that if the said Form 67 is not filed within the above stated time frame, the relief as sought by the assessee under section 90 of the Act would be denied.
In case the intention of the Act or Rule was to deny the FTC, then in that eventuality either the Act or the Rules would have specifically provided that the FTC would be disallowed if the assessee does not file Form 67 within the due date prescribed u/s 139(1) - Thus filing of Form 67, in our view, is a procedural/directory requirement and is not a mandatory requirement. Decided in favour of assessee.
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2023 (11) TMI 1188 - ITAT JAIPUR
Estimation of income - bogus purchases in diamond business - assessee is engaged in the business of purchase, sale, manufacturing and trading of gold jewellery with diamond and color stones, diamond and gems stones - HELD THAT:- Considering the nature of business of the assessee whether the same are at inflated or are at prevalent market rate. The sales and quantity records are not disputed.
Estimating the profit @ 25 % based on the facts that the purchase is tainted - So far as the decision relied upon for estimate of the profit @ 25 % we note that there were issues as to quality of the goods and in fact in some cases observed that the goods in fact not been delivered or denied to have purchased. Not only that, the rate @ 25 estimated is related to the food and oil industries where the prices are very low and always in demand. The case of the assessee relates to the costlier jewellery items where the profit margins are very thin and thought cut competition exist and profit margin are very low.
Referring to instructions no. 2/2008 dated 22.02.2008 the board clarified that the profit in this business if disclosed @ 6 % is desirable. As regards the exception we note that in the case of the assessee there is no search conducted only the information shared and it is not disputed that the assessee is in receipt of the goods. In this line of business the Board has clarified that Diamond business, if an assessee declare a sum equal or to higher than 6 % of his turnover from such business.
Since this being the first year there is no opening stock. Thus, the profit as worked for this business is 5.96 % [ 19,01,950/- /3,19,10,125/-= 5.96 % ]. Since, the assessee has already disclosed profit @ 5.96 % we considered deem it fit to estimate @ 6 % as against the 25 % estimated by the lower authorities. The exemption of the circular cannot be applied as the premises of the assessee is not subjected search and even the assessment is not re-opened based provision of section 153A / 153C of the Act - Appeal of the assessee is partly allowed.
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2023 (11) TMI 1187 - ITAT MUMBAI
Deduction u/s 36(1)(iii) - Interest on Overdraft / borrowings - assessee has given loans and advances to subsidiary company - assessee submitted before the assessing officer that own funds are available and that there is no borrowing to state that there has been diversion of funds and nterest cost debited to the P&L Account is mainly towards bank guarantee charge which is required to be submitted to BSE / NSE towards margin for trade executed on behalf of the clients - HELD THAT:- With regard to the interest on bank overdraft, we notice that as per the submissions it is paid towards the temporary overdraft facility to meet the margin requirements for trades executed on behalf of the various institutional clients.
CIT(A), in his order has given a finding that there is a direct nexus between the interest on OD account and the broking business of the assessee. With regard to the bank guarantee, we notice that the same is required to be submitted to BSE / NSE towards margin call trade executed on behalf of clients and that the assessee has submitted sample copies of the bank guarantee issued in favour of exchangers before the lower authorities.
The third item in the finance cost is the bank charges debited by the bank towards various banking related activities. The entire finance cost debited by the assessee in the P&L Account are not towards any borrowings which is claimed to have been used for lending interest free loans. These costs have a direct nexus with the business of the assessee, i.e. stock broking for institutional clients since it is incurred to meet margin requirements of trade executed for assessee's clients. We further notice that the CIT(A), has given a categorical finding Therefore finance cost should be allowed as a deduction under section 36(1)(iii) of the Act. This ground of the assessee is allowed in favour.
Nature of loss - addition towards Business loss held as Speculation loss - AO held that the assessee has derived the loss from the trading of purchase and sale of shares that is settled otherwise than the actual delivery, thus treated the loss as arising out of speculative transaction as per provisions of section 43(5) and held the same as not to be allowed - CIT(A) held that the AO has given a categorical finding with regard to the assessees involved in business of trading in securities predominantly and derivatives to a lesser extent, thus upheld AO order - HELD THAT:- AO has considered the net loss computed by the assessee in the computation of income and has treated the same as speculative. On further perusal of the computation we notice that the said loss is computed after making various adjustments towards suo motu disallowances and items considered separately. Therefore, we are unable to appreciate the basis on which, AO has come to the conclusion that the loss computed by the assessee is arising out of share trading. CIT(A) also has completely ignored the various submissions made by the assessee on the merits of the issue but has simply relied on the finding given by the AO that the income is arising out of share trading.
Assessee is not deriving any income out of share trading that is speculative in nature and, therefore, the finding given by the lower authority stating that assessee is involved in speculation is factually incorrect - This ground of the assessee is allowed in favour.
Disallowance of bonus - HELD THAT:- From the perusal of details submitted by the assessee before the Assessing Officer we notice that the assessee has submitted relevant details to substantiate the payment of bonus to the employees. We also notice that the assessee has made a suo motu disallowance towards unpaid bonus.
Assessee has also furnished the employee wise bonus paid details, tax deducted there from, details of payment etc., which have been not considered by the assessing officer. From the perusal of the facts and records submitted before us it is clear that the assessee has claimed the deduction towards bonus based on actual payment and has suo moto disallowed the un-paid bonus. Lower authorities are not correct in making the disallowance by completely ignoring the various factual submissions made by the assessee and accordingly, we delete the disallowance. This ground is allowed in favour of the assessee.
Disallowance u/s 14A r.w.r. 8D - assessee made a suo motu disallowance - HELD THAT:- On perusal of materials on record, we notice that the assessee has incurred the expenditure towards depository charges. We notice that the depository charges are incurred for opening the Demat account which is a statutory requirement for the members of NSE / BSE. Therefore there is merit in the contention that the said expense is incurred in the normal course of broking business and accordingly we hold that the depository charges should not be disallowed under section 14A r.w.r. 8D(2)(i).
With regard to disallowance under rule 8D(2)(iii), it is now a settled position that the investments that are yielding exempt income only should be considered for the purpose of disallowance. Therefore we direct the assessing officer to recomputed the disallowance under section 14A r.w.r 8D(2)(iii) taking into consideration only those investments which are earning tax free income and also take into account the suo moto disallowance made by the assessee.
Adhoc disallowance of 25% of the entire expenditure u/s 37(1) - HELD THAT:- As books of accounts are subject to audit and there is no finding given by the auditors stating that the expenses include anything of personal nature. The lower authorities have made the adhoc disallowance by stating that the certain expenses are claimed through self made vouchers, without recording any specific adverse finds with regard to the various details furnished by the assessee. We also notice in this regard that the lower authorities did not call on the assessee to submit any further details nor did they confront the assessee with any defects in the supporting documents filed by the assessee.
Given the volume of expenditure incurred by the assessee towards various expenses and considering the fact that assessee is part of IDFC in which government holds shares, the lower authorities are not correct in making adhoc disallowance without any specific adverse findings with regard to the details furnished substantiating the expenses. Accordingly we hold that the adhoc disallowance made by the assessing officer without recording any specific adverse finding with regard to the expenditure incurred is not tenable.
Disallowance of Professional fees paid - assessee has paid an amount to IDFC Capital (USA) Inc. towards rendering of marketing support services - AO held that the assessee has not met the basic requirement of transfer pricing documentation and compliance as per the Indian Transfer Pricing Regulations, inspite of having international transactions with IDFC (USA) Inc - HELD THAT:- We notice that the Central Board of Direct Taxes, vide instruction no.3/2016 dated 10th March 2016 has issued Guidelines for Implementation of Transfer Pricing Provisions replacing the Instruction No. 15/2015 dated 16th October 2015.
From the above it is clear that AO does not have the jurisdiction to propose any transfer pricing adjustment in case where he has not made any reference to the TPO. Therefore the additional made by the assessing officer towards transfer pricing adjustment is not tenable and is deleted. This ground is allowed in favour of the assessee.
Assessee did not submit any justification or documentary evidence substantiating the provision made towards professional fees paid to AE. - We therefore remit the issue back to the assessing officer to examine the issue afresh by calling for relevant details and decide the allowability of the claim in accordance with law. The assessee is directed to submit the required details as may be called for and cooperate with the proceedings. It is ordered accordingly.
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2023 (11) TMI 1186 - ITAT DELHI
Income taxable in India - sale of off the shelf software considered treated as royalty - HELD THAT:-This issue is no more res integra as the quarrel has been settled by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt Ltd. [2021 (3) TMI 138 - SUPREME COURT] held that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software.
Revenue from sale of off the shelf software to two new companies which were not there in the earlier - Since the ld. counsel for the assessee has fairly conceded that the revenue from these two companies are not covered by the agreement and the agreements are also not available, therefore, these companies may be taxed in the hands of the assessee as royalty - we direct the AO to consider revenue from these two companies as royalty and tax as per the relevant provisions of the Act.
Receipts for use of telecom bandwidth facility - considered as royalty and /Fees for technical services - India-Singapore DTAA - HELD THAT:- As decided in Planetcast International Pvt Ltd [2023 (8) TMI 30 - ITAT DELHI] no corresponding amendment in line with the amendment brought to section 9(1)(vi) of the Act has been made to Article 12(3) of India-Singapore DTAA. Therefore, in absence of any such amendment widening the scope of expression ‘royalty’ under the treaty provisions, the amendment made to section 9(1)(vi) of the Act cannot be automatically brought or imported to Article 12(3) of India- Singapore DTAA, as the treaty provisions have to be construed strictly in accordance with the language used in the provision. Thus, we hold that the receipts from internet bandwidth charges cannot be treated as royalty income under Article 12(3) of India-Singapore DTAA. Accordingly, we direct the Assessing Officer to delete the addition.
Receipts from providing information technology related support services- considered as royalty and/fees for technical services - India Singapore DTAA requires that services should be such that enable the person acquiring the services to apply the technology contained therein - claim of the assessee is that the services do not result in transmitting technical knowledge - HELD THAT:- We find that under identical situation, this Tribunal in the case of Planetcast International Pte Ltd [2023 (8) TMI 30 - ITAT DELHI] had held that while running the services, the assessee has not made available any technical knowledge, experience, skill in terms of Article 12(4)(b) of the DTAA and as such, receipts in question were not FTS liable to tax in India.
Thus we are of the considered view that payments received from Mphasis Ltd were not covered by Article 12(4) of the India Singapore DTAA. This addition is, accordingly, directed to be deleted.
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2023 (11) TMI 1185 - ITAT DELHI
TP adjustment - Comparable selection - provision of software development services rendered by the assessee - assessee is primarily engaged in the business manufacturing of automotive components - HELD THAT:- E-Infochips Bangalore Ltd should be excluded from the final set of comparables while benchmarking the software development services of the assessee as it is engaged in both IT as well as ITES. Further, the comparable company is also engaged in hard core reengineering apart from earning revenue from sales of computer software and products. The segmental data does not give break up of revenue bifurcating the revenue as well as the margins earned from aforesaid different streams of income. Hence, the margin on software development segment alone cannot be properly deduced from the data available in the audited financial statements of the comparable company.
Exclusion of Sonata Software Ltd - We deem it fit to restore the inclusion of this comparable alone to the file of the ld AO/ TPO for verification of the facts of the aforesaid table i.e. partywise details submitted by the ld AR herein above. If on verification, it is found that the aforesaid details mentioned by the ld AR are correct, then the said comparable should be excluded from the final list of comparables while benchmarking the international transaction of software development segment of the assessee.
Exclusion of Infosys Ltd - Infosys Ltd should not be treated as a comparable with low risk Captive Service Provider like that of the assessee company. Accordingly, we direct the ld AO/ TPO to exclude Infosys Ltd from the final set of comparables while benchmarking the international transaction of software development segment.
Exclusion of Thirdware Solution Ltd - We find that the Hon'ble Delhi High Court in the case of PCIT Vs. Open Solution Software Service Pvt. Ltd [2020 (5) TMI 440 - DELHI HIGH COURT] had upheld the findings of the Tribunal that in the absence of segmental data to work out the separate margins from software services, Thirdware Solutions cannot be held to be comparable with any assessee engaged in software development. Similar view was also taken in the case of PCIT Vs. FISERV India Pvt. Ltd [2016 (1) TMI 1276 - DELHI HIGH COURT] Hence respectfully following the aforesaid decisions of Hon’ble Jurisdictional High Courts, we hold that Thirdware Solution Ltd should be excluded from the final list of comparables while benchmarking international transaction of software development segment of the assessee.
Exclusion of Persistent Systems Ltd to be functionally not comparable with that of the assessee company and also in the absence of segmental data. Accordingly, we direct the ld AO/ TPO to exclude the same from the final set of comparables while benchmarking international transaction of the assessee in respect of software development segment.
Exclusion of E-Zest Ltd comparable company is rendering product development services and high end technology services which come under the Knowledge Process Outsourcing (KPO) services and cannot be comparable with Captive Software Development company like assessee.
Exclusion of Tata Elxsi comparable company is engaged in the development of Niche product and had to be considered incomparable with the routine software service provider.
TP adjustment - Comparable selection for international transaction of business support services rendered by the assessee - Exclusion of Alphageo (India) Ltd as not comparable from the final set of comparables while benchmarking the business support services of the assessee as the revenue has been generated predominantly out of six projects which was related to 3D seismic and 2D project seismic surveys which is a high value business and whereas, the assessee herein is engaged in providing low risk captive ITES services to its AEs.
Exclusion of Mitcon Consultancy Services Ltd. as it is involved in high end consultancy services whereas, the assessee herein is low end captive service provider to its AEs. Hence, we hold that the said company is functionally not comparable with that of the assessee herein. Accordingly, we direct the ld AO/ TPO to exclude this comparable company from the final list of comparables while benchmarking the international transaction of the assessee in respect of its ITES segment.
Exclusion of HCCA Business as the said company is involved in providing high end activities which required professional skill and domain expertise to render those services and accordingly would apparently fall under the category of Knowledge Process Outsourcing (KPO), thereby making it incomparable with the assessee company as it is low end Business Processing Outsourcing (BPO) services provider to its AEs. However, some of the activities carried out by this comparable company also falls within the ambit of BPO services. However, there is no segmental data available to ascertain the segmental margins from KPO services and BPO services separately. Hence, we hold that the said comparable company is required to be excluded from the final set of comparables while benchmarking the international transaction of the assessee in respect of its ITES segment.
Exclusion of Cyber Media Online Ltd company is engaged in media and media services, thereby making it completely functionally incomparable with that of the assessee company which is engaged in low risk captive ITES service provider to its AEs. Hence, we direct the ld TPO to exclude this company from final set of comparables while benchmarking the international transaction of the assessee in respect of its ITES segment of the assessee company.
Educational Consultants India Ltd as a comparable as excluded by the ld TPO - as pointed out by the ld DR that though this company is engaged in the business of provision of support services, it is also a company under the control of Govt. of India. As we have already held that the Govt company cannot be compared with the private concern like that of the assessee, we hold that this comparable company had been rightly excluded by the ld TPO.
TP Adjustment - ALP of International Transactions of import of fixed assets - validity of Benchmarking carried out by the TPO for import of fixed assets - HELD THAT:- TPO had not referred to any of the prescribed methods in section 92C of the Act to determine the ALP of international transaction in respect of import of fixed assets to be at Rs. Nil. The Ld. TPO is bound to follow any of the prescribed six methods as the most appropriate method for benchmarking the international transactions of the assessee. Without following any of the prescribed method, the Ld. TPO is prohibited from benchmarking the international transaction of the assessee.
Even though the Ld. TPO had mentioned that he is following CUP method as the most appropriate method for benchmarking this transaction, in effect, he had not adopted CUP method as per Rule 10B of the Rules. This is because of the fact that he had not brought on record any comparable uncontrolled transactions to justify the basis of adoption under CUP. In view of the same, the benchmarking carried out by the TPO for import of fixed assets is hereby directed to be deleted. Accordingly, the ground raised by the assessee is allowed.
TP Adjustment - delayed receipt of outstanding receivables from the AEs - TPO, in the order re- characterized the delay in receipt of receivables as unsecured loans advanced to the associated enterprise and imputed notional interest on the delay in receipt of receivable, at a rate of 14.88% being prevailing Prime Lending Rate issued by State Bank of India at 11.88% plus a mark-up of 300 bps -
AR argued with regard to additional evidences, the opening balance of receivables as on 01.04.2009 was never asked by the ld TPO in the show cause notice. Whatever details that were called for were duly furnished before the ld TPO. The ld AR also submitted in rebuttal that details of amounts payable to AEs were duly furnished by the assessee before the ld TPO - HELD THAT:- We deem it fit and appropriate that this is a fit case for admission of the additional evidences filed by the assessee. Accordingly, we admit the additional evidences and restore the entire issue in toto to the file of ld AO/ TPO for denovo adjudication in accordance with law after considering the entire additional evidences and decision of Hon’ble Delhi High Court in the case of Kusum Healthcare [2017 (4) TMI 1254 - DELHI HIGH COURT] The assessee is also at liberty to adduce further evidences, if any, in support of its contentions.
Appeal of the assessee is partly allowed for statistical purposes.
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2023 (11) TMI 1184 - ITAT BANGALORE
Disallowance of contribution to provident fund, superannuation fund / gratuity fund or any other fund for the welfare of the employees - disallowance u/s. 43B - case of the assessee that the amount has been debited to the profit & loss account of the previous year - sum payable to an employee by way of contribution towards fund has been shown in the tax audit as not allowable expenses u/s. 43B - HELD THAT:- The amount, was not available for deduction in 2017-18 as the same amount was not paid by the assessee on or before the due date applicable in it’s case of furnishing his IT return u/s. 139(1) - in terms of the provision of the law, the same expenditure can be availed as deduction in the year of actual payment i.e. for A.Y. 2018-19.
The claim of making such payment in the previous year not appearing in the audit report due to some technical error. In that view of the matter, the assessee prayed for deletion of the adjustment made in the intimation u/s. 143(1) of disallowance of payment towards contribution of provident fund and superannuation for the year under consideration.
No evidence has been filed by the appellant to the amount as added back to the income of the appellant for A.Y. 2017-18, particularly the computation of income for A.Y. 2017-18 and the contention made by the appellant was not found to be acceptable as also the same fact is not appearing in the Audit Report as a technical error, the addition was upheld by the Ld.CIT(A).
At the time of hearing the instant appeals, assessee submitted before us that the issue may be remitted to the file of Ld.AO for verification of the same upon considering the evidences to be placed by the assessee in support of the case made out. The Ld.DR on the other hand relied upon the order passed by the Ld.CIT(A).
We in order to prevent the miscarriage of justice, find it fit and proper to remit the issue to the file of Ld.AO to adjudicate the issue afresh upon considering the evidence on record and any other evidence which the assessee may choose to file at the time of hearing of the matter. We also further make it clear that the assessee in that event be given an opportunity of being heard by the Ld.AO. This ground of appeal is, therefore, allowed for statistical purposes.
Addition u/s. 40(a)(ia) - non compliance with the provisions of chapter XVII-B - assessee’s case is this that the receiver of the above expenditure has offered as income in its return of income for the respective financial year - case of the revenue is this that no details have been furnished about the receiver neither evidence has been filed to show that the receiver of the said expenditure has offered this amount as income in its ITR filed for A.Y. 2018-19 u/s. 139 - HELD THAT:- As assessee submitted before us that the issue may be remitted to the file of Ld.AO for verification of the same upon considering the evidences to be placed by the assessee in support of the case made out. DR on the other hand relied upon the order passed by the Ld.CIT(A).
We in order to prevent the miscarriage of justice, find it fit and proper to remit the issue to the file of Ld.AO to adjudicate the issue afresh upon considering the evidence on record and any other evidence which the assessee may choose to file at the time of hearing of the matter.
Scope of limited scrutiny - Addition towards non-deduction of tds u/s 194H - assessee argued case was selected for limited scrutiny under CASS to verify the issue “verification of the genuineness of the expenses” and therefore the scope of making addition in the instant case is beyond the scope of limited scrutiny and thus the addition is not in accordance with law and thus liable to be deleted - HELD THAT:- The submission of the Ld.AR have not been able to be controverted by the Ld.DR rather consideration of the issue of payment of TDS is also within the scope of limited scrutiny for verification of the genuineness of the expenses as was the ultimate argument by him. However, according to us such submissions is found to be not tenable, the scope of limited scrutiny is only within the periphery of the verification of the genuineness of the expenses which does not include the payment of TDS as has been considered in this particular case by the Ld.AO and addition made thereof. Hence the same is not found to be justified and thus deleted.
TDS u/s 194H - Whether TDS is not liable deducted on whole receipts? - From the case in hand, we find that the parties are service providers who collect fees from participants and they collect gateway payment commission from the appellant after returning the gateway charges they transfer the balance amount collected from the participants to the appellant.
We find that the payments made to gateway providers are not brokerage and TDS u/s. 194H of the Act is not liable to be deducted. TDS is not liable to be made u/s. 194H. The addition, is, therefore, deleted.
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