2017 (2) TMI 1209 - AT - Income Tax

TPA - adjustment of idle capacity and aggregation of transactions allowed by the CIT(Appeals) - Held that - It is not disputed that the Transaction Net Margin Method is a most appropriate method for the purpose of making adjustment on the transfer pricing matters. The Transfer Pricing Officer after relying on five comparables, determined the arithmetic mean of 7.16%. The assessee s margin after adjustment for idle capacity comes to only 11.77%. Therefore, the CIT(Appeals) has rightly allowed the claim of the assessee. Therefore, we do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Disallowance towards software expenses - Held that - The expenditure was for the purpose of utilising the application service and compensation received from Danfoss A/S, Denmark. The CIT(Appeals) by placing his reliance on the order of this Tribunal in the assessee s own case, for the assessment years 2005-06, 2007-08 and 2008-09, allowed the claim of the assessee. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Payment made to AE for imparting training and marketing skills to the employees of the assessee - Held that -Since the Ld.counsel for the assessee has very fairly admitted before this Tribunal that expenditure relating to imparting training and marketing skills to the employees of the assessee is enduring benefit spread over a period of four years, the CIT(Appeals) is not justified in allowing the claim of the assessee. Accordingly, the order of the CIT(Appeals) is set aside and that of the Assessing Officer is restored.

Summary

Issues:
1. Condonation of delay in filing appeals for assessment years 2004-05 and 2009-10.
2. Transfer pricing adjustment for assessment year 2004-05.
3. Disallowance of software expenses.
4. Payment made to Associate Enterprises for training and marketing skills.
5. Transfer pricing adjustment for assessment year 2010-11.
6. Software expenses for assessment year 2010-11.

1. Condonation of Delay:
The Revenue filed a petition for condonation of delay of 3 days in filing appeals for assessment years 2004-05 and 2009-10. The Tribunal found sufficient cause for the delay and admitted the appeals.

2. Transfer Pricing Adjustment (2004-05):
The issue revolved around transfer pricing adjustment of &8377;30,89,628/- due to idle capacity. The CIT(Appeals) allowed the claim of the assessee, considering the idle capacity adjustment. The Tribunal upheld the CIT(Appeals) decision, confirming the adjustment.

3. Disallowance of Software Expenses:
Regarding disallowance of &8377;33,63,810/- towards software expenses, the Assessing Officer contended it should be treated as capital expenditure. However, the CIT(Appeals) allowed the claim based on previous tribunal orders. The Tribunal confirmed the decision of the CIT(Appeals).

4. Payment for Training and Marketing Skills:
The Assessing Officer disallowed the claim for payment made to Associate Enterprises for training and marketing skills, citing enduring benefit. The Tribunal agreed with the Assessing Officer, setting aside the CIT(Appeals) order.

5. Transfer Pricing Adjustment (2010-11):
For assessment year 2010-11, transfer pricing adjustment of &8377;46,33,024/- was made. The Tribunal upheld the Assessing Officer's decision over the CIT(Appeals) ruling, considering the enduring benefit spread over four years.

6. Software Expenses (2010-11):
Similar to previous years, the CIT(Appeals) allowed the claim for software expenses based on previous tribunal orders. The Tribunal confirmed this decision for assessment year 2010-11.

In conclusion, the Revenue's appeal for assessment year 2004-05 was dismissed, while for assessment years 2009-10 and 2010-11, the appeals were partly allowed. The Tribunal pronounced the order on 23rd February 2017 in Chennai.