9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2015 (5) TMI 45 - AT - Income TaxTransfer pricing adjustment - Determination of Arm's length price in international Transactions with AEs - Determination of ALP of management fee and licence fee paid to AE as Nil - Non consideration of other receipts as part of operating revenue for computing the margin - Rejection / Selection of comparables - Disallowance of expenses related to operating software and application software - Non consideration of claim of deduction u/s 10A as per the revised return of income - Held that - Determination of ALP of management fee and licence fee paid to AE as Nil - Similar view was also expressed by ITAT in assessee s own case 2015 (3) TMI 92 - ITAT HYDERABAD for AY 2009-10 dt. 13/02/2015. As the issue in dispute is materially same, respectfully following the aforesaid decisions of coordinate bench in assessee s own case, we remit the issue back to the file of the AO/TPO to determine the quantum of management fee and licence fee with reference to agreement between the parties. This ground is allowed for statistical purposes. Non consideration of other receipts as part of operating revenue for computing the margin - In the objections raised before ld. DRP assessee claimed that the other income shown are also from the operations of the business, hence, should be treated as part of operating revenue. Ld. DRP after considering the submissions accepted assessee s claim and directed TPO to treat the other income shown by assessee as part of operating revenue. However, the directions of ld. DRP were not implemented by AO in the final assessment order. In our view, when ld. DRP has specifically directed TPO to treat the other income shown by assessee as part of operating revenue for computing PLI, AO/TPO are duty bound to comply to the directions of ld. DRP. That being the case, we direct AO/TPO to compute PLI by treating the other income as part of the operating revenue. Selection of certain companies as comparables by TPO - Acropetal Technologies Ltd. - We find merit in the submissions of ld. AR. On a perusal of the annual report of the company, it is found that during the year the company has made acquisitions which might have impacted the profit making of the company. - Cosmic Global Ltd - TPO while applying filters for selection of comparable have excluded companies having less than 1 crore turnover from BPO services, revenue earned by this company from BPO services is only ₹ 19.63 lakhs, as claimed by assessee, then, this company cannot be considered as a comparable. - Eclerx Services Ltd - Company cannot be treated as comparable to assessee not only due to the fact that it is involved in high end (KPO) services but it also earned super normal profits due to extraordinary event. - Genesys International Corporation Ltd - Company being totally different in its functionality cannot be a comparable to assessee. - HCL Comnet Systems and Services Ltd - Assessee s claim of functional difference of the companies requires examination, matter is remitted back to AO/TPO for examining afresh after due opportunity of being heard to assessee. - Infosys BPO Ltd - The Hon ble Delhi High Court in case of Agnity India Technologies pvt. Ltd., 2013 (7) TMI 696 - DELHI HIGH COURT has held that Infosys cannot be treated as comparable to other small companies. Rejection of certain companies by TPO - Accurate Data Convertors Pvt. Ltd.- We are of the view that the issue of comparability of the aforesaid company requires examination considering assessee s claim that as per the information submitted in response to the notice u/s 133(6), the company satisfies all the filters applied by TPO. We, therefore, restore the matter back to the file of the TPO to examine the issue after due opportunity of being heard to assessee. - Informed Technologies Ltd. - As neither TPO nor DRP have examined the aforesaid aspects while rejecting the aforesaid company as comparable, we think it appropriate to restore the issue of comparability of this company to AO/TPO for considering afresh after due opportunity of being heard to assessee. We make it clear, if on examining the information available on record TPO finds that this company satisfies all the filters applied by him, then, he may consider this company as a comparable. Non consideration of claim of deduction u/s 10A as per the revised return of income - There is no dispute to the fact that assessee has filed a revised return of income before AO revising the claiming deduction u/s 10A of the Act. Further, during the assessment proceeding assessee has also submitted a revised Form 56F. In our view, AO without examining assessee s claim of deduction u/s 10A as per the revised return could not have proceeded to allow the claim as per the original return when he does not dispute the fact that the revised return is a valid return as per the provisions of section 139(5) of the Act. In course of hearing, ld. AR brought to our notice that assessee has also filed a petition u/s 154 of the Act raising the very same issue before AO, which is still pending. Considering the aforesaid facts, we are inclined to remit this issue back to the file of AO with a direction to consider assessee s claim as per revised return and in accordance with law after due opportunity of being heard to assessee. This ground is allowed for statistical purposes. Disallowance of expenses related to operating software and application software - We have considered the submissions of the parties and perused the materials on record. It is very much evident from record that the software licence fee has been paid towards operation as well as application software. That being the case, the rate of depreciation applicable is 60% (as applicable to computer) and not 25% as allowed by AO. Moreover, this issue is more or less covered in favour of assessee by the decision of the coordinate bench in assessee s own case 2015 (3) TMI 92 - ITAT HYDERABAD for the AY 2009-10. In view of the above, we direct AO to allow depreciation @ 60% on the software licence fee. This ground is partly allowed. - Decided partly in favour of assessee.
Issues Involved:
1. Transfer Pricing (TP) issues. 2. Corporate tax issues. Detailed Analysis: Transfer Pricing (TP) Issues: Issue 1: Determination of ALP for Management Fee and License Fee - The assessee claimed payment of management fee and license fee of Rs. 7,13,18,212 for services provided by Associated Enterprises (AEs). The Transfer Pricing Officer (TPO) rejected this claim, determining the ALP of such services at Nil, stating the assessee failed to substantiate the need for services and whether they were actually rendered or beneficial. - The Dispute Resolution Panel (DRP) upheld the TPO's determination but directed the exclusion of such expenditure from operating costs. - The Tribunal noted that similar issues in the assessee's earlier assessment years (2003-04 to 2005-06 and 2009-10) were decided in favor of the assessee. The Tribunal held that the TPO exceeded his jurisdiction by denying the payment outright and not just determining the ALP. The matter was remitted to the AO/TPO to determine the quantum of management fee and license fee as per the agreement between the parties. Issue 2: Non-consideration of Other Receipts as Part of Operating Revenue - The assessee argued that other income of Rs. 28,69,633 should be included as part of operating revenue for computing the margin. - The DRP agreed with the assessee, but the AO did not implement this in the final assessment order. - The Tribunal directed the AO/TPO to compute the PLI by treating the other income as part of the operating revenue. Issue 3: Selection of Comparables - The assessee objected to certain comparables selected by the TPO, arguing they were functionally different or had extraordinary events affecting their financials. - The Tribunal examined each comparable in detail: - Accentia Technologies Ltd.: Excluded due to extraordinary events (mergers and acquisitions). - Acropetal Technologies Ltd. (Seg.): Excluded as it provided high-end KPO services. - Cosmic Global Ltd.: Remanded to AO/TPO to verify if revenue from BPO services was only Rs. 19.63 lakhs. - Eclerx Services Ltd.: Excluded as it provided KPO services and had super-normal profits. - Genesys International Corporation Ltd.: Excluded due to functional differences (geospatial services). - HCL Comnet Systems and Services Ltd. (Seg.) and Wipro Ltd.: Remanded to AO/TPO to verify functional profiles and segmental data. - Infosys BPO Ltd.: Excluded due to its brand and functional differences. - The Tribunal directed the AO/TPO to compute the ALP considering these observations. Issue 4: Rejection of Certain Comparables by TPO - The assessee challenged the rejection of Accurate Data Convertors Pvt. Ltd. and Informed Technologies Ltd. - The Tribunal remanded the issue back to the TPO for fresh examination, directing the TPO to include these companies if they satisfy all filters applied. Corporate Tax Issues: Issue 1: Non-consideration of Deduction u/s 10A as per Revised Return - The assessee filed a revised return claiming a higher deduction u/s 10A. The AO allowed the deduction as per the original return. - The Tribunal remitted the issue back to the AO to consider the claim as per the revised return. Issue 2: Treatment of Software License Fee as Capital Expenditure - The AO treated the software license fee as capital expenditure and allowed depreciation at 25%. - The Tribunal held that the software license fee should be depreciated at 60% as per the applicable rate for computer software and directed the AO accordingly. Issue 3: Wrong Adjustment of Refund and Levy of Interest u/s 234D - The assessee claimed a wrong adjustment of refund and contested the levy of interest u/s 234D. - The Tribunal directed the AO to verify the claim and grant relief if found correct, also examining the necessity of charging interest u/s 234D. Issue 4: Initiation of Penalty Proceedings u/s 271(1)(c) - The Tribunal dismissed this ground as premature and infructuous. Conclusion: The Tribunal provided detailed directions on each issue, remanding several matters back to the AO/TPO for fresh examination and ensuring compliance with legal standards and precedents. The appeal was partly allowed for statistical purposes.
|
