9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (3) TMI 1300 - AT - Income TaxCalculating deduction u/s. 10A - Held that - It is admitted that on a parity of comparison whatever is reduced from the export turnover has to be reduced from the total turnover and this principle was accepted by the jurisdictional Karnataka High Court in the case of CIT Vs. Tata Elxsi Ltd. 2011 (8) TMI 782 - KARNATAKA HIGH COURT which the Ld CIT(A) has followed. We do not see any reason to interfere with the above. Comparable selection - TPA - functional dissimilarity - Held that - Assessee is into Software Devolopement Services thus companies functionally dissimilar with that of assessee need to be deselected from final list. Treating the expenditure on software licenses as capital in nature and not giving credit of TDS by the AO - Held that - Since the issue is covered in favour of assessee in earlier years the claim of assessee as revenue expenditure is acceptable. However as seen from the order of Ld.CIT(A) even after noticing the judgment of jurisdictional High Court he did not grant the benefit in the absence of details. Before us Learned Counsel submitted that most of the expenditure is on microsoft licenses which are renewable on an yearly basis. This aspect require examination by AO. Consequently while accepting the principle that software licenses are revenue in nature examination of expenditure claim is restored to the file of AO. AO after due verification should allow the expenditure accordingly For claim of tds credit pursuant to decision in COURT ON ITS OWN MOTION VERSUS COMMISSIONER OF INCOME TAX AND OTHERS 2, 61, 44, 238/- as claimed by the company in its return of income. Since the issue is one of verification we direct the AO to undertake the exercising of verification and allow credit.
Issues Involved:
1. Transfer Pricing adjustments in Software Development (SWD) and IT-enabled Services (ITES) divisions. 2. Disallowance of software license fee as capital expenditure. 3. Non-credit of Tax Deducted at Source (TDS). 4. Computation of deduction under Section 10A. Detailed Analysis: 1. Transfer Pricing Adjustments in SWD and ITES Divisions: The assessee, a captive service provider for software development and ITES to Logica group companies, reported international transactions in SWD and ITES divisions. The Transfer Pricing Officer (TPO) rejected the assessee's Transfer Pricing (TP) study for using multiple-year data and other reasons, proposing adjustments of ?24,63,25,398 in SWD and ?4,03,38,142 in ITES. The Assessing Officer (AO) made these additions under TP provisions. Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] accepted certain filters and excluded companies like Infosys in the SWD segment and Aditya Birla Minacs Worldwide Ltd. and Infosys BPO Ltd. in the ITES segment but rejected other contentions. Both the Revenue and the assessee appealed against the CIT(A)'s order. Revenue’s Appeal: - Exclusion of Certain Expenses: The CIT(A) directed the AO to exclude certain expenses from both export turnover and total turnover, following the decision in Tata Elxsi. This was upheld as the principle was accepted by the Karnataka High Court. - Turnover Filter: The CIT(A) applied a turnover filter of ?1 Crore to ?2000 Crore for the SWD segment and ?1 Crore to ?200 Crores for the ITES segment, following Tribunal decisions. This was upheld as there was no error in the CIT(A)'s order. Assessee’s Appeal: - Selection of Comparables: The assessee sought the rejection of Bodhtree Consulting Ltd., KALS Info Systems Limited, and Tata Elxsi Ltd. in the SWD segment, which were excluded based on previous Tribunal decisions. - Inclusion of Thinksoft Global Services Private Limited and FCS Software Solutions Private Limited: These were initially proposed by the TPO but excluded due to a working capital adjustment impact. The Tribunal directed their inclusion based on previous decisions. 2. Disallowance of Software License Fee as Capital Expenditure: The AO disallowed the software license fee, treating it as capital expenditure. The CIT(A) upheld this, but the Tribunal noted that in previous years, similar expenses were treated as revenue in nature. The Tribunal directed the AO to verify the nature of the software licenses and allow the expenditure accordingly. 3. Non-Credit of TDS: The AO restricted the TDS credit to ?45,20,737 against the claimed ?2,61,44,238. The Tribunal directed the AO to verify and allow the TDS credit based on TDS certificates, following the principles laid down by High Courts and CBDT Instruction No. 5 of 2013. 4. Computation of Deduction Under Section 10A: The AO recomputed the deduction under Section 10A by reducing certain expenses from the export turnover but not from the total turnover. The CIT(A) directed the AO to exclude these expenses from both export and total turnover, which was upheld by the Tribunal based on the principle accepted by the Karnataka High Court. Conclusion: The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal for statistical purposes, directing the AO to re-examine and verify specific issues as per the Tribunal's guidelines.
|
