9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (11) TMI 1076 - AT - Income TaxTP Adjustment - contention of the assessee that the TPO conducted transfer pricing analysis on erroneous understanding of the business model of the assessee - HELD THAT - This issue was there in the appeal for the assessment year 2014-2015, wherein the Tribunal in 2020 (2) TMI 1642 - ITAT BANGALORE after examining the facts of the case, had accepted the contention of the assessee that the TPO conducted transfer pricing analysis on erroneous understanding of the business model of the assessee. Accordingly, the entire transfer pricing issue was set aside to the TPO with a direction that the transfer pricing analysis may be carried out having regard to the business model of the assessee Since the facts for the assessment year 2015-2016 is identical to the facts considered by the Tribunal for assessment year 2014-2015, we restore the entire transfer pricing analysis for de novo consideration to the AO / TPO. It is ordered accordingly. Interest on outstanding receivables - TPO computed the delayed trade receivables under the weighted average method. TPO by adopting the net interest rate of 4.38%, on average net receivables that is outstanding for the period exceeding 60 days, computed the interest adjustment on outstanding receivables - HELD THAT - DRP has directed the TPO to re-work the interest computation based on the delay of individual invoices. However, the DRP has not complied with the directions of DRP. TPO was wrong in stating that the assessee did not furnish the invoice wise details of trade receivables. These details are furnished by the assessee vide its letter dated 24.10.2018 and are placed on record Volume-II. The assessee had given detailed submissions on the issue and the same has not been considered by the TPO. TPO is directed to re-work the interest computation based on the delay of individual invoice as per the directions of the DRP. It is ordered accordingly. In the result, grounds are allowed for statistical purposes. Disallowance u/s 14A - HELD THAT - It is settled position of law that if the assessee is not in receipt of any exempt income in the relevant assessment year, no disallowance u/s 14A can be resorted to. In this context, we rely on the judgment in the case of CIT v. Chettinad Logistics Pvt. Ltd. 2018 (7) TMI 567 - SC ORDER . In light of the above judicial pronouncements, we hold that since the assessee was not in receipt of any exempt income during the relevant assessment year, the A.O. has erred in making disallowance u/s 14A . Non-deduction of TDS on software expenses - AO disallowed software expenses u/s 40(a)(ia) by treating the same as royalty , hence liable for TDS - HELD THAT - In view of the latest judgment in the case of Engineering Analysis Centre of Excellence Private Limited v.CIT Anr. 2021 (3) TMI 138 - SUPREME COURT we restore the issue to the files of the A.O. The A.O. is directed the examine whether expenses incurred for purchase of software is royalty and liable for deduction - A.O. is directed to follow the dictum laid down by the Hon ble Apex Court in the case of Engineering Analysis Centre of Excellence Private Limited v.CIT Anr. (supra). Deduction u/s 10AA is to be allowed as assessed income - HELD THAT - The Hon ble jurisdictional High Court in the case of M Pact Technology Services Pvt. Ltd. 2018 (8) TMI 202 - KARNATAKA HIGH COURT had held that deduction u/s 10AA of the I.T.Act should be computed on the assessed income and not on the returned income - we direct the A.O. to grant deduction u/s 10AA of the I.T.Act on the assessed income and not on the returned income. It is ordered accordingly.
Issues Involved:
1. Transfer Pricing Adjustment: Business model not understood/appreciated properly. 2. Transfer Pricing Adjustment: Transaction Net Margin Method (TNMM) adopted as Most Appropriate Method (MAM). 3. Transfer Pricing Adjustment: Interest on outstanding receivables. 4. Corporate Tax Issue: Disallowance under Section 14A of the I.T. Act. 5. Corporate Tax Issue: Non-deduction of TDS on software expenses. 6. Corporate Tax Issue: Deduction under Section 10AA of the I.T. Act to be allowed on assessed income. Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment: Business Model Not Understood/Appreciated Properly The assessee, an Indian company providing ITES to global customers, operates through a subsidiary in the USA. The entire revenue earned by the US subsidiary is remitted to the Indian company, which reimburses the costs incurred by the US subsidiary. The assessee applied the Comparable Uncontrolled Price (CUP) method as the most appropriate method for this transaction. However, the Transfer Pricing Officer (TPO) rejected this method and adopted the Transaction Net Margin Method (TNMM), arguing that the US subsidiary bore all the risks. The Dispute Resolution Panel (DRP) upheld the TPO's view. The Tribunal noted that in the previous assessment year (2014-2015), it had set aside the TP adjustment due to a similar misunderstanding of the business model. Consequently, the Tribunal restored the entire transfer pricing analysis for de novo consideration to the AO/TPO, directing them to carry out the analysis considering the business model of the assessee. Grounds 7 and 8 were allowed for statistical purposes. 2. Transfer Pricing Adjustment: TNMM Adopted as the MAM These grounds were alternative to the main issue regarding the business model. Since the primary issue was restored to the AO/TPO, these grounds were rendered infructuous and dismissed. 3. Transfer Pricing Adjustment: Interest on Outstanding Receivables The TPO computed interest on delayed trade receivables using the weighted average method, resulting in an adjustment of Rs.2,06,65,442. The DRP directed the TPO to compute interest adjustment invoice-wise, but the TPO did not comply with this direction. The Tribunal found that the assessee had provided the required invoice-wise details, which the TPO had ignored. The Tribunal directed the TPO to rework the interest computation based on the delay of individual invoices as per the DRP's directions. Grounds 26 to 31 were allowed for statistical purposes. 4. Corporate Tax Issue: Disallowance under Section 14A of the I.T. Act The assessee claimed no receipt of exempt income during the relevant assessment year and argued that disallowance under Section 14A was untenable. The Tribunal relied on the judgment of the Hon’ble Madras High Court in the case of CIT v. Chettinad Logistics Pvt. Ltd., which held that if no exempt income is earned, no disallowance under Section 14A can be made. Consequently, the Tribunal held that the AO erred in making the disallowance. Ground 32(b) was allowed. 5. Corporate Tax Issue: Non-deduction of TDS on Software Expenses The AO disallowed software expenses under Section 40(a)(ia) by treating them as "royalty" and hence liable for TDS. The DRP granted partial relief but upheld the disallowance for payments made to non-residents. The Tribunal noted that the issue of whether payments for software constitute "royalty" is covered by the judgment of the Hon’ble Apex Court in the case of Engineering Analysis Centre of Excellence Private Limited v. CIT & Anr. The Tribunal restored the issue to the AO to examine whether the expenses incurred for software are "royalty" and directed the AO to follow the Apex Court's dictum. Ground 33 was allowed for statistical purposes. 6. Corporate Tax Issue: Deduction under Section 10AA of the I.T. Act to be Allowed on Assessed Income The assessee contended that the AO erred in not computing the deduction under Section 10AA on the assessed income. The Tribunal referred to the judgment of the Hon’ble jurisdictional High Court in the case of M Pact Technology Services Pvt. Ltd., which held that the deduction should be computed on the assessed income. The Tribunal directed the AO to grant the deduction under Section 10AA on the assessed income. Ground 34 was allowed. Conclusion The appeal filed by the assessee was partly allowed, with some issues being restored for further consideration and others being decided in favor of the assessee. The Tribunal's directions ensure that the transfer pricing analysis and tax computations are carried out correctly, considering the specific business model and judicial precedents.
|
