2018 (4) TMI 444 - AT - Income Tax

TPA - intragroup services in lieu of which assessee made payments to its associated enterprise - Assessee is engaged in providing of software development services, software deployment services, consultancy services, training services, software sublicensing and AMC activities - Held that - On perusal of the order passed by this Tribunal in assessee s own case for assessment year 2007-08 as well as 2008-09, it is observed that the issue has been set aside to Ld.TPO for considering evidences filed by assessee and to decide the issue as per law. In the facts of the present case before us, it is submitted that assessee already filed all relevant details before Ld.TPO and DRP which have not been considered while deciding this issue. We direct Ld.TPO to examine these evidences filed by assessee to establish the fact of having availed such services from AE and to decide the issue as per law. Addition in respect of interest paid by assessee on advances received from associated enterprises - Held that - Set aside this issue to be decided in the light of evidences/invoices placed on record by assessee before Ld.TPO and TP Report in respect of receivables as well as payables. In the event it is established that the receivables as well as payables relate to assessee & AE inter se, then netting off shall be granted. On the contrary if it is established that only receivables are in the nature of loan then interest at the market rate shall be applied. Adjustment of provision of software development services and software consultancy services - Held that - As we have already set aside the ground relating to management fees being ground No. 4 to Ld. AO for verification of the issue in the light of the evidences already placed on record, this ground now becomes infructuous. Disallowance of software license fees - revenue v/s capital expenditure - Held that - We are at loss to appreciate as to how the assessee can be said to have created an Intangible asset by paying the Licence fee to its AE in respect of sales made. Such payment @ 45 % of the invoice value was the obligation of the assessee ab initio without which it could not have procured the license of ENTERPRISE suite for sale in India. This amount can be loosely characterized as cost of goods transferred to the customers in India, which has necessarily to be allowed as a revenue expenditure. Similar view has been taken by the tribunal in its order for the immediately preceding year. We, therefore, overturn the impugned order on this score and direct the deletion of addition

Summary

Issues Involved:
1. Validity of the assessment order.
2. Transfer Pricing Adjustments.
3. Corporate Tax Disallowances.
4. Levying of interest under sections 234B and 234D.
5. Initiation of penalty proceedings under section 271(1)(c).

Detailed Analysis:

1. Validity of the Assessment Order:
The appellant contested the legality of the assessment order under section 143(3) read with section 144C of the Income Tax Act, 1961. The Tribunal dismissed these grounds as they were general in nature and did not warrant adjudication.

2. Transfer Pricing Adjustments:
- Management Fee Adjustment:
The appellant argued that the ALP of the management fee paid to its AE, amounting to ?2,58,88,820, was wrongly determined as 'nil' by the authorities. The Tribunal observed that similar issues in previous assessment years (2007-08 and 2008-09) were set aside for reconsideration. The Tribunal directed the TPO to examine the evidences provided by the appellant and decide the issue as per law, allowing this ground for statistical purposes.

- Interest on Advances:
The appellant contended that the TPO wrongly treated outstanding receivables as unsecured loans and imputed interest on them. The Tribunal noted the lack of detailed evidence from the appellant and set aside the issue for reconsideration by the TPO, instructing to apply the principle of netting off if applicable. This ground was also allowed for statistical purposes.

- Provision of Software Development and Consultancy Services:
The appellant challenged the adjustments made by the TPO on these services. The Tribunal noted that the TPO had restricted adjustments to management fees and, since the related ground was set aside, this ground became infructuous and was dismissed.

3. Corporate Tax Disallowances:
- Software License Fee:
The appellant contended that the AO wrongly treated the software license fee as a capital expenditure and allowed depreciation at 25%. The Tribunal referred to its previous decisions for assessment years 2007-08 and 2008-09, where similar issues were resolved in favor of the appellant, recognizing the license fee as a revenue expenditure. The Tribunal directed the deletion of the addition, allowing this ground.

4. Levying of Interest under Sections 234B and 234D:
The appellant argued against the levying of interest under sections 234B and 234D. The Tribunal did not provide a specific ruling on this issue in the summarized judgment, implying that it was not a focal point of contention in the appeal.

5. Initiation of Penalty Proceedings under Section 271(1)(c):
The appellant contested the initiation of penalty proceedings under section 271(1)(c). The Tribunal did not provide a specific ruling on this issue in the summarized judgment, implying that it was not a focal point of contention in the appeal.

Conclusion:
The Tribunal allowed the appeal for statistical purposes on grounds related to the management fee and interest on advances, directing the TPO to reconsider these issues based on the evidence. The Tribunal also allowed the appeal regarding the software license fee, recognizing it as a revenue expenditure. Other grounds were either dismissed or not specifically adjudicated.