2019 (5) TMI 1539 - AT - Income Tax

Deduction u/s. 10B - AO reduced the expenses from export turnover only and not reduced the same from total turnover - HELD THAT - By now, this is settled position of law as per these two judgments cited before us being the judgment of Hon'ble Karnataka High Court rendered in the case of CIT Vs. Tata Elxsi Ltd. 2011 (8) TMI 782 - KARNATAKA HIGH COURT and case of CIT vs. HCL Technologies Ltd. 2018 (5) TMI 357 - SUPREME COURT that total turnover is sum total of export turnover and domestic turnover and therefore, if an amount is reduced from export turnover then the total turnover also goes down by the same amount automatically. Respectfully following these two judgments, we direct the AO to decide the issue afresh regarding allowability of deduction to assessee u/s. 10B. Disallowing of purchase of software - Nature of expenses - revenue or capital expenditure - HELD THAT - This issue is to be decided against assessee relying on decision in the case of WIPRO LTD. 2010 (8) TMI 1053 - KARNATAKA HIGH COURT Disallowance u/s. 37(1) - purchase of bearing - capital expenditure - HELD THAT - In respect of disallowance out of purchase of ball bearing assembly of ₹ 13,28,603/- this was the submission of assessee before DRP that the expenditure was disallowed without giving assessee an opportunity of being heard. As per the direction of DRP also, it is seen that the direction of DRP is very cryptic without any reasoning. Under these facts, we feel it proper to restore this matter back to the file of DRP for fresh decision by way of a speaking and reasoned order after providing adequate opportunity of being heard to both sides. This ground is allowed for statistical purposes. Expenditure towards Repairs and Maintenance charges - revenue or capital expenditure - HELD THAT - Repair expenditure were incurred to preserve and maintain an already existing asset, in the course of such repairs, if they have upgraded the facilities to international standards, then that would not constitute a new asset and in the present case, in the absence of bills, we cannot examine the exact nature and hence, we restore this matter back to the file of AO for fresh decision after examining the facts in the light of this judgment of Hon'ble Karnataka High Court in M/S. MAC CHARLES (INDIA) LIMITED 2015 (1) TMI 476 - KARNATAKA HIGH COURT Assessee is withdrawing all the grounds in respect of TP issues because the TP issue has been resolved as per MAP resolution and only the remaining grounds in respect of corporate tax issue should be decided by the Tribunal. TDS u/s 194C/194I/194J - Disallowance in respect of broadband connectivity charges u/s. 40(a)(ia) - no TDS was deducted by assessee - HELD THAT - AO has invoked the provisions of section 194C of IT Act although not so stated by AO specifically in the assessment order. As per CIT(A) also, TDS was to be deducted by assessee u/s. 194C of IT Act. As per the Tribunal order DESTIMONEY ENTERPRISES LIMITED (FORMERLY KNOWN AS DESTIMONEY ENTERPRISES PVT LTD.) 2017 (9) TMI 293 - ITAT MUMBAI cited by assessee, we find that specific finding has been given by the Tribunal in this case that for the payment for internet connection charges, neither section 194C is applicable nor section 194-I nor 194-J. Learned DR of the revenue could not point out any difference in facts in the present case and in the case of Destimony Enterprises Limited vs. ITO (TDS) (Supra). Hence, respectfully following this Tribunal order, we hold that the disallowance made by the AO in the present case u/s. 40(a)(ia) is not justified - Decided in favour of assessee

Summary

Issues Involved:
1. Rejection of Transfer Pricing (TP) documentation and enhancement of transfer price.
2. Incorrect computation of margins of comparable companies.
3. Use of selective information by TPO and non-availability of data.
4. Application of multiple year/prior year data in TP documentation.
5. Rejection of comparability analysis and application of additional filters.
6. Non-consideration of limited risk nature of services provided.
7. Application of amended proviso to section 92C(2) of the Income-tax Act.
8. Deduction claims under section 10B of the Act.
9. Treatment of expenses related to telecommunication, freight, insurance, travel, and salaries.
10. Treatment of software purchase expenses as capital expenditure.
11. Disallowance of advances written off.
12. Disallowance of bearing assembly purchase as capital expenditure.
13. Levy of interest under sections 234B and 234C of the Act.
14. Withdrawal of grounds related to TP issues due to MAP resolution.

Detailed Analysis:

1. Rejection of TP Documentation and Enhancement of Transfer Price:
The assessee challenged the rejection of their TP documentation and the enhancement of the transfer price by INR 60,464,651. The tribunal noted that the grounds related to TP issues were withdrawn by the assessee due to the resolution in the Mutual Agreement Procedure (MAP). Consequently, these grounds were rejected as withdrawn.

2. Incorrect Computation of Margins of Comparable Companies:
The assessee argued that the TPO incorrectly computed the margins of comparable companies. However, since the TP issues were resolved through MAP, these grounds were also withdrawn and rejected.

3. Use of Selective Information by TPO and Non-availability of Data:
The assessee contended that the TPO used selective information not available in the public domain. This issue was also part of the withdrawn TP grounds and thus rejected.

4. Application of Multiple Year/Prior Year Data in TP Documentation:
The assessee argued against the use of current year data instead of multiple year/prior year data. This ground was withdrawn due to MAP resolution and subsequently rejected.

5. Rejection of Comparability Analysis and Application of Additional Filters:
The assessee challenged the rejection of their comparability analysis and the application of additional filters by the TPO. These grounds were withdrawn and rejected due to the MAP resolution.

6. Non-consideration of Limited Risk Nature of Services Provided:
The assessee claimed that the limited risk nature of their services was not considered. This issue was part of the withdrawn TP grounds and thus rejected.

7. Application of Amended Proviso to Section 92C(2) of the Income-tax Act:
The assessee argued that the amended proviso to section 92C(2) should apply, allowing a 5% tolerance band. This ground was also withdrawn and rejected due to the MAP resolution.

8. Deduction Claims Under Section 10B of the Act:
The tribunal addressed various grounds related to the deduction claims under section 10B. The main grievance was that the AO reduced expenses from export turnover but not from total turnover. The tribunal directed the AO to reduce the same expenses from total turnover, following the judgments of the Karnataka High Court and the Supreme Court in CIT Vs. Tata Elxsi Ltd. and CIT vs. HCL Technologies Ltd.

9. Treatment of Expenses Related to Telecommunication, Freight, Insurance, Travel, and Salaries:
The tribunal directed the AO to reconsider the treatment of these expenses, ensuring consistency in reducing them from both export and total turnover.

10. Treatment of Software Purchase Expenses as Capital Expenditure:
The tribunal upheld the AO's decision to treat software purchase expenses as capital expenditure, following the Karnataka High Court's judgment in CIT vs. M/s Wipro Limited.

11. Disallowance of Advances Written Off:
The assessee did not press this ground, and it was rejected as not pressed.

12. Disallowance of Bearing Assembly Purchase as Capital Expenditure:
The tribunal restored this issue to the file of the DRP for a fresh decision, as the DRP's earlier order lacked reasoning.

13. Levy of Interest Under Sections 234B and 234C of the Act:
These grounds were deemed consequential and did not require separate adjudication.

14. Withdrawal of Grounds Related to TP Issues Due to MAP Resolution:
The tribunal noted that the assessee had withdrawn all grounds related to TP issues for the assessment years 2006-07, 2007-08, and 2008-09 due to the MAP resolution. Consequently, these grounds were rejected.

Conclusion:
The tribunal provided a detailed analysis and directions for each issue, ensuring compliance with relevant legal precedents and judgments. The appeals were partly allowed for statistical purposes, with specific directions for fresh consideration and adjudication by the AO and DRP where necessary.