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2021 (8) TMI 629 - AT - Income TaxTP Adjustment - international transaction of allowing credit period to the AE - HELD THAT - A.Y. 2014-15 is covered under roll-back period of the APA. Also, the FAR for all the years covered under APA is same. Hence, the period of realization of 60 days which is agreed in the APA for 01 April 2017 onwards should be considered for A.Y. 2014-15 as well. The principle laid down in the decisions referred to in paragraph 10 of this order will apply to the present case also. We hold and direct accordingly. Deduction u/s 10AA - Deduction u/s 12AA - communication and travelling expenses - HELD THAT - We are of the view that it would be just and appropriate to direct the AO to consider the claim of the assessee regarding software expenses in the light of the invoices admitted as additional evidence by us. To the extent that the software expenditure is in the nature of payment of licence fee for a period of less than 1 year, the same could not be regarded as a capital expenditure and should be allowed as a deduction as was directed by the DRP in its directions dated 06.09.2018. As far as the grant of foreign tax credit projected of the grounds of appeal raised by the assessee is concerned, we admit the withholding tax certificate evidencing payment of tax in foreign country and direct the AO to give credit to such taxes in accordance with law as mentioned in section 90 of the Act, after affording assessee opportunity of being heard. The AO is also directed to exclude communication and travelling expenses from the total turnover while computing eligible deduction under section 12AA of the Act. Thus, the relevant grounds of appeal of the assessee are treated as allowed for statistical purposes. Levy of interest under section 234A - assessee had filed the return of income within the due date prescribed - AO is directed to examine the claim of the assessee in this regard, after affording opportunity of being heard. Levy of interest under section 234B is purely consequential ground with regard to initiation of penalty proceedings u/s 271(1)(c) of the Act is not appealable.
Issues Involved:
1. Determination of Arm's Length Price (ALP) for international transactions. 2. Transfer pricing adjustment on account of interest on outstanding receivables. 3. Treatment of software expenses as capital or revenue expenditure. 4. Grant of foreign tax credit. 5. Computation of eligible deduction under Section 10AA of the Income Tax Act. 6. Levy of interest under Section 234A of the Income Tax Act. Detailed Analysis: 1. Determination of Arm's Length Price (ALP) for International Transactions: The assessee, engaged in providing Information Technology enabled Services (ITeS) to its Associated Enterprise (AE), raised multiple grounds concerning the determination of ALP. However, these were not pressed for adjudication due to a Bilateral Advance Pricing Agreement (APA) with the CBDT, applicable from Assessment Year 2016-17 to 2020-21 and rollback years from 2012-13 to 2015-16. The assessee filed modified returns and paid taxes accordingly, awaiting the AO's order on these returns. Consequently, these grounds were dismissed. 2. Transfer Pricing Adjustment on Account of Interest on Outstanding Receivables: The TPO treated the grant of excessive credit period to the AE as a separate international transaction, imputing interest on outstanding receivables. The DRP upheld this view but directed the AO/TPO to use short-term deposit rates of the State Bank of India for computing notional interest. The assessee argued that the APA's realization period of 60 days should apply to the rollback year 2014-15. The Tribunal agreed, holding that the realization period of 60 days in the APA should apply to 2014-15, and directed accordingly. 3. Treatment of Software Expenses as Capital or Revenue Expenditure: The AO treated software expenses of INR 6,50,52,354 as capital expenditure, allowing depreciation at 30%, disallowing INR 4,55,36,648. The DRP directed the AO to verify invoices and allow expenses as revenue if the license period was less than a year, otherwise to capitalize and allow depreciation at 60%. The AO, however, disallowed the expenses due to insufficient documentation. The Tribunal directed the AO to reconsider the software expenses in light of additional evidence, allowing deduction for license fees for periods less than a year. 4. Grant of Foreign Tax Credit: The AO did not grant credit for foreign tax paid, upheld by the DRP. The assessee submitted withholding tax certificates as additional evidence before the Tribunal. The Tribunal directed the AO to grant foreign tax credit in accordance with Section 90 of the Act after providing the assessee an opportunity to be heard. 5. Computation of Eligible Deduction Under Section 10AA of the Income Tax Act: The AO, while acknowledging the DRP's direction to exclude communication and travel expenses from export turnover, retained the disallowance in the final computation. The Tribunal directed the AO to exclude these expenses from total turnover while computing the eligible deduction under Section 10AA. 6. Levy of Interest Under Section 234A of the Income Tax Act: The assessee contested the levy of interest under Section 234A, claiming timely filing of returns. The Tribunal directed the AO to examine this claim, providing the assessee an opportunity to be heard. The issue of interest under Section 234B and initiation of penalty proceedings under Section 271(1)(c) was deemed non-appealable. Conclusion: The appeal was partly allowed, with directions to the AO to reassess software expenses, grant foreign tax credit, and recompute eligible deductions under Section 10AA, along with examining the levy of interest under Section 234A.
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