2022 (3) TMI 714 - AT - Income Tax

Additional ground relating to DDT liability - additional ground in the appeal filed against the assessment order passed u/s 143(3) - Whether issue of DDT can be said to arise out of the impugned assessment order? - HELD THAT - In the instant case, first of all, the DDT liability is not forming part of assessment order passed u/s 143(3) of the Act. Further, the liability u/s 115-O can be challenged under the clause an order against the assessee where the assessee denies his liability to be assessed under this Act mentioned in sec.246A(1)(a) as held by Hon ble Supreme Court. The above said clause is a separate clause unconnected with the clause any order of assessment under sub-section (3) of section 143 . Accordingly, we are of the view that the assessee cannot raise the additional ground relating to DDT liability in the present appeal. The assessee, if so advised, may prefer appeal in that regard before Ld CIT(A). Since the assessee had entertained bonafide belief that its grievance on DDT liability can be raised as additional ground before ITAT, it did not file appeal before Ld CIT(A). Accordingly, we direct the Ld CIT(A) to take a lenient view on the matter of condonation of delay, if the assessee prefers appeal before him on DDT liability of the year under consideration - we reject the additional ground raised by the assessee on DDT liability. Disallowance of information technology support services - A.O. has disallowed the claim of the assessee treating it as capital in nature - HELD THAT - We notice that an identical issue came to be considered by the coordinate bench in the assessee s own case in assessment year 2008-09 2020 (3) TMI 1195 - ITAT BANGALORE and the addition made in that year was deleted as held that Assessee had acquired no right or interest whatsoever in the EDA tools and had only a right to use the software. It is not the case of the revenue that the EDA tools was not connected to the business of the Assessee. In such circumstances, we are of the view that the deduction was rightly allowed by the CIT(A) as revenue expenditure. Addition u/s 40(a)(ia) - Disallowance of lease rentals paid on car taken under financial lease - HELD THAT - We notice that an identical issue has been decided in favour of the assessee by the Hon ble High Court of Karnataka in the assessee s own case in assessment year 2008-09 holding that there is no deduction required to be made either under Section 194-C or under Section 194-I of the Act in respect of the payments made to the lease financial company on the lease financial amounts paid to such company by the assessee. Therefore, there is no violation of the said provisions and Section 40(a)(i)/(ia) is not attracted to the present case. TPA Adjustment - exclusion of two comparable companies namely M/s. Asian Business Exhibition Conferences Ltd. and M/s. ICC International Agencies Ltd. in determining ALP of marketing support services segment - HELD THAT - We notice that both these comparables have been held to be not good comparables in the case of Electronics for Imaging India Pvt. Ltd. 2017 (7) TMI 1335 - ITAT BANGALORE - Accordingly, following the above said decision, we confirm the exclusion of both the companies.

Issues Involved:
1. Disallowance of information technology support services treating it as capital in nature.
2. Disallowance of lease rentals paid on motor cars.
3. Exclusion of two comparable companies in marketing support services segment.
4. Levy of Dividend Distribution Tax (DDT) on the dividend paid to a US entity under DTAA.

Issue-wise Detailed Analysis:

1. Disallowance of Information Technology Support Services:
The assessee claimed ?7.02 crores as IT support services under a Group License Agreement for usage of IT support services. The Assessing Officer (AO) disallowed this claim, treating it as capital expenditure, and allowed depreciation at 60%, resulting in a net disallowance of ?1.31 crores. The CIT(A) confirmed this disallowance. The Tribunal noted that a similar issue in the assessee's own case for the assessment year 2008-09 was decided in favor of the assessee, where it was held that the assessee had only the right to use the software and did not acquire any right or interest in the EDA tools. Following this precedent, the Tribunal directed the AO to delete the disallowance.

2. Disallowance of Lease Rentals Paid on Motor Cars:
The assessee claimed ?79.24 lakhs towards lease rental paid on cars taken under a financial lease. The AO disallowed this claim under section 40(a)(ia) of the Act due to non-deduction of tax at source, and the CIT(A) confirmed this disallowance. The Tribunal referred to the assessee's own case for the assessment year 2008-09, where the Karnataka High Court held that neither Section 194-C nor 194-I of the Act were applicable to lease financing of motor vehicles. Thus, the Tribunal directed the AO to delete the disallowance following the High Court's decision.

3. Exclusion of Comparable Companies in Marketing Support Services Segment:
The revenue contested the exclusion of M/s. Asian Business Exhibition & Conferences Ltd. and M/s. ICC International Agencies Ltd. in determining the Arm's Length Price (ALP) of marketing support services. The Tribunal noted that both these companies were held as not good comparables in the case of Electronics for Imaging India Pvt. Ltd. for the assessment year 2011-12. Asian Business Exhibition & Conferences Ltd. was engaged in organizing exhibitions and events, which was functionally different from the assessee's services. ICC International Agencies Ltd. was engaged in trading activities, making it functionally dissimilar. The Tribunal confirmed the exclusion of both companies based on these precedents.

4. Levy of Dividend Distribution Tax (DDT):
The assessee raised an additional ground contending that the DDT on dividends paid to its US-based AE should be restricted to 15% as per the India-USA DTAA, instead of 16.0688% charged under section 115-O of the Income Tax Act. The Tribunal noted that the assessment order did not discuss DDT liability, and the issue did not arise from the assessment order passed under section 143(3). The Tribunal referred to the Supreme Court's decision in the case of Genpact India (P) Ltd., which allowed challenging additional tax liabilities under section 246A. However, it held that the assessee could not raise the DDT liability issue in the present appeal and directed the assessee to file an appeal before the CIT(A) on this ground, advising the CIT(A) to take a lenient view on the condonation of delay.

Conclusion:
The appeal filed by the assessee was partly allowed, with the Tribunal directing the deletion of disallowances on IT support services and lease rentals. The appeal filed by the revenue was dismissed, confirming the exclusion of the two comparable companies. The additional ground on DDT was rejected, advising the assessee to file a separate appeal before the CIT(A). The order was pronounced on 11th March 2022.

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