2023 (5) TMI 458 - AT - Income Tax

Denial of relief u/s.10AA - AO rejected both the claims on the ground that the assessee has failed to comply with various conditions prescribed in those sections for allowing deduction - HELD THAT - Considering the relevant findings of the coordinate bench of the Tribunal in assessee s own case for AY 2013-14 2020 (8) TMI 196 - ITAT BANGALORE it is clear that the Tribunal has rejected all the contentions of the revenue with regard to the alleged violations and restored the issue only with respect to verification of receipts of sale proceeds in convertible foreign exchange into India. For the year under consideration, it is noticed that the AO has verified these details and has given a clear finding in final assessment order, though he has not reworked the relief u/s.10AA. As relying on decision of the Tribunal in assessee s own case, we allow deduction u/s.10AA to assessee relatable to sale proceeds from export of software development services. AO is directed to compute the relief u/s.10AA and deleted the addition accordingly. This ground is allowed in favour of the assessee. Payments made to AEs and third parties without TDS - assessee submitted before the AO that these are payments towards cost to cost reimbursements and other payments on which there is no liability to deduct tax - HELD THAT - We notice that the co-ordinate bench in AY 2013-14 2020 (8) TMI 196 - ITAT BANGALORE has remitted the entire issue of reimbursements to AEs and third parties to the file of Ld DRP and respectfully following the same we restore the issue for the year under consideration with similar directions. With regard to the reimbursement of secondment cost to the AEs Tribunal in the case of M/s. Goldman Sachs Services Pvt. Ltd vs DCIT 2022 (4) TMI 1444 - ITAT BANGALORE had held that the reimbursement made by the assessee in India to overseas entity, towards the seconded employees cannot be regarded as Fee For technical Services . Therefore the DRP while considering the issue of assignee fees reimbursements is directed to consider the decision of Goldman Sachs Services Pvt. Ltd (supra). Needless to say that the assessee be given an opportunity of being heard. It is ordered accordingly. Disallowance of ESOP expenses - HELD THAT - We notice that the coordinate bench in assessee s own case for AY 2015-16 2022 (2) TMI 1367 - ITAT BANGALORE held that the ESBP expenses incurred by the assessee is and allowable expense and the disallowance is hereby deleted. TP Adjustment - adjustment towards Advertisement and Marketing (AMP) expenses - HELD THAT - For the year under consideration, the DRP has given a finding that the assessee has not furnished any documentation with regard to the various pleas such as AMP expenses pertain to respective segments etc. Therefore respectfully following the decision of coordinate bench on assessee s own case for AY 2015-16 2022 (2) TMI 1367 - ITAT BANGALORE we remand this issue to the AO/TPO to verify the aspect based on the documents/evidences submitted by the assessee with similar direction that in the event it is found that the expenditure is factored in net cost for computing margin, no separate adjustment needs to be made. Accordingly, this ground of appeal stands allowed for statistical purposes. Refund of excess Dividend Distribution Tax (DDT) paid - AR submitted that the Assessee is a subsidiary of IBM WTC which is a tax resident of the United States and 99.99% of the equity shares of assessee are held by IBM WTC - HELD THAT - AR in support of reasoning, relied on a decision of Giesecke Devrient India Pvt Ltd 2020 (10) TMI 750 - ITAT DELHI but correctness of the aforesaid decision has been doubted by another Division Bench at Mumbai in the case Tata Oil India (P) Ltd. 2021 (6) TMI 855 - ITAT MUMBAI and an order of reference recommending constitution of a Special Bench to decide the issue has been made to the Hon ble President of the Tribunal. We find that on this issue, there has been conflicting views and the matter has been referred by the Mumbai Bench of ITAT for constitution of a larger Bench. We are of the view that it would be just and appropriate to set aside this issue to the AO for consideration afresh in the light of the law and the outcome of the decision of larger bench on the issue after affording the assessee opportunity of being heard.

Issues Involved:
1. Assessment order bad in law
2. Reliance on Draft assessment order of AY 2009-10 for making adjustments
3. Denial of relief u/s.10AA
4. Disallowance of payments to AEs and third parties u/s.40(a)
5. Disallowance of ESOP expenses
6. Rejection of claim for refund of excess DDT
7. Transfer Pricing adjustment
8. Variance in total income as computed in final assessment order
9. Non-grant of credit for entire TDS
10. Non-grant of credit for entire TCS
11. Non-grant of deduction u/s.80G
12. Short grant of Foreign Tax Credit (without prejudice)
13. Initiation of Penalty proceedings
14. Interest u/s.234B & 234C
15. Consequential Relief

Issue-wise Detailed Analysis:

1. Assessment order bad in law:
The ground was general and not specifically addressed.

2. Reliance on Draft assessment order of AY 2009-10 for making adjustments:
The assessee did not press this ground during the hearing, and it was dismissed as not pressed.

3. Denial of relief u/s.10AA:
The Assessing Officer (AO) denied the relief u/s.10AA due to various discrepancies and non-compliance with conditions prescribed under the section. The Dispute Resolution Panel (DRP) upheld the AO's decision but directed the AO to verify certain documents and compute the relief accordingly. The Tribunal noted that the AO had selectively considered issues and failed to re-compute the relief despite verifying the details. The Tribunal allowed the deduction u/s.10AA for the assessee and directed the AO to compute the relief based on verified details.

4. Disallowance of payments to AEs and third parties u/s.40(a):
The AO disallowed payments made to AEs and third parties without TDS. The DRP directed the AO to verify the nature of these payments. The AO partially allowed the claims but retained significant disallowances. The Tribunal remanded the issue back to the DRP for further verification, especially considering the nature of reimbursements and secondment costs.

5. Disallowance of ESOP expenses:
The AO disallowed ESOP expenses, which were cross-charged by IBM US to IBM India. The Tribunal noted that the coordinate bench in the assessee's own case for AY 2015-16 had allowed such expenses. Following judicial precedents, the Tribunal held that ESOP expenses are allowable and deleted the disallowance.

6. Rejection of claim for refund of excess DDT:
The assessee claimed that dividends declared to its US parent company should be taxed at a lower rate as per the India-US DTAA. The Tribunal noted conflicting views on this issue and referred it back to the AO for fresh consideration in light of the law and the outcome of a pending decision by a larger bench.

7. Transfer Pricing adjustment:
The AO made adjustments for AMP expenses, considering them as non-routine and attributing them to the development of intangibles owned by the AE. The Tribunal, following the coordinate bench's decision in the assessee's own case for AY 2015-16, remanded the issue back to the AO/TPO for verification based on submitted documents and directed that no separate adjustment is needed if the expenditure is factored in net cost for computing margin.

8. Variance in total income as computed in final assessment order:
This issue was restored to the AO for examination.

9. Non-grant of credit for entire TDS:
The Tribunal restored this issue to the AO for verification and granting of TDS credit in accordance with the law.

10. Non-grant of credit for entire TCS:
This issue was also restored to the AO for examination and appropriate action.

11. Non-grant of deduction u/s.80G:
The Tribunal restored this issue to the AO for verification and granting of the deduction as per the law.

12. Short grant of Foreign Tax Credit (without prejudice):
This issue was restored to the AO for examination.

13. Initiation of Penalty proceedings:
These grounds were general or consequential and did not require specific adjudication.

14. Interest u/s.234B & 234C:
These grounds were general or consequential and did not require specific adjudication.

15. Consequential Relief:
These grounds were general or consequential and did not require specific adjudication.

Separate Judgments:
There were no separate judgments delivered by different judges in this case. The order was pronounced by the Tribunal as a common order for all the appeals.

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