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2023 (2) TMI 1318 - AT - Income TaxTP Adjustment - adjustment towards the royalty for use of technology - as argued adjustment made w/o determining the comparable transaction in the public domain as prescribed under the Act and Rules - HELD THAT - After hearing both the parties we are of the opinion that similar issue came for consideration before this Tribunal in assessee s own case in assessment years 2005-06 2006-07 2022 (8) TMI 1345 - ITAT BANGALORE TPO repeated the same what he has done on earlier occasion without considering the direction of the Tribunal where the Tribunal given a direction that in case comparable is not found in respect of payment of royalty by the assessee then the TPO/AO may consider the royalty payment on part of the international transaction under trading segment and determine the ALP by considering the royalty as part of operating cost for the purpose of computing the margin in the trading segment. Before us Ld. A.R. submitted that if it is considered as operating cost then the margin of the assessee is higher than the margin of comparable i.e. M/s. Advance Micronic Devices Ltd. In our opinion the AO has to consider this royalty payment as an operating cost and has to verify whether the margin of assessee is higher than the margin declared by the comparable company i.e. M/s. Advance Micronic Devices Ltd. and decide accordingly. In view of this the issue in dispute is set aside to the file of AO/TPO for the limited purpose for comparison of margins with the comparable company and decide accordingly. Assessee appeal allowed. TP Adjustment Distribution Segment - comparable selection - HELD THAT - After hearing both the parties we are of the opinion that similar issue came for consideration before this Tribunal in assessee s own case in assessment years 2012-13 in 2023 (4) TMI 75 - ITAT BANGALORE as held the main grievance of the Ld. A.R. on this issue is that AO/TPO/DRP has not considered the earlier decision of Tribunal in A.Y. 2002-03 to 2004-05 2005- 06 2006-07 as such order passed by the lower authorities is bad in law. The Judicial discipline requires consistency in its proceedings - AO/TPO what criteria followed in earlier year for determining the ALP the same to be followed in next assessment year unless and until there is a change in facts of the case. In the present case the Ld. D.R. not brought on record any change in circumstances to deviate from earlier order of the Tribunal for the assessment year especially 2005- 06 and 2006-07 2017 (4) TMI 1527 - ITAT BANGALORE wherein the Tribunal followed the earlier order of the Tribunal for the AY 2002-03 and 2004-05 which has been reproduced in earlier para of this order. Being so we direct the AO/TPO to pass fresh order. In view of the above order of the Tribunal this ground is remitted to the file of AO/TPO on similar lines. This ground of appeal is partly allowed for statistical purposes. Comparable selection for Software Development Segment - Since the assessee falls under category of companies having turnover between Rs.200 crores to Rs.2000 crores Companies different needs to be excluded. Assessee s margin for the SWD segment is 9.33% thus Companies with higher margins needs to be excluded. Functional dissimilarity leads to exclusion of comparables. Disallowing deduction claimed of Lease payments on financial lease u/s 37 - HELD THAT - As decided in Texas Instruments (India) Pvt. Ltd. 2021 (4) TMI 1049 - KARNATAKA HIGH COURT perused copies of the lease agreement entered into between the assessee and the lessor. It is clear from the terms of the agreement that the assessee was only a lessee and the lessor was the owner of the equipment as well as the vehicles - AO in the order of assessment has culled out certain clauses of the agreement and came to the conclusion that the assessee is the owner of the assets and the lease rentals paid was nothing but an expenditure paid for acquiring an asset which was to be regarded as a capital expenditure. This conclusion of the AO in our view is clearly erroneous. Even assuming that the expenditure has to be regarded as a capital expenditure the AO ought to have allowed depreciation to the assessee. In this regard we find that in the computation of total income assessee has added to the profit as per the P L A/c the finance charges on lease and reduced lease rentals paid. Therefore whatever be the position with regard to the books of account in compliance with AS-19; as far as computation of the total income for the purpose of the Act is concerned the assessee has made claim only for deduction on account of lease rentals paid. There is no basis for the Revenue authorities to come to a conclusion that the assessee has adopted a colourable device with a view to gain tax advantage. AO as well as the CIT(A) have quoted various clauses of the lease agreement out of context ignoring the main clause in the agreement which clearly lays down that the assessee is only a lessee and the lessor is the owner of the assets leased. In such a scenario the conclusion of the Revenue authorities cannot be sustained. The assessee is entitled to claim deduction on account of lease rentals paid as it is a Revenue expenditure. Disallowing the written off receivables and advances - Difference between the provision debited in the P L account and the provision added back in the computation of income - HELD THAT - The main contention of the ld. A.R. is that the AO has not followed the ld. DRP s order and requested to give a direction to AO/TPO to pass consequential order in conformity with the ld. DRP s order accepted accordingly the issue is remitted to the AO/TPO to pass consequential order in conformity with the order of the ld. DRP. Denial of TDS credit - HELD THAT - We are of the opinion that this requires verification by the AO/TPO on the basis of TDS deduction made by the respective parties. Accordingly this issue is remitted to the AO to verify the same and grant the eligible TDS to the assessee. Charging of interest u/s 234A 234B - assessee filed return of income within the time stipulated in section 139(1) of the Act and as such there was no delay in filing the return of income - HELD THAT - The levy of interest u/s 234A of the Act is bad in law. In our opinion this requires to be verified at the end of the AO if the return has been filed within the due date prescribed u/s 139(1) of the Act. If return for this year has been filed within due date u/s 139(1) of the Act there cannot be any levy of interest u/s 234A of the Act. With regard to levy of interest u/s234B of the Act which is consequential and mandatory in nature and to be computed accordingly.
Issues Involved:
1. Transfer Pricing Adjustments 2. Disallowance under Section 37 of the Income-tax Act 3. Disallowance under Section 36(1)(vii) of the Income-tax Act 4. Disallowance of Provisions 5. TDS Credit 6. Interest under Sections 234A, 234B, and 234C Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustments: - Royalty Payment: The TPO observed that the royalty payment to the AE was not justified as the trademark costs were already included in the price of the products. The TPO held the ALP of the royalty payment as NIL and made an adjustment of Rs. 20,27,37,762/-. The Tribunal noted that similar issues in previous years were set aside for fresh consideration, and directed the AO/TPO to reconsider the royalty payment as part of the operating cost. - Distribution Segment: The TPO made an adjustment of Rs. 253,10,21,733/- by comparing the assessee's distribution margin with other companies not in the same business. The Tribunal noted that the AO/TPO did not follow the ITAT's earlier orders to restrict adjustments to AE transactions only. The Tribunal remitted the issue back to the AO/TPO for reconsideration in line with earlier orders. - Software Development Segment: The TPO made an adjustment of Rs. 110,46,98,146/- by selecting comparables that were not functionally similar. The Tribunal directed the AO to verify whether the margin declared by the assessee was higher than that of the comparables and, if so, to delete the adjustment. 2. Disallowance under Section 37 of the Income-tax Act: - Lease Payments: The AO disallowed lease payments of Rs. 26,12,77,130/- treating them as capital expenditure. The Tribunal remitted the issue back to the AO/TPO to verify the nature of the lease payments and decide accordingly, following the decision in Texas Instruments (India) Pvt. Ltd. vs. JCIT. - Miscellaneous Expenses: The AO disallowed Rs. 16,27,83,384/- due to lack of evidence. The Tribunal remitted the issue back to the AO/TPO to verify the details provided by the assessee and decide in light of the Tribunal's decision in IT(TP)A No.703/Bang/2021. 3. Disallowance under Section 36(1)(vii) of the Income-tax Act: - The AO disallowed Rs. 1,63,36,390/- due to lack of reconciliation. The Tribunal remitted the issue back to the AO/TPO to pass a consequential order in conformity with the DRP’s directions. 4. Disallowance of Provisions: - Legal and Professional Fees, Advertisement and Sales Promotion, Repairs and Maintenance, Dealer's Commission: The AO disallowed Rs. 41,76,13,362/- on an estimated and protective basis. The Tribunal remitted the issue back to the AO/TPO for reconsideration in light of earlier decisions and to verify the assessee's claims. 5. TDS Credit: - The AO did not grant TDS credit amounting to Rs. 1,58,77,886/-. The Tribunal remitted the issue back to the AO to verify the TDS deductions and grant the eligible credit. 6. Interest under Sections 234A, 234B, and 234C: - The Tribunal directed the AO to verify if the return was filed within the due date for Section 139(1) and, if so, to delete the interest under Section 234A. Interest under Section 234B is consequential and mandatory. Conclusion: The Tribunal remitted several issues back to the AO/TPO for fresh consideration and verification, ensuring adherence to earlier Tribunal decisions and providing the assessee with an opportunity to substantiate its claims. The appeal was partly allowed for statistical purposes.
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