2023 (3) TMI 1507 - AT - Income Tax

TP Adjustment - addition towards the royalty for use of technology - HELD THAT - We are of the opinion that this issue came for consideration before this Tribunal in assessee s own case in assessment year 2016-17 2023 (2) TMI 1318 - ITAT BANGALORE held that 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. TP adjustment in the trading segment is to be deleted. TPO for the impugned year has considered 8 comparables at a median margin of 10.87%. Since the assessee s margin is higher than that of the comparables chosen by the TPO, no adjustment is required in the trading segment. Selection of Comparable - Since appellant falls under category of companies having turnover between Rs.200 crores to Rs.2000 crores, comparables different from it needs to be excluded. Also companies functionally dissimilar to that of the assessee. Lease payment on financial lease - assessee explained that it has claimed deduction towards lease payment on assets taken on lease whose life is short tenure in nature - The entire lease payment has been claimed as allowable expenditure in the computation of income and the assessee has followed the Accounting Standard -19-Leases issued by the ICAI - HELD THAT - As we are of the opinion that similar issue came for consideration before this Tribunal in 2023 (2) TMI 1318 - ITAT BANGALORE for the AY 2016-17 wherein held 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. In this regard, we find that the 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. TDS credit - We remit this issue to give correct TDS credit after due verification of the records.

Issues Involved:
1. Jurisdiction and Validity of Orders
2. Transfer Pricing Adjustments
3. Disallowance of Lease Payments
4. Credit for Tax Deducted at Source (TDS)
5. Interest under Sections 234A, 234B, and 234C

Detailed Analysis:

1. Jurisdiction and Validity of Orders:
The appellant challenged the jurisdiction and validity of the orders passed by the Assessing Officer (AO), Transfer Pricing Officer (TPO), and Dispute Resolution Panel (DRP). The appellant argued that the orders were against the law, facts, and principles of natural justice. The tribunal noted that these grounds were general and did not require specific adjudication.

2. Transfer Pricing Adjustments:
a. Royalty Payment Adjustment (Rs. 71,58,08,823/-):
The appellant paid royalty for support services provided by its group company. The tribunal noted that the TPO failed to find a comparable transaction or consider royalty as part of the trading segment, contrary to the tribunal's earlier directions. The tribunal directed the AO/TPO to consider royalty as part of the operating cost and verify if the appellant's margin was higher than the comparable company's margin.

b. Distribution Segment Adjustment (Rs. 1,74,43,26,236/-):
The appellant argued that the TPO made adjustments on domestic sales, which are not international transactions, and did not follow the tribunal's earlier directions to apply the Resale Price Method (RPM). The tribunal remitted the issue to the AO/TPO to follow the earlier tribunal orders and restrict adjustments to AE purchases.

c. Software Development Segment Adjustment (Rs. 84,58,60,310/-):
The appellant contested the selection of comparables and the application of turnover filters. The tribunal directed the AO/TPO to verify if the appellant's margin was higher than the margins of the comparables and, if so, to delete the TP adjustment.

3. Disallowance of Lease Payments (Rs. 18,69,97,941/-):
The AO disallowed the lease payments as capital expenditure. The appellant argued that the lease payments were revenue expenditure and consistent with past practice. The tribunal, following the decision in Texas Instruments (India) Pvt Ltd vs JCIT, remitted the issue to the AO/TPO to verify the lease agreements and allow the lease payments as revenue expenditure if substantiated.

4. Credit for Tax Deducted at Source (TDS) (Rs. 1,37,88,075/-):
The appellant claimed that the AO did not give credit for TDS. The tribunal remitted the issue to the AO to verify the records and give the correct TDS credit.

5. Interest under Sections 234A, 234B, and 234C:
The appellant contested the interest liabilities under sections 234A, 234B, and 234C. The tribunal noted that these interests are consequential and mandatory, to be computed accordingly.

Conclusion:
The tribunal allowed the appeal partly for statistical purposes, remitting several issues to the AO/TPO for reconsideration and verification in line with the tribunal's directions.

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