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2016 (1) TMI 1513 - AT - Income TaxTP Adjustment - arm s length price of the international transaction of payment of corporate charges under the cost allocation agreement entered into between the assessee and its AE (Aricent Inc.) - HELD THAT - A coordinate bench of the Tribunal in the case of sister concern of the assessee in the case of Hughes Systique India (P) Ltd. vs. ACIT 2021 (4) TMI 1023 - ITAT DELHI held that the aspect of applicability of CUP method has not been properly dealt with by DRP and TPO also did not consider CUP method for bench marking of international transaction. As the facts emerge, the order of DRP does not throw effective light to reject the assessee s CUP method. The plea of the assessee is that the documents have been subsequently procured and are necessary for proper ascertainment of T.P. adjustment. Under these circumstances, we are of the view that assessee s application for admission of additional evidence deserves to be admitted. The assessee was prevented by sufficient cause as these documents could not be procured before the assessment proceedings. Accordingly we set aside the issue in respect of TP adjustment to the file of TPO for denovo adjudication. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such proceedings. Thus grounds raised are therefore allowed for statistical purposes. Nature of expenses - disallowance of project expenses by holding the same to be capital expenditure - HELD THAT - We also take note that in the case of assessee for Assessment year 2003-04 the AO allowed the project expenses as revenue expenditure. However CIT u/s 263 held the same to be erroneous, which order was cancelled by Tribunal by an order 2009 (1) TMI 535 - ITAT DELHI and appeal filed before Hon ble High Court by revenue also stands dismissed in order .Further, SLP filed by revenue before Apex Court stands dismissed. Decided in favour of assessee. Disallowance of deduction u/s 10B - HELD THAT - We take note that in the case of appellant for assessment year 2006-07 wherein held set aside the orders of the authorities below on this point and restore the matter back to the file of the AO with a direction to allow exemption under s. 10A in both the years in case the assessee is found to have satisfied all other requisites envisaged in the scheme of s. 10A of the Act. In case the exemption under s. 10A cannot be allowed for the reasons of not satisfying the requisites, the claim of deduction under s. 80HHE shall be allowed after providing opportunity to meet the requisites - Grounds allowed for statistical purposes.
Issues Involved:
1. Adjustment to the arm's length price of the international transaction of "payment of corporate charges." 2. Disallowance of project expenses as capital expenditure. 3. Disallowance of deduction under section 10B of the Income Tax Act. 4. Levy of interest under sections 234B and 234C. 5. Initiation of penalty proceedings under section 271(1)(c). Detailed Analysis: 1. Adjustment to the Arm's Length Price: The primary issue was the adjustment of Rs. 8,96,40,636/- to the arm's length price of the international transaction concerning the payment of corporate charges under the cost allocation agreement between the assessee and its associated enterprise (AE), Aricent Inc. The Transfer Pricing Officer (TPO) determined that the arm's length price for these corporate charges was nil, arguing that no recognizable benefit was passed to the assessee and the arrangement was designed to shift profits outside India. The TPO used the Comparable Uncontrolled Price (CUP) method to justify this adjustment. The assessee contended that the payment was for genuine corporate management support services, which were benchmarked using the Transactional Net Margin Method (TNMM) and that the services were essential for its business operations. The Dispute Resolution Panel (DRP) upheld the TPO's order, finding that the assessee failed to provide sufficient evidence of the services rendered or the benefit derived. However, the Tribunal admitted additional evidence, including affidavits from senior management, and remanded the issue back to the TPO for a fresh determination, allowing the assessee an opportunity to present its case. 2. Disallowance of Project Expenses: The Assessing Officer (AO) disallowed project expenses amounting to Rs. 39,15,46,619/- by treating them as capital expenditure. The assessee argued that these were routine business expenses incurred in the normal course of its software development business and did not result in any enduring benefit. The Tribunal noted that similar disallowances had been decided in favor of the assessee in previous assessment years, and the High Court had dismissed the revenue's appeal against those decisions. Consequently, the Tribunal allowed the appeal, treating the expenses as revenue expenditure, and deleted the disallowance. 3. Disallowance of Deduction under Section 10B: The AO denied the deduction under section 10B amounting to Rs. 1,77,78,93,207/-, following an order under section 263 for a previous year, which held that the assessee was not entitled to claim this deduction due to prior claims under section 80HHE. The assessee relied on the jurisdictional High Court's decision in a similar case, which allowed such deductions. The Tribunal, following its own precedent and the High Court's guidance, remanded the issue back to the AO for reconsideration, instructing the AO to provide the assessee with an opportunity to demonstrate its eligibility for the deduction. 4. Levy of Interest under Sections 234B and 234C: The issue of interest levied under sections 234B and 234C was deemed consequential. The Tribunal did not provide a detailed discussion on this point, indicating that the resolution of the primary issues would determine the interest liability. 5. Initiation of Penalty Proceedings under Section 271(1)(c): The initiation of penalty proceedings under section 271(1)(c) was considered premature and was therefore dismissed by the Tribunal. The decision on penalties would depend on the final outcomes of the substantive issues addressed in the appeal. Conclusion: The appeal was partly allowed, with the Tribunal remanding key issues back to the TPO and AO for fresh consideration, particularly in light of new evidence and prior favorable rulings for the assessee. The Tribunal's approach emphasized the need for a thorough examination of the facts and adherence to established legal precedents.
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