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2024 (12) TMI 974 - AT - Income TaxTDS u/s 195 - Disallowance of export commission for non-deduction of tax at source u/s. 40(a)(i) - AO treated the export commission paid to foreign agents in Korea and Indonesia as FTS for the reason that the terms of the agreement has mentioned consultancy services are part of the services rendered by the foreign agents and that the definition of FTS as per the DTAA between India and Korea / Indonesia includes consultancy services - HELD THAT - On perusal of the agreement entered into by the assessee with these foreign agents we notice that these foreign agents have been hired as agents for sales, marketing and customer support. We see merit in the contention of the ld. AR that merely inclusion of consultancy services in the job description of the agreement cannot be the sole reason for holding that the foreign agents are rendering consultancy services to the assessee without examining the actual nature of services rendered by these foreign agents. Co-ordinate Bench in assessee's own case for AY 2013-14 2018 (6) TMI 1859 - ITAT MUMBAI has considered the issue of taxability of export commission paid to the foreign agents Tribunal has given the finding that the export commission is not liable for tax deduction at source since the same is paid for procuring export order and payment was made outside India and therefore, there cannot be any disallowance under section 40(a)(i). The nature of export commission paid by the assessee for the year under consideration is similar and we also notice that the AO has made the disallowance of export commission to the same parties in Korea and Indonasia. Therefore in our view the ratio that the export commission for services rendered outside India is not taxable India is applicable for the year under consideration also. Revenue has not brought in any new material on record to deviate from the above view taken by the coordinate bench except that the job description in the agreement includes consultancy services. Accordingly, we hold that the export commission paid by the assessee towards sales, marketing and customer support services rendered outside India by the foreign agents cannot be treated as FTS and therefore no disallowance under section 40(a)(i) is warranted for the reason that no tax is deducted at source. Decided in favour of assessee. TP Adjustment towards provision of product development and other IT Services - comparable selection - HELD THAT - We notice that Isummation Technologies Pvt. Ltd. is engaged in the business of software development and from the perusal of the financial statement it is clear that there is only one business segment from which the company is deriving income i.e. software development. Therefore, we do not see any merit in the findings given by the TPO that the said company is not functionally comparable to the assessee. We also notice that the TPO while rejecting the comparable has relied on the data from website of the company and has not given any other material finding as to why the comparables is excluded. Therefore, we are not inclined to agree with the view of the TPO that Isummation Technologies Pvt. Ltd is to be excluded on functional dissimilarity ground. TPO while excluding Sagar Soft India Ltd. has relied on the company website to hold that it is functionally dissimilar compared to the assessee. However, from the perusal of the annual accounts of a company we notice that the company is into software development and consultancy services and the revenue is primarily derived from rendering software services. Therefore, in our considered view the TPO is not correct in excluding the company without recording any other reason except functional dissimilarity. While excluding Yudiz Solution Pvt. Ltd. the TPO once again relied on the company website and did not examine any other details before holding that the company is functionally dissimilar compared to the assessee. From the perusal of statement of accounts, we notice that the company is engaged in the business of software development and the revenue from operations is mainly derived from software development services. Therefore, we see no reason for excluding the company from the list of comparable. According, we direct the TPO to include Isummation Technologies Pvt. Ltd., Sagar Soft (India) Ltd. Yudiz Solution Pvt. Ltd. to the list of comparable and recomputed the ALP of the provision of product development and other IT Services accordingly. T.P. Adjustment towards provision of sales and marketing supporting services - assessee has chosen five comparables with an average margin of 12% and accordingly the assessee considered that the transaction of providing sales and marketing support services is at Arms Length - HELD THAT - We notice from the perusal of the annual accounts of the company that the company is mainly into Research Services which are high-end services. Therefore, we see merit in the argument in the ld. AR that the company is not functionally comparable with the marketing and support services provided by the assessee to the AE. We therefore, direct the TPO to exclude Majestic Research Services and Solutions Ltd. from the list of comparable and recomputed the ALP accordingly. AO not considering the revised return filed by the assessee while arriving at the assessed income of the assessee - From the report of the AO, we notice that the assessee has made an application for condonation of delay before CBDT for filing the revised return belatedly and that the assessee is yet to receive order from the CBDT condoning the delay. Therefore we see merit in the contention of the Ld DR that the revised return cannot be considered until the delay is condoned. Accordingly we remit the issue back to the AO with a direction to consider the income declared in revised return of income once the order condoning the delay received from CBDT while re-computing the income as per the directions in this order. Non-granting of credit for advance tax and TDS - We notice that the AO has not given the credit for the reason that the advance tax and the TDS are paid in the name of merged entity. Since the belated return filed by the assessee including the income and taxes of the merged entity is pending for condonation of delay by CBDT, we direct the AO to consider the advance tax and TDS paid in the name of merged entity post the delay being condoned by CBDT whereby the revised return in which such claim is made effective. Adjustment towards provision of sales and marketing supporting services retained Majestic Research Services and Solutions Ltd as a comparable - For AY 2017-18 we have directed the exclusion of Majestic Research Services and Solutions Ltd, for the reason that the company is into high end research and therefore functionally not comparable to the assessee. Given that there is no change to the functions of the assessee and Majestic Research Services and Solutions Ltd., we are of the view that our decision rendered for AY 2017-18 with regard to exclusion of Majestic Research Services and Solutions Ltd., mutatis mudandis applicable for the year under consideration also.
Issues Involved:
1. Draft assessment order being barred by limitation. 2. Disallowance of export commission for non-deduction of tax at source under section 40(a)(i). 3. Transfer Pricing (T.P.) Adjustment towards provision of product development and other IT Services. 4. T.P. Adjustment towards provision of sales and marketing supporting services. 5. Non-grant of credit for foreign tax credit. 6. Levy of interest under section 234A, 234B, and 234C. 7. Initiation of penalty proceedings under section 270A. 8. Non-scrutinizing the revised return of income. 9. Non-granting credit for advance tax and TDS. 10. Not granting interest under section 244A on refund due. Detailed Analysis: 1. Draft Assessment Order Being Barred by Limitation: The assessee contended that the draft assessment order was time-barred. However, the assessee's representative submitted that if the issues are considered on merits and held in favor of the assessee, this ground may be treated as not pressed. 2. Disallowance of Export Commission for Non-Deduction of Tax at Source Under Section 40(a)(i): The assessee argued that the commission paid to foreign agents in Korea and Indonesia should not be disallowed, as these agents do not render consultancy services and do not have a Permanent Establishment (PE) in India. The Tribunal agreed with the assessee, referencing a previous decision in the assessee's own case for AY 2013-14, stating that the export commission is not liable for tax deduction at source since it is paid for procuring export orders outside India. Thus, no disallowance under section 40(a)(i) is warranted. 3. T.P. Adjustment Towards Provision of Product Development and Other IT Services: The TPO made adjustments by excluding certain comparables deemed functionally dissimilar. The Tribunal directed the inclusion of Isummation Technologies Pvt. Ltd., Sagar Soft (India) Ltd., and Yudiz Solution Pvt. Ltd. as comparables, finding them functionally similar to the assessee. The TPO was instructed to recompute the ALP accordingly. 4. T.P. Adjustment Towards Provision of Sales and Marketing Supporting Services: The Tribunal found merit in excluding Majestic Research Services and Solutions Ltd. from the list of comparables, as it was engaged in high-end research services, which are functionally different from the marketing support services provided by the assessee. The TPO was directed to recompute the ALP excluding this company. 5. Non-Grant of Credit for Foreign Tax Credit: The Tribunal directed the Assessing Officer (AO) to consider the submissions of the assessee and allow the foreign tax credit in accordance with the law. 6. Levy of Interest Under Section 234A, 234B, and 234C: These issues were deemed consequential and did not warrant separate adjudication. 7. Initiation of Penalty Proceedings Under Section 270A: The Tribunal considered this issue premature and did not warrant separate adjudication. 8. Non-Scrutinizing the Revised Return of Income: The revised return filed by the assessee was not considered by the AO due to it being filed beyond the time limit. The Tribunal remitted the issue back to the AO, directing that the revised return be considered upon condonation of delay by the CBDT. 9. Non-Granting Credit for Advance Tax and TDS: The Tribunal directed the AO to consider the advance tax and TDS paid in the name of the merged entity once the delay in filing the revised return is condoned by the CBDT. 10. Not Granting Interest Under Section 244A on Refund Due: This issue was deemed consequential and did not warrant separate adjudication. Conclusion: The appeals for both AY 2017-18 and AY 2018-19 were partly allowed, with specific directions issued to the TPO and AO regarding the inclusion of comparables, granting of credits, and consideration of revised returns, among other issues.
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