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2017 (12) TMI 301 - AT - Income TaxALP determination being the interest on loan given to AE - Held that - The present case the assessee has remitted the funds as loan and later on decided to convert the same as equity. It is not clear from the records that the purpose for which the loan was given. The assessee claims that it is for the business exigencies (quasi capital) and then it was converted as equity. The assessee has submitted that the parent company has allotted the shares in the FY 2011-12 but it is not clear when the decision was made to convert the loan into equity. Considering the above facts and issues relating to this transaction in our considered view this matter needs further verification at the AO/TPO level to find out the purpose of loan whether for business exigencies. If it is for the business exigencies and particularly it comes under definition of international transaction the same has to be considered as financial transaction. Provision for gratuity added to profit u/s 115JB - Held that - The approval of the fund is only the procedural aspect which can be cured. But it is not clear from the record submitted before us that these funds were actually deposited. We refuse to entertain the claim of the assessee that this can be claimed as expenditure. The same is the case with the treatment in the calculation of 115JB. In case the funds are deposited in the separate fund based on actuary valuation this cannot be added back in the calculation of 115JB to determine the book profit. We direct the AO to allow the increase in profit consequent to disallowance of provision for gratuity as deduction u/s 10A. Accordingly ground raised by the assessee is allowed in this regard and the other grounds relating to claim of gratuity as expenditure are dismissed. Deduction u/s 10A - Held that - When the assessee seeks permission from the RBI through the authorized dealers for the delayed remittance and the same are ratified by RBI such realizations are eligible to claim deduction u/s 10A. As per provision of section 10A(3) the realization should be brought to India within 6 months or as approved by proper authority in the given case it is RBI which is the approved authority. Hence assessee is eligible to claim deduction u/s 10A. Therefore we direct the AO to allow the assessee s claim of exemption u/s 10A. Accordingly this ground is allowed. Export receivable converted into equity - deduction u/s 10A - Held that - As the issue under dispute is squarely covered by the decision of the coordinate bench of this Tribunal in the case of Sankhya Infotech Ltd. (2011 (4) TMI 793 - ITAT HYDERABAD) and the assessee has received approval for the investment such investments were out of sale proceeds. The authorized dealer has adjusted against such investment and issues FIRC s to the assessee then it amounts to realization of export proceeds within the meaning of actual receipts for the purpose of section 10A. Since the assessee has not submitted any document in support of approval granted by RBI and FIRC certificates we remit this issue to the file of the AO to examine the FIRC s and approval from RBI in case it is in order the assessee is eligible for deduction u/s 10A on such sum. Accordingly ground raised by the assessee is allowed for statistical purpose. Direct the AO to allow the assessee s claim of exemption u/s 10A by excluding the branch turnover from both export turnover and total turnover. TPO has not followed the directions of DRP in pit & substance by overlooking the directions of the DRP to consider the margin in case of assessee as well as comparables after excluding depreciation. Since AO/TPO has arrived ALP adjustment without excluding depreciation in our considered view the ALP adjustment arrived at by the TPO is not as per the directions of DRP. Hence we remit this issue back to the AO/TPO to calculate the TP adjustment excluding depreciation. Considering the fact that section 10A allows assessee to bring the foreign exchange within 6 months to claim benefit under this section. In our considered view the same can also be extended to assessee as the reasonable period outstanding. Accordingly we direct the AO/TPO to charge interest of LIBOR 200 bps on the outstanding amount beyond 6 months. In order to determine the period and computation of interest the issue is remitted back to AO/TPO. Accordingly ground raised by the assessee is allowed for statistical purposes. Addition of towards asset written off and towards depreciation claimed on the above asset - Held that - In the present case assessee has purchased this software to improve the business by linking the transaction of different countries. It is not always end up with good decision it is part of business decisions. It is not always relevant how much revenue it has generated or improved the business. It is not sometimes quantifiable. It is enough to prove that the purchase transaction and relevant payment is proper. AO is expected to verify only the legality and genuineness of the transaction and not the rationale of such transaction it should be the domain of the management. Accordingly we direct the Assessee to submit the relevant information relating to purchase and payment of ERP software. The assessee has to submit the copy of bills and payment vouchers with bank statement in which such payments were cleared. We note that assessee has not submitted such information even before AO/DRP even though opportunity was extended. Now ld. AR has submitted that all the information is available accordingly we remit this issue back to the file of the AO with a direction to verify the transaction as per due procedure only for the genuineness of purchase and payment. Assessee may be given proper opportunity of being heard. This ground of appeal is allowed for statistical purposes.
Issues Involved:
1. Determination of Arm’s Length Price (ALP) for interest-free loans to Associated Enterprises (AEs). 2. Allowability of provision for gratuity as an expense and its treatment under Minimum Alternate Tax (MAT). 3. Deduction under Section 10A for export turnover received in convertible foreign exchange. 4. Transfer Pricing adjustments for IT enabled services. 5. Addition of interest on receivables from AEs. 6. Disallowance of asset write-off and depreciation claimed on the written-off asset. Detailed Analysis: 1. Determination of Arm’s Length Price (ALP) for Interest-Free Loans to AEs: The TPO observed that the assessee advanced interest-free loans to its AE, GSS America Inc., USA, and determined the ALP based on the US LIBOR plus 3 percent points, resulting in an interest rate of 5.7% per annum. The TPO computed the shortfall in interest as ?83,21,639/- for AY 2009-10. The assessee argued that the loans were out of free reserves and were converted into equity in FY 2011-12. The DRP rejected the assessee's objection, and the Tribunal remitted the matter back to the AO/TPO for further verification of the purpose of the loan and the timing of the decision to convert the loan into equity. If the loan was for business exigencies and converted into equity within the same AY, no interest should be charged. 2. Allowability of Provision for Gratuity as an Expense and its Treatment under MAT: The assessee claimed provision for gratuity as an expense, which the AO disallowed due to the lack of approval from the CIT for the gratuity fund. The Tribunal held that if the funds were deposited in an appropriate fund based on actuary valuation, the provision for gratuity could be allowed as an expense and should not be added back in the calculation of MAT. The Tribunal directed the AO to allow the increase in profit consequent to the disallowance of provision for gratuity as a deduction under Section 10A. 3. Deduction under Section 10A for Export Turnover Received in Convertible Foreign Exchange: The AO restricted the deduction under Section 10A to the extent of foreign exchange received within six months from the end of the FY. The Tribunal, following the decision in the case of Prithvi Information Solutions Ltd., directed the AO to allow the deduction for amounts realized within one year from the date of invoice as per RBI Circulars. Additionally, the Tribunal allowed the deduction for export receivables converted into equity within the extended time approved by RBI, directing the AO to examine the necessary documents. 4. Transfer Pricing Adjustments for IT Enabled Services: For AY 2012-13, the TPO selected comparables and determined an ALP adjustment of ?9,36,79,227/-. The DRP directed the AO to consider the margin excluding depreciation. The Tribunal remitted the issue back to the AO/TPO to calculate the TP adjustment excluding depreciation, as the TPO had not followed the DRP's directions. 5. Addition of Interest on Receivables from AEs: The TPO levied interest on outstanding receivables from AEs at the PLR of 14.75%, which was contested by the assessee. The Tribunal, following its earlier decision, directed the AO/TPO to charge interest at LIBOR + 200 bps on outstanding amounts beyond six months, remitting the issue back for determination of the period and computation of interest. 6. Disallowance of Asset Write-Off and Depreciation Claimed on the Written-Off Asset: The AO disallowed the write-off of ?14,62,50,000/- and the depreciation of ?4,87,57,000/- on an ERP package, questioning the genuineness of the transaction. The Tribunal noted that the ERP software was purchased and installed in FY 2009-10 and allowed in earlier assessments. The Tribunal directed the AO to verify the genuineness of the purchase and payment, remitting the issue back for verification with proper opportunity for the assessee to present evidence. Conclusion: The appeals were partly allowed for statistical purposes, with several issues remitted back to the AO/TPO for further verification and recalculation based on the Tribunal's directions. The Tribunal emphasized the need for proper documentation and adherence to procedural requirements in determining the allowability of expenses and adjustments.
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