2022 (12) TMI 491 - AT - Income Tax

TP Adjustment - international transactions in respect of license fee for distribution of software products and related services on a back to back basis in respect of Druva USA and Druva Europe - most appropriate method for the international transactions entered thereto - HELD THAT - Sub-rule 4 of Rule 10D explains that the information and document specified under sub-rule 1, 2 and 2(a) are as far as possible be contemporaneous and should exist latest by the specified date referred to in Clause (iv) of section 92F. Clause (iv) of section 92F explains the specified date means the date one month prior to the due date for furnishing the return of income under sub-section (1) of section 139 for the relevant assessment year. We note that admittedly during the course of TP proceedings the assessee submitted unaudited financials of Druva USA and Druva Europe and the TPO did not consider the same. Thus, in our opinion, issue requires fresh adjudication in view of the additional evidences filed in the form of paper book Nos. 5 7. Therefore, taking into consideration the submissions of ld. AR and ld. DR and in the interest of justice, we deem it proper to remand the matter to the file of TPO for its fresh consideration.TPO shall look into the additional paper book before the Tribunal and pass order, in accordance with law. Thus, the ground Nos. 3 to 7 raised by the assessee are allowed for statistical purpose. Selection and application of the most appropriate method - The assessee adopted TNMM as the most appropriate method but however the TPO rejected the same in view of his in adopting 7% mark up to the sales. Thus, in view of our decision remanding the matter to the file of TPO, we leave it open to the TPO regarding the most appropriate method. Disallowance on account of ESOP expenditure - AR submits that the AO disallowed the said expenditure on ad-hoc basis and the DRP without going into the details confirmed the order of AO - HELD THAT - We note that as rightly pointed by the ld. AR that the AO disallowed expenditure on account of ESOP by holding such expenditure is in notional in nature and no reasons were recorded in this regard. AR submits that the assessee is having all details and may be remanded the issue to the file of AO for its fresh consideration. Therefore, taking into consideration the submissions of ld. AR and ld. DR, in the interest of justice, we deem it proper to remand the issue to the file of AO. The assessee is liberty to file evidences, if any, in support of its claim. Thus, ground raised by the assessee are allowed for statistical purpose.

Summary

Issues:
1. Challenge to the action of TPO/DRP for disregarding the intercompany agreement for availing marketing and sales support services.
2. Disallowance of ESOP expenditure.
3. Disallowance of PF expenditure.
4. Initiation of penalty under section 271(1)(c) of the Act.

Issue 1:
The appeal challenges the TPO/DRP's decision to disregard the intercompany agreement for availing marketing and sales support services. The assessee, engaged in data protection services, contested the TPO's adjustment of Rs.33,73,58,889 to the value of international transactions with Druva Inc. and Druva Europe. The argument focused on the TPO's selective consideration of marketing and sales expenses, ignoring other relevant costs incurred by the associated enterprises (AEs). The AR highlighted routine expenses necessary for providing such services, emphasizing that the AEs did not retain margins in sales. The Tribunal remanded the matter to the TPO for fresh consideration based on additional evidence submitted by the assessee.

Issue 2:
The challenge regarding the disallowance of ESOP expenditure involved the AO's ad-hoc disallowance upheld by the DRP. The AR argued that the disallowance lacked proper reasoning and that the ESOP expenditure was in accordance with SEBI guidelines. The Tribunal remanded the issue to the AO for fresh consideration, allowing the assessee to provide further evidence in support of its claim.

Issue 3:
Regarding the disallowance of PF expenditure, the AO disallowed the payment made after the prescribed due date under the PF Act. However, the PF contribution was paid before the due date for filing the return of income. The Tribunal held that no disallowance was maintainable under the relevant assessment year rules, and thus, the disallowance of PF contribution was deleted.

Issue 4:
Grounds 17 to 19 raised by the assessee were dismissed as not pressed, indicating the lack of interest in pursuing those issues. The initiation of penalty under section 271(1)(c) of the Act was deemed premature at that stage and was dismissed accordingly.

In conclusion, the Tribunal allowed the appeal for statistical purposes, remanding certain issues for fresh consideration by the relevant authorities, and dismissing others based on the arguments presented and the legal provisions applicable to each issue.