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TMI Blog2015 (5) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... :-(9) Learned Commissioner of Income Tax (Appeals) erred in confirming the order passed by Learned Assessing Officer in not allowing "TDS Certificates not received from Debtors" hence written off to the tune of Rs. 131,545/-. Appellant submits that in view of the facts and circumstances of the case as well as in law, "TDS Certificates not received from Debtors" hence written off ought to be allowed as business expenditure. Ground No :-10 Learned Commissioner of Income Tax (Appeals) erred in confirming order of Learned Assessing Officer in not allowing Staff advances written off the tune of Rs. 188,382/-. Appellant submits that in view of the facts and circumstances of the case as well as in law, the Staff advances written off ought to be allowed as business expenditure under section 37(1) of the Act. Ground No :-11 Learned Commissioner of Income Tax (Appeals) erred in not passing a speaking order to alternative claim filed by the Appellant which is reproduced herein below :- "Without prejudice to the above it is submitted that in case Bad Debts are held to be not allowable than the said items which relates to lOA units. should be disallowed/added back while computing deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .O has selected rate of charge in respect of various members of the team where there is a difference in the rate and the assessee is charging less from the AE. As far as the rate charged by the assessee which is more than the rate charged from the non AE, the TPO has excluded the said price for the purpose of computing the margin of the assessee on the price charged from the AE. Thus the Ld. Authorized Representative has submitted that for the purpose of determining the ALP, the aggregated price charged by the assessee from AE has to be taken into consideration and not the individual rate of man hour in respect of the team members providing services of software development. In support of his contention, he has relied upon the decision of Pune benches of this Tribunal in the case of Cummins India Ltd. Vs. ACIT 31 CCH 171)(Pune) as well as in the case of Demag Cranes & Components (India) Pvt. Ltd. Vs DCIT 34 CCH 378. The Ld. Authorized Representative has submitted that the adjustment has to be made on aggregated basis and not on individual line by line item of income as the entire revenue is from software development services which is a composite work and no part of work is independe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g from the continuous transaction of supply of services that the price of one transaction cannot be determined independently without having been influenced on the price of the other closely linked transaction or being influenced by the price of other closely linked transaction. Therefore, the portfolio approach is to be taken into account in the comparability analysis. The aggregation and clubbing of closely linked transactions are permitted under Rule 10A(b) as well as it is also supported by OECD transfer pricing guidelines. Therefore, in order to examine whether all transactions are closely linked or continuous, it is to be considered that one transaction is follow on of the earlier transaction and each subsequent transaction is carried out is dependent wholly or substantially on the earlier transaction. In such a case, the transactions are considered tobe closely linked or continuous and, therefore, for the purpose of valuation these has to be aggregated. Accordingly, when the overall price charged for a particular service is the final price of a service and the same has to be compared with over all price charged for the same services provided to un related party has to be comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has already offered to tax without getting the benefit of TDS credit. Accordingly, the assessee written off this amount for want of receipt of TDS certificate from the debtors. In support of his contention, he has relied upon the decision of Delhi benches of this Tribunal in the case of ACIT Vs. Kelly Services India Pvt. Ltd. (34 CCH 342). He has also relied upon the Judgment of Hon'ble Supreme Court in the case of TRF Ltd. Vs. CIT (323 ITR 397). 3.2 On the other hand, the Ld. DR has submitted that this is not an amount receivable from the debtors and there is not question of the debts gone bad or become irrecoverable. Therefore, in the absence of the amount represents debt or unrecoverable , the same cannot be allowed as bad debts as per section 36(1)(vii) of the Income Tax Act. He has relied upon the orders of authorities below. 3.3 We have considered the rival submissions as well as relevant material on record. There is no dispute that the assessee has already offered the amount to tax being part of sales turnover. However, the TDS deducted by the debtors appears to have not been deposited in the Government account and, therefore, the debtors has not issued TDS c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces were given by the assessee under some specific scheme or for specific purposes as per the policy of the assessee and, thereafter, if the recipient employee has left the service of the assessee then the said advance which becomes irrecoverable and consequently is an allowable claim. Since the fact on this point has neither been recorded nor discussed by the authorities below, therefore, this issue requires proper verification and examination. Accordingly, we set aside this issue to the record of Assessing Officer to verify whether the advances in question were given to the staff who has already left the service of the assessee and further whether the claim of the assessee is allowable in view of the decisions relied upon by the assessee. Needless to say the Assessing Officer should give a proper opportunity of hearing to the assessee. Alternatively, the assessee has also submitted that even if the claim of the assessee is disallowed then the said amount is eligible for deduction u/s 10A. Since this issue has not been examined by the authorities below, therefore, the alternative plea of the assessee shall also be considered and examined by the Assessing Officer. 5 Ground no. 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed subsidiary. The assessee claimed that the said loan was given for meeting the working capital requirement of the assessee subsidiary which was also engaged in the same business of software development as of the assessee. The subsidiary has suffered a huge loss and consequently the business was closed. Accordingly, the assessee written off the amount and claimed as bad debt. We find that the facts of the said loan was given by the assessee to meet the requirement of working capital of the subsidiary and the subsidiary was engaged in the same business as of the assessee has not been considered and discussed by the authorities below. The issue has been considered by the various decisions as relied upon by the assessee and found to be an allowable claim when the amount was given for expenses and working capital of the subsidiary which was considered to be for commercial expediency of the assessee's business. Accordingly, we direct the Assessing Officer to verify the fact as claimed by the assessee that the amount in question was advanced to the subsidiary of the assessee for meeting the working capital requirement and the subsidiary was also engaged in the same business and then de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ared is required. Appellant submits that in view of the facts and circumstances of the case as well as in law, such adjustments made to the value of international transaction ought to be deleted. 5. Learned Commissioner of Income Tax (Appeals) erred in confirming the order passed by Learned Assessing Officer / Transfer Pricing Officer in applying the Comparable Uncontrolled Price Method without appreciating the facts of the case. Learned Assessing Officer / Transfer Pricing Officer has erred in rejecting TNNM method as the Most Appropriate Method adopted by the Appellant. Appellant submits that in view of the facts and circumstances of the case as well as in law, TNMM ought to be the most appropriate method as adopted by Appellant. 6.1 Ground no. 1 is general in nature and does not require any specific finding or adjudication. 6.2 Ground no. 2 is regarding transfer pricing adjustment on account of notional interest on free advance granted to the AE. 6.3 We have heard the Ld. Authorized Representative as well as Ld. DR and considered the relevant material on record. The assessee has given loan to its subsidiary company and has not charged interest on the same. The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment services provided to AE. 7.1 At the time of hearing the Ld. Authorized Representative of the assessee submitted that this issue raised in the ground no. 3 has been allowed by the CIT(A) and, therefore, the assessee does not press ground no. 3 and the same may be dismissed as withdrawn. 7.2 In view of the fact that this ground does not arise from the impugned order of CIT(A) as the issue was decided in favour of the assessee, accordingly, this ground of the assessee's appeal is dismissed as withdrawn. 8. Ground no. 4 and 5 is regarding addition on account of transfer pricing adjustmen in respect of software development services provided to AE. The issue raised in ground no. 4 and 5 is identical to the issue raised in ground no. 1 to 8 for A.Y. 2003-04. Accordingly, this issue is set aside to the record of Assessing Officer/TPO with the same directions as given for A.Y. 2003-04. 8.1 The assessee has also raised common additional grounds for both A.Y.s which reads as under:- "Ld. Commissioner of Income Tax (Appeals) erred in confirming the order passed by Ld. Assessing Officer/Transfer Pricing Officer in not granting benefit of variation of 5% as provided in second proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecial Bench in the case of ITO Vs. Sak Soft Ltd. (2009) 121 TTJ (Chennai) (SB) 865, wherein the special Bench has decided the issue by following the Judgment of Hon'ble Supreme Court in the case of CIT Vs. Laksmi Machine Works (2007) 210 CTR (SC) 1. In a recent decision in the case of CIT Vs. Gem Jewellery India Ltd (supra), the Hon'ble High Court has held in para 6 to 8 as under:- "6. The export turnover, in the numerator must have the same meaning as the export turnover which is a constituent element of the total turnover in the denominator. The Legislature has provided a definition of the expression "export turnover" in Explanation (2) to section 10A by which the expression is defined to mean the consideration in respect of export by the undertaking of articles, things or computer software received in or brought into India by the assessee in convertible foreign exchange but so as not to include inter alia freight, telecommunication charges or insurance attributable to the delivery of the articles, things or software outside India. Therefore in computing the export turnover the Legislature has made a specific exclusion of freight and insurance charges." 7. The submission which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia (as the Learned Chief Justice then was) speaking for a Division Bench of this Court did not accept the contention of the revenue that since the Legislature had excluded only insurance and freight from the total turnover, it was not open to the assessee to contend that excise duty and sales tax should also be excluded. In that context, the Division Bench observed that the meaning of export turnover in clause (b) of the Explanation to section 80HHC showed that export turnover did not include excise duty and sales tax. The Division Bench observed that the export turnover is the numerator in the formula whereas the total turnover is the denominator. The formula having been prescribed to arrive at profits from exports, sales tax and excise duty could not form part of the total turnover. If the denominator were to include those two items and the numerator excluded them, the formula (noted the Division Bench), would become unworkable. In the circumstances, the Division Bench held that while ascertaining the export profits, excise duty and sales tax could not be introduced to inflate the total turnover artificially in order to reduce the benefit to which the assessee is entitled. The d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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