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TMI Blog2015 (5) TMI 398X X X X Extracts X X X X X X X X Extracts X X X X ..... with unrelated parties after allocating respective revenues and expenses to both the segments – Decided in favour of Assessee by way of remand. Deduction u/s 10A - disallowance of miscellaneous income considering the same as part of business income - Held that:- As relying on assessee's own case [2014 (8) TMI 64 - ITAT DELHI] the amount received by the assessee towards notice period is to be treated as income derived from the eligible undertaking and deduction u/s 10A shall be allowed accordingly. The Assessing Officer shall modify the assessment order in the light of the aforesaid direction and allow the deduction u/s 10A of the Act in terms of this order - Decided in favour of assessee. Adhoc disallowance of interest expenses - Held that:- As decided in assessee’s own case [ 2014 (8) TMI 64 - ITAT DELHI] interest expenditure on the utilization of borrowed funds for the acquisition of new assets, from the date of its acquisition till the date when the asset is put to use, is to be disallowed - the interest paid on the capital borrowed for acquisition of an asset for extension of existing business, shall not be allowed as deduction, from the date on which the capital w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts prepared by the appellant, expenses which cannot be directly allocated are apportioned on the basis of respective turnover and is not reliable at all. (iii) The segmental account prepared and certified by the independent firm of Chartered Accountants are not reliable. (iv) That the auditor while auditing the segment analysis has relied on the segments drawn by the management. (v) That the appellant has failed to provide the details of employees functioning under the AE and non-AE segments. 2.2 That the assessing officer/DRP erred on facts and in law in holding that the internal comparability does not provide meaningful benchmarking, even after accepting that, FAR of the segments are identical and concurrent transactions of both the segments are homogeneous. 2.3 That the assessing officer/DRP erred on facts and in law in disregarding the internal benchmarking undertaken by the appellant, without pointing out any error or mistake in the profitability summary in relation to revenue earned from AE and non AEs transaction worked out by the appellant and also certified by independent Chartered Accountants. 2.4 That the TPO/DRP erred on facts and in law in applying a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appellant has deployed huge amount of money. iv) The amount falls within the category of 'total cost' as it is directly linked to primary business activity of the appellant. v) The appellant has taken up itself certain duties of the associated enterprise for which the appellant needs to be compensated adequately. 3. That the assessing officer/DRP erred on facts and in law in treating miscellaneous income as income from other sources as against business income considered by the appellant. 3.1 That the assessing officer/DRP erred on facts and in law in not appreciating that miscellaneous income of ₹ 30,76,102, represented amount received on account of notice pay, which is incidental to software export business and is to be considered as part of the income of the eligible undertaking. 4. That the assessing officer erred on facts and in law in making an ad-hoc disallowance of interest expenses of ₹ 1,58,70,000 allegedly holding that the interest paid on short term loans which are invested in acquisition of fixed assets shall be capitalized along with the fixed assets. 4.1 That the assessing officer erred on facts and in law in not appreciatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal bench marking analysis on standalone basis by placing on record working of operating profit margin from international transactions with AEs and transactions with unrelated parties undertaken in similar functional and economic scenario, and the same should be the basis for determination of arm s length price in respect of international transactions undertaken with the associated enterprise. In the light of the facts of the present case as discussed above, we therefore, hold that the Transfer Pricing Officer had the present case as discussed above, we therefore, hold that the Transfer Pricing Officer had to mandate to have recourse to external comparables when, the present case, internal comparables were available, which could be applied for determining the arm s length price of international transactions with AEs. We therefore, direct the Assessing Officer/ Transfer Pricing Officer to determine arm s length price of international transactions with AEs by making internal comparison of the net margin earned by the assessee from the international transaction with associated enterprises and the profit earned by the assessee from the international transactions with unrelated parties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the segments. We find that in Assessment Year 2007-08 and 2008- 09, too, the Tribunal has relied on its own previous order and upheld the benchmarking analysis undertaken by the appellant considering internal comparable for determining arm s length price. Similarly, we also find that vide order dated 06.05.2014, the a co-ordinate Bench of this Tribunal in appellant s own case for Assessment Year 2005-06(ITA NO. 4713/Del/2011), upheld the internal benchmarking undertaken by the appellant, considering the ratio laid down in the decision of Tehnimont (supra) and the decision of this Tribunal in the appellant s own case for Assessment Year 2006-07. Therefore in the light of the decision of the co-ordinate bench of this Tribunal we respectfully follow it and set-aside the order of the AO/TPO on this issue and restore it back to the file of the AO/TPO with the direction as stated in order for Assessment Year 2006-07 as reproduced above in para 20. 7. Since the facts for the year under consideration are identical to the facts involved in the aforesaid referred to orders dated 28.07.2014 for the assessment year 2009-10 in assessee s own case in ITA No. 1572/Del/2014. So, respectfu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has wrongly held that miscellaneous income of ₹ 43,77,370/- is assessable as income from other sources and, accordingly, disallowed deduction in respect of the same income u/s 10A of the Act and it was contended by the ld counsel that the amount of ₹ 44,77,370/- was actually received towards notice pay receivable from employees working in the software units. According to Shri Ajay Vohra, the said amount was received towards reduction of salary cost debited to the eligible undertaking. In the light of these facts, the assessee claimed the miscellaneous income as income derived from the eligible undertaking for the purpose of sec. 10A of the Act. The assessee s claim has been rejected by the Assessing Officer by treating the miscellaneous income as income from other sources and not income derived from eligible undertaking. The ld. counsel pointed out that the coordinate bench of the Tribunal has decided this issue in favour of the assessee in assessee s own case for A.Ys. 2003-04, 2004- 05, 2005-06, 2006-07, 2007-08 and 2008-09. 26. For AY 2006-07 the Tribunal held as on this issue is as follows:- We have heard both the parties and perused the material on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h were invested in acquisition of fixed assets shall be capitalized alongwith the fixed assets. The facts related to this issue in brief are that the AO noticed that the assessee had taken short term loans of ₹ 46.36 crores which were utilized for investment purposes. He therefore, asked the assessee to show cause as to why the interest be not capitalized in terms of proviso to section 36(1)(iii) of the Act. The AO was of the view that the interest deserves to be capitalized on that portion which was on capital expenditure. He computed the investment on capital items at ₹ 10.58 crores and worked out the interest @ 15% amounting to ₹ 1,58,70,000/-. The said amount was disallowed from the interest expenses. The proposal of the TPO/AO was upheld by the DRP, accordingly the AO made the disallowance. 15. Now the assessee is in appeal. The ld. Counsel for the assessee at the very outset stated that this issue is also covered vide order dated 28.07.2014 for the assessment year 2009-10 in ITA No. 1572/Del/2014. 16. In his rival submissions the ld. DR although supported the order of the AO but could not controvert the aforesaid contention of the ld. Counsel for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et amount 60,36,15,834/- 35. The Assessing Officer on the basis of the aforesaid, observed that short term borrowed funds amounting to ₹ 11.7 crores (Rs. 18.02 crores (-) 1.53 crores (-) 4.7 crores) have been diverted for purchase of fixed asset and, therefore, interest pertaining to such funds amounting to ₹ 11.7 crores ought to have been capitalized and accordingly disallowed interest amounting to ₹ 1,75,50,000@ 15% on the said sum of ₹ 11.7 crores. The said finding of the Assessing Officer was upheld by the DRP, which has also observed that the appellant has not explained, how the acquisition of asset is sourced from the profit earned by it and as to why the appellant has raised loan of ₹ 60.365 crores for long term purpose. 36. It may be taken note that Interest on capital borrowed even for acquisition of assets is eligible for deduction as per Sect 36(i)(iii) of the Act. Subsequently a proviso has been inserted by the Finance Act 2003. April1, 2004 relating to Assessment Year 2004-05 and subsequent years. Hence the said proviso will apply to the present Assessment Year provided the assessee s case falls under it. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrowed fund have been put to use. Only after the dates as afore-stated has been found out then only one can compute the disallowance as prescribed by the proviso to section 36(1)(ii) of the Act. In the said circumstances we set aside the impugned order on this issue and remand this issue back to the file of AO, with a direction to AO to find out the date on which the assessee borrowed the fund for acquisition of asset and also to find out on which date the asset for extension of business thus procured has been put to use; and thereafter capitalize the interest incurred for the period between the date of borrowing of the fund to the date on which the asset was put to use and we also clarify that interest deduction needs to be allowed from the date after the asset has been put to use by the Assessee. 18. So, by respectfully following the aforesaid referred to order, this issue is remanded back to the file of the AO to be decided in accordance with the direction given in the order dated 28.07.2014 for the assessment year 2009-10, in assessee s own case in ITA No. 1572/Del/2014 19. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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