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TMI Blog2018 (4) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... placed on record by assessee before Ld.TPO and TP Report in respect of receivables as well as payables. In the event it is established that the receivables as well as payables relate to assessee & AE inter se, then netting off shall be granted. On the contrary if it is established that only receivables are in the nature of loan then interest at the market rate shall be applied. Adjustment of provision of software development services and software consultancy services - Held that:- As we have already set aside the ground relating to management fees being ground No. 4 to Ld. AO for verification of the issue in the light of the evidences already placed on record, this ground now becomes infructuous. Disallowance of software license fees - revenue v/s capital expenditure - Held that:- We are at loss to appreciate as to how the assessee can be said to have created an 'Intangible asset' by paying the Licence fee to its AE in respect of sales made. Such payment @ 45 % of the invoice value was the obligation of the assessee ab initio without which it could not have procured the license of ENTERPRISE suite for sale in India. This amount can be loosely characterized as cost of goods t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards management fee is closely linked with the transactions of provision of software development services and provision of consultancy services. 4.4 The Ld. AO/TPO erred on facts and in law in arbitrarily applying the Comparable Uncontrolled Price ('CUP') method disregarding of the provisions of Rule 10 B of the Income Tax Rules, 1962. 4.5 The Ld. AO/TPO erred on facts and in law in considering the ALP of the transaction to be Nil merely on the basis of conjectures and surmises. 5. That on the facts and circumstances of the case and in law, the Ld AO/TPO erred in making an addition of ₹ 2,57,35,216 in respect of the outstanding intercompany receivables. 5.1. The Ld.AO/TPO erred on facts and in law in treating the outstanding receivables from AEs as separate international transaction. 5.2. Ld.AO/TPO erred on facts and in law In recharacterising the overdue amount on receivables from AEs as an unsecured loan . 5.3. Ld.AO/TPO erred on facts and in law arbitrarily applying the CUP without placing on record any comparable uncontrolled transaction. 5.4. Without prejudice, the Ld. AO/TPO erred on facts and in law in imputing interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in law in rejecting the claim of the Appellant in allowing working capital adjustment to account for differences in the working capital position of the Appellant vis-a-vis the working capital position of comparables. 6.10. The Ld. AO/TPO has erred on facts and in law in rejecting the claim of the Appellant with regard to risk adjustment to account for differences in the risk profile of the assessee vis-a-vis comparable companies. CORPORATE TAX DISALLOWANCES 7. That on the facts and in the circumstances of the case and in law, the Ld. AO/ DRP erred in not allowing the 'software licence fee' of ₹ 2,38,04,180 incurred by the Appellant as revenue expenditure. 7.1 That on the facts and in the circumstances of the case and in law, the Ld. AO/ DRP erred in treating 'software licence fee' as intangible asset covered under section 32(1)(ii) of the Act. 7.2 That on the facts and in the circumstances of the case and in' law, the Ld. AO/ DRP erred in disallowing proportionate (75%) of the expenditure incurred on 'software licence fee' of ₹ 1,78,53,135, after allowing depreciation @ 25%, without appreciating tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That the above grounds of appeal are independent and without prejudice to each other. That the Appellant reserves its right to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal. 2. Brief facts of the case are as under : Return of income for the year under consideration was filed on 30/09/09 declaring total income of ₹ 2,90,39,367/-. Assessee s case was selected for scrutiny and statutory notices were issued to assessee, in response to which representative of assessee appeared before Ld. AO and submitted requisite details. Ld. AO observed that assessee undertook international transaction with its associated enterprises to the tune of more than ₹ 15 crores and accordingly, the case was referred to Transfer Pricing Officer for determining arm s length price. 2.1. Ld. TPO observed that assessee is engaged in providing of software development services, software deployment services, consultancy services, training services, software sublicensing and AMC activities. Ld.TPO observed that assessee entered into following international transaction for the year under consideration: S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intragroup services in lieu of which assessee made payments to its associated enterprise. 5.1. Ld.Counsel submitted that ALP of management fee amounting to ₹ 2,58,88,820/- paid by assessee to its AE s has been considered as nil by authorities below. He submitted that this issue had arisen before this Tribunal for assessment year 2007-08 as well as 2008-09, wherein this Tribunal set aside this issue back to Ld.AO for deciding the issue in the light of evidences filed by assessee. At this juncture Ld.Counsel submitted that for the year under consideration all relevant documents/evidences were filed before Ld.TPO, however the same were not considered while deciding the issue. He submitted that an objection was raised before DRP which also has not been adjudicated upon. 5.2. On the contrary Ld.CIT DR placed reliance upon the orders of authorities below. 5.3. We have perused the submissions advanced by both the sides in the light of the records placed before us. 5.4. The issue that has been agitated in this ground is that payment advanced by assessee towards management fees on cost to cost basis which were actually reimbursement of expenses incurred by AE, and Ld. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he time period for payment as per service agreement, However, to be reasonable' and fair to the assessee, instead of charging penal interest, the delayed payments are being treated as unsecured loans advanced to the AEs and It is proposed to charge a normal rate of Interest @17.22%, for the period of delay in receipt 'of payment beyond the time stipulated In the services agreement. The basis for arriving at the rate of interest is discussed in the following Para. 4-.2 The assessee did not submit the Invoice details In order to arrive at the actual amount of payment which has been received beyond due date, Inspite of a specific query. 'Hence, the amount shown as outstanding In the books of the assessee as on 31/03/2009 is being taken as the amount due from AE and outstanding for more than 30 days. Since, the opening balance and closing balance' are more or less similar, and in the absence of any invoice wise details provided by the assessee, it is also safe to assume that the payment has been outstanding for the entire year. In absence of any formal covenant, and to be reasonable 30 days is being taken as the normal credit period beyond which the delay would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is established that only receivables are in the nature of loan then interest at the market rate shall be applied. Accordingly this ground raised by assessee stands allowed for statistical purposes . 7. Ground No. 6 has been raised by the assessee due to the adjustment made by ld. TPO/AO on account of provision of software development services and software consultancy services. 7.1. Ld.Counsel submitted that ALP of these two segments have been computed at ₹ 80,68,034/-and ₹ 13,73,574/-respectively. However ld. TPO has not made any adjustments since the management fees has already been determined at nil. Ld. TPO has thus restricted the adjustment to management fees in respect of these two segments. 7.2. As we have already set aside the ground relating to management fees being ground No. 4 to Ld. AO for verification of the issue in the light of the evidences already placed on record, this ground now becomes infructuous. Accordingly we dismiss this ground. 7.3 . Ground No. 7 has been raised by assessee on account of disallowance of software license fees. 7.4. Ld.Counsel submitted that Assessing Officer disallowed expenses under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ftware and support and maintenance charge. Pursuant to this Agreement, the assessee raised invoices on certain customers in India. The invoice value was shown as its income and the amount paid to its AE was shown as Licence fee expenditure in its Annual accounts. We are at loss to appreciate as to how the assessee can be said to have created an 'Intangible asset' by paying the Licence fee to its AE in respect of sales made. Such payment @ 45 % of the invoice value was the obligation of the assessee ab initio without which it could not have procured the license of ENTERPRISE suite for sale in India. This amount can be loosely characterized as cost of goods transferred to the customers in India, which has necessarily to be allowed as a revenue expenditure. Similar view has been taken by the tribunal in its order for the immediately preceding year. We, therefore, overturn the impugned order on this score and direct the deletion of addition of ₹ 112.50 lac and odd made by the Assessing Officer. 8.3. Respectfully following the above observations in the immediately preceding assessment years and that there has been no difference in the factual position, we are of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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