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TMI Blog2019 (2) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... nd TTPL was facilitating the entire process and ensuring the smooth selling of the transaction. These are sufficient evidence to demonstrate the services rendered by the TTPL for which commission payment was made to the AE. Taking the practicability of the business in to consideration, these are the tangible evidence that can be placed on record which the assessee has done in order to justify the commission payment. There is copy of commission agreement. There is also no objection letter and series of emails exchanged involving all the concerned parties. We are of considered view that arm’s length commission @6% to TTPL is justified and we direct the TPO to determine the arm’s length commission of the international transaction accordingly. Thus, grounds of appeal No. 1 to 5 and 8 raised by the assessee are allowed. Disallowance u/s.14A r.w. Rule 8D - Held that:- With regard to the interest income part as contemplated under Rule 8D(ii) and with regard to the investment which yielded exempt income which are to be considered while calculating disallowance under Rule 8D(2)(iii). These aspects have to be verified in detailed. Therefore, we are of considered view that this issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction pertaining to payment of commission does not satisfy the arm's length principle envisaged under the Income-tax Act, 1961 ('the Act'). The Appellant prays that the addition pertaining to payment for commission ought to be deleted. Ground No.2 2. On the facts and in the circumstances of the case, and in law, the Hon'ble DRP/Ld. AO, erred in rejecting the economic analysis conducted by the Appellant for demonstrating the arm's length nature of the commission paid to Associated Enterprises ('AEs'). The Appellant prays that the economic analysis conducted by the Appellant ought to be upheld. Ground No.3 3. On the facts and in the circumstances of the case, and in law, the Hon'ble DRP/Ld. AO, erred in re-computing the Arm's Length Price ('ALP') of the Appellant's international transaction pertaining to payment of commission to AE at 'Nil'. The Appellant prays that the said re-computation ought to be deleted. Ground No.4 4. On the facts and in the circumstances of the case, and in law, the Hon'ble DRP/Ld.AO, erred in contravening the principle of consistency in connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in the circumstances of the case, and in law, the Hon'ble DRP/Ld. AO, has erred in disallowing the claim of the Appellant in respect of amortization of premium on leasehold land amounting to ₹ 4,30,886. The Appellant prays that the addition pertaining to amortization of premium on leasehold land ought to be deleted and should be allowed as revenue expenditure. Ground No. 10 10. On the facts and in the circumstances of the case, and in law, the Hon'ble DRP/Ld.AO, has erred in disallowing the provision for expenditure of ₹ 38,93,287 in respect of provision under Bhavishya Kalyan Yojana (,BKY'), an employee welfare scheme. The Appellant prays that deduction in respect of the provision made for BKY expenses should be allowed as an ascertained liability. Ground No. 11 11. On the facts and in the circumstances of the case, and in law, the Hon'ble DRP/Ld. AO, has erred in invoking Rule 80 of the Income-tax Rules,1962 and thereby disallowing expenses amounting to ₹ 86,73,524 under section 14A by applying Rule 80 of the Act. The Appellant prays that addition made under Section 14A of the Act by applying Rule 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices rendered by the TTPL, commission was paid by the assessee to the said Singapore Entity i.e. TTPL. 4. The assessee had filed detailed submissions before the Transfer Pricing Officer (TPO). Therein, the assessee has stated that TTPL is engaged in the business of providing procurement and marketing support services. TTPL has assisted the assessee in securing favourable terms from Dassault Systems U.K for procuring the software, in terms of the discounts received from Dassault is in the range of 20% to 35%. It is not that the TTPL is only procuring and providing marketing support services to assessee but to other third party also who are based outside Singapore and from them TTPL is charting higher rate of commission i.e. @15% of the sales whereas from the assessee TTPL is charging @6% of sales as commission. The assessee is also paying commission to third parties @ 6.5% and @7%. The assessee has entered into commission agreement with TTPL which operates as a centralized entity for provision of procurement and marketing support services to Tata Technologies Group for provision of procurement and marketing support services. Pursuant to the agreement, TTPL has rendered procuremen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any service in connection with sale of any software or any AMC contract. Thereby, the DRP carried forward the observations of the TPO and wanted more tangible evidences in order to justify commission payment by the assessee to TTPL. The DRP, therefore, upheld the observation of the TPO that since no services has been received by the assessee and therefore, arm s length commission paid is Nil . 7. At the time of hearing, the Ld. AR of the assessee first and foremost invited our attention to page 236 of the paper book wherein the commission agreement is there between the assessee and TTPL. That on the basis of the commission agreement, the Ld. AR demonstrated that there was an importance of service which was required by the TTPL to be rendered to the assessee in order to facilitate procurement of software licenses from Dassault UK in Singapore. This commission agreement demonstrated that TTPL has to look into over all transaction essentially maintenance of customer relation with the assessee and Dassault UK and also to provide discount for the same purchase from Dassault UK. The entire price negotiation and the final price of charge and everything is as per negotiation of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for which the payment of commission was made. The Ld. DR further stated that the comparables regarding payment of commission relied on by the assessee relates to commission paid on sale transaction whereas in the present case of the assessee, it is commission paid with regard to discounts and other services provided to the assessee by TTPL with respect to purchases made from Dassault UK. Therefore, comparables commission demonstrated by the Ld. AR of the assessee should not to be relied upon. 10. We have perused the case records and heard the rival contentions and analyzed the facts and circumstances in this regard. The facts on record shows that there is a commission agreement dated 01.12.2007 between the assessee and TTPL. That on examining the clauses contained therein and after giving considerable thought on those clauses, it is crystal clear that TTPL was facilitating the purchases in respect of the assessee from Dassault UK. It was the responsibility of TTPL to undertake marketing efforts through telemarketing and inbound inquiries through its dedicated support. TTPL also worked towards maintenance of relationship with the key global customers of the assessee. The agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance u/s.14A r.w. Rule 8D. The facts with regard to the issue and submissions of the assessee are as under: 7.1 The AO has noted that assessee is having exempt income of Rs, 33.2 crores including dividend of ₹ 16.47 crores and income claimed exempt u/s 10AA ₹ 16.82crores. The AO has also rioted that assessee has total investment in such assets yielding exempt- income is ₹ 147 crores, interest expenditure of ₹ 1.54 crores and that assessee has made self disallowance of ₹ 17.44 lakhs u/s 14A. On these facts, the TPO has noted that suo moto disallowance made in adequate and therefore, requested the assessee to explain why disallowance apply Rule 8D should not be made. After considering the submissions made, the AO has applied Rule 8D and computed the disallowance u/s 14A ₹ 1,04,17,267/-. 7.2 It is submitted that during the year under consideration, the assessee has earned a dividend income of ₹ 16,47,19,200 from various mutual funds. The same was exempt as per provision of Section 10(35) of the Act. 7.2.1 The assessee has made investments in various mutual funds units out of its own funds i.e. through its internal accruals, av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st expenditure. The Ld. AR further submitted that where the assessee s own surplus funds are more than its investment, no disallowance to be made for interest expenses u/s.14A of the Act. With respect to Rule 8D(2)(iii), the argument of the Ld. AR was that only those investments which yielded exempt income to be considered while calculating disallowance under Rule 8D(2)(iii). 19. We have examined the facts and circumstances of the present case and heard the contentions. However, with regard to the interest income part as contemplated under Rule 8D(ii) and with regard to the investment which yielded exempt income which are to be considered while calculating disallowance under Rule 8D(2)(iii). These aspects have to be verified in detailed. Therefore, we are of considered view that this issue is restored back to the file of Assessing Officer for verification and re-adjudication of the same after providing reasonable opportunity of hearing to the assessee. Accordingly, ground No.11 raised in appeal by the assessee is allowed for statistical purposes. 20. With regard to ground No.12, it pertains to the provision for written back for Mediclaim Insurance Scheme (Medicare) for employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that deduction for provision created as disallowed and so upheld by ITAT Appeal has been filed by the assessee before High Court and the matter is sub-judice. Considering the fact that deduction has already been claimed in the past, non-taxation of reversal of such deduction would amount to double deduction of the same amount. It is not permitted. Since the allowability of deduction is sub-judice, reversal of same is taxable. Accordingly, the order is upheld and the objection in this respect is rejected. 21. That Before us, at the time of hearing the Ld. AR of the assessee submitted that during this year, provision for Medicare expenses is written back in books of account and offered to tax in return of income. It is humbly submitted that the same should not be taxed by the Assessing Officer as it will lead to double disallowance in view of the fact that when such provision was created in earlier years, the same was disallowed by the AO in those years. 22. We have perused the case records in this regard and heard the rival contentions. We find that if in the earlier year, the Assessing Officer has already disallowed such provision for those years, then in the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37 of 2016 wherein CBDT has accepted the settled position that the deduction under Chapter IV-A of the Act is admissible on the enhanced profit on account of disallowance made which related to business activity against which chapter VI-A of the Act deduction has been claimed. However, the circular has not mentioned about deduction u/s.10A of the Act. Section 10A is not included in Chapter IV A of the Act. Hence, this section cannot be held applicable in this case. Otherwise, also as per section 92C(4) of the Act, TP adjustment does not qualify for enhanced deduction u/s.10A as per the Act. In view of the above, the order is hereby upheld in this respect and the objections are rejected. In view of the matter, we are inclined to go with the view of the DRP on this issue. We observe that within the parameter of Income Tax Act, 1961, as per Section 92C(4) of the Act, TP addition has to be separately done, whatever may be the addition in respect of other aspects but that cannot be brought together with TP adjustment or addition. Therefore, it does not qualify for enhanced deduction u/s.10A of the Act. Accordingly, ground No.13 raised in appeal by the assessee is dismissed. 25. G ..... X X X X Extracts X X X X X X X X Extracts X X X X
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