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TMI Blog2020 (4) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Chapter XVII-B of the Act has not been deducted. It held that when assessee has not claimed payment as an expenditure, then the question of disallowance u/s 40(a)(ia) does not arise - when the assessee has once capitalized the payment and had not deducted TDS on such payments, Sec.40(a)(ia) of the Act cannot be invoked for disallowance of depreciation. Before us, Revenue has not pointed out any contrary binding decision in its support nor has placed any material to demonstrate that the aforesaid decision of Bangalore ITAT has been set aside / over ruled / stayed by higher judicial authorities. We are therefore of the view that the AO had erred in disallowing the claim of depreciation by invoking the provisions of Sec.40(a)(ia) of the Act. We therefore direct the AO to grant deduction of depreciation. Thus, the ground of the assessee is allowed. Denial of deduction u/s 10A with respect to Unit No.I, Bangalore - AO denied the claim of deduction as the claim of deduction was not made in the return of income - HELD THAT:- The fact that the claim and detail of working of deduction of 10A has been made in the computation of income is evident from the computation filed by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P in excluding the Infosys Ltd. from the list of comparables and for the reasons cited herein above, we are of the view that no interference to the order of DRP is called for. Method of computation of deduction u/s 10A - HELD THAT:- We find that identical issue arose before the Tribunal in assessee s own case for A.Y. 2009-10 wherein the Co-ordinate Bench of the Tribunal by following the decision of CIT Vs. HCL Technologies [ 2018 (5) TMI 357 - SUPREME COURT] held that to calculate deduction u/s 10A of the Act, the expenses should be reduced from the export turnover and total turnover also. Before us, Revenue has not pointed out any contrary binding decision in its support. We therefore find no reason to interfere with the order of DRP. Thus, the grounds of Revenue are dismissed. - ITA No.519/BAN/2015, ITA No.540/BAN/2015, CO No.134/BAN/2015 (Arising out of ITA No.519/BAN/2015, ITA No.463/PUN/2016, ITA No.338/PUN/2016 - - - Dated:- 14-2-2020 - Shri Anil Chaturvedi, AM And Shri S.S. Viswanethra Ravi, JM For the Assessee : Shri Gautam Jain/Shri Darpan Kirpalani/Smt. Monika Agarwal. For the Revenue : Shri T. Vijay Bhaskar Reddy. ORDER PER ANIL CHATURVEDI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of AO, assessee is now in appeal before us and has raised the following grounds : 1. Disallowance of depreciation on computer software. 1.1. The Learned AO has erred in disallowing the depreciation of INR 2,253,214 under section 40(a)(ia) on software purchased and capitalized in the books of account of INR 3,755,358 while computing the taxable income of the Appellant due to non-submission of details of tax deducted at source and the Learned DRP erred in confirming the same. 1.2 Without prejudice to the ground 1.1 above, the Learned AO and the Learned DRP has failed to appreciate that no liability ought to arise on the Appellant for non-deduction of tax at source as software purchases cannot be construed as 'royalty'. 1.3. Without prejudice to the ground 1.1 above, the Learned AO and the Learned DRP has failed to appreciate that depreciation under section 32 of the Act being a statutory deduction and not a routine expenditure is not governed by the provisions of section 40(a)(ia) of the Act. 1.4. Without prejudice to the ground 1.1 above, the Learned AO and the Learned DRP has failed to appreciate the fact that the Appellant ought not to be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view of the provisions of Sec.40(a)(ia) of the Act r.w.s. 194J of the Act, to which assessee inter-alia submitted that TDS provisions are not applicable to the items capitalized in the books of accounts on which the depreciation is claimed. The submissions of the assessee were not found acceptable to the AO. AO was of the view that provisions u/s 40(a)(ia) of the Act are applicable even to depreciable assets. He accordingly denied the claim of depreciation on software amounting to ₹ 22,53,214/- that was claimed by the assessee. Aggrieved with the draft order, assessee carried the matter before DRP, who vide order dated 15.12.2014 upheld the order of AO. Aggrieved by the order of DRP, assessee is now before us. 4. Before us, Ld.A.R. reiterated the submissions made before AO and DRP and further submitted that since the assessee has capitalized the software purchased and has not claimed its deduction while computing the business profits, the provisions of Sec.40(a)(ia) or Sec.40(a)(1) of the Act are not applicable. In support of his contentions, he placed reliance on the decision of Bangalore Tribunal in the case of Kawasaki Microelectronics Inc., Vs. DDIT reported i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim be allowed to assessee. The claim of deduction during the assessment proceedings was denied by the AO as he was of the view that no separate claim was furnished in the return of income and according to him, assessee was either not maintaining his affairs properly or the claim remained unverified. He accordingly denied the claim of deduction. When the matter was carried before DRP, DRP upheld the order of AO by noting that the additional claim can only be made by way of claim in the return of income which was not done by the assessee and therefore denied the claim by following the decision of Hon ble Supreme Court in Goetze (India) Pvt. Ltd., Vs. CIT. Aggrieved by the order of DRP, assessee is now before us. 7. Before us, Ld.A.R. at the outset, submitted that Unit-I, Bangalore was registered since 24.03.2000 and assessee had been claiming deduction u/s 10A of the Act since A.Y. 2001-02 and therefore the year under consideration was last year of claim. He submitted that assessee inadvertently in the return of income missed the claim u/s 10A of the Act but the claim was made during the course of assessment proceedings. In support of his contention that the mistake was inadv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that the first year of claim for deduction was in A.Y. 2001-02 and the assessee has also been allowed the claim of deduction in A.Ys. 2007-08, 2008-09 and 2009-10. Before us, it is the claim of the assessee that though in the computation of income, the working for deduction was made but inadvertently it was missed to claim the deduction. AO denied the claim of deduction as the claim of deduction was not made in the return of income. We find that the claim of deduction was made during the assessment proceedings but the same was denied by the AO by following the decision of Hon ble Apex Court in the case of Goetze (India) Pvt. Ltd., (supra). The fact that the claim and detail of working of deduction of 10A has been made in the computation of income is evident from the computation filed by the assessee in the Paper Book. In such a situation, the claim of the assessee that the assessee had through oversight missed to claim the deduction cannot be brushed aside without there being any material to demonstrate to the contrary. We also find that the Hon ble Bombay High Court in the case of Pruthvi Brokers (supra) has held that the jurisdiction of the appellate authorities to entertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relief to the assessee and the Revenue had carried the matter before the Tribunal. The Tribunal vide order dated 22.01.2020 in ITA No.2049/PUN/2017 held that assessee was eligible to claim deduction u/s 10A of the Act on the profits of Unit-II, Bangalore. He therefore submitted that following the decision of Tribunal in assessee s own case for the earlier year i.e., for A.Y. 2009-10, the claim of the assessee be allowed. Ld. D.R. on the other hand supported the order of lower authorities. 11. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to claim of deduction u/s 10A of the Act on Unit No-II, Bangalore. We find that identical issue arose in A.Y. 2009-10, wherein the Ld.CIT(A) had allowed the claim of assessee and against the order of Ld.CIT(A), Revenue carried the matter before ITAT. The Co-ordinate Bench of the Tribunal in ITA No.2049/PUN/2017 vide order dated 22.01.2020 wherein the Tribunal allowed the claim of the assessee dismissing the ground of Revenue by observing as under : 7. We have perused the case records and heard the rival contentions. We have also analyzed the facts and circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eports submitted to Superintendent of Customs for Unit I and Unit II further confirm that Unit II is separate and independent from Unit I. These facts were not disputed by the Ld. DR before us. 8. In view of the examination of facts on record, we are of the considered view that Unit II of the assessee company is absolutely a new and separate unit and independent from Unit I. Therefore, the Ld. CIT(Appeals) was justified in holding that the assessee is eligible to claim of deduction u/s.10A of the Act on the profits of Unit II separate from deduction u/s.10A of the Act on profits of Unit I. Thus, we do not find any infirmity with the findings of the Ld. CIT(Appeals) and relief provided to the assessee by the Ld. CIT(Appeals) is hereby sustained. Thus, ground No.1 raised in appeal by the Revenue is dismissed. 12. Before us, no distinguishing features in the facts of the present case and in assessee s own case for A.Y. 2009-10 have been brought by Ld. D.R. Before us, Revenue has also not brought any material to demonstrate that the Tribunal order in assessee s own case for A.Y. 2009-10 has been set aside / stayed by higher Judicial Forum. Hence, following the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that the size, turnover and brand of the company are the deciding factors for treating a company as a comparable and accordingly erred in excluding Infosys Ltd., as comparable. 2. On the facts and in the circumstances of the case, the Disputes Resolution Panel erred in excluding uncontrolled comparables having turnover more than ₹ 400 crores in the absence of Turnover criterion prescribed in Rule 10B of Income Ta Rules and also there being no correlation between turnover and profit margin. 3. On the facts and in the circumstances of the case the Disputes Resolution Panel erred in directing the AO to grant percentage of risk adjustment at 1% to the average margin on account of risk level assumed by the assessee relying upon the decision of ITAT, Hyderabad bench in the case of DCIT Vs. Hello Soft Pvt. Ltd. (2013) without appreciating the fact that assessee is captive service provider with no risk at all since the services are rendered to the AEs only. 4. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in restoring the matter to decide the risk adjustment allowable to the assessee when no such power to set aside is availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not allowing the adjustment for difference in risk undertaken by the Respondent and the alleged comparable companies selected by the learned AO/TPO; 3. On the facts and in the circumstances of the case and in law, the Ld. TPO / AO have erred in rejecting the method adopted by the appellant for computation of working capital adjustment; 4. On the facts and in the circumstances of the case and in law, the Ld. TPO / AO have erred and the Hon'ble DRP has further erred in not rejecting the action of the Ld. TPO / AO in disregarding the benchmarking analysis and comparable companies selected by the Respondent based on the contemporaneous data in the transfer pricing study report maintained as per Section 92D of the Act read with Rule 10D of the Income-Tax Rules, 1962 ('the Rules') and the various submissions made by the Respondent; 5. On the facts and in the circumstances of the case and in law, the Ld. TPO / AO have erred and the Hon'ble DRP has further erred in not rejecting the action of the Ld. TPO /AO in cherry picking 11 additional (high margin) companies to benchmark the international transactions of the Respondent without performing any methodical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P by the assessee to be not reliable / correct and the TPO proceeded to determine ALP by conducting independent search of comparables. The final set of comparables selected by TPO are as under :- Sl.No. Name 1 ICR A Techno Analytics Ltd. (seg) 2 Infosys Ltd 3 Kals Information Infotech Ltd. 4 Larsen Toubro Infotech Ltd. 5 Mindtree Ltd. (seg) 6 Persistent Systems Solutions Ltd. 7 Persistent Systems Ltd. 8 R S Software (India) Ltd. 9 Sasken Communication Technologies 10 Tata Elxsi (seg) 11 Thinksoft Global Services Ltd. Based on the final set of comparables, TPO determined the average margin of comparables @ 22.7% and after adjustment of 0.81% towards working capital adjustment, worked out the adjusted margin of compara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a comparable with the assessee. We also find that issue of exclusion of Infosys Ltd., also arose in assessee s own case for A.Y. 2008-09. The Co-ordinate Bench of the Tribunal held that it cannot be considered to be a comparable with the assessee. Before us, no fallacy has been pointed out by Ld. D.R. in the order of DRP nor he has pointed to any contrary binding decision in its support. Revenue has also not placed any material to demonstrate that the Tribunal order for A.Y. 2008-09 in assessee s own case is distinguishable on facts or the order for A.Y. 2008-09 has been set aside / over turned / stayed by higher Judicial Forum. In such a situation, we find no reason to interfere with the order of DRP and thus, the grounds of Revenue are dismissed. 21. Grounds 4 to 8 are inter-connected and are with respect to the directions of DRP in granting of percentage of risk adjustment. 21.1. Before TPO assessee had submitted that risk adjustment should be allowed to the assessee as it takes limited risk and cannot be compared with the comparables who take full entrepreneurial risk. TPO denied the risk adjustments as he was of the view that assessee facing single customer risk wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (rounded off) of Pune Unit. AO was of the view that the expenditure incurred in foreign currency in connection with export of software and expenditure incurred towards communication for delivery of software outside India needs to be excluded only from export turnover. He was further of the view that though the Hon ble Karnataka High Court in the case of Tata Elxsi Ltd., Vs. ACIT reported in 349 ITR 98 has taken a view in favour of the assessee but Revenue had not accepted the decision of Hon ble Karnataka High Court and filed appeal before the Hon ble Apex Court, which is pending for decision. He therefore held that the expenditure is only required to be reduced from export turnover alone. Aggrieved by the order of TPO/AO, assessee carried the matter before DRP, who noted that the issue is squarely covered by the decision of Hon ble Karnataka High Court in the case of Tata Elxsi Ltd., (supra) and therefore directed the AO to re-compute the deduction in accordance with the ratio of judgment in Tata Elxsi Ltd., (supra). Aggrieved by the directions of DRP, Revenue is now before us. 25. Before us, Ld. D.R. supported the order of TPO. Ld.A.R. on the other hand, reiterated the subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I, Bangalore. 31. Before us, both the parties submitted that the issue raised in the present appeal is identical to ground No.3 of assessee s appeal for A.Y. 2010-11 and the arguments made while arguing the appeal for A.Y. 2010-11 would be applicable to the present appeal also. 32. We have heard the rival submissions and perused the material on record. Before us, both the parties have admitted that the ground raised in the present appeal is identical to ground No.3 raised in assessee s appeal for A.Y. 2010-11. In view of the aforesaid submission of both the parties and for the reasons stated herein while deciding the ground No.3 in assessee s appeal for A.Y. 2010-11 in assessee favour and for similar reasons, decide the issue in favour of the assessee and thus, the ground of the assessee is allowed. 33. In the result, the appeal of assessee in ITA No.338/PUN/2016 for A.Y. 2011-12 is allowed. 34. Now we take up the appeal of Revenue in ITA No.463/PUN/2016 for A.Y. 2011-12. 34.1. The modified grounds raised by the Revenue reads as under : 1. Whether the DRP was right in law and on facts in excluding functionally comparable companies. 2. Whether the DRP was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment was made to the ALP. Aggrieved by the order of TPO including the ICRA Techno Analytics Ltd., and Infosys Ltd., as comparable companies, the matter was carried by the assessee before DRP. 37. On the issue of exclusion of Akshay Software Technologies, DRP noted that on perusal of Annual Report of Akshay Software Technologies Ltd., it was seen from the financial results mentioned under Director Report that income stream of the company was shown as income from Software Services and Products. Since the activities of Akshay Software Technologies were comparable to that of assessee, DRP directed the AO for its inclusion as comparable company in the list of comparable. With respect to ICRA Techno Analytics Ltd., DRP noted that it was engaged in development of software and that it being a market player with big market value, it cannot be compared with assessee and accordingly directed the AO for its exclusion as comparable company with the assessee from the list of comparables. With respect to Infosys Ltd., DRP noted that as against the international transactions of the assessee of ₹ 427 crore, turnover of Infosys was to the tune of ₹ 25,385 crore which was more than ..... X X X X Extracts X X X X X X X X Extracts X X X X
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