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TMI Blog2020 (8) TMI 724X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed at the rate of 60% on voice recording software licenses - HELD THAT:- Respectfully following the decision of the coordinate bench in assessee s own case [ 2017 (8) TMI 225 - ITAT DELHI ] we direct the learned assessing officer to grant assessee depreciation on the above software at the rate of 60% as relying on CIT Vs BSES Yamuna Powers Ltd. [ 2010 (8) TMI 58 - DELHI HIGH COURT ] Disallowance u/s 14A read with rule 8D - no satisfaction was recorded by the assessing officer having regard to the accounts of the assessee - HELD THAT:- AO failed to record any satisfaction with regard to the correctness of the claim of the assessee that it has not incurred any expenditure. AO did not cite any of the expenditure in the profit and loss account of the assessee, which is incurred by the assessee for earning of the exempt income. The satisfaction of the learned assessing officer as provided u/ss 2 of Section 14 A is a preliminary requirement for invoking the provisions of rule 8D of the income tax rules for making a disallowance u/s 14 A - in absence of any satisfaction recorded by the learned AO with respect to the examination of the books of account of the assessee to verify the corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above disallowance. Accordingly, ground number 1 of the appeal of the learned assessing officer is dismissed. Disallowance of depreciation on goodwill - asset purchase agreement dated 4/11/2009 and its subsequent amendment with American Express India private limited to acquire the global travel service centre as a going concern for a lump sum consideration - HELD THAT:- As stated by us earlier that this issue is not a new as the claim of the depreciation on the goodwill has already been allowed to the assessee in assessment year 2010 11 by the coordinate bench. Therefore respectfully following the decision of the coordinate bench in assessee s own case, we dismiss this ground of appeal. Disallowance of referral pay - assessee has failed to furnish evidence in respect of the services rendered - According to the learned dispute resolution panel the above expenditure is allowable u/s 37 (1) - HELD THAT:- No infirmity in the order of the learned dispute resolution panel because such expenditure was incurred by the assessee for the purpose of recruitment of its own employees. The payment for such referral was made to the employees of the company who were existing and who referred ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 re-characterizing the outstanding period as short term loans advances related party receivable from overseas AEs beyond 90 days period to the AEs; 3.2 disregarding the business/ commercial arrangement by not appreciating the fact that unlike a loan or borrowing, outstanding receivable is not an independent transaction which can be viewed on standalone basis and needs to be examined with the commercial transaction as a result of which the debit balance has come into existence; 3.3 rejecting the Appellant s contention that the impact of working capital investment made by the Appellant should be evaluated using Transactional Net Margin method ( TNMM ) as the most appropriate method rather than independently benchmarking the outstanding receivables of the Appellant by considering an interest rate (i.e. LIBOR) for comparability which does not amount to the application of Comparable Uncontrolled Price ( CUP ) Method or any of the method defined in the Act; 4. The Hon ble DRP has erred in considering reimbursement of expenses received as part of the core transaction (i.e. provision of Information Technology ( IT ) enabled services) of the Appellant and re-computing the Profit Level Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to a tax holiday on its profits from provision of IT enabled services and therefore did not have advantage by manipulating the transfer prices of its any motive of deriving any tax international related party transactions; 6. The reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO has not recorded any reasons in the draft assessment order based on which he reached the conclusion that it was necessary or expedient to refer the matter to the Ld. TPO for computation of the ALP, as is required under section 92CA(1) of the Act. 7. The Ld. TPO/ AO erred in enhancing the income of the Assessee by ₹ 3,55,309 holding that the international transactions do not satisfy the arm s length principle envisaged under the Act and in doing so have grossly erred in not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case; 8. The Ld. AO/ Ld. TPO has grossly erred on facts and in law by disregarding judicial pronouncements in India in undertaking the TP adjustment; 9. That the Ld. AO / learned Dispute Resolution Panel (hereinafter referred to as the Ld. DRP ) has erred in law and on the facts and circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant. 13. That the Ld. AO erred in law and on the facts and circumstance of the case by directing to levy interest under section 234B, 234C and 234 of the Act. 14. That the Ld. AO erred in law and on the facts and circumstances of the case by initiating penalty proceedings under section 271(l)(c) of the Act for furnishing inaccurate particulars of income and concealment of income. 3. ITA No. 1482/Del/2016 is filed by the ld AO raising following grounds of appeal:- 1. On the facts and circumstances of the case and in law, the Hon ble DRP has erred in directing to allow deduction u/s 10A/10B in respect of income of ₹ 353989/- from sale of scrap of Gurgaon of Pune Unit. 2. On the facts and circumstances of the case and in law, the Hon ble DRP has erred in directing to delete the disallowance on account of depreciation of Goodwill of ₹ 168391424/- which is not allowable as per the provisions of income tax Rules, 1962. 3. On the facts and circumstances of the case and in law, the Hon ble DRP has erred in directing to delete the disallowance of ₹ 7287750/- on account of referral pay, ignoring the fact that the assessee has filed to furnish any evidence either before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a delay in recovery of outstanding dues from the associated enterprises and therefore, he held it to be a separate international transaction and computed the interest receivable from associated enterprises at overdue outstanding amounting to ₹ 5695209/-. 7. The ld AO based on the above adjustment passed an order proposing draft of the income on 30.03.2015 making an adjustment of ₹ 568278092/- on account of the ALP of international transaction. He further held that a. Sale of scrap cannot be considered as a part of eligible business profit while calculating deduction u/s 10A of the Act and made an addition of ₹ 1107141/-. b. Disallowed the depreciation of goodwill in the hands of the assessee amounting to ₹ 168391424/-. c. Restricted the depreciation of software @ 25% instead of 60% as claimed by the assessee and disallowed ₹ 115860/-. d. Assessee has derived an exempt income of ₹ 18674678/- which is claimed u/s 10(35) of the Act and therefore, he made a disallowance under Rule 8D u/s 14A of ₹ 1252630/-. e. He also found that assessee has made short deduction of tax and therefore, disallowed ₹ 1810400/- being 1% short deduction of tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 is general in nature and therefore it is dismissed. Ground no 13 and 14 are also not argued and hence same are also dismissed. 13. Ground number 2 3 are related to the transfer pricing adjustment of ₹ 355,509 in relation to delay in receipt of receivable from associated enterprise. The learned assessing officer from the perusal of the invoice of details of services rendered to the associated enterprise noted that in certain cases the remittances were received by the appellant after sometime beyond the period agreed between the parties i.e. 90 days. The learned transferpricing officer concluded that the outstanding receivable are like a shortterm loans/advances only and they fund the working capital requirement of the associated enterprise for the period. He therefore stated that delay in receipt of receivable is an unsecured loan advance to the associated enterprise, so a separate International Transaction, and imputed notional interest at the rate of 10.84 percentages being the base rate of interest of state bank of India on the period of delay exceeding 90 days. On the objection before the learned dispute resolution panel the adjustment proposed by the learned transfer pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Principal Commissioner Of Income Tax Versus Kusum Healthcare Private Limited once again. He also referred to several judicial precedents of the coordinate benches wherein the adjustment on account of receivable was deleted on the basis of the comparison of working capital adjusted margin of the assessee with comparable companies applying transactional net margin method. In the end, it was submitted that at the beginning of the year ₹ 227,363,291 was payable by the appellant to its associated enterprise and no interest was paid by the appellant . It is debt free company. Therefore it is submitted that since the appellant has not paid any interest on payable due to its associated enterprise no interest to be imputed on the receivable outstanding from the associated enterprise. 15. The learned departmental representative relied upon the orders of the learned transfer pricing officer and direction of the learned dispute resolution panel. It was submitted that as the assessee has not recovered the outstanding due from its associated enterprise in accordance with the agreement, the outstanding beyond that period is a separate international transaction, which is required to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to para number 24 of that order. 20. The learned departmental representative relied upon the orders of the lower authorities. It was submitted that there is a difference between the computer software and the software on which the assessee is claiming depreciation at the rate of 60%, which is merely a license. 21. We have carefully considered the rival contention and perused the orders of the lower authorities. In the present case, the issue is squarely covered in favour of the assessee by the decision in assessee s own case for assessment year 2010 11 in ITA number 302/del/2015 dated 3 January 2017 wherein para number 24 of that decision the identical software was considered. In para number 28, the coordinate bench relying on the decision of the honourable Delhi High Court in case of CIT versus BSE Yamuna powers Ltd (2013) 355 ITR 47 directed the AO to allow the claim of the assessee for depreciation at the rate of 60%. The learned departmental representative could not distinguish the above decision or brought before us any other judicial precedent. Therefore, respectfully following the decision of the coordinate bench in assessee s own case we direct the learned assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credited to the appellant s bank account. In the end, it was submitted that the coordinate bench in assessment year 2010 11 has set aside the matter to the file of the learned assessing officer. 24. The learned departmental representative vehemently supported the orders of the lower authority and submitted that the learned assessing officer has recorded proper satisfaction therefore the argument of the learned authorised representative that no satisfaction has been recorded is devoid of any merit. It was further stated that the learned AO has merely computed disallowance being 0.5% of the average value of the investment. He otherwise submitted that even the minimum activities that as stated by the learned authorised representative also deserves to be considered for making the disallowance and the only option left with the learned assessing officer is to invoke the provisions of rule 8D of the income tax rule for disallowance u/s 14 A of the act. He therefore submitted that no fault could be found with the orders of the lower authorities. 25. We have carefully considered the rival contention and perused the orders of the lower authorities. On careful perusal of the assessment order, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the correctness of the claim of the assessee, the disallowance u/s 14A cannot be sustained. Accordingly we direct the learned assessing officer to delete the disallowance of ₹ 1,252,630 made u/s 14 A of the act. 26. As we have already deleted the disallowance u/s 14 A of the income tax act in normal computation of the total income, for the similar reasons, as well as special bench decision in case of the Asst Commissioner of income tax versus Virret investments private limited [2017] 82 taxmann.com 415 (Delhi - Trib.) (SB)/[2017] 58 ITR(T) 313 (Delhi - Trib.) (SB)/[2017] 165 ITD 27 (Delhi - Trib.) (SB)/[2017] 188 TTJ 1 (Delhi - Trib.) (SB), we direct the AO to delete the above addition while calculating the book profit u/s 115JB of the income tax act. 27. Accordingly, ground number 10 of the appeal of the assessee is allowed. 28. Ground no 11 of the appeal is against the disallowance confirmed by the learned CIT A u/s 40 (a) (ia) of the act of ₹ 1,960,055 on facility maintenance advertisement and tour and travel for the reason that assessee has deducted tax at the source at the rate of 1 % instead of at the rate of 2%.. Facts show that AO disallowed expenses under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2014 provides the rationale of the aforesaid amendment to section 40(a)(ia) of the Act in the following words: As mentioned above, in case of non-deduction or non-payment of tax deducted at source (TDS) from certain payments made to residents, the entire amount of expenditure on which tax was deductible is disallowed under section 40(a)(ia) for the purposes of computing income under the head Profits and gains of business or profession . The disallowance of whole of the amount of expenditure results into undue hardship. In order to reduce the hardship, it is proposed that in case of non-deduction or non-payment of TDS on payments made to residents as specified in section 40(a)(ia) of the Act, the disallowance shall be restricted to 30% of the amount of expenditure claimed. Further, existing provisions of section 40(a)(ia) of the Act provides that certain payments such as interest, commission, brokerage, rent, royalty fee for technical services and contract payment made to a resident shall not be allowed as deduction for computing business income if tax on such payments was not deducted, or after deduction, was not paid within the time specified under the said section. Chapter XVII ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed. The issue is squarely covered in favour of the assessee by the decision of the honourable Calcutta High Court in CIT versus SK Tekriwal 361 ITR 431. In view of this ground number 11 of the appeal is allowed. 33. In the result, appeal filed by the assessee is partly allowed. 34. Now we come to the appeal of the learned assessing officer. The ground number 1 is with respect to the disallowance of deduction u/s 10 A/10 B on account of income of ₹ 353,989 arising from sale of scrap. Assessee has claimed deduction u/s 10 A of the income tax act on sale of scrap pertaining to its Gurgaon and Pune units amounting to ₹ 301,723 and ₹ 52,266 respectively. The learned assessing officer denied in the draft assessment order holding that the income had no nexus with/attributable to export or with export activity of the assessee. The learned dispute resolution panel following its own order for assessment year 2000 11 allowed the deduction u/s 10 A/10 B of the act holding that the income from sale of scrap was inextricably linked to the business of the eligible unit. Therefore, the learned assessing officer aggrieved with the above finding of the learned dispute resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted in proportion to the export turnover to total turnover. For this reason, also we do not find any infirmity in the order of the learned dispute resolution panel giving direction to the learned assessing officer to delete the above disallowance. Accordingly, ground number 1 of the appeal of the learned assessing officer is dismissed. 38. Ground number 2 of the appeal of the AO is against the disallowance of depreciation on goodwill amounting to ₹ 168,391,424 which resulted into on account of an asset purchase agreement dated 4/11/2009 and its subsequent amendment with American Express India private limited to acquire the global travel service centre as a going concern for a lump sum consideration. The fact shows that during the assessment year 2000 11 the assessee entered into an asset purchase agreement with American Express India private limited to acquire the global travel service centre as a going concern for a lump sum consideration of ₹ 1 350 million. The aforesaid consideration was allocated to an identifiable asset and liability based on the book value, and the difference between the purchase price and the net asset value of acquired asset was recognized as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es rendered. The fact shows that the assessee incurred employee referral cost of the above sum towards payment to its employees, which is paid whenever a new employee is hired or employed through a reference given by the existing employee. The details of the employees to whom such referral pay was paid during the year was submitted by the assessee along with the pay slips mentioning the amount of referral pay so paid to the employees on sample basis. The learned assessing officer disallowed the above expenditure stating that no actual expenses were incurred. The learned dispute resolution panel took note of the industry practice of payment of referral paid to existing employees for referring prospective candidates for employment. It also took on record the payment of referral pay to the existing employees and then deleted the disallowance. As the learned dispute resolution panel directed the AO to delete the above disallowance, AO aggrieved with that direction has preferred this ground of appeal. 43. The learned departmental representative supported the order of the learned assessing officer. The learned authorised representative supported the order of the learned dispute resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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