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TMI Blog2021 (8) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... ment do not provide for payment of withholding tax and service tax to the AE. That being the case, in our opinion, the TPO was justified in making the adjustment being the amount of service tax and withholding tax paid additionally by the assessee over and above the payment to be made in terms of the agreement. These grounds are dismissed. Disallowance of software lease payment u/s 37(1) - assessee has entered into a master services agreement with its AE, FIM Business Solution Ltd for taking on lease software viz. Kastle Factoring for a period of seven years - HELD THAT:- This is not the first time the assessee is making payment towards software lease expenses. On a reading of the master services agreement, it is evident, the assessee requires the software for its business activities. In fact, while examining the arm's length nature of software lease expenses paid to the AE, the TPO has gone through all the evidences including the master services agreement. However, except the additional amount paid on account of withholding tax and service tax, the TPO has not found any wrong doing by the assessee in respect of software lease expenses. Further, on perusing the materials ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital or revenue. - IT(TP)A No. 3404/MUM/2017 - - - Dated:- 20-7-2021 - Pramod Kumar, Vice President And Saktijit Dey, Member (J) For the Appellant : Girish Dave, AR For the Respondents : Sushil Kumar Mishra, DR ORDER Per Saktijit Dey, JM This is an appeal by the assessee against assessment order dated 31.01.2017 passed for the assessment year 2012-13 in pursuance to the directions of learned Dispute Resolution Panel (DRP). 2. In ground no. 1 to 5, assessee has challenged the Transfer Pricing Adjustment of ₹ 8,41,616/-. 3. Briefly the facts are, the assessee is a resident company. As stated by the Transfer Pricing Officer (TPO), the object of the assessee is to provide factoring and forfeiting services, encompassing finance and value added services to business entities in India. As stated, currently the factoring services offered by the assessee are domestic factoring. The key goal of the assessee is to provide receivables finance and management solutions for its clients. As observed by TPO, assessee's current clientele include small and medium enterprises (SMEs) in pharmaceuticals, textiles, automotive parts and ancillary, information tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der this agreement are exclusive of value added tax or any equivalent which shall be paid by the client additionally in accordance with the prevailing legislation at the tax point date, if applicable as well as any bank charges as might be applicable . Thus, the crucial words which needs to be taken note of are value added tax or any equivalent'. On specific query from the Bench as to whether withholding tax and service tax are equivalent to value added tax, learned counsel for the assessee fairly submitted that they cannot be equated. In our considered opinion, value added tax on one hand and withholding tax as well as service tax on the other, are of distinct and different genre, hence, cannot be equated. Therefore, the terms of the agreement do not provide for payment of withholding tax and service tax to the AE. That being the case, in our opinion, the TPO was justified in making the adjustment of ₹ 8,41,616/-, being the amount of service tax and withholding tax paid additionally by the assessee over and above the payment to be made in terms of the agreement. These grounds are dismissed. 6. In ground no. 6, assessee has challenged the disallowance of software leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s including the master services agreement. However, except the additional amount paid on account of withholding tax and service tax, the TPO has not found any wrong doing by the assessee in respect of software lease expenses. Further, on perusing the materials placed before us in the paper book, we are also convinced that the allegation of the departmental authorities that the assessee failed to furnish details and documentary evidences to establish its claim is not borne out from record. In view of the aforesaid, we delete the disallowance. This ground is allowed. 11. In ground no. 7, the assessee challenged the disallowance of referral fee of ₹ 23,67,000/- paid to M/s. Blend Financial Services Ltd. 12. Briefly the facts are, in course of assessment proceedings, the AO while verifying the accounts of the assessee noticed that the assessee has debited an amount of ₹ 23,67,000/- towards referral fee. As observed by the AO, vide order sheet noting dated 09.02.2016, he called upon the assessee to furnish the details regarding the expenses with supporting evidences. Alleging that the assessee failed to furnish the details of referral expenses which supporting evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Blend Financial is required to introduce and refer potential clients to the assessee and create business opportunities to enable the assessee to develop relationship and general business. It appears from the facts and evidences placed on record, by entering into the referral agreement with Blend Financial Ltd. business opportunity has grown as assessee has increased its client base resulting in substantial increase in revenue. 16. Thus, the facts and evidences on record clearly demonstrate that the referral fees paid by the assessee is wholly and exclusively for the purpose of its business. In any case of the matter, it is for the assessee to decided how to conduct its business. So long as the expenditure incurred is for the purpose of the business, it has to be allowed as revenue expenditure irrespective of the fact, whether it ultimately translates into earning of income. Certainly, the departmental authorities cannot step into shoes of the assessee to question a prudent business decision. In any case of the matter, the allegation of the departmental authorities that the assessee failed to furnish supporting evidence to demonstrate that the expenditure incurred is wholly and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord. As could be seen, the AO while dealing with the issue in the assessment order has observed that in response to query raised regarding the nature of expenditure, the assessee has simply furnished the heads under which the expenses were incurred and has further stated that they were mainly on account of interior work and installation of work station. The allegation of the departmental authorities that the assessee did not furnish the details of expenditure may not be fully correct. On a perusal of documents furnished before us and particularly the invoices, we find that the expenditure incurred are for variety of work, such as, demolishing and removing certain civil construction, installation of certain furniture and fixtures including chairs, tables, work station, plumbing, wooden partition, light fitting, civil construction etc. Thus, as it appears, though, major part of the expenditure may be of temporary nature, however, some of the work could be of enduring nature. Further, it can also be a fact that the assessee may not be having all supporting evidences to prove the expenditure. Thus, there is possibility of inflation of expenditure to some extent. Further, at this late ..... X X X X Extracts X X X X X X X X Extracts X X X X
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