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TMI Blog2021 (8) TMI 911X X X X Extracts X X X X X X X X Extracts X X X X ..... comparables by wrongly relying on the decision of the Ld. ITAT in the case of Colt Tech. I. Pvt. Ltd in ITA No.609/Del/2011, where the facts and circumstances totally different." 2. "On the facts and circumstances of the case and also in law, the Ld. CIT(A) erred in directing the AO to allow the claim of depreciation on software of Rs. 7,69,371/- by holding that the same would have been put to use by the assessee in FY 2004-05 despite the fact that invoices in respect of such software were received by the assessee from HP India in subsequent year and thereafter assessee made payment of such software. 3. "The appellant craves to amend modify, alter, add or forego any ground of appeal at any time before or during the hearing of this appeal." 3. The facts giving rise to the present appeal are that in this case return declaring an income of Rs. 15,69,60,396/- was filed on 29.10.2005. Subsequently, the case was selected for scrutiny and the assessment u/s 143(3) of the Income Tax Act, 1961 ("the Act") was framed vide order dated 01.12.2008. The Assessing Officer while framing the assessment observed that during the year under consideration, the assesse had undertaken 'internationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue and the assessee have filed appeal and cross-objection respectively. 6. Ground No.1 of the Revenue's appeal is against the exclusion of the comparables directed by Ld.CIT(A) i.e. Exensys Software Solutions Ltd.; Thirdware Solutions Ltd., Visualsoft Technologies (Seg.); Sankhya Infotech Ltd. from the final list of the comparables. 7. Ld.CIT DR vehemently argued that Ld.CIT(A) was not justified in directing the exclusion of the comparables selected by the TPO. He supported the orders of the TPO & Assessing Officer. He took us through the order of the TPO to buttress the contentions that the comparables selected by the TPO are correctly selected and are in accordance with settled principles of law. 8. On the contrary, Ld. Counsel for the assessee opposed the submissions of Ld. CIT DR and submitted the Ld.CIT(A) has rightly excluded the comparables. In respect of Thirdware Solutions Ltd., Ld. Counsel for the assessee submitted that the company owned software products and earned income from sale of licenses and subscription. He contended that as per Schedule 14 to the Audited financial statements, it was stated that the company had purchased software licenses amounting to Rs. 2.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tine intangible. He further submitted that the Hon'ble Delhi High Court in the case of Pr.CIT vs Oracle (OFSS) BPO Services Pvt.Ltd. (ITA No.124/2018) held that companies having brand presence could not be regarded as appropriate comparable for the purpose of benchmarking the international transactions undertaken by a captive service provider. Ld. Counsel for the assessee further reiterated the submissions as made in the chart supplied during the course of hearing. 9. We have heard the rival contentions and perused the material available on record. The Revenue is aggrieved by the exclusion of following comparables by the Ld.CIT(A):- [1]. Exensys Software Solutions Ltd.; [2]. Thirdware Solutions Ltd.; [3] Visualsoft Technologies (Seg.); and [4] Sankhya Infotech Ltd. By excluding these comparables, Ld.CIT(A) placed reliance upon the judgement of the Hon'ble Delhi High Court and the decision of Tribunal in the case of Colt Technology Services India Pvt.Ltd. (ITA No.609/Del/2011). We find that the Ld.CIT(A) after considering the material placed on records and has given finding on facts in respect of the functional comparability of the comparables selected by the TPO. The Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee had purchased the software developed by Microsoft through HP India. As per the policy of Microsoft, all licensed software are to be downloaded from the Microsoft Volume Licensing Services ("MVLS") website and no physical goods were shipped. For acquiring the license, the assessee issued two purchase orders ("PO") i.e [PO No.4000099387 and 40000099388] on 13.07.2004 and one PO [PO No.4000105723] on 05.10.2004 to HP India. The assessee company had sent an e-mail on 21.07.2004 to HP India for confirmation of receipt of PO, which was duly acknowledged by HP India on 22.07.2004. He submitted that the license keys for secured products were provided to the assessee on 17.08.2004. The assessee activated the secured software downloaded from MVLS web site through the license key provided on 17.08.2004. Therefore, the assessee had acquired and put to use the software much before 31.03.2005. He contended that the assessee downloaded the software in August 2004 i.e. delivery of goods was taken prior to the issue of invoice and the same was put to use by the assessee in the relevant previous year. Therefore, it is contended that Ld.CIT(A) has rightly deleted the addition. 13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o further documentation is available for registration of such license key or software. Email sent by HP India to the Appellant sharing the license key itself substantiates that it has been registered for the use of the Appellant. To support these facts, various documentary evidences such as copy of purchase orders, email correspondences, cheque issued to HP India and invoices has been submitted by the Appellant. Further, a reconciliation between the numbers of licenses purchased as per the purchase order and Invoices raised by HP India was also submitted. From the perusal of the details and documents submitted by the Appellant, it is clear that the Appellant has indeed purchased the software from HP India and has made payment for the same. The real issue in this case is that whether the Appellant has actually purchased and used the software in the FY 2004-05 and thereby is eligible for claiming the depreciation thereon or not. The AO has denied such claim primarily due to the significant delay in raising of invoice by HP India and payment made by the Appellant which have been made in subsequent year. HP India has acknowledged the PO raised by the Appellant vide its email dated 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Revenue in this appeal is therefore, allowed. 15. Now, coming to cross-objection filed by the assessee pertaining to Assessment Year 2005-06. The assessee has raised following grounds in cross-objection:- 1. "That the CIT(A) have erred in law and on facts, in arbitrarily upholding the action of the Ld. Transfer Pricing Officer for retaining Bodhtree Consulting Ltd as functionally valid comparable on the ground that the same was included by the Respondent in the Transfer Pricing Report. 2. That the CIT(A) have erred in law and on facts, in upholding the action of the TPO in not allowing the risk adjustment on account of differences in the risk profile of the Respondent vis-a-vis the comparable companies. 3. That the Ld. Assessing Officer/ Ld. Transfer Pricing Officer have erred in law and on facts, in not providing working capital adjustment to the Respondent though the same was directed by the CIT(A). 4. That the Ld. CIT(A) and the Ld. Assessing Officer have erred in law and on facts, in treating the liabilities written back in relation to acquisition of fixed assets amounting to INR 1,587,816 as revenue in nature. 4.1. That the Ld.CIT(A) and the Ld. Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. Counsel for the assessee submitted that Ld.CIT(A) had directed the TPO to allow working capital adjustment while benchmarking the international transaction of provision of software services. However, while giving effect to the order of Ld.CIT(A), the TPO did not allow working capital adjustment to the assessee. He therefore, submitted that TPO may be directed to give effect to the direction of Ld.CIT(A) and allow working capital adjustment while computing the operating margins of the comparable companies. The assessee has also filed a chart demonstrating the operating margins of the comparable companies after allowing adjustment for working capital. The contents of the chart are reproduced for ready-reference:- Sl.No. Name of the Company Comparables As per TPO Comparables As per CIT(A) After excluding Bodhtree Consulting 1. Bodhtree Consulting Ltd. 22.34% 22.34% Excluded 2. Akshay Software Technologies Limited 6.08% 6.08% 6.08% 3. Lanco Global Systems Limited 8.81% 8.81% 8.81% 4. Sasken Network Systems Limited 15.26% 15.26% 15.26% 5. Gebbs Infotech Limited 13.88% 13.88% 13.88% 6. V J I L Consulting limited -2.43% -2.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ld. Counsel for the assessee reiterated the submissions as made in the written submissions. Ld. Counsel for the assessee submitted that the assessee during the relevant previous year had returned back a sum of Rs. 15,87,816/-. 27. The assessee in its return of income reduced the aforesaid amount from the profit as per the P&L A/c being transaction of capital nature. The Assessing Officer however, made disallowance of the said amount and added back the same to the taxable income of the assessee. He submitted that the reasons for disallowing the claim was on the basis that as per the Assessing Officer, the assessee had claimed and allowed depreciation on the said amount in the previous years and the same amounts to writing back of a trading liability which was required to be taxed as per section 41(1) of the Act. Ld.CIT(A) affirmed the view of the Assessing Officer. 28. Ld. Sr. Counsel for the assessee, Sh. Ajay Vohra took us through the provision of the Act. He submitted that section 41(1) of the Act can be invoked in the event firstly, if in the assessment of the assessee an allowance or deduction has been made in respect of any loss, expenditure or trading liability incurred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of benefit accruing to him shall be deemed to be profits and gains of business and profession and accordingly chargeable to income tax as the income of that previous year whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year not. Assessing Officer has correctly held that the claim of the assessee that the liability is on capital account and no deduction or allowance has been allowed in respect of the same is not correct. The liability pertained to the fixed assets on which depreciation has been claimed by the assessee and allowed him. Therefore, the claim that the amount has not impacted the profit or loss account is not correct. The assessee has included the relevant assets purchased from those parties in the gross block. Depreciation thereon has been claimed and duly allowed to the appellant. Therefore, the claim of appellant that it has not received any allowance in respect of the corresponding liability in earlier years is legally incorrect. Thus, Ground of Appeal 4 is dismissed." 31. The Hon'ble Supreme Court in the case of Nectar Beverages Pvt.Ltd. 314 ITR 314 (SC) in para 9 of the judgement held as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect to tax and such a nature of income should fall within the charging section as provided under the Act. All the receipts by an assessee would not necessarily be deemed to be income of the assessee for the purpose of income tax and the question whether the particular receipt is income or not will depend upon the nature of the receipt as well as the scope and effect of the relevant taxing provision. The Hon'ble Supreme Court in the case of Parimisetti Seetharamamma vs. CIT (57 ITR 532) has observed as under: "By sections 3 and 4, the Indian Income-tax Act, 1922, imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. Where, however, a receipt is of the nature of income, the burden of proving that it is not taxable because it falls within an exemption provided by the Act, lies upon the assessee. Where the case of the assessee is that a receipt did not fall within the taxing provision, the source of the receipt is disclosed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability on account of the principal amount of loan borrowed by it on a capital account, i.e., for acquisition of a capital asset cannot be reckoned as a nature of trading liability as envisaged in section 41(1), therefore, its remission cannot be deemed as income under the said provision. When a remission of a particular liability cannot even be deemed as income pursuant to a provision which has been enacted specifically for the purpose of treating it as a deeming income, then how can it be treated as income for the purpose any other provisions of the Act, unless specially provided to be taxed under any provision. Here, in this case admittedly the pre-requisite condition for invoking the provision of section 41(1) has not been satisfied/fulfilled at all for the reason that the pre-component of the borrowing for acquisition of capital asset has neither been allowed as allowance nor as deduction in the earlier years and being for the purpose of acquisition of a capital asset any waiver thereof will not constitute income under section 41(1). 13. The aforesaid proposition is also well supported by Hon'ble Bombay High Court in the case of Mahindra & Mahindra vs. CIT, reported in 261 I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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