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TMI Blog2022 (4) TMI 544X X X X Extracts X X X X X X X X Extracts X X X X ..... o the non residents as no income was chargeable to tax in India - HELD THAT:- No factual verification vis-a-vis relevant clauses of agreements entered into by the assessee for import of software was done by the Assessing Officer or the DRP. There is no iota of doubt that payment for transfer of copyrighted article as against the payment for transfer of copyright does not qualify as royalty and thus the same is not taxable in India in the absence of PE of the seller. However, each case is decided on its own facts. It is also pertinent to note that the conclusion in favour of the taxpayer in Engineering Analysis Centre for Excellence Pvt. Ltd. [ 2021 (3) TMI 138 - SUPREME COURT] was also reached after considering relevant clauses of End User License Agreement. However, in the present case as is evident from the orders passed by the Assessing Officer and DRP, such factual aspects were not considered and claim of the assessee was denied merely by referring to judicial precedents and CBDT circular. In view of the above we deem it appropriate to restore this issue to the file of AO for de novo adjudication after examination of the agreements entered into by the assessee for import of sof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be in the nature of capital expenditure and amortized over a period of five years. Disallowance of payment towards Tata Brand Equity subscription - HELD THAT:- As per the Tata Brand Equity and Business Promotion Agreement , the assessee was under contractual obligation to make annual payment towards the subscription fees. According to assessee, in consideration of this subscription fees, Tata Sons Limited was, inter-alia, responsible for organising corporate identity and brand promotional activities and campaigns, engage professional consultants, make available a pool of sharable resources of the Tata Group to the assessee and provide assistance in accessing the network of domestic and international business contacts and also permit the assessee to use the business name. All the activities were predominantly the activities carried out or to be carried out by Tata Sons Limited to enhance the value of TATA Brand, which is owned by Tata Sons Limited and for same expenses were incurred by Tata Sons Limited and accounted in its books of account. In the present case, nothing has been brought on record to suggest that the subscription fee paid by the assessee to Tata Sons Limited under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of SEZ units for the assessment years 2008 09, 2009 10 and 2010 11, we find no reason to deny the same in the relevant assessment year which is the fifth year of deduction claimed on SEZ unit under section 10AA of the Act. Thus, to this extent, we endorse the conclusion of the DRP and accordingly the Assessing Officer is directed to allow the deduction under section 10AA of the Act in respect of SEZ units commenced during the assessment years 2008 09, 2009 10 and 2010 11 as the same has already been allowed in the preceding assessment years. Thus, grounds no.9 and 10, raised in assessee s appeal are allowed. Grant of foreign tax credit as per the provisions of section 90(1)(a) read with provisions of the applicable Double Taxation Avoidance Agreement ( DTAA ) for taxed paid overseas in relation to income eligible for deduction under section 10A/10AA - HELD THAT:- As relying on own case [ 2019 (11) TMI 408 - ITAT MUMBAI] where the respective tax treaty provides for benefit for foreign tax paid even in respect of income on which the assessee has not paid tax in India, still, it would be eligible for tax credit under section 90 of the Act. Like Article 25 of the Indo USA treaty, treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / Assessing Officer is directed to conduct the benchmarking of the international transaction of provision of software consultancy services as per the findings of the Tribunal referred above. The TPO/Assessing Officer is also directed to consider the comparables selected by the CIT(A) in previous assessment years, for North American Region, APAC Region and Europe Region, for the purpose of benchmarking after necessary verification. Further, any transfer pricing adjustment should be restricted to the international transactions undertaken by the assessee. In view of the above, ground no.17 in assessee s appeal is allowed for statistical purpose. Transfer pricing adjustment in respect of provision of guarantee - HELD THAT:- As relying on own case [ 2019 (11) TMI 408 - ITAT MUMBAI] Following the decision in CIT v/s Everest Canto Cylinders Ltd.[ 2015 (5) TMI 395 - BOMBAY HIGH COURT] directed the Assessing Officer to charge guarantee commission @ 0.5% per annum. Deduction u/s 10A - Reduction of expenses incurred in foreign exchange from both export turnover and total turnover while computing the deduction under section 10A - HELD THAT:- We find that this issue is no longer res integra and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis for denying the claim of the assessee is that deduction under section 80HHE was previously claimed in respect of such units - HELD THAT:- We find that on identical issue in assessee s own case [ 2019 (11) TMI 408 - ITAT MUMBAI] held that old unit of assessee on which deduction under section 80HHE was claimed is entitled to claim deduction under section 10A of the Act from the profits of its units. TP Adjustment - adjustment in respect of loan to A.Es - HELD THAT:- Adjustment made by TPO by adopting rate of interest of 6% based on loan given by the assessee itself to another A.E. is not a valid CUP as the transaction is also between the related parties, thus to this extent order passed by the TPO and upheld by the DRP is set aside. Further, as we have already upheld the benchmarking of this transaction of loan to the A.Es., inter-alia, for the purpose of acquisition of downstream subsidiaries, for assessment year 2011-12 by applying the principle of LIBOR plus 300 to 400 basis points, we direct the TPO / Assessing Officer to compute the adjustment in respect of loan to A.Es. for the relevant assessment year by applying rate of interest of LIBOR, which will further be marked up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19,73,51,059, to various local State authorities in USA. The assessee claimed deduction under section 37 of the Act on the aforesaid local tax paid. During the course of assessment proceedings, the assessee was asked to show cause as to why the claim of State tax paid in USA cannot be disallowed under the provisions of section 40(a)(ii) of the Act. The assessee submitted that as per Explanation-1 to section 40(a)(ii) of the Act only the sum eligible for relief of tax under section 90 or under section 91 of the Act are not eligible for deduction as per section 40(a)(ii) of the Act. The State and local taxes being outside the scope of ambit of the Double Taxation Avoidance Agreement ("DTAA") are ineligible for relief under section 90 of the Act. The assessee further submitted that the term "tax" as defined under section 2(43) of the Act would only include taxes chargeable under the Act. The Assessing Officer, vide draft assessment order dated 16.02.2015, passed under section 143(3) r/w section 144C(1) of the Act did not agree with the submissions of the assessee and disallowed the deduction claimed on State / local taxes paid overseas under section 40(a)(ii) of the Act. Being aggriev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of the Act. Section 40(a)(ii) of the Act says that any rate or taxes levied on the profits or gain in any business or profession would not be allowable as deduction. Explanation-1 to section 40(a)(ii) of the Act inserted by the Finance Act, 2006, w.e.f. 1st April 2006, further clarifies that any sum eligible for relief of tax either under section 90 or 91 of the Act would not be allowable as deduction under section 40(a)(ii) of the Act. It is the say of the assessee that the tax eligible for relief under section 90 of the Act are only those taxes which are levied by Federal / Central Government and not by any local authority of State, City or County. Thus, it is ineligible for any relief under section 90 of the Act. The aforesaid submissions of leaned Sr. Counsel for the assessee, prima facie, is acceptable if one has to strictly go by the meaning of "tax", defined under section 2(43) of the Act, as it only refers to tax paid under the provisions of the Act. It is also worth mentioning, the State taxes paid by the assessee in DTAA countries are not eligible for relief under section 90 of the Act. Therefore, the issue which arises is, whether it can be allowed as deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of the Co-ordinate Bench rendered in assessee"s own case cited supra, we direct the Assessing Officer to verify as to whether the State Tax paid by the assessee overseas are eligible for any relief under section 90 of the Act and if it is not found to be so, the assessee"s claim of deduction should be allowed. Accordingly, ground no.2 raised in assessee"s appeal is allowed for statistical purpose. Consequently, no separate adjudication of ground no.2.1, raised in assessee"s appeal is required. 11. Further as regards ground no.2.2, raised in assessee"s appeal, in view of the above, the same is consequential in nature and shall be accordingly dealt by the Assessing Officer as per law. Accordingly, the same is allowed for statistical purpose. 12. The issue arising in ground no.3, raised in assessee"s appeal pertains to expenditure incurred on import of software. 13. The brief facts of the case pertaining to this issue as emanating from the record are: During the relevant assessment year, the assessee imported software for its business. The software imported were both for internal use in its business as well as for the purpose of trading. The break-up of the same is as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been decided in favour of the taxpayer by Hon"ble Supreme Court in Engineering Analysis Centre of Excellence Pvt. Ltd. v/s CIT, [2021] 432 ITR 471 (SC). Learned Senior Counsel further submitted that the Co-ordinate Bench of Tribunal in assessee"s own case for assessment year 2005-06 vide order dated 23.03.2017 also held that the amount paid for purchase of software product would not fall within the definition of "royalty" and accordingly, no TDS was required to be deducted. On the other hand, learned D.R. vehemently relied upon the draft assessment order. 17. We have considered the rival submissions and perused the material available on record. In the present case, the Assessing Officer vide draft assessment order treated the expenditure for import of software as royalty with the meaning of section 9(1)(vi) of the Act. In support of its conclusion the Assessing Officer also placed reliance on CBDT"s Circular No. 621 dated 09.12.1991 and also decision of Hon"ble Karnataka High Court in CIT v/s Samsung Electronics Co. Ltd.(2012) 354 ITR 494. In further proceedings, the DRP directed the expenditure on purchase of software to be capitalised following order dated 04.11.2015, passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pyright and payment cannot be construed as "royalty" under section 9(1)(vi) of the Act. However, no factual verification vis-a-vis relevant clauses of agreements entered into by the assessee for import of software was done by the Assessing Officer or the DRP. There is no iota of doubt that payment for transfer of "copyrighted article" as against the payment for transfer of "copyright" does not qualify as "royalty" and thus the same is not taxable in India in the absence of PE of the seller. However, each case is decided on its own facts. It is also pertinent to note that the conclusion in favour of the taxpayer by the Hon"ble Supreme Court in Engineering Analysis Centre for Excellence Pvt. Ltd. (supra) was also reached after considering relevant clauses of End User License Agreement. However, in the present case as is evident from the orders passed by the Assessing Officer and DRP, such factual aspects were not considered and claim of the assessee was denied merely by referring to judicial precedents and CBDT circular. 20. Thus, in view of the above we deem it appropriate to restore this issue to the file of Assessing Officer for de novo adjudication after examination of the agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or disallowance under section 14A of the Act. As regards the interest expenditure incurred by the assessee during the relevant assessment year, the assessee submitted that the same had no nexus direct or indirect with earning of exempt income. The Assessing Officer vide draft assessment order dated 16.02.2015, held that the expenditure suo-motu offered for disallowance under section 14A of the Act by the assessee for earning the exempt income are very meager. Accordingly, the Assessing Officer made a further disallowance of ₹ 14,51,69,647, in addition to the disallowance offered by the assessee under section 14A of the Act, by treating 0.5% of average value of investment income towards expenditure for earning the exempt income and also interest not directly attributable to any particular income. The DRP vide directions dated 16.11.2015, upheld the disallowance made in the draft assessment order on this issue. Being aggrieved, the assessee is in appeal before us. 23. During the course of hearing, the learned Senior Counsel for the assessee submitted that the Assessing Officer has not provided any cogent reason for doubting the correctness of the claim of the assessee for offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason as to why the AO is not satisfied with the working of the assessee except recording that the expenses are very meager. The ld CIT(A) after considering the submissions and the material placed before him directed to delete the disallowance including the disallowance of Rule 8D(iii). The ld DR for the revenue failed to bring any material in our notice to take the other view, no contrary decision is also brought to our notice. Thus, we affirm the order of ld CIT(A). In the result this ground of appeal is dismissed." 26. The learned D.R. could not show us any reason to deviate from the aforesaid order and no change in facts and law was alleged in the relevant assessment year. Thus, respectfully following the decision of the Co-ordinate Bench rendered in assessee"s own case cited supra, we direct the Assessing Officer to delete the disallowance of expenditure to the extent of ₹ 14,51,54,283 and accept the suo-motu disallowance offered by the assessee under section 14A of the Act. Accordingly, ground no.4, raised in assessee"s appeal is allowed. 27. In view of the above, the Assessing Officer is also directed to delete the addition of disallowance of ₹ 14,51,54,283 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nior Counsel further submitted that the assessee did not derive enduring benefit by incurring the said expenditure. In support of his submissions, the learned Senior Counsel placed reliance on the orders passed by the Co-ordinate Bench of the Tribunal in assessee"s own case for the preceding assessment years. 33. On the other hand, the learned Departmental Representative vehemently relied upon the orders passed by the authorities below. 34. We have considered the rival submissions and perused the material available on record. As it is evident from the details of expenditure mentioned in the aforesaid paragraphs, the expenditures were incurred by the assessee for the purpose of advertisement in newspaper, magazine, events, seminar, conferences, exhibition, advertisement at Airport, etc. We find that on identical issue, the Co-ordinate Bench of the Tribunal vide order dated 30.10.2019, passed in assessee"s own case in Tata Consultancy Services Ltd. v/s ACIT, ITA no.5713/Mum./2016, for the assessment year 2009-10, vide Para-23 at Page-22, observed as under:- "23. We have considered rival submissions and perused the material on record. We have also carefully examined the case laws ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's claim vis-a-vis the additional evidences furnished before us, we restore the issue to the Assessing Officer for de novo adjudication after providing reasonable opportunity of being heard to the assessee. We make it clear, our aforesaid direction is only with regard to the experience certainty expenditure of ₹ 5.28 crore. The decision of learned Commissioner (Appeals) on this issue is modified to this extent only." 35. The learned D.R. could not show us any reason to deviate from the aforesaid order and no change in facts and law was alleged in the relevant assessment year. Thus, respectfully following the decision of the Co-ordinate Bench rendered in assessee"s own case cited supra, ground no.5, raised in assessee"s appeal is allowed with similar directions. This ground is allowed for statistical purpose. 36. The issue arising in ground no.6, raised in assessee"s appeal is regarding disallowance of payment towards Tata Brand Equity subscription. 37. The brief facts of the case pertaining to the issue as emanating from the record are: During the relevant assessment year, the assessee paid an amount of ₹ 51,69,49,601 to Tata Sons Limited as Tata Brand Equity Sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Co-ordinate Bench of Tribunal in ACIT v/s M/s Rallis India Ltd.: ITA No. 5701/Mum/2008 vide order dated 30.08.2011 dismissed the appeal filed by the Revenue against the allowance of similar contribution to Tata Sons Limited under the Brand Equity and Business Promotion Scheme. In another sister concern"s case, the Co-ordinate Bench of Tribunal in M/s Tata Autocomp Systems Ltd. v/s ACIT: ITA No. 7596/Mum/2012 vide order dated 12.06.2013, following the earlier decision in Rallis India Ltd. (supra), deleted the disallowance on account of similar subscription paid to Tata Sons Ltd. towards brand equity and promotion scheme. The Co-ordinate Bench also noted that department has accepted the decision in Rallis India Ltd. (supra) and no appeal has been filed by the department against the same. Further, in the present case, nothing has been brought on record to suggest that the subscription fee paid by the assessee to Tata Sons Limited under the "Tata Brand Equity and Business Promotion Agreement" is different in nature from the one considered in aforesaid decisions. Thus, respectfully following the judicial precedence in case of sister concerns, we direct the Assessing Officer to delete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y reveal that commission has been paid to non-resident agents located in their respective countries towards services rendered by them in those countries in relation to obtaining export contracts for the assessee. No material has been brought on record by the Assessing Officer to demonstrate that the non-resident agents either have any business connection in India or have PE in India so as to bring the commission payment within the tax net. The factual finding recorded by learned Commissioner (Appeals) that the non-resident agents have rendered the services in their respective countries and do not have either any business connection in India or any PE in India has not been controverted by the Revenue. Further, the nature of payment viz. commission has also not been disputed by the Revenue. That being the case, since the commission paid to the non-resident agents is not chargeable to tax in India at their hands, there is no necessity for the assessee to withhold tax under section 195(1) of the Act on such payment. Accordingly, we uphold the decision of learned Commissioner (Appeals) on this issue." 45. As there is no change in facts and circumstances in relevant assessment year and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Hirnandani - SEZ SEZ/IT/UTES/ER/U-12/ 2008-351 4. Kolkata-Infospace - Unitech Hi-tech Structures - SEZ SEZ/HIRA-MM/(15)/LOA-15/2009-10 /25/5524 5. Vaverock-AP II C, Nanakramguda - Hyderabad - SEZ SEZ(IT/ITES/TCS/AOUUC-TSI/(HYD)/ 0019/2009-10/19210 49. During the course of assessment proceedings, the assessee was asked to show cause as to why deduction under section 10AA of the Act be not denied as the SEZ units are formed by splitting up or re-construction of an already existing business. In reply thereto, the assessee by referring to the conditions laid down in the provisions of section 10AA(4) of the Act submitted that the SEZ units in respect of which deduction under section 10AA of the Act has been claimed are neither formed by splitting up or reconstruction of existing business nor there is a transfer of building or plant previously used to the new business. The assessee provided the details of fresh investment in new plant and machinery during the relevant assessment year. The assessee also submitted that the number of new recruits at the enterprise level (i.e., 35,185 employees) during the year was far more than the number of employees comprising both new and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her submitted that no appeal has been filed by the Department against the orders of the CIT(A). 52. On the other hand, the learned Departmental Representative vehemently relied upon the findings in the draft assessment order. 53. We have considered the rival submissions and perused the material available on record. In the present appeal, ground no.9, is in respect of various SEZ units which had commenced its operations during the assessment years 2008-09, 2009-10 and 2010-11. While ground no.10 in assessee"s appeal, is in respect of Chennai-one SEZ units which also commenced its operations in earlier assessment year i.e., A.Y. 2007-08. Thus, it has not been denied that in respect of all the units the relevant assessment year is not the first year of operation. Section 10AA of the Act allows deduction to the SEZ unit which begins to manufacture or produce articles or things or provide any service during the previous year relevant to any assessment year commencing on/or after 1st Day of April 2006, but before the 1st Day of April 2021. Sub-section (4) of section 10AA of the Act lays down certain conditions upon fulfillment of which the SEZ units shall be entitled to claim deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... need to be examined every year before allowing the deduction. Therefore, once the first set of conditions is established in the initial year, these should not be examined in subsequent assessment years. We are of the view that provisions of section 10AA(4) of the Act lay down the first set of conditions which is to be satisfied in the initial year of operation and should not be examined in the subsequent years. As the CIT(A) has already allowed the deduction under section 10AA of the Act in respect of SEZ units for assessment years 2008-09, 2009-10 and 2010-11 and no further appeal has been filed by the Revenue against the same, which has also not been controverted by the learned Departmental Representative nor any facts contrary to the same has been adduced. Thus, as the deduction under section 10AA of the Act has already been allowed to the assessee in respect of SEZ units for the assessment years 2008-09, 2009-10 and 2010-11, we find no reason to deny the same in the relevant assessment year which is the fifth year of deduction claimed on SEZ unit under section 10AA of the Act. Thus, to this extent, we endorse the conclusion of the DRP and accordingly the Assessing Officer is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly relied upon the order passed by the DRP. 60. We have considered the rival submissions and perused the material available on record. We find that the Hon"ble Karnataka High Court in Wipro Ltd. (supra) observed as under:- "56. Therefore, it follows that the income under Section 10A is chargeable to tax under Section 4 and is includible in the total income under Section 5, but no tax is charged because of the exemption given under Section 10A only for a period of 10 years. Merely because the exemption has been granted in respect of the taxability of the said source of income, it cannot be postulated that the assessee is not liable to tax. The said exemption granted under the statute has the effect of suspending the collection of income tax for a period of 10 years. It does not make the said income not leviable to income tax. The said exemption granted under the statute stands revoked after a period of 10 years. Therefore, the case falls under Section 90(1)(a)(ii)." 61. Further, we find that on identical issue, the Co-ordinate Bench of the Tribunal in assessee"s own case vide order dated 30.10.2019, passed in Tata Consultancy Services Ltd. v/s ACIT, ITA no.5713/Mum./2016, for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal which involve following issues:- (a) Deduction on account of education cess paid by the assessee; (b) Allowability of deduction under section 10AA on "commercial profit" instead of income from business and professional. 67. The learned Sr. Counsel for the assessee submitted that both the issues raised by way of additional grounds of appeal are purely legal in nature which do not require enquiry into new facts. 68. We have considered the rival submissions and perused the material available on record. As the issues raised by the assessee by way of additional grounds of appeal are legal in nature which can be decided on the basis of material available on record, we are of the view that the same can be admitted for consideration and adjudication in view of the ratio laid down by the Hon'ble Supreme Court in National Thermal Power Co. Ltd. v/s CIT, [1998] 229 ITR 383 (SC). Accordingly, the additional grounds of appeal raised by the assessee are hereby admitted for adjudication on merit. 69. Coming to the first issue raised by way of additional ground of appeal in respect of allowance of deduction on education cess paid by the assessee, the learned Sr. Counsel submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther noted that the meaning of the term "Profits & Gains" refers to profits which are commercial profit and without deducting the depreciation and investment allowance as per the Act. Accordingly, the Co-ordinate Bench in Reliance Industries Ltd. (supra) observed as under:- "Accordingly in the background of aforesaid discussion and the precedent from the Hon'ble Supreme Court we direct the Assessing Officer to grant the deduction under section 10AA with reference to the profit and gains as determined by the honourable Supreme Court in the case of Vijay Industries (supra)." 75. We find that the issue raised by the assessee by way of additional ground of appeal is squarely covered in favour of the assessee by the aforesaid order passed by the Co-ordinate Bench of the Tribunal in Reliance Industries Ltd. (supra) and the law laid down by the Hon'ble Supreme Court in Vijay Industries (supra). The learned Departmental Representative could not show us any reason to deviate from it. In view of the above, respectfully following the aforesaid judicial precedence, we direct the Assessing Officer to allow the deduction under section 10AA of the Act on "Commercial Profit" instead of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has rendered software development, technical and consultancy services to it"s A.Es. on the basis of specific requests received from them. The charges for the services rendered were determined on the basis of mutual negotiation between the parties. Based on the functional analysis presented in the TP report, the assessee has selected itself as a tested party, Transactional Net Margin Method ("TNMM") as the most appropriate method with OP/OC as profit level indicator ("PLI") for benchmarking receipts from A.Es. for provision of software, technical and consultancy services rendered. 81. The Assessing Officer made reference to Transfer Pricing Officer ("the TPO") for the determination of ALP of the international transactions entered into by the assessee. The TPO vide order dated 23.01.2015 passed under section 92CA(3) of the Act noted that the facts of the relevant assessment year are almost identical with those of preceding assessment year i.e. 2010-11. Thus, following the approach adopted in assessment year 2010-11, TPO issued show cause notice to the assessee, inter-alia, asking as to why the operating margins of foreign comparables as selected by the TPO for benchmarking in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de order dated 18.08.2020 dismissed the appeal filed by the Revenue and upheld the order passed by the CIT(A) observing as under: "44. We have considered the rival submissions of the parties and have gone through the orders of the lower authorities. We have also deliberated on the decision of Tribunal in AY 2009-10. During the TP assessment proceeding the TPO rejected the basis of the PLI shown by the assessee by taking view that the cost incurred by the AEs on the payment of price to assessee are in the nature of past through cost. The TPO held that the PLI to compute the margin would be operating profit/ value added expenditure (OP/VAE). The ld CIT(A) granted relief to the assessee by following the order of his predecessor/ ld CIT(A) for AY 2009-10. We have noted that the order of ld CIT(A) for AY 2009-10 has been affirmed by the Tribunal by passing the following order; "20. We have considered rival submissions and perused the material on record. We have also applied our mind to the decisions relied upon. From the grounds raised by the Revenue, the following three issues arise for consideration - (i) what should be the appropriate PLI; (ii) whether cost of outsourcing / sub-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tsourcing / sub- contracting cost to assessee as a pass through cost, learned Commissioner (Appeals) was absolutely correct in observing that the decision of the Transfer Pricing Officer to exclude such costs while computing the margin of the AEs is incorrect. When similar cost incurred by the comparables were not excluded while computing their margin, a different treatment cannot be given to such costs in case of the AEs. Certainly, the aforesaid approach of the Transfer Pricing Officer has resulted in distorting the correct PLI of the AEs. In the aforesaid context, the observations of learned Commissioner (Appeals) are appreciable, wherein, he has observed that the PLI of the AEs and PLI of comparables have not been computed on similar lines by the Transfer Pricing Officer, hence, comparability condition fails. It is further relevant to observe, the alternative benchmarking furnished by the assessee before the Transfer Pricing Officer by considering the AEs in different geographic locations as tested parties with the comparables selected on the basis of the respective geographic locations furnished before the Transfer Pricing Officer were not properly considered. However, in cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after necessary verification. Further, any transfer pricing adjustment should be restricted to the international transactions undertaken by the assessee. In view of the above, ground no.17 in assessee"s appeal is allowed for statistical purpose. 85. The issue arising in ground no.18, raised in assessee"s appeal is regarding transfer pricing adjustment in respect of provision of guarantee. 86. The brief facts of the case pertaining to this issue as emanating from the record are: The assessee in a note in the form 3CEB submitted that the assessee has provided guarantee and the same is not considered as an international transaction. The TPO on perusal of the Annual Report of the assessee noticed that during the year assessee had provided guarantees of various tenors on behalf of different A.Es. Accordingly, after considering the details sought during the course of TP proceedings, TPO vide order dated 23.01.2015 held that the guarantee given by the assessee on behalf of its A.Es. as an international transaction. The TPO applying a rate of 3% on the basis of information gathered from SBI and adding a further mark up made a total adjustment of ₹ 37,31,65,344/- to the internation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any reason to deviate from the aforesaid order and no change in facts and law was alleged in the relevant assessment year. Thus, respectfully following the order passed by the Co-ordinate Bench in assessee"s own case cited supra, we upheld the conclusion of the TPO / DRP to the extent provision of guarantee was held to be an international transaction. However, the TPO/Assessing Officer is directed to charge guarantee commission @ 0.5% and compute the adjustment accordingly. As a result, ground no.18 raised in assessee"s appeal is partly allowed. 91. Other grounds pertaining to transfer pricing raised in assessee"s appeal were not pressed during the course of hearing being academic in nature and are accordingly dismissed. While ground no. 1, raised in assessee"s appeal is general in nature and need no separate adjudication in view of our aforesaid findings in assessee"s appeal. 92. In the result, appeal by the assessee is partly allowed for statistical purpose. ITA no.1054/Mum./2016 Revenue's Appeal - A.Y. 2011-12 93. The issue arising in ground no.1 in Revenue"s appeal pertaining to the expenditure on import of software is similar to the issue raised in assessee"s appeal in gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d no.2, raised in Revenue"s appeal is dismissed. 98. The issue arising in ground no.3, raised in Revenue"s appeal is regarding charging of interest on loans provided to A.Es. 99. The brief facts of the case pertaining to this issue as emanating from the record are: During the relevant assessment year, the assessee received the interest from following A.Es. on account of loan outstanding: * TCS Iberoamerica S.A. * TCS FNS Pty. Ltd. * TCS Morocco SARL AU 100. As per the assessee, no new loan was granted by the assessee to its A.Es. during the year. The loans subsisting during the year or part of the year (due to repayments) were given in prior years either for acquisition of downstream subsidiaries by the A.Es. or for working capital requirements. The primary contention of the assessee was that loans given to the A.Es. are in quasi equity in nature and are extended for ultimate benefit of the assessee and thus no interest was charged. The assessee on without prejudice basis, charged interest at a rate which was derived by considering the prevailing LIBOR and added a mark-up on same for various risks. The TPO vide order dated 23.01.2015 passed under section 92CA(3) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is clearly depended upon all these factors and it can be seen from the public data (like Bloomberg data) available that banks / financial institutions / corporate lend loans at interest rates, which increases with increase in tenure and amount and it also increases with decrease in creditworthiness of borrowing entity. The interest rate increases at very fast rate with creditworthiness of the borrower, as it goes down from "AAA" rating to "C" rating. The interest rate also increases in the case of unsecured loans or where no guarantees for loans have been made available, beside that every bank/financial institution charges markup/service charge over labor rate ranging from 100 basis points to 200 basis points." 103. The DRP further noted that the Co-ordinate Bench of the Tribunal in VVF Ltd. (supra) justified the application of LIBOR plus 3% rate for the interest free loan. It is pertinent to note that while charging mark up, over and above the interest rate paid by the assessee on borrowed funds, for computation of adjustment the TPO held that the mark up of 3% will cover various risks factors like exchange rate fluctuation risk, entity risk, country specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est due to delay in complying tax laws and, hence, was claimed as business expenses. The Assessing Officer, vide draft assessment order dated 29.12.2009, passed under section 143(3) r/w section 144C(1) of the Act disallowed the claim of the assessee. 111. The DRP vide its direction dated 29.09.2010, issued under section 144C(5) of the Act rejected the objections raised by the assessee on this issue. Being aggrieved, the assessee is in appeal before us. 112. During the course of hearing, the learned Senior Counsel submitted that the last paragraph of Article 2(1) of India-USA DTAA clearly remove the doubt in respect of any amount payable in respect of any default in relation to tax mentioned in Article-2 or any penalty imposed relating to those taxes. Thus, such amount / penalty shall not be included under Article-2 of India-USA DTAA and, therefore, the same cannot be disallowed under section 40(a)(ii) of the Act. 113. On the other hand, the learned Departmental Representative vehemently relied upon the orders passed by the lower authorities. 114. We have considered the rival submissions and perused the material available on record. As we have restored the issue arising in groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected the objections filed by the assessee on this issue. Being aggrieved the assessee is in appeal before us. 119. During the course of hearing, learned Senior Counsel relied upon his arguments made in respect of identical issue in appeal for assessment year 2011-12. On the other hand, learned D.R. vehemently relied upon the orders passed by lower authorities. 120. We have considered the rival submissions and perused the material available on record. In the present case, the Assessing Officer vide draft assessment order treated the expenditure for import of software as royalty with the meaning of section 9(1)(vi) of the Act. In support of its conclusion the Assessing Officer also placed reliance on Explanation-3 to section 9(1)(vi) of the Act as well as CBDT Circular no.621 dated 09.12.1991. In further proceedings, the DRP rejected the objections filed by the assessee and upheld the draft assessment order. As in assessment year 2011-12, in the relevant assessment year also the Assessing Officer has not at all deliberated on the factual aspect of the issue and has not considered the agreements entered into by the assessee with vendors for import of software and merely by relying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee was asked to submit the explanation about justification of setting off of such losses with normal income during the assessment proceedings. In reply, the assessee submitted that the "loss" in respect of STP units does not fall within section 14A of the Act which refer to "expenditure" incurred in relation to income, which does not form part of total income. The Assessing Officer vide draft assessment order dated 29.12.2009 did not agree with the submissions of the assessee and held that the set off of losses of section 10A units cannot be allowed under section 70 of the Act. The Assessing Officer further held that the provision of section 10A of the Act does not come under Chapter IV under which total income is computed. Accordingly, disallowed the claim of loss of ₹ 44,99,46,311 as claimed by the assessee in respect of STP units and added the same to the income of the assessee. The DRP vide directions dated 29.09.2010 rejected the objections filed by the assessee on this issue. Being aggrieved, the assessee is in appeal before us. 125. During the course of hearing, learned Sr. Counsel submitted that the section 10A is now been held to be a deduction provision by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. 41. The assessee has further contended that the term "loss" is different from the "expenditure" referred to section 14A of the Act and that, therefore, section 14A is not applicable to the present case. The following case laws have been relied on : "i. "Hindustan Unilever Ltd.", 325 ITR 102 (Bom. HC) ii. "Galaxy Surfactants Ltd.", 343 ITR 108 (Bom. HC) iii. Assessee's Own case being "Yokogawa India Ltd. and other connected appeals", 341 ITR 385 (Kar. HC) iv) "Black and Veatch Consulting Pvt. Ltd.", 348 ITR 72 (Bom.HC) v) "Scientific Atlanta India Technology Pvt. Ltd.", 2 ITR (T) 66 (Chennai Tribunal - SB). vi) "Navin Bharat Industries", 90 ITD 1 (Mumbai ITAT) vii) "Capgenimi India (P) Limited", 141 TTJ 33 (Mumbai ITAT) 42. In this regard, a co-ordinate Bench of the Tribunal in "Navin Bharat Industries" (supra), has held that where expenditure is incurred in relation to income not includible in the total income, loss cannot be construed to be expenditure and section 14A of the Act is applicable qua expenditure and not qua loss. 43. Then, in "Capg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of computer software and thus the deduction under section 10A of the Act is not allowable to the undertakings which were already in existence and claiming deduction under section 80HHE of the Act. The Assessing Officer further held that the section 80HHE(5) of the Act also prohibits the claim under any other section of the Act, once the deduction is claimed under section 80HHE. The DRP vide directions dated 29.09.2010 rejected the objections filed by the assessee on this issue. Being aggrieved, the assessee is in appeal before us. 131. During the course of hearing, learned Sr. Counsel submitted that there is nothing in section 10A of the Act which prohibits claim of deduction in respect of profits of an undertaking, where deduction under section 80HHE of the Act has been claimed in past. Learned Sr. Counsel further submitted that the claim of deduction under section 10A of the Act is availed for the residual years in the block of ten years and there was no attempt to extend the period of tax holiday by exercising the option to claim deduction under section 10A instead of continuing under section 80HHE of the Act. Learned Sr. Counsel also submitted that the CBDT Circular 1 of 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the assessee was granted deduction under section 80HHE. Sub-section 5 of section 80HHE of the Act, therefore, in the present case would have no applicability. We are fortified in our view by a division bench judgement of Delhi High Court in the case of CIT v. Damco Solutions (P.) Ltd. [2011] 11 taxmann.com 365/200 Taxman 26 (Mag.) in which it was observed as under:- "2. This stand of the Assessing Officer was repelled by the CIT (A) holding that the purpose of sub-section (5) of section 80HHE was to avoid double benefit and that would not mean that if the assessee for a particular assessment year wanted relief only under section 10A of the Act that would be denied to the assessee. The only embargo was not to give relief under both the provisions." 7. Coming to the revenue's second objection to the assessee's claim of deduction under section 10A of the Act, we may recall, that the assessee had admittedly started manufacturing computer software for export prior to 1st April 2001, when section 10A was substituted by the Finance Act of 2000. It was under this amendment that the profit and gains derived by an undertaking from export of computer software came ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he deduction under section 10A of the Act. Upon consideration of rival submissions and perusal of material on record, we find that this issue is similar to ground no. 2 raised in Revenue appeal being ITA No. 1054/Mum./2016 for assessment year 2011-12. Thus, our findings / conclusion in ground no.2, raised in Revenue"s appeal for the assessment year 2011-12 shall apply mutatis mutandis to this ground also. Accordingly, ground no.7, raised in assessee"s appeal is allowed. 135. The issue arising in ground no.12 in assessee"s appeal is with regard to charging of interest under section 234B of the Act before grant of credit of taxes paid under section 90 / 91 of the Act. 136. The brief facts of the case pertaining to this issue as emanating from record are: The Assessing Officer while charging interest under section 234B of the Act vide draft assessment order dated 29.12.2009 did not grant credit of taxes paid under section 90 / 91 of the Act. The DRP, vide directions dated 29.09.2010 treated the issue as consequential in nature and issued no directions in respect of the objections filed by the assessee. Being aggrieved, the assessee is in appeal before us. 137. During the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41. The learned Sr. Counsel for the assessee submitted that the issue raised by way of additional ground of appeal is purely legal in nature which do not require enquiry into new facts. 142. We have considered the rival submissions and perused the material available on record. As the issue raised by the assessee by way of additional ground of appeal are legal in nature which can be decided on the basis of material available on record, we are of the view that the same can be admitted for consideration and adjudication in view of the ratio laid down by the Hon'ble Supreme Court in National Thermal Power Co. Ltd. v/s CIT, [1998] 229 ITR 383 (SC). Accordingly, the additional ground of appeal raised by the assessee is hereby admitted for adjudication on merit. 143. Upon consideration of rival submissions and perusal of material on record, we find that this issue raised by way of additional ground of appeal is similar to ground no. 11 raised in assessee"s appeal being ITA No. 1650/Mum./2016 for assessment year 2011-12. Thus, our findings / conclusion in ground no.11, raised in assessee"s appeal for the assessment year 2011-12 shall apply mutatis mutandis to this ground also. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made. In reply, the assessee submitted that the loans were given to respective subsidiaries to finance the downstream investments / acquisition by these respective subsidiaries. The amounts have been utilised by respective A.Es. to disburse the acquisition price to the erstwhile shareholders. The assessee further submitted that being a 100% shareholder, it was assessee"s duty to provide necessary financial assistance either by way of share capital or interest free loans and thus based on the debt equity ratio of A.Es. the above loan is in the nature of quasi-equity. The assessee also submitted that for the purpose of advancing loans the assessee has not borrowed the money and hence there is no corresponding cost to it. And if it all interest is to be charged then without prejudice same should be considered @ LIBOR plus 44 basis points i.e. the rate at which USA based A.E. has been able to borrow in the international market. 150. The TPO vide order dated 30.10.2009 passed under section 92CA(3) of the Act rejected assessee"s submissions and held that if the similar loan was to be given to an unrelated party it would have carried an arm"s length rate of interest. The TPO further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies/group. Similarly, the assessee acquired Swedish company through its wholly owned subsidiary TCS Sverige AB, Sewden. For this purpose, the assessee remitted the amount of USD 4.5 millions (equivalent to ₹ 19,58,85,000) to its subsidiary so that same can be disbursed as a acquisition price to the erstwhile shareholders of acquired Swedish company. 154. While dealing with facts for the assessment year 2011-12, we noticed that the assessee received the interest on account of loan outstanding from its various A.Es., including TCS FNS Pty. Ltd., Australia. It was also noticed from the facts on record for assessment year 2011-12 that the loan was granted in prior years to the said subsidiary, inter-alia, for purpose of acquisition of downstream subsidiaries. The assessee, on a without prejudice basis, charged interest at a rate which was derived by considering the prevailing LIBOR and added a mark-up on same for various risks. Ultimately, said benchmarking, by applying LIBOR and adding a mark-up, in respect of loans was accepted by the DRP and no further adjustment was directed to be made. We, while deciding the Revenue"s appeal being ITA No. 1054/Mum/2016 for assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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