9911796707
TMI Blog2022 (5) TMI 352X X X X Extracts X X X X X X X X Extracts X X X X ..... e royalty payment is liable to be deleted Interest on outstanding dues from AEs (outstanding for more than six months) - TPO treated the above debts outstanding for a period of more than six months in respect of transaction with assessee s AEs as a deemed loan and applied CUP method to benchmark the transaction - HELD THAT:- As sales to AE is more than sales to non-AEs. Hence, the debtors are more in AE as compared to non-AE. More importantly, percentage of debtors to sales is less in AE as compared to that of non-AE. No interest is charged from both AE and non-AE. The Hon ble Rajasthan High Court in the case of PCIT v. Sharda Spuntex P Ltd. [ 2018 (5) TMI 1835 - RAJASTHAN HIGH COURT] has held that when interest is not charged on non-AE debtors, there cannot be any occasion to make ALP adjustment for notional interest on delay in realization of trade debts from the AEs. The outstanding receivables from AE even though an international transaction, is a closely linked transaction to the international transaction of sales to AE. The receivables from AE arise due to sales to AE and hence it is closely linked transaction. The TPO has accepted the net profit margin of the software servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the condition of splitting up/reconstruction of the existing unit is not violated. Hence, we are of the view that the above said reasoning cannot be a ground to reject the claim for deduction u/s 10A of the Act. The second reasoning given by the A.O. is that the unit No.2 is only a paper unit or it is a case of splitting up or reconstruction of the existing unit. Before us, the Ld. A.R. submitted that the A.O. has not brought any material on record in support of the above said reasoning - Before us, the assessee has filed details of seating capacity and other infrastructure facilities pertaining to Unit-1 2 in support of the contentions made before us. A perusal of the same would show that the capacity of Unit-1 remains intact. We notice that the AO has not examined this issue by considering factual aspects presented before us. Since the A.O. has not examined the details now furnished before us by the assessee, we restore those details to the file of the A.O. for examining them. Assessee has furnished corrected Softex forms in respect of unit-2 as additional evidences before us and they constitute about 73% of the aggregate number of forms. These additional evidences require exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in the case of VIREET INVESTMENT (P.) LTD. [ 2017 (6) TMI 1124 - ITAT DELHI] only those investments, which have yielded exempt income has to be considered for the purpose of computing average value of investments for computing disallowance under Rule 8D. We direct the A.O. to compute disallowance accordingly. Short grant of TDS - HELD THAT:- A.O. in the final assessment order, despite the directions of the DRP, without any discussion has granted TDS credit of only Rs.1,19,13,873 instead of Rs.1,78,59,370 claimed by the assessee. Therefore, we restore the issue raised to the files of the A.O. TP adjustment made on buy back of shares - TPO held that the assessee has paid for buyback from its internal accruals/reserves - HELD THAT:- TPOs reasoning for rejection of two independent valuation reports have been rejected by the DRP on merits. The DRP has clearly brought out on record the various inconsistencies in the TPOs valuation. It is evident from the TPOs valuation that the TPO cherry picked the numbers and figures from different methods of valuation in both the valuation reports in the manner beneficial to revenue. The TPO has not explained the basis or rationale for adopti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the I.T.Act. During the course of assessment proceedings, the case was referred to the Transfer Pricing Officer (TPO) to determine the Arm's Length Price (ALP) of the international taxations entered by the assessee with its Associate Enterprises (AEs). The activities carried on by the assessee, the margins earned thereon and the TPO's calculation and the findings are as follows:- Transaction Assessee's margins Arm's length margin determined by TPO TPO's finding Software development support services Net operating margin (NPM) of 33.18 per cent. NPM of 24.32 percent Transactions established to be at arm's length. Management and administrative support services NPM of 10 per cent. NPM of less than 10 per cent -do- IT infrastructure support services NPM of 20 per cent. NPM of 25.03 per cent Transactions are within the 5 per cent tolerance range and hence accepted to be at arm's length. 2.1 However, the TPO made an adjustment amounting to Rs.65,16,46,009 towards various transactions, which are as under:- * Receivables from Debtors due for more than 6 months was treated as deemed loan; * Buyback of shares were treated as international transactions subject to Transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax, Large taxpayer unit, Bangalore ("the Ld AO") under section 143(3) read with section 144C( 13) of the Income-tax Act, 1961 ("the Act") is not in accordance with the law and is contrary to the facts and circumstances of the present case. Transfer Pricing adjustments 1.1. The Honourable DRP and the Ld TPO have erred in law and on the facts and circumstances of the case, by holding that the ALP of Royalty is NIL and adding back the entire amount of Rs 3.83 crores paid towards Royalty as an adjustment to ALP. 1.2. The Honourable DRP and the Ld TPO have erred in law and on facts in concluding that the' payment of royalty for the brand name owned by the AE was not justified without considering that its revenue of about Rs 130 crores out of a total revenue of Rs 433 crores was derived from non-AEs. 1.3. The Honourable DRP and the Ld TPO have erred in law and on facts in not considering that the royalty was paid only in respect of the revenue derived from non-AEs 1.4. The Honourable DRP and the Ld TPO has erred in law in rejecting the benchmarking carried out by the Appellant under TNMM (aggregation approach) without any basis for rejecting the appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the DRP explicitly ruling in its order that there should be any adjustment if the margins after adjustments for working capital differences are higher than the arm's length margin determined based on comparable company data 2.6. The Ld AOI TPO have erred in law in not giving effect to the order of the DRP, which action purports that the DRP should have itself examined the working capital adjustment and the mere direction to the Ld AOITPO to examine the workings amounted to a set aside without considering that it was only incidental to the DRP's explicit ruling that the adjustment should be deleted once the Appellant's margins after the working capital adjustment is higher than the margins of the comparable companies. 3.Other Transfer pricing related grounds 3.1. Without prejudice to all of the above, the learned DRP, TPO and AO have erred in not accepting the argument that the transfer pricing provisions will not apply when tax payer's income is exempt as provided vide paragraph 55.5 of Circular no 14/200 of the CBDT and the principles of the Bangalore Tribunal in the case of Philips Software Centre Private Limited (26 SOT 226); Corporate tax adjustments 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e forward contracts and options were in relation to underlying financial assets of the Appellant that were outstanding as at March 2009. 5.3. The Ld AO and the honorable DRP have erred in law and on facts in holding that the MTM loss of INR 684,273,980 is a speculative loss as envisaged under section 43(5) of the Act and is to be assessed separately as profit or loss from speculation. 5.4. The Ld AO and the honorable DRP have erred in law and on facts in concluding that the transaction was speculative in nature merely by relying on the internal instruction No 3/2010 dated March 23, 3010 issued by the Central Board of Direct Taxes ("CBDT"). 5.5. The Ld AO and the honorable DRP have erred in law and on facts in holding that the principles enunciated by the Honorable Supreme Court in the case of Woodward Governor India Private Limited (312 ITR 254) and State Bank of Travancore Vs CIT (158 ITR 102) and other decisions relied upon by the Appellant are distinguishable from the facts of the Appellant as the same had not been decided in relation to MTM loss on option contract in respect of forex derivatives. 5.6. The Ld AO and the honorable ORP have erred in law and on fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by invoking the provisions of Rule 8D of the Income-tax Rules, 1962 without providing any cogent reasons and making conclusions on the basis of conjectures and surmises and without considering the relevant facts and submissions. 7.2. The Ld AO and the honorable DRP have erred in law and on facts in not appreciating that disallowance under section 14A of the Act requires that such expense should have an inherent nexus with an exempt income. 7.3. Without prejudice to the above objection, in relation to the additional disallowance of Rs 2,740,203 under section 14A of the Act, the Ld AO and the honorable DRP have erred in not appreciating the fact that such disallowance should have been made in the computation of Profits and Gains from Business and Profession ("PGBP") in respect of each of the Units and has erred in adding back the entire amount to the total Income of the Appellant. 8. Short grant of credit for Tax Deduction at Source 8.1. The Ld AO has erred in not following the directions of the honorable DRP by granting short credit of Tax Deducted at Source ("TDS") to the extent of Rs 5,945,497 (Rs 17,859,370 as claimed in return of income less Rs 11,91 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholders on account of Buy-back of its own shares is in the nature of income to the Appellant and further erred in considering notional interest on the alleged excess amount of buyback of shares as income of the Appellant. The said grounds are independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above ground of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Honorable Income Tax Appellate Tribunal to decide this appeal according to law. The Appellant does not have a Managing Director and hence these additional grounds of appeal are signed by the Director of the Company in accordance with the provisions of the Act." 3.2 Ground No.1 is a general ground. The learned AR did not press ground No.3.1. Grounds 9.1 and 10.1 are consequential grounds. Therefore, grounds 1, 3.1, 9.1 and 10.1 are dismissed. We shall adjudicate the surviving grounds / issues as under:- Addition on account of Royalty (grounds 1.1 to 1.6) 4. Brief facts of the case in relation to the above ground are as follows: The assessee had entered into a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, for benchmarking was not in accordance with law. The DRP observed that the TNMM applied at enterprise level does not follow that each class of transaction including royalty paid are at arm's length. (ii) The DRP has further observed that the assessee has not submitted any documentary evidence to justify receipt of service. The DRP therefore held that the assessee has not discharged the obligation to support the arm's length nature of transaction and hence, the arm's length price is taken as NIL using Comparable Uncontrolled Price (CUP) as MAM. (iii) The DRP relied on the Tribunal decision in Aztec and held that the onus on benchmarking was on the assessee and since the assessee had not produced any comparable uncontrolled transaction, the TPO had the option to allow the entire payment or disallow the entire payment. (iv) The DRP also relied on the decision of the Tribunal in the case of Knorr-Bremse India Pvt. Ltd. (ITA No.5097/Del/2011) and Gemplus India Pvt. Ltd. (ITA 352/Bang/2009) in support of its conclusion. 4.3 Pursuant to the DRP's order, final assessment order was passed confirming the addition of Rs.3,83,20,329. 4.4 Aggrieved by the final assessment order conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concluding the ALP of the transaction to be NIL in totally arbitrary manner. It was stated that even if the TPO were to reject bench marking of the assessee, the TPO has to necessarily adopt one of the methods prescribed u/s 92C r.w.r 10B of the I.T.Rules, 1962. It was contended that if the TPO were to adopt CUP method as he purportedly to do, the TPO ought to have identified similar uncontrolled transaction to benchmark the royalty payment and cannot conclude the same to be NIL. 4.5 The learned Departmental Representative, on the other hand, by referring to section 92B of the I.T.Act, submitted that the payment of royalty is a separate international transaction between assessee and its AE and the assessee ought to have made TP analysis for payment of royalty. It was submitted that clubbing / aggregation of non-international transaction with international transaction based on economic analysis carried out for international transaction itself is against TP regulations and TP guidelines laid down by OECD. As regards the assessee's contention that RBI prescribed rate is to be adopted as CUP, it was submitted by the learned DR that what is prescribed by RBI is not a price. It was sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LP of royalty paid at NIL for the reason that no independent party would have paid for royalty under similar circumstances. 4.6.2 The DRP held that the assessee should have separately analysed the transaction of payment of royalty. It was held that the combined approach i.e., aggregation of the royalty transaction with other international transactions is possible only when they cannot be evaluated on separate basis. The ALP of royalty paid was taken as NIL using CUP (comparable uncontrolled price) method as the most appropriate method. The decision of the Special Bench in the case of Azte Software & Technology Services Ltd v AClT [2007] 107 ITD 141 (Bang) (SB) was relied on by the DRP to conclude that the onus of benchmarking is on the assessee. It was held that since the assessee has not produced any comparable uncontrolled transaction, the only option left before the TPO is to either allow or disallow the entire payment. In the absence of anything to the contrary, the action of the TPO in determining the ALP of royalty at NIL was upheld. 4.6.3 We find neither the TPO nor the DRP has brought on record any CUP for the royalty payment. As per Rule 10B, in order to apply CUP method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s length principle for its proficiency, convenience and reliability. Ideally, in TNM Method preference should be given to internal or in-house comparables. In absence of internal comparables, the taxpayer can and would need to rely upon external comparables. i.e. comparable transactions by independent enterprises. For several reasons, database providers, it is apparent. have the requisite information and data of external comparables to enable comparability analysis of the controlled and uncontrolled transactions with necessary adjustment to obtain reliable results under TNM Method. This method also works to the benefit and advantage of the tax authorities in view of convenience and easier availability of data not only from third party providers, but on their own level. i.e. assessment records of other parties. 90. The strength of the TNM Method is that net profit indicators are less affected by transactional differences in comparison with some other methods. This method is more tolerant to functional differences between controlled and uncontrolled transactions in comparison with resort to gross profit margins." 4.6.6 Thus, in the absence of a comparable uncontrolled price ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o make a comparison of a horizontal item without segregation would be impermissible." 4.6.8 The co-ordinate bench in the case of JCIT v Toyota Kirloskar Motor P Ltd in ITA No. 2016/B/2018 & 1972/B/2018 decision dated 18.8.2021 relied on the above decision and rejected the separate computation of ALP of royalty payment by the revenue and held as under: "11.4 We have heard rival submissions and perused the material on record. The AO/TPO had made TP adjustment for shortfall in margins as well as royalty. The royalty adjustment has been made despite royalty being part of operating cost, although the royalty adjustment is held by the TPO as subsumed within the margin adjustment. We are of the view that once the net profit margin is tested on the touchstone of arm's length price, it pre-supposes that the various components of income and expenditure considered in the process of arriving at the net profit are also at arm's length…..." 4.6.9 Similarly, the Delhi High Court in Maruti Suzuki India Ltd v CIT [2016] 381 ITR 117 at para 86 held as under:- "MSIL's higher operating margins 86. In Sony Ericsson Mobile Communications India (P.) Ltd. (supra) it was hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arm's length interest rate chargeable for the relevant assessment year. The computation of arm's length for the outstanding dues from the AEs (beyond six months) are as follows:- Particulars Annualized average yield for FY 2008-09 for BBB rated bonds as per CRISIL date (refer page 10 of TP order) 14.35 per cent Yield considered by the Ld.TPO to be 20 per cent more than the BBB rated bond 17.22 per cent Outstanding AE receivables exceeding six months Rs.10,86,19,000 ALP @ 17.22 per cent per annum on outstanding receivables exceeding six months. Rs.1,87,04,192 Price charged NIL Adjustment Rs.1,87,04,192 Accordingly, the TPO made an adjustment of Rs.1,87,04,192 as interest computation at 17.22% per annum on the outstanding receivables from the AEs. 5.2 The assessee being aggrieved by the adjustment proposed, filed its objections before the DRP. The gist of the findings of the DRP are as follows:- (i) The DRP held that commercial expediency and business rational are irrelevant considerations and hence, the transaction has to be bench marked; The DRP disagreed with the Assessee that since no interest was charged from the non-AE transactions, no interest was chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) Notwithstanding the above, the amendment to section 92B has been made by Finance Act, 2012 with prospective effect and hence cannot apply retrospectively for the subject A.Y. 2009-2010. (iv) Further, even if the amendment were to apply retrospectively, clause (c) can apply only in case where the agreement provides for charge of interest beyond the credit period which is not so, in the present case. (v) The AO / TPO grossly erred in law in not giving effect to the directions of the DRP, which is binding, thereby retaining the addition made in the TP order by observing that the DRP had no power to set aside / remand the matter to the AO / TPO. 5.5 The learned Departmental Representative strongly supported the order of the TPO. 5.6 We have heard rival submissions and perused the material on record. The DRP held that if the working capital adjusted margin of the assessee, corresponding to the interenational transactions which are related to such receivables, is better than that of the comparables, no separate adjustment is required to be carried out in this regard. The AO / TPO confirmed the impugned addition by stating that the DRP has no power to set aside or give dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The DRP has rightly held that if after working capital adjustment the margin of the assessee is within ALP range, no separate adjustment is required. Therefore, we fully endorse the directions of the DRP. Hence, the AO / TPO is directed to examine if the working capital adjusted margin of the assessee corresponding to the international transaction, which are related to such transaction is better than that of the comparables, no separate adjustment is required to be carried out in this regard. Accordingly, ground 2.1 to 2.6 are allowed for statistical purposes. Non-Transfer Pricing Issue (Denial of tax benefit u/s 10A of the I.T.Act (Ground 4.1 to 4.5 & Additional Ground 2) 6. Brief facts in relation to the above ground are as follows: The assessee is engaged in the business of development and export of computer software and provision of ITeS. The assessee's units are set up in accordance with the STPI Scheme of the Government of India. The assessee has four units which are located as under:-:- (i) Tower I and II, Noida Sector 125 Towar III (ii) Noida Sector 125 (iii) Unit-1 (Bangalore) (iv) Unit-2 (Bangalore). 6.1 The assessee was eligible to claim tax holiday as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 10A of the Act with respect to Unit-2. Pursuant to the DRP's directions, the final assessment order was passed incorporating the addition of Rs.20,59,56,749 proposed in the draft assessment order. 6.4 Being aggrieved by the final assessment order, the assessee has raised this issue before the Tribunal. The learned AR contended that the main allegation of the AO to deny the deduction u/s 10A of the Act for the new Bangalore Unit-2 is that the Unit was formed by Splitting up / reconstruction of the existing unit since the softex forms had the address of the Unit-1, based on information received from the STPI authorities. The learned AR submitted that the assessee has taken steps to rectify the errors in the softex forms, which had crept in inadvertently. Given that the STPI Authorities have corrected the errors / updated the address in the softex forms filed, the assessee is entitled to appropriate relief u/s 10A of the Act, which has been denied by the A.O. In this context, the learned AR placed reliance on the additional evidence submitted which is the letter dated 4th November, 2019 issued by the STPI Authorities rectifying the error in the address mentioned in the so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the existing Unit which is not so in the present case. Reliance is also placed on the judgment of the Hon'ble Rajasthan High Court in the case of Sagun Gems (P) Ltd. reported in (2012) 253 CTR 614 (Raj.). 6.5 The learned Departmental Representative supported the orders of the Income Tax Authorities. 6.6 We heard the parties and perused the record. Before us, the Ld. A.R. has advanced his arguments to counter various deficiencies pointed out by the Assessing Officer in order to reject the claim for deduction u/s 10A of the Act in respect of profits derived from Unit-2 located in Bangalore. (a) The first reasoning given by the A.O. is that the agreement was entered by the assessee prior to commencement of its new unit-2. The Ld. A.R. submitted that the assessee enters into contract with various customers and execution of the work is carried out through various units of the assessee identifying the unit suitable to carry out the work. The Ld. A.R. submitted that it is an internal matter of the company as to how the work should be executed and the client is not concerned about the units/undertakings through which his work was executed. Accordingly, the Ld. A.R. submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the assessee could not obtain corrected copies of all Softex forms. He further submitted that majority of the forms have been furnished. He also submitted that more than 10 years have elapsed and there exists practical difficulty in getting all the forms corrected. Accordingly he prayed that the A.O. may be directed to take a liberal view on this issue. We notice that the assessee has furnished corrected Softex forms in respect of unit-2 as additional evidences before us and they constitute about 73% of the aggregate number of forms. These additional evidences require examination at the end of the A.O. Accordingly, we restore this issue to the file of the A.O. for examining the additional evidences furnished by the assessee. Considering the time period that has elapsed till date and the attached practical difficulties, we suggest that the A.O. may take a liberal view in respect of Softex forms. (d) The next deficiency pointed out by the A.O. is that the services rendered by the assessee are not in the nature of software development/ITES services. Before us, the Ld. A.R. placed his reliance on the circular No.1/2013 issued by CBDT and submitted that the services re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss was on account of foreign exchange derivative transaction, the Ld. AO classified the same as speculative loss as per section 43(5) of the Act; * The AO relied on Circular No 3/2010 issued by the Central Board of Direct Taxes ("CBDT") and held that the Assessee had failed to establish that it was an allowable expenditure; * The AO distinguished the decision of the Honourable Supreme Court ("SC") in the case of Woodward Governor India Private Limited (312 ITR 254) and held that the said case is not applicable to the facts of the case of the Assessee; * The AO further held that the decision of SC in State Bank of Travancore {158 ITR 102) was not applicable to the facts of the Assessee as the Assessee had entered into forward and options contract and the notional loss debited to the profit and loss account was speculative loss; * The AO observed that the AS has not come into effect to claim the effect of change in foreign exchange rates and MTM loss in particular; * The AO relied on the judgment of the Hon'ble Apex Court in the case of Joseph John reported in 67 ITR 74 (SC). The AO observed that the settlement dates were beyond AY 2009-10 and since t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the judgment of the Hon'ble Apex Court in the case of Woodward Governor India Private Limited (supra) squarely applies to the case of the assessee. Without prejudice to the above contention, it was submitted that even assuming that the disallowance of MTM losses is upheld, the forward contracts are entered for hedging underlying receivables for export and the same constitutes business income of the undertakings eligible for deduction u/s 10A of the Act. Therefore, it was submitted that deduction u/s 10A of the Act are to be recomputed considering the revised profits after disallowance (additional ground 1 raised in assessee's appeal). 7.6 The learned Departmental Representative, on the other hand, submitted that the forward contract transactions were not segregated by the assessee during the relevant assessment year and no separate accounts were maintained. Therefore, it was contended that necessarily this issue has to be remitted to the A.O. for de novo consideration. 7.7 We have heard rival submissions and perused the material on record. The learned AR during the course of hearing, had submitted that if MTM losses if disallowed, the same goes to increase the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under s. 5 of the Foreign Trade (Development and Regulation) Act, 1992. According to the appellant(s), the DEPB Scheme is a Duty Remission Scheme which allows drawback of import charges paid on inputs used in the export product. The object being to neutralize the incidence of customs duty on the import content of the export product by way of grant of duty credit. The DEPB benefit is freely transferable. Thus, according to the appellant(s), duty drawback/DEPB benefit received had to be credited against the cost of manufacture of goods/purchases debited to the P&L a/c. That, such credit was not an independent source of profit. In this connection reliance has been placed on AS-2 issued by ICAI on "Valuation of Inventories" which indicates that while determining cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition should be considered and that trade discounts, rebates, duty drawback and such other similar items have to be deducted in determining the cost of purchase. Placing reliance on AS-2, it was submitted that where excise duty paid was subsequently recoverable by way of drawback, the same would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s meant for export. That, but for such payments of duty on inputs used in the manufacture of goods meant for exports, industrial undertaking(s) would not be entitled to the benefit of duty drawback/DEPB, notwithstanding, the Export Promotion Scheme of the Government and, therefore, there was a direct and immediate nexus between payment of duty on such inputs and receipt of duty drawback/DEPB. In this connection reliance was placed on the judgment of the Gujarat High Court in the case of CIT vs. India Gelatine & Chemicals Ltd. (2005) 194 CTR (Guj) 492 : (2005) 275 ITR 284 (Guj). Lastly, it was submitted on behalf of the appellant(s) that there was no difference between Advance Licence Scheme and duty drawback/DEPB. In this connection it was urged that duty drawback regime required the industrial undertaking to pay in the first instance the duty on inputs and thereafter seek reimbursement on profit of goods manufactured using such duty paid inputs, having been exported. The industrial undertaking alternatively could avail of Advance Licence Scheme where under the industrial undertaking could import inputs to be used for manufacture of goods meant for export without payment of duty. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 33,15,740 Since no evidence was submitted by the assessee to support that the payment pertains to purchase of consumables, the AO has drawn adverse inference that TDS provisions are attracted on these payments. 3. Office equipment maintenance 94,41,474 -do- D Security charges 33,23,662 The AO has concluded that TDS provisions are attracted on these payments. E Recruitment and advertisement 46,84,269 The AO has conclude that TDS provisions are attracted on these payments. 8.1 Aggrieved, the assessee filed objection before the DRP. The DRP disposed of the assessee's objection as under:- * The DRP directed the AO to verify the expenses and allow the expenses where TDS has been deducted as per the provisions of the Act; * The DRP dismissed the submission of the Assessee that the provisions of section 40(a)(ia) of the Act are not applicable in the case of such amounts that have already been paid during the year; * Further, in relation to the maintenance expenses, which were disallowed under section 37 of the Act, the DRP directed the Assessee to furnish evidences before the AO. The DRP also directed the AO to verify the evidence that the expenditure was for busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the corresponding tax withholding and in certain expenses reasons as to why tax withholding was not applicable. Therefore, the assessee admits that due to significant transaction, it is not possible to provide a reconciliation at transactional level. Therefore, we confirm the disallowance made u/s 40(a)(ia) of the Act. However, the A.O. is directed to allocate the expenses so disallowed over the STPI units of the assessee while computing the relief u/s 10A of the Act (The assessee shall provide a reasonable working to the A.O. as how the expenses so disallowed is attributable to each of the STPI units). Hence, ground No.6.6 is allowed for statistical purposes. Disallowance u/s 14A of the Act (Ground 7.1 to 7.3) 9. For the relevant assessment year 2009-2010, the assessee had earned dividend income of Rs.5,74,98,877 which was earned from investments made in mutual funds. According to the assessee, it does not maintain separate treasury department or any dedicated pool of employees to manage investments, and the investments were made by the Assessee as and when any Mutual Fund offer was made and the Assessee had surplus funds to make investment at that point of time. It was submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s:- * The DRP observed that investment decisions were complex in nature and a company was run by its Board of Directors and the business and investments were managed by the key management personnel, executives, etc for which experts were consulted; * The Assessee being a corporate entity required an administrative structure which incurred multifarious expenses including establishment, general and administrative expenses; * The DRP observed that the mandate of section 14A of the Act required the Assessee to maintain proper books of account in regard to the investments made from which income can arise which is tax exempt; * The DRP observed that the Assessee had not maintained separate accounts in regard to the investments, the income from which was exempt and hence, the claim of the Assessee of not incurring any expenditure in relation to the tax-free income was not supported by documentary evidence as mandated in section 14A(2)/(3) of the Act and hence the Assessee had not discharged the onus cast upon it; 9.3 Further, in relation to the alternate ground raised by the Assessee that even if notional expenditure is disallowed under section 14A of the Act, the Ld. AO should c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2009-2010, the Assessee had claimed TDS credit of Rs 1,78,59,370 in the return of income filed. The assessee had furnished before the AO, TDS certificates provided to it by its vendors, and the same were verified by the AO. The AO however restricted the claim to Rs.1,19,13,873 10.1 Being aggrieved by the same, the assessee filed objections before the DRP. The DRP directed the AO to verify the facts and grant the credit for TDS. 10.2 Pursuant to the DRP's direction, the A.O. passed final assessment order. The AO again restricted the claim of credit for TDS at Rs.1,19,13,873. 10.3 Being aggrieved by the same, the Assessee filed appeal before the Tribunal. The assessee prays to allow the credit for TDS as claimed in the return of income filed for the relevant assessment year 2009-2010 i.e., Rs 1,78,59,370. 10.4 The learned DR was duly heard. 10.5 The A.O. in the final assessment order, despite the directions of the DRP, without any discussion has granted TDS credit of only Rs.1,19,13,873 instead of Rs.1,78,59,370 claimed by the assessee. Therefore, we restore the issue raised in ground No.8 to the files of the A.O. 10.6 Therefore, ground No.8 is allowed for stati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 31.17 Valu7e of 94,30,794 shares 29,39,57,849 Amount paid 84,87,71,460 TP Adjustment 55,48,13,611 11.2 The TPO further made a secondary adjustment with reference to TP adjustment made on buy back of shares. The TPO held that the assessee has paid for buyback from its internal accruals/reserves. Had it not been for this excess payment, the money would have remained with the taxpayer and it would have earned at least 17.22% interest. The TPO therefore made a TP adjustment of Rs. 3,98,07,877 for not charging interest in respect of excess amount paid to AE for buy back of shares. 11.3 The DRP held that the valuation carried out by the TPO in his order is erroneous and in view of the range of valuations provided in the two independent valuation reports submitted by the assessee, the adjustment carried out by the TPO is required to be deleted. In coming to the above conclusion, the DRP held as under:- (i) The net asset value per share calculated as per PwC report was Rs.512.3 and that of Chajjed Kedia report was Rs.53; (ii) The value observed by the TPO (Rs.110.31) was actually the final valuation as per the RBI valuation approach using linkage on book value of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as clearly brought out on record the various inconsistencies in the TPOs valuation. It is evident from the TPOs valuation that the TPO cherry picked the numbers and figures from different methods of valuation in both the valuation reports in the manner beneficial to revenue. The TPO has not explained the basis or rationale for adopting figures from different valuation reports. The assessee followed the valuation prescribed by RBI in AP (DIR Series) Circular No.16 dated 4.10.2004 for the purpose of determining the value of share buy back. The same is not disputed by the TPO. Further, the TPO has disturbed the independent valuation reports without bringing on record another independent valuation report to justify the addition. The TPOs valuation is also not as per the prescribed methods of determining the ALP. In view of the same. we affirm the findings of the DRP which deleted the TP addition of Rs.55,48,13,611 on buy back of shares. Consequently. deletion of the secondary TP adjustment of Rs. 3,98,07,877 by the DRP is also confirmed. 11.7.1 The assessee has raised the additional 'grounds in non applicability of transfer pricing provisions for the buy back of shares and the con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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