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TMI Blog2022 (12) TMI 1078X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by Ld. AO pursuant to the directions of Ld. DRP which is in further appeal before us. The grounds raised by the assessee read as under: - 1. General On the facts and the circumstances of the case, the impugned order passed by the learned Deputy Commissioner of Income Tax / Assessing Officer ('AO') / Transfer Pricing Officer ('TPO') is erroneous and contrary to the principles of natural justice and bad in law. Grounds in relation to transfer pricing adjustment made by the AO/TPO The learned TPO and the learned AO, under the directions issued by the Hon'ble Dispute Resolution Panel ('DRP'): 2. Erred in law and on facts of the case in considering advertisement, marketing and promotion ('AMP') expenditure incurred by the Assessee wholly and exclusively for its domestic business operations within the realm of international transactions, and proposing an adhoc brand promotion fee of 1% amounting to INR 91,26,589, based on their own conjectures and surmises. 2.1 Erred in law by violating the provisions of Section 92C of the Act read with rule 10AB of Income Tax Rules, 1962 ('the Rules'), which explicitly requires that determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant in AY 2009-10, without appreciating the start-up nature of the Roca operations of the Appellant in AY 2009-10 vis-a-vis the operations in AY 2013-14, 2.10 Erred in making an adjustment contrary to the position taken in a subsequent year wherein, for similar set of facts, upon submission of similar arguments in response to the show-cause notice issued for AY 2014-15, the TPO appreciated the economic and commercial rationale of the marketing and distribution functions performed by the Appellant and accepted the arm's length nature of the international transactions. Grounds in relation to corporate tax adjustments made by the AO The learned AO, under the directions issued by the Hon'ble DRP: 3. Erred in law and on facts in applying Section 14A of the Act read with Rule 8D to disallow expenditure amounting to INR 7,411,181 stating that they were incurred in connection with earning exempt income, without appreciating the fact that the Appellant has not incurred any expenses towards earning exempt income. 3.1 Erred in facts by misinterpreting that investments earning exempt income have been made out of borrowed funds instead of own funds / internal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m under section 43B of the Act. 8. Erred in law and on facts in Initiating penalty u/s 271(1)(c) of the Act 8.1 Erred in law and on facts in initiating penalty u/s 271(1)(C) pf the Act that an adjustment which has resulted from a mere difference of opinion between the learned AO / Transfer Pricing Officer ('TPO') and the Appellant. 8.2 The AO failed to appreciate that the Appellant had acted in good faith and with due diligence, and therefore it was not a case of deemed concealment in terms of Explanation 7 to section 271(1)(c) of the Act. 8.3 The Appellant craves leave to add, alter, amend and/or withdraw any of the above grounds of appeal and to submit such statements, documents and papers as may be considered necessary either at or before the hearing of this appeal as per law. 2. Group No.1 is general in nature. Ground No.8 does not call for specific adjudication on our part. For ease of adjudication, the issues that fall for our consideration could be grouped as under: - No. Issue Amount (Rs.) 1. Transfer pricing adjustment on advertisement, marketing and promotion expenditure (AMP) 91.26 Lacs 2. Disallowance u/s 14A of the Act 74.11 Lacs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a foreign entity. There was a possibility of having arrangements where expenses are debited to one entity in one country and gains are enjoyed by another entity in another country. By incurring such expenditure, the value of brand increases. On one hand the assessee was not getting any compensation for promoting the brand of its parent company in any form whereas on the other hand, the assessee was being charged for all kinds of services. The brand building adds to the value of the marketing intangibles and in due course of time the benefits of the same accrue to the AE in the form of higher royalty, higher sale of raw material, spares, higher technical fees and dividends etc. Accordingly, rejecting the claim of the assessee, Ld. TPO estimated such compensation at 1% of relevant sales which led to impugned adjustment of Rs.91.26 Lacs. The same, upon confirmation by Ld. DRP, is in further appeal before us. 4.3 From the facts, it emerges that this adjustment made by Ld. TPO is primarily guided by adjustment made in the earlier years. Similar issue, in AY 2012-13, has been adjudicated by this Tribunal in ITA No.3328/Chny/2016 dated 29.05.2018 in assessee's favor for the reason that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e directions issued by the DRP on 31.08.2016 or by the Tribunal in its order dated 15.03.2017. Respectfully following the same, the issue of disallowance u/r 8D(2)(ii) as well as u/r 8D(2)(iii) stand restored back to the file of Ld. AO on similar lines. The Ld. AO shall take consistent view as taken on AY 2012-13 on this issue. This ground stand allowed for statistical purposes. 6. Disallowance u/s. 40(a)(ia) of the Act: 6.1 The assessee paid Rs.42.91 Lacs towards connectivity expenses for dedicated leased lines provided by various vendors and deducted TDS @ 2%. However, the Ld. A.O opined that the tax should have been deducted at 10%. Accordingly, there was short deduction of tax. Considering the same, the AO disallowed the expenditure of Rs.42.91 Lacs u/s. 40(a)(ia) of the Act. The Ld. DRP confirmed the same against which the assessee is in further appeal before us. 6.2 We find that this issue is covered in assessee's favor. The Tribunal, in latest decision for AY 2012-13, ITA No.3328/Chny/2016 dated 29.05.2018, relying upon decision for AY 2009-10 (ITA No.1169/Mds/2014 dated 18.12.2015), held that disallowance u/s 40(a)(ia) is not attracted in case of short deduction of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... softwares as purchased by the assessee are necessarily to be used along with computers and are eligible for depreciation of 60%. This view has been taken by Chennai Tribunal in ACIT vs. M/s TVS Finance & Services Ltd. (ITA No.1094/Mds/2011 dated 31.01.2012). The bench, noticing the entries in Appendix I of Income Tax Rules, 1962, held that the rate of depreciation mentioned at III(5) for computers including computer software would be 60%. Considering the same, we direct Ld. AO to allow depreciation of 60% on software. 9. Provision for VAT assessment demand: 9.1 The assessee debited a sum of Rs.9 Lacs under the head 'Rates and Taxes', which was provision for VAT demand of earlier years for non- submission of statutory 'C' forms. It was stated that the assessee was served with notices for payment of demand on 04.04.2013 along with assessment orders for financial year 2006-07, 2007-08 and 2008- 09 and accordingly, the assessee was aware of the probable demand. Hence, the provision was created. However, Ld. AO denied the deduction which was upheld by Ld. DRP. Aggrieved, the assessee is in further appeal before us. 9.2 From the fact, it emerges that this liability pertains to earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X
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