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TMI Blog2022 (5) TMI 1523X X X X Extracts X X X X X X X X Extracts X X X X ..... ding software development services/ ITE services and the ALP determined for these transactions after including this expenditure under TNM method would meet the requirements of law. Disallowance of vehicle lease rental expenses - As per AO assessee has actually purchased the vehicles and the lease rent payments have been made towards the cost of purchases of vehicles - above said amount consisted of repayment of principal portion and repayment of interest amount - HELD THAT:- We notice that it is an recurring issue and identical disallowance made in the assessee s own case relating to AY 2010-11 [ 2017 (1) TMI 1673 - ITAT BANGALORE ] has been deleted following the decision rendered by Hon ble Supreme Court in the case of ICDS Ltd [ 2013 (1) TMI 344 - SUPREME COURT ] wherein it was held that the lessor shall be entitled to depreciation on assets leased out by him. Consequently, the lease rental payments made by the lessee is allowable as expenditure in his hands. In the instant case, the assessee herein is the lessee and hence the lease rental payments are allowable as expenditure. Decided in favour of assessee. Deduction claimed u/s 10A - AO computed revised export turnover reducing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. Similarly, he did not press Ground nos. 22 to 26 relating to (a) disallowance of expenses for non-deduction of tax at source (b) short credit of TDS (c) arithmetical error in computing total income (d) disallowance of miscellaneous expenses relating to Penalty (e) Levy of interest u/s 234C Accordingly, all these grounds are dismissed as Not Pressed. Ground No.27 relates to levy of interest u/s 234B and 234D. Since it is consequential in nature, it does not require specific adjudication. 3. Remaining grounds give rise to the following issues:- (a) Transfer pricing adjustment in respect of Reimbursement of expenses. (b) Disallowance of Vehicle lease rentals (c) Restricting the deduction claimed u/s 10A of the Act (d) Disallowance of Provision for sub-contracting expenses. 4. The assessee is engaged in the business of software development and providing IT enabled services. It is an 100% export oriented unit registered under STPI scheme. It was earlier known as Tesco Hindustan Service Centre P Ltd. It is a company belonging to Tesco Stores Ltd, a company incorporated in UK. 5. The first issue relates to the Transfer pricing adjustment made in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficial and therefore not chargeable for the recipient but as the taxpayer company has paid /Re-imbursed the said amount the transaction is treated as NIL by applying CUP method. Hence the arms length price for payment towards intra group services Rs.2,29,82,094/- would be treated as NIL or to the extent it is shown that the benefit actually derived from such payment by applying CUP method." The Ld DRP upheld the transfer pricing adjustment made by the TPO. 5.1 The Ld A.R submitted that the TPO as well as Ld DRP has not properly understood the nature of transaction with regard to reimbursement of share based payments. The Ld A.R submitted that the AE has devised "International Bonus Plan" for issuing shares to the employees of the group. Accordingly, the AE has issued shares as an incentive to certain employees of the assessee who satisfied certain criterian as part of their compensation. Since these shares are issued at free of cost to the employees of the assessee, the AE has cross charged the cost of shares to the assessee. He submitted that these payments have been included in the cost of services provided by the assessee to its AE in Software development services and ITE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p basis for IT and ITE services. It is submitted that the assessee has included the amount of reimbursement so made towards the cost of shares issued to its employees in the 'cost of services' and accordingly, it has been charged back to the AE with mark-up. We notice that the shares were issued at free of cost to the "employees" of the assessee and hence the assessee has reimbursed the cost of shares to the AE, meaning thereby, the assessee has incurred this expenditure on behalf of its employees only. In this scenario, in our view, the TPO was not correct in treating it as non-beneficial shareholder services, since the issue of shares was to the employees of the assessee as part of incentive plan designed for the employees. Accordingly, we are of the view that the cost of reimbursement of this amount was an item of expenditure incurred by the assessee on behalf of its employees and hence it should form part of operating cost of the assessee. The Ld A.R submitted that the above said reimbursement was included as a part of the cost of services provided to its AE. We also find that the treatment so given by the assessee also finds support from Rule 10TA(j), which defines the express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble as expenditure. Accordingly, following the above said decisions, we direct the AO to delete this disallowance. 7. The next issue relates to the deduction claimed u/s 10A of the Act. The assessee had claimed deduction u/s 10A to the tune of Rs.74.50 crores. After the direction given by DRP, the deduction worked out to Rs.90.68 crores. However, the AO restricted the claim to the extent of Rs.74.50 crores, as originally claimed by the assessee. 7.1 The AO, in the draft assessment order, reduced following expenses from Export turnover for computing deduction u/s 10A of the Act:- Telecommunication expenses - 2,88,23,733 Freight expenses - 21,02,018 Insurance - 5,72,180 Expenditure incurred in foreign currency 32,25,12,394 ------------------ 35,40,10,325 ============ Accordingly, the AO computed revised export turnover at Rs.507.89 crores after reducing above expenses and computed deduction u/s 10A on the above said revised turnover, which has resulted in a deduction of Rs.84.78 crores. The Ld DRP directed the AO to reduce the above said expenses from total turnover also. Accordingly, the deduction came to be worked out to Rs.90.68 crores. However, the AO restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld A.R submitted that the assessee may be given deduction in the succeeding year, when the TDS was deducted. However, the details have been furnished only to the extent of Rs.7.34 crores. We notice that this bench of Tribunal has analysed the issue relating to liability to deduct tax at source from yearend provisions in the case of Biocon Ltd vs. DCIT (ITA No.1248/Bang/2014 dated 21.03.2022), wherein the Tribunal has analysed the TDS liability under different situation and rendered its decision on each of the situation. Different kinds of situations are warranted, since the yearend provisions are made on estimated basis and most of the times it is so made without receipt of invoices from the goods supplier/service provider. Accordingly, we are of the view that this issue requires fresh examination at the end of AO by duly considering the decision rendered by the Tribunal in the case of Biocon Ltd (supra). Accordingly, we set aside the order passed by the AO on this issue and restore the same to his file for examining this issue afresh. All contentions are left open. 9. In the result, the appeal of the assessee is treated as allowed for statistical purposes. Pronounced in the open ..... X X X X Extracts X X X X X X X X Extracts X X X X
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