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TMI Blog2022 (11) TMI 1341X X X X Extracts X X X X X X X X Extracts X X X X ..... Report conveyed his consent for admission of additional evidence in the form of third-party invoices and requested the DRP to decide the issue on merits - HELD THAT:- Remand this issue back to DRP for fresh adjudication as per law after giving Appellant a reasonable opportunity of being heard. While doing so the DRP shall take into consideration the thirdparty-invoices already filed by the Appellant and the Remand Report, dated 21.10.2013, submitted by Assessing Officer in respect of the same as well as any further invoices/documents that may be filed by the Appellant before DRP to support the claim. Accordingly, addition on account of the transfer pricing adjustment is set aside. Nature of expenditure - Disallowance of Software Expenses - Appellant appearing before us submitted that the aforesaid expenses were disallowed on the ground that the same were capital in nature and depreciation @ 60% was allowed in respect of the same - HELD THAT:- Ground No. 5 raised in the appeal is dismissed as not pressed. The Assessing Officer is directed to allow depreciation in respect of the aforesaid amount at the rate of 60% as per law. TP adjustment - reimbursement of software maintenance exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant as per law. In case, on verification the Assessing Officer is of the view that credit is not available, the Appellant would be granted reasonable opportunity of being heard to justify its claim. Ground No. 10 is allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Based on the facts and circumstances of the case and in law, the Ld. AO/DRP erred in adding an amount of Rs.81,800 to the income of the appellant on account of mismatch of AIR details. 8. Based on the facts and circumstances of the case and in law, the Ld. AO/DRP erred in making a disallowance of Rs. 31,653,132 under section 40(a)(iii) of the Income-tax Act, 1961(the Act") 9. Without prejudice to ground no. 8, based on the facts and circumstances of the case and in law, the appellant prays that amount of Rs 31,653,132 be allowed as an expense in AY 2010-11." 4. The relevant facts in brief are that the Appellant is a company engaged in the business of wholesale trading (cash and carry) of consumer electronics and appliances. 5. The Appellant filed its return of income on 26.09.2009 declaring loss of INR 22,80,48,420/-. The case of the Appellant was selected for scrutiny. During the assessment proceedings, the Assessing Officer noted that the Appellant has entered into international transactions with its Associated Enterprises (AEs) and therefore, a reference was made under Section 92CA(1) to the Transfer Pricing Officer (TPO) for the determination of Arm"s Length ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant previous year. 11. During the previous year relevant to the Assessment Year 2009-10, the Appellant recovered from its AEs INR.12,66,950/- being expenses incurred by the Appellant on their behalf. During the assessment proceedings, the Appellant was required submit third party invoices pertaining to expenses recovered. The Appellant submitted sample third party invoices for INR 743,575/-. The TPO granted benefit to the Appellant in respect of the same and proposed upward transfer pricing adjustment for the balance amount of INR.5,23,377/- on account of non-submission of third party invoices. DRP also rejected the objections of the Appellant holding that the Appellant has failed to submit the third party invoices in respect of INR.5,23,377/- recovered from the AEs. 12. Before us, the Learned Authorised Representative for Appellant contended that no deduction was claimed by the Appellant for INR 12,66,950/- in the return of income for the relevant Assessment Year, and therefore, addition of INR 5,23,377/- made by the Assessing Officer would imply that the Appellant would suffer disallowance for expenses never claimed as deduction in the return of income. Per contra, the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim with the supporting invoices/documents during the assessment proceedings. Accordingly, Assessing Officer made transfer pricing adjustment of INR 54,67,445/- in the Final Assessment Order, dated 08.01.2014. Being aggrieved, the Appellant has carried the issue in appeal before us. 16. The Ld. Authorised Representative for the Appellant submitted that the relevant documents supporting out of pocket expenses were filed during the assessment proceedings on sample basis. He submitted that additional third-party-invoices for INR 27,22,692/- were filed before DRP and in respect of the same remand report was called by the DRO. Assessing Officer submitted before DRP a remand report, dated 21.10.2013, accepting the said invoices. However, this remand report was not considered by DRP and transfer pricing addition was confirmed. He submitted that no defect or discrepancy was been pointed out by the TPO/DRP in the bills/documents furnished by the Appellant and therefore, the Appellant has materially complied with the directions issued by the TPO by furnishing the supporting bills/documents in for around 80% of the out of pocket expenses. He submitted that the Assessing Officer was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the rate of 60% in respect of the aforesaid expenses. Accordingly, Ground No. 5 raised in the appeal is dismissed as not pressed. The Assessing Officer is directed to allow depreciation in respect of the aforesaid amount at the rate of 60% as per law. Ground No. 6 21. Ground No. 6 pertains to claim of depreciation in respect of Software Expenses of INR 80,07,197/- disallowed during the Assessment Year 2008-09 as capital in nature. 22. The Ld. Authorised Representative for the Appellant appearing before us submitted that the aforesaid expenses were disallowed during the Assessment Year 2008-09 on the ground that the same were capital in nature and depreciation @ 60% was allowed in respect of the same. By way of present ground, the Appellant is claiming consequential depreciation in respect of the aforesaid software expenses for the Assessment Year 2009-10. 23. We note that the Appellant had not pressed the ground relating to disallowance of aforesaid software expenses in appeal before the Tribunal for the Assessment Year 2008-09 (ITA No. 7718/Mum/2012) disposed vide order dated 13.10.2022. Accordingly, the Appellant is entitled to claim of depreciation in respect of Softwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. That on the facts and circumstances of the case and in law the Ld. AO/ TPO/ DRP grossly erred in ignoring the facts and materiality of third party invoices submitted to the Ld. AO TPO and in adjusting an amount of Rs.15,37,812 towards reimbursement of out of pocket expenses to its AE. 3. That on the facts and circumstances of the case and in law the Ld. AO/ TPO/ DRP erred in not considering the evidence and submissions made by the Appellant in a correct perspective and in adjusting an amount of Rs.24,69,193 towards reimbursement of software maintenance expenses. 4. That on the facts and circumstances of the case and in law the Ld. AO/ TPO/ DRP erred in not considering the principle of res judicata as reimbursement of software maintenance expenses was accepted at arm's length in the assessment year ("AY") 2008-09 and AY 2009-10. Corporate Tax Grounds 5. Based on the facts and circumstances of the case and in law, the Ld. AO, relying on the directions of the DRP, erred in disallowing software expenses incurred by the appellant amounting to Rs.1,00,56,108 on the ground that the same was capital expenditure. 6. Based on the facts and circumstances of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount (INR) 1 Reimbursement of Out of Pocket Expenses to AE [For non-submission of third party invoices] pertaining to travelling, accommodation, mobile expenses etc. incurred by Woolworths Limited, Australia on behalf of the Appellant] 15,37,812/- 2 Reimbursement of IT Connectivity Charges/ Software Maintenance Charges to Woolworths Limited [Lack of supporting third party invoice /documents] 24,69,193/- Total 40,07,005/- 30. In addition to the above transfer pricing adjustments, in the Draft Assessment Order, dated 22.03.2013 the Assessing Officer also proposed corporate tax disallowances of INR.1,00,56,108/- being lease rental payments made during the relevant previous year. The Appellant filed objections to the Draft Assessment Order, dated 06.03.2014, in relation to the aforesaid proposed additions before DRP which were rejected by the DRP, vide order dated 27.12.2014. The Assessing Officer passed the Final Assessment Order, dated 27.02.2015, on the basis of the aforesaid order/directions of DRP making, inter alia, the disallowances/additions: (a) Addition of INR 40,07,005/- on account of Transfer Pricing Adjustment (b) Disallowance of deduction of lease rentals amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le burden an assessee would be subjected to during the assessment proceedings in case such a direction is issued to the assessee. However, in cases where the bills and/or supporting documents called for during the assessment proceedings are not furnished, or have been furnished but the same are not found to be sufficient or satisfactory by the assessing officer, the assessing officer would, in our view, be justified in calling for any/all details and/or bills & supporting documents as the Assessing Officer may deem fit. We note that the Appellant is under obligation to maintain proper books of accounts including voucher and documents to support the claim of expenditure. The Appellant has been subjected to statutory as well as tax audit for the relevant assessment year, and no qualifications regarding accounting systems followed by the Appellant or the books of accounts maintained by the Appellant have been made by the Auditors in the audit report and has certified the financial statements to be true and correct after carrying out verification on test check basis. Further, the TPO/Assessing Officer has not pointed out any defect/discrepancy in the bills/supporting documents furnishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olworths limited, Australia) claiming the same to be reimbursement of software maintenance expenses incurred by the AE in the form of connectivity charges which were in addition to Software Maintenance Expenses of INR 66,37,337/- paid by the Appellant to the same AE during the relevant Assessment Year. During the assessment proceedings, TPO issued a notice, dated 05.11.2013, to the Appellant asking the Appellant to show cause why the value of this international transaction of reimbursement of Software Maintenance Expenses of INR 24,69,193/- should not be determined at "Nil". In response, the Appellant filed submission, dated 25.11.2013, explaining that the IT Connectivity Charges of INR.24,69,193/- pertain to IT Connections expenses incurred in relation to the contractual arrangement with a third party contractor to provide connectivity whereas the software development expenses amounting to INR 66,37,327/- were incurred for customization of AS-400 software. The TPO was not satisfied with the explanation furnished by the Appellant as the TPO concluded that Appellant had failed to furnished the third party contractor bills/invoices. Scrutiny of the Project Closer Report iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te that the amount of USD 5,440/- is the sum total of amount reflected in column with heading Supply and Installation - "Total Monthly Cost" and the column with heading "Manage and Maintain (per Month). However, on perusal of "Tesla Scope Statement" it becomes clear that project is for obtaining Global IP VPN connection to help in connectivity between Chullora, Sydney, Australia and Mumbai, India. Thus, the connectivity expenses of INR INR.24,69,193/- are separate from Software Maintenance Expenses of INR 66,37,327/-. Further, as per the Project Closure Report and the monthly intra-group account statements, the same are being reimbursed at cost. In view of the aforesaid, transfer pricing addition of INR 24,69,193/- is deleted. Ground No.3 is allowed. Ground No. 4 is disposed off as being infructuous. Ground No. 5 42. Ground No. 5 pertains to disallowance of Software Expenses of INR 1,00,56,108/- held by the Assessing Officer/DRP to be capital in nature. The Ld. Authorised Representative for the Appellant appearing before us submitted that the aforesaid expenses were disallowed on the ground that the same were capital in nature and depreciation @ 60% was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Provision For Warehousing Services" between the Appellant and DHL Lemuir Logistic Private Ltd (hereinafter referred to as the "Lease Agreement") was in the nature of a finance lease. He took us through the relevant terms of the contract to support his contention and submitted that the Appellant is engaged in the business wholesale cash and carry and the warehouse taken on lease are used for the purpose of the business, hence, lease rentals paid to DHL Lemuir Logistics Private Limited (for short "DHL") are allowable as a deduction while computing the taxable income. 48. Per contra, the Learned Departmental Representative contended that the Appellant was setting up a new case before the Tribunal. Referring to submission dated 12.02.2014 filed by the Appellant before the Assessing Officer during the course of assessment proceedings, he submitted that the Appellant had itself submitted that warehouse was taken from DHL on a finance lease. The Appellant was not the owner of the warehouse and has not claimed depreciation. The Appellant had claimed deduction for the lease rental payment of INR 1,00,59,112/- while computing taxable income. 49. In rejoinder, the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, and without hindrance by Provider, carried out by Woolworths India, including providing personnel to meet and assist Woolworths India's personnel during their inspection of the Premises (Including to operate any machinery required to access Woolworths India's Goods). Woolworths India shall endeavour to ensure that such inspection does not unreasonably hinder normal operations. xx xx 8.5 Warehouse management system: Provider shall be required to operate an electronic software and hardware system provided by Woolworths India on the basis set out in clause 11 for the purpose of providing the Services, and recording information in relation to Woolworths-India's Goods stored-at-the-Premises and the movement of Woolworths India's Goods. Provider shall use the system in performing the Services as described in schedule Woolworths India shall be responsible for installing, integrating, testing, supporting and maintaining this software system, and Provider's access to this system, and training Provider's personnel in the use of the system, at Woolworths India's cost." 51. Perusal of the above extracts of the contract shows that the Lease Agreement is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t submitted the Appellant made 100% payment for purchases made and subsequently returned some portion of the purchases. Accordingly, the creditors" accounts were debited and amount pertaining to purchases returned was recoverable from the creditors. However, the Appellant realized that these amounts were not recoverable and therefore, the same were claimed as an expense as bad debts written off. 56. Per contra, Ld. Departmental Representative relying upon the order passed by the Assessing Officer as well as DRP submitted that the aforesaid amount represented the negative balances of creditors which were never offered to tax. Merely because the said amounts have been written off in the books of account would not entitle the appellant to claim of bad debt under Section 36(1)(vii) of the Act. Further, no evidence was brought on record to show the aforesaid amounts were not recoverable. 57. Having considered the rival submission we are of the view that the INR 2,60,035/- is not in the nature of a debt which has gone bad. It cannot be said that the Appellant has indirectly offered to tax amount of INR 2,60,035/- representing purchase returns by claiming deduction for the correct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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