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TMI Blog2021 (11) TMI 1148X X X X Extracts X X X X X X X X Extracts X X X X ..... erfere with the order of ld. DRP in this comparable. Interest on Receivables - AR argued extensively as to how adjustment with regard to interest on receivables cannot be resorted to - HELD THAT:- Primarily, we find that the assessee is a debt free company and has no claim of interest payable. Hence, in the specific financial conditions of the assessee, we hold that no adjustment is required on this ground. Incorrect Computation of Margins - HELD THAT:- TPO erred in not giving effect to the directions of ld. DRP who directed to verify and take correct margins of the comparables and adopted an inconsistent approach while computing operating margin of the comparable companies used in the determination of the ALP resulting in incorrect margins of the comparable companies. Detailed computation of margins of comparables provided to TPO pursuant to ld. DRP directions. As perused the same in the paper book at page nos. 1709 to 1747. The AO is directed to re-compute the margins. Claim of education cess as an allowable expenditure - Interpretation of provisions of Section 40(a)(ii) - Deduction u/s 37(1) - HELD THAT:- Education Cess is not of the nature described in sections 30 to 36, Educat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter alia selecting the following company as comparable to software development services rendered by the Appellant which is functionally different: a. Killick Agencies & Mktg. Ltd. iii. Rejection of companies selected as comparable to the Business support services: The DRP erred in upholding the TPO' s action of not undertaking an objective comparative analysis and inter alia rejecting the following companies as comparable to the software development services rendered by the Appellant: a. India Tourism Development Corporation Ltd. b. MCI Management (India) Ltd. c. Concept Public Relations India Ltd. iv. Interest on outstanding receivables: The DRP erred in upholding the TPO's action of making transfer pricing adjustment and imputing the interest on outstanding receivables as on 31st March 2015 relating to provision of services to the AEs: a. Not appreciating the fact that the receivables are consequential/closely linked to provision o services to the AEs; b. Not appreciating the facts and circumstances surrounding the receivables and re-characterizing the outstanding receivables as loans advanced to the AEs. v. Incorrect computation of margins: The AO erred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware, IT support and BSS is not at Arm' s length. Further, the TPO has also proposed adjustment on account of interest on the outstanding receivables of ₹ 16 ,20,061/-. 5. The summary of the arm's length range determined by the TPO and the adjustment made to the ALP of the international transactions of the company in the TP order is summarized in the table below: Particulars Software IT Support BSS Average unadjusted margin of comparable companies as determined by the TPO 24.53% 21.16% 28.81% Transfer price of the international transactions of the assessee 25,982.11 930.25 532.72 ALP for the international transactions as determined by the TPO 28,135.22 980.09 623.84 Adjustment made by the TPO 2153.11 49.84 91.12 6. Aggrieved with the draft Assessment Order, the assessee filed objection before the ld. DRP. In pursuance of the order of the ld. DRP, the AO passed final Assessment Order determining the total income at ₹ 511,77 ,90, 550/-. 7. Aggrieved the assessee filed appeal before us. Exclusion of Comparables: 8. With regard to the inclusion of comparable namely, " Killick Agencies and Marketing Ltd. (Killick)", it was argued before us that the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nformation to QIPL so that QIPL may undertake market research and business development activities on behalf of the AEs in India, and augment the AE's efforts in raising awareness of Qualcomm's technology to manufacturers in India. 12. Thus, on going through the functions, we find that the comparable " Killick" is functionally different from the assessee, hence, we hereby direct the same may be excluded from the list of final comparables. Inclusion of Comparables: 13. The assessee has argued for inclusion of three comparables namely, India Tourism Development Corporation (ITDC), Concept Public Relations India Ltd. (CPRIL) and Management (India) Ltd. (MIL). The assessee did not press for inclusion of ITDC. 14. With regard to CPRIL, we find that the company engaged in organizing conferences, tours, demonstration o products, seminars, publicity campaign through various media channel, demonstrations of client products, hotel bookings, conference literature etc. 15. Having gone through the functions of the assessee which have been duly mentioned in the above paras of this order, we hold that the comparable CPRIL is functionally dissimilar. 16. With regard to MIL, we find that the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 998) 229 ITR 383, the additional ground filed by the assessee is accepted. The relevant portion of the judgment is as under: "5. Under Section 254 of the Income-tax Act, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee. We remand the proceedings to the Tribunal for consideration of the new grounds raised by the assessee on the merits." 23. Respectfully following the above judgment of the Hon'ble Apex Court, the additional grounds taken up by the assessee are hereby admitted. 24. Reading the provisions of Section 40(a)(ii), the assessee argued that education cess paid on Income Tax doesn't come under the purview of the definition as it is levied on the amount of Income Tax but not on profits of business. The ld. AR relied on the Circular No. 91/58/66-ITJ(19) by CBDT dated 18.05.1967, which states the effect of the omission of the words 'cess' from Section 40 (a)(ii) is that only taxes paid are to be disallowed in the assessment for the assessment years 1962- 63 onwards. 25. The ld. AR also relied on the judgment of Hon' ble Rajasthan High Court in the case of Chambal Fertilizers and Chemicals Ltd. Vs JCIT in ITA No. 52/2018 dated 31.07.2018 wherein the same issue has been decided in favour of the assessee and particularly held that education ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the Hon'ble High Court of Judicature for Rajasthan at Jaipur in ITA No. 52/2018 in the case of Chambal Fertilizers and Chemicals Ltd. held that in view of the Circular of CBDT where the word 'cess' is deleted, the claim of the assessee for deduction is acceptable. In that case, the Hon'ble High Court held that there is difference between the cess and tax and cess cannot be equated with the cess. 33. We have also gone through the provisions of Sec. 115 of the Income Tax act 1961 which are as under: "Explanation 2 to section 115JB (2) of the Act defines the term 'Income-tax' in an inclusive manner, which includes cess. Provision of the explanation 2 to section 115 JB is as given below:- For the purposes of clause (a) of Explanation 1 , the amount of income-tax shall include- (i) any tax on distributed profits under section 115- O or on distributed income under section 115R; (ii) any interest charged under this Act; (iii) surcharge, if any, as levied by the Central Acts from time to time; (iv) Education Cess on income- tax, if any, as levied by the Central Acts from time to time; and (v) Secondary and Higher Education Cess on income- tax, if any, as levie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between a tax and a fee there is no generic difference. Both are compulsory exactions of money by public authorities; but whereas a tax is imposed for public purposes and is not, and need not, be supported by any consideration of service rendered in return, a fee 1 AIR 1954 SC 282 2 1961 (2) SCR 537 is levied essentially for services rendered and as such there is an element of quid pro quo between the person who pays the fee and the public authority which imposes it. If specific services are rendered to a specific area or to a specific class of persons or trade or business in any local area, and as a condition precedent for the said services or in return for them cess is levied against the said area or the said class of persons or trade or business the cess is distinguishable from a tax and is described as a fee. Tax recovered by public authority invariably goes into the consolidated fund which ultimately is utilised for all public purposes, whereas a cess levied by way of Fee is not intended to be, and does not become, a part of the consolidated fund. It is earmarked and set apart for the purpose of services for which it is levied." 38. We also find that the proceeds from co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been allowed. The Hon' ble High Court of Bombay held that the appellate authorities may confirm, reduce, enhance or annul the assessment or remand the case to the AO, because the basic purpose of a tax appeal was to ascertain the correct tax liability in accordance with the law. To mention a few, * DCIT Vs M/s. Agrawal Coal Corporation Pvt. Ltd ITA Nos. 801 to 803/Indore/2018. * Atlas Copco India Ltd. Vs ACIT in ITA No. 736/Pune/2011 * Tata Autocomp Hendrickson Vs DCIT in ITA No. 2486/Pune/2017 * Symantec Software India Pvt. Ltd. Vs DCIT in ITA No. 1824/Pune/2018 * Sicpa India Pvt. Ltd. Vs ACIT in ITA No. 704/Kol/2015 * Philips India Ltd. Vs ACIT in ITA No. 2612/Kol/2019 * ITC Limited Vs ACIT in ITA No. 685/Kol/2014 * DCIT Vs The Peerless General Finance & Investment & Co. Ltd. in ITA No. 1469/Kol/2019. * ACIT Vs ITC Infotech in ITA No. 220/Kol/2017 * Reckitt Benckiser India Pvt. Ltd. Vs DCIT (2020) 117 taxmann.com 519 (Kol.) * Crystal Crop. Protection Pvt. Ltd. Vs JCIT in ITA No. 1539/Del/2016 * Midland Credit Management India Vs ACIT in ITA No. 3892/Del/2017 * Voltas Ltd. Vs ACIT in ITA No. 6612/Mum/2018 * Sesa Goa Ltd. Vs JCIT (2020) 117 taxmann.com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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