9911796707
TMI Blog2024 (7) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... development, implementation and support services. Therefore, it earned income from products and services. On the other hand, the assessee was solely into software services. Comparable selection under ITeS Segment - Infosys BPO Ltd. be rejected on the ground that turnover of this entity was quite high i.e., approx. Rs. 1356 crores. There was wide gap between the size and turnover of the company Hartron Communications Ltd. to be excluded on the ground that this entity had diversified operations which could not be compared with ITeS segment. Further, during this year, there were extraordinary operations and therefore, it could not be taken as comparable entity. Disallowance of notional loss - a ssessee claimed deduction which represent foreign currency loss - AO held the same to be notional loss and observed that the same would accrue only at the time of repayment of loan, therefore, the deduction was denied - HELD THAT:- We find that Ld. DRP has rendered a finding that the loans have been utilized towards fixed assets and therefore, the loss is capital in nature. From the facts, it is not clear as to how the loan has been utilized by the assessee. In our opinion, if the loan is utili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred revenue expenditure, full deduction thereof shall be allowable to the assessee in the year of incurrence i.e., in this year. We direct Ld. AO to allow this deduction. Disallowance of Depreciation on Printes etc. - assessee claimed higher depreciation on printers @60% as applicable to computers - AO allowed depreciation of 25% and made disallowance - HELD THAT:- It is apparent that the printers and scanners are being used along with computers and do not carry separate existence as such. Therefore, we direct Ld. AO to allow higher depreciation on the same. Disallowance of Depreciation on Softwares - assessee claimed higher depreciation on software @60% as applicable to computers - AO proposed allowance of 25% - DRP held that the same could not be allowed for want of TDS - HELD THAT:- We find that this issue is covered in assessee s favor by the decision of Age Management Services ( 2019 (7) TMI 1153 - MADRAS HIGH COURT ) wherein it has been held that where software license acquired by assessee was in nature of software application, the assessee would be eligible to claim depreciation at 60%. Respectfully following the same, we allow this claim of the assessee. TDS u/s 192 - D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. In these additional grounds, the assessee has raised the ground of limitation. However, these grounds have not been pressed by the assessee vide its letter dated 04.12.2023 which render cross-objection infructuous. 1.3 The grounds raised by the assessee read as under: - 1. The learned Assessing Officer (learned AO'), learned Transfer Pricing Officer (learned TPO') and the Honourable Dispute Resolution Panel ('Hon'ble DRP') have grossly erred in determining an adjustment of INR 540,439,874 to the revenue earned from Associated Enterprises (AEs ) in the engineering design services segment, INR 45,489,196 to the revenue earned from AEs in the Information Technology ('IT ) segment and INR 4,295 955 to the revenue earned from AEs in the IT enabled Services ('ITeS') segment u/s 92CA of the Income Tax Act, 1961 ('the Act ). 2. The learned AO, learned TPO and the Hon'ble DRP have erred in rejecting the transfer pricing documentation maintained by the Appellant by invoking provisions of sub- section (3) of 92C of the Act. 3. The learned AO, learned TPO and the Hon'ble DRP have erred in not considering multiple Year financial data of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned AO, learned TPO and the Hon ble DRP have erred in accepting companies that ought to not have been accepted as comparable to the IT services segment of the Appellant: Larsen Toubro Infotech Ltd. Thirdware Solutions Ltd. 12. The learned AO, learned TPO and the Hon'ble DRP have erred in accepting companies that ought to have been accepted as comparable to the IT segment services of the Appellant: Akshay Software Technologies Ltd. Helios Matheson Information Technology Ltd. Cigniti Technologies Ltd. Kals Information Systems Ltd. CTIL Ltd. Cat Technologies Ltd. Sankhya Infotech Ltd. Evoke Technologies Private Ltd. 13. The learned AO, learned TPO and the Hon'ble DRP erred in accepting companies that ought not to have been accepted as comparable to the ITeS segment of the Appellant: MPS Ltd. ICRA Online Ltd. Infosys BPO Ltd. Hartron Communications Ltd. (Seg) 14. The learned AO, learned TPO and the Hon'ble DRP have erred in not accepting companies that ought to have been accepted as comparable to the ITeS segment of the Appellant: Informed Technologies Ltd. ICRA Techno Analytics Ltd. Caliber Point Business Solutions Ltd. (Seg) Crystal Voxx Ltd. Coalition Development Sy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 179 Taxman 326 (SC) India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC) The learned AO and the Hon'ble DRP have erred in treating the foreign exchange as capital in nature The learned AO and the Hon'ble DRP have erred in not appreciating the provisions of Section 43(1) of the Act, wherein all the costs incurred after the put to use of the asset are to be treated as revenue in nature The learned AO and the Hon'ble DRP ought to have appreciated that the restatement of ECB would qualify as an interest cost which is allowed on actual basis. Notwithstanding the above, where the learned AO and the Hon'ble DRP have considered the above as capital in nature, the learned AO and the Hon'ble DRP erred in not allowing consequential depreciation on the same. 21. Ground on Disallowance of provision for obsolescence Rs. 12,80,00,000 The learned AO and the Hon'ble DRP have erred in disallowing the provision for obsolescence of inventories amounting to Rs. 12,80,00,000. The learned AO and the Hon'ble DRP have failed to appreciate that the provision was created on the account of obsolescence of inventories in the normal course of business and is an allowable deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as capital in nature. 24. Ground on Disallowance of depreciation on printers, scanners and UPS Rs. 5,02,541 The learned AO has erred in disallowing depreciation of Rs. 5,02,541 on the printers, scanners and UPS by treating the servers as 'plant and machinery' instead of 'computers'. The learned AO has erred in limiting the allowance for depreciation on printers, scanners and UPS to 15% of the cost as against the depreciation rate of 60% permitted under the Rules. The learned AO further erred in not granting relief as per the Hon'ble DRP directions to the Appellant i.e., allowing depreciation on printers and scanners at 60%, 25. Ground on Disallowance of depreciation on licensed software Rs. 23,97,707 The learned AO and the Hon'ble DRP have erred in adding back a sum of Rs. 23,97,707 as excess depreciation claimed under section 32 of the Act. The learned AO and the Hon'ble DRP have erred in limiting the allowance for depreciation on purchase of licensed software to 25% of the cost as against the depreciation rate of 60%, permitted as per the Rules. The learned AO and the Hon'ble DRP ought to have appreciated the fact that as per section 32 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding and without prejudice to the above, the Appellant submit that the actual payment towards reimbursement of salary of seconded employees made by the Appellant is Rs. 28,37,93,461 whereas the learned AO and the Hon'ble DRP have erred in disallowing a sum of Rs. 77,97,40,472. As is evident, the assessee is aggrieved by confirmation of certain Transfer Pricing Adjustments as well as certain corporate adjustments. The issues that fall for our consideration are: (i) Transfer Pricing Adjustment in three segments; (ii) Disallowance of forex loss; (iii) Disallowance of provision for Obsolescence; (iv) Disallowance of Repairs Maintenance to Buildings; (v) Disallowance of stamp charges; (vi) Disallowance of Depreciation on Printers Scanners; (vii) Disallowance of depreciation on licensed software; (viii) non-grant of additional depreciation; (ix) Disallowance of Secondment Payments. 1.4 The Ld. AR placed on record issue-wise chart and advanced arguments supporting the case of the assessee. Reliance has been placed on various judicial decisions, the copies of which have been placed on record. The Ld. CIT-DR also advanced arguments supporting the assessment framed by lower authorities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arable entities viz. Acropetal Technologies Ltd. and Vama Industries (segment). Acropetal Technologies Ltd. This entity has reflected margin of 61.11%. The Ld. AR seek exclusion of the same on the ground that financial results of this entity are window- dressed and this entity is primarily engaged in outsourcing its activities to third-parties. This is abnormal year of operation and this is high risk bearing entity with significant R D activities. The Ld. AR has relied on the decision of Chennai Tribunal in the case of M/s Doosan Power Systems India Pvt. Ltd. (ITA No.1885/Chny/2017 ors. dated 23-06- 2023) which is for same AY 2013-14. We find that in this decision, the bench has excluded this entity on the ground that financials of this entity are based on fraud committed as per clear-cut finding of SEBI adjudicator. Considering the same, we direct Ld. TPO to exclude this entity from comparable matrix. Vama Industries (Segment) The Ld. AR has submitted that this entity is functionally dissimilar. This entity is leading IT service provider and is engaged in providing services in the areas of IT infrastructure, IT and ITeS. This entity is stated to be in diversified business and rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this entity is primarily into ITeS services. Further, segmental information of this entity is not available. This entity is stated to be excluded by various benches of Tribunal. We find that for AY 2013-14, this entity has been excluded by Mumbai Tribunal in the case of Lionbridge Technologies P. Ltd. (101 Taxmann.com 41) on the ground this entity was into acquisition / purchase of hardware and software including software as a service. This entity was also engaged in software development, implementation and support services. Therefore, it earned income from products and services. On the other hand, the assessee was solely into software services. The bench, relying on the decision of Delhi Tribunal in the case of St-Ericsson India (P.) Ltd. v. Addl. CIT [2017] 79 Taxmann.com 207 (Delhi - Trib.), held that this was not a valid comparable. Following the same, we direct for exclusion of this entity. 3.4 The Ld. AR has submitted that after exclusion of two entities, the margins of the assessee would be within tolerance range and therefore, other grounds in this segment need not be adjudicated. Considering the same, delving into the other arguments, on this issue, has been rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ology is stated to be in accordance with applicable accounting standards. Another submission is that the assessee has followed consistent accounting policy in this regard. In AY 2015-16, the assessee has earned similar gains which have been offered to tax. 4.3 We find that Ld. DRP has rendered a finding that the loans have been utilized towards fixed assets and therefore, the loss is capital in nature. From the facts, it is not clear as to how the loan has been utilized by the assessee. In our opinion, if the loan is utilized towards purchase of fixed assts, it would be in the nature of capital expenditure. However, if it has been utilized for day-to-day business operations, the same would be revenue in nature. Apparently, the assessee is following consistent method of accounting to claim the same. It is also not clear as to what treatment has been given by the assessee to claimed profit / loss in the year of liquidation. All these facts would have material bearing on determination of issue. Therefore, we restore this matter back to the file of Ld. AO for fresh adjudication by bringing on record correct factual matrix The corresponding grounds stands allowed for statistical purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence which was not correct methodology. The Ld DRP held that the expense was towards acquisition of lease and therefore, it was capital in nature. Accordingly, the same was disallowed. Aggrieved, the assessee is in further appeal before us. 7.2 We find that the liability to pay stamp duty has crystallized only during this year. The lease agreement may be for more than on year, however, the expenditure is mere a revenue expenditure and unless the assessee chooses to treat the same as deferred revenue expenditure, full deduction thereof shall be allowable to the assessee in the year of incurrence i.e., in this year. We direct Ld. AO to allow this deduction. 8. Disallowance of Depreciation on Printes etc. 8.1 The assessee claimed higher depreciation on printers @60% as applicable to computers. However, Ld. AO allowed depreciation of 25% and made disallowance of Rs.5.02 Lacs. 8.2 It is apparent that the printers and scanners are being used along with computers and do not carry separate existence as such. Therefore, we direct Ld. AO to allow higher depreciation on the same. 9. Disallowance of Depreciation on Softwares 9.1 The assessee claimed higher depreciation on software @60% as appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious judicial decisions, such payments were held to be fees for technical services. Accordingly, Ld. AO was directed to make disallowance u/s 40(a)(i). Aggrieved, the assessee is in further appeal before us. 10.3 Upon perusal of agreement, it emerges that the assessee has availed services of employees of its group entities. The same was to facilitate business operations of the assessee. These seconded employees have worked under the control and supervision of the assessee which is evident from the fact that the assessee, as an employer, has deducted due TDS u/s 192. Therefore, these payments have already suffered TDS. The assessee has merely reimbursed actual salary to its AE. The same were merely in the nature of reimbursements only and do not include any element of income. The risk and reward of the work performed by the deputed employees was with assessee. Therefore, Ld. DRP, in our opinion, is not correct to treat the same as Fees for Technical Services which would require separate TDS. Accordingly, impugned disallowance as made u/s 40(a)(i) stand deleted. 11. Disallowance of Additional Depreciation on Plant machinery installed during FY 2011-12 Apparently, this issue has not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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