9911796707
TMI Blog2023 (2) TMI 1318X X X X Extracts X X X X X X X X Extracts X X X X ..... is considered as operating cost, then the margin of the assessee is higher than the margin of comparable i.e. M/s. Advance Micronic Devices Ltd. In our opinion, the AO has to consider this royalty payment as an operating cost and has to verify whether the margin of assessee is higher than the margin declared by the comparable company i.e. M/s. Advance Micronic Devices Ltd. and decide accordingly. In view of this, the issue in dispute is set aside to the file of AO/TPO for the limited purpose for comparison of margins with the comparable company and decide accordingly. Assessee appeal allowed. TP Adjustment Distribution Segment - comparable selection - HELD THAT:- After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in assessee s own case in assessment years 2012-13 in [ 2023 (4) TMI 75 - ITAT BANGALORE] as held the main grievance of the Ld. A.R. on this issue is that AO/TPO/DRP has not considered the earlier decision of Tribunal in A.Y. 2002-03 to 2004-05, 2005- 06, 2006-07, as such order passed by the lower authorities is bad in law. The Judicial discipline requires consistency in its proceedings - AO/TPO what criteri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has made claim only for deduction on account of lease rentals paid. There is no basis for the Revenue authorities to come to a conclusion that the assessee has adopted a colourable device with a view to gain tax advantage. AO as well as the CIT(A) have quoted various clauses of the lease agreement out of context, ignoring the main clause in the agreement which clearly lays down that the assessee is only a lessee and the lessor is the owner of the assets leased. In such a scenario, the conclusion of the Revenue authorities cannot be sustained. The assessee is entitled to claim deduction on account of lease rentals paid as it is a Revenue expenditure. Disallowing the written off receivables and advances - Difference between the provision debited in the P L account and the provision added back in the computation of income - HELD THAT:- The main contention of the ld. A.R. is that the AO has not followed the ld. DRP s order and requested to give a direction to AO/TPO to pass consequential order in conformity with the ld. DRP s order accepted, accordingly, the issue is remitted to the AO/TPO to pass consequential order in conformity with the order of the ld. DRP. Denial of T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,38,88,152 Disallowance u/s 37 of the Act - Disallowance of lease payment on financial lease 26,12,77,130 26,12,77,130 Disallowance u/s 37 of the Act Miscellaneous expense 16,27,83,384 16,27,83,384 Disallowance u/s 36(1)(vii) of the Act Doubtful Advances 1,63,36,390 1,63,36,390 Disallowance u/s 37 of the Act Disallowance of Provisions 41,76,13,362 41,76,13,362 - Legal and Professional expenses 23,65,54,350 23,65,54,350 - Advertisement and sales promotion 10,92,813 10,92,813 - Repairs and Maintenance 59,19,766 59,19,766 - Dealer Commission 17,40,46,433 17,40,46,433 31.10.2019- The TPO passed order u/s 92CA making TP adjustments amounting to Rs.3,83,84,57,641/- as listed above. 30.12.2019 - The Draft assessment order dated was passed by the AO by making the additions as listed above. 27.01.2020 Against the Draft assessment order, the assessee filed its objections before the DRP. 11.02.2021 - The DRP gave its directions to the objections of the assessee. 30.03.2021 Without following the directions of the DRP, the AO passed the final assessment order reiterating the draft assessment order. 25.06.2021 Against the orders of the authorities, the assessee has preferred the above appeal be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difference in the Software services segment Rs.110,46,98,146/- (ii) The learned TPO/ DRP erred in disregarding the use of multiple year data and ought to have accepted the use of contemporaneous data as per the transfer pricing regulations due to non-availability of current year data in public domain at the time of preparing the report. iii) The learned TPO/DRP erred in rejecting companies having different financial year ending or whose data does not fall within the 12 month period of impugned financial year. iv) The learned TPO/DRP erred in not considering working capital/risk adjustments. v) The Learned AO / TPO / DRP erred in failing to rely on binding decisions of the Hon'ble ITAT in appellant's own ease for the earlier years from assessment year 2002 - 03 onwards. 12. i) The Learned AO / TPO / DRP erred in making adjustment towards the royalty for use of technology amounting Rs.20,27,37,762/- without determining the comparable transaction in the public domain as prescribed under the Act and Rules. ii) The Learned AO/TPO/DRP have failed to identify a comparable in terms of Rule 1013(3). iii) The Learned AO / TPO / DRP erred in failing to rely on decision of the ITAT in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP erred in adopting TNMM as the MAM ignoring the findings of ITAT in the appellant's own case for earlier years and accepted by department on the same issue. xv) The Learned AO/TPO/DRP have failed to apply the provisions of Rule 10B(4) ,(5) and 10CA(2) while selecting the criteria and filters. xvi) The Learned AO / TPO / DRP erred in not carrying out the adjustments like risk, working capital, et:c., as required under law as well as the facts. xvii) The learned AO/TPO/DRP erred in rejecting the price per unit adjustment carried out by the appellant xviii) The learned AO/TPO/DRP erred in rejecting the import duty adjustment carried out by the appellant. xix) The learned AO/TPO/DRP erred in not considering the after sales support service segment while determining operating margin of distribution segment. xxi) The learned AO/TPO/DRP erred in rejecting the corroborative analysis provided by the appellant. xxii) The Learned AO/TPO/DRP erred in applying the trading income threshold of 75% to sales to select comparable companies. - xxiii) The learned AO/TPO/DRP erred in applying the Related party transactions threshold of 25% to revenues to select comparable companies. xiv) The lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td e) Orion India Systems Private Limited f) Nihilent Technologies Ltd g) Inteq Software Pvt Ltd h) Persistent Systems Ltd i) Infobeans Technologies Ltd j) Thirdware Solutions Ltd k) Infosys Ltd 1) Aspire Systems (India) Pvt Ltd m) Cybage Software Pvt Ltd n) C G VAK Software Exports Ltd o) R S Software (India) Ltd p) Larsen , Toubro Infotech Ltd OTHER ISSUES/ADDITIONS/DISALLOWANCES 15.The Learned AO/DRP erred in disallowing deduction claimed of Lease payments on financial lease of Rs. 26,12,77,130/- under section 37 of the I T Act. 16.The Learned AO/DRP erred in disallowing Miscellaneous Expenses of Rs. 16,27,83,384/- under section 37 of the I T Act. 17.'The Learned AO/DRP erred in disallowing the written off receivables and advances of Rs. 1,63,36,390/- without objectively considering the explanation offered by the assessee. 18. The Learned AO / DRP erred in disallowing the following proyisions for expenses amounting to Rs. 41,76,13,362/- on an entirely unsustainable reason. Legal and Professional fees 23,65,54,350/- Advertisement and sales . promotion 10,92,813/- Repairs and maintenance 59,19,766/- Dealer's Commission 17,40,46,433/- Total 41,76,13,362/- 19.Without prejudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Monogram Licensing International, Inc. based at Delaware, USA. The assessee was asked to submit the details of this payment along with the agreements. The assessee submitted the agreement dated November 21, 2000 between M/s. Monogram Licensing International, Inc. based at Delaware, USA and Wipro GE. As per the agreement submitted by the assessee, General Electric Co. owns all the licenses and it has licensed the AE M/s. Monogram Licensing International Inc. to license the licensed marks. In reply to the showcause notice, the assessee has stated as follows: The taxpayer submitted that it pays royalty at I% of net selling price of products and services .for using the licensed name of the AE in the applicable jurisdiction. The trademark is used in packaging, advertising, instruction book and other literature relating to the product. The trademark and the trade name of the GE company helps WGE add credibility and without the trademark and trade name of the GE company the products sold by WGE will be a generic product which will neither command the price it is currently sold at nor have any buyers in the highly technology driven precision industry and also in gaining demand for its p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the TPO that the DRP has upheld the adjustment of Royalty to Nil in the assessee's own case for the AY 2014-15. The DRP has held that In the case of JCB India Ltd v Deputy Commissioner of Income tax Circle13(1),New Delhi ,the ITAT Delhi has held that where the assessee company engaged in manufacture of construction equipment ,paid Royalty to its AE for usage of a particular machine ,since said transaction of payment of Royalty was independent of other transactions, assessee's contention of applying TNNM on entity level could not be accepted and ALP of transaction in question was to be determined separately under CUP method. Even though in transfer pricing proceedings, aggregation of related transactions is permissible, -yet there is no rule that all related and unrelated transactions can be combined and shown at ALP under TNNM entity level. 4.5 The ld. TPO observed that in the case of Sony Ericson Mobile Communication India Pvt. Ltd. it has been held that 'it would not be proper and appropriate to apply the TNMM method in case of Indian assessed is engaged in manufacturing activities and distribution and marketing of imported and manufactured products as interconnect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly linked that one cannot at all stand without the other. If the above criteria is satisfied, then, two or more related transactions can be considered as one international transaction for the purpose of determining their ALP. On the contrary, if the above criteria is not satisfied, then, these transactions are to be viewed separate from each other and, accordingly, their ALP should also be determined in a distinct manner as if these are two separate independent transactions. The ld. TPO finally concluded that mere fact that both the intra-group services and goods are utilized by the assessee for the manufacture of the final product, cannot be treated decisive to consider such separate transactions as a single transaction. 5. The ld. DRP confirmed the findings of the ld. TPO. Against this assessee is in appeal before us. 6. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in assessee s own case in assessment years 2005-06 2006-07 in ITA Nos.701 701/Bang/2021 dated 5.8.2021, wherein held as under: 3. Ground No.5 6 are with regard to TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment. 3.4 During the set aside proceedings, the assessee vide reply dt.05.06.2019 submitted that by considering royalty payment as part of the international transaction under trading segment, the margin of the assessee is higher than that of the comparable company. However, the TPO in para 4.5 4.6 has stated as follows: 4.5 During the set aside proceedings, the taxpayer has not identified any comparable in respect of the royalty payment. Since the TPO has chosen the company, M/s Advanced Micronic Devices Ltd., as a comparable to the taxpayer, in the trading segment, the same is considered as comparable for the royalty transaction also. 4.6 The R D expenses of the comparable royalty over net sale is considered as per the annual report for the current year is: Sl No Company name R D Exp Royalty/ trademark Net sale Margin over sale 1 Advanced Micronic Devices Ltd. 0 0 2684.75 lakhs 0% Average 0% The computation of ALP of the royalty payment is made using CUP/CUT method using the above-mentioned comparable as follows: 3.5 From the above, it can be seen that the AO has chosen M/s Advanced Micronic Devices Ltd as a comparable which has not incurred any royalty payment as the company has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of computing the margin in the trading segment. Before us, Ld. A.R. submitted that if it is considered as operating cost, then the margin of the assessee is higher than the margin of comparable i.e. M/s. Advance Micronic Devices Ltd. In our opinion, the AO has to consider this royalty payment as an operating cost and has to verify whether the margin of assessee is higher than the margin declared by the comparable company i.e. M/s. Advance Micronic Devices Ltd. and decide accordingly. In view of this, the issue in dispute is set aside to the file of AO/TPO for the limited purpose for comparison of margins with the comparable company and decide accordingly. 4. Next ground No.8 is with regard to sustaining addition of Rs.2,42,33,641/- u/s 37 of the Act by holding that it was wholly and exclusively incurred for the purpose of business. Facts of this case are that this issue has been set aside by the Tribunal vide order cited (supra) for reconsideration by the AO/TPO. On set aside assessment the addition has been sustained by AO. Since the assessee has not substantiated those expenses as incurred wholly and exclusively for the purpose of business. Hence, the assessee once again in ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holly and exclusively for the purpose of business. The assessee s claim of following the practice of accounting also could not be substantiated as the assessee is unable to discharge the primary onus of establishing the identity and the genuineness of the transaction. In view of the circumstances, Ld. DRP held that the assessing officer has correctly held that the dealer commission amounting to Rs.2,42,33,641/- has not been incurred wholly and exclusively for the purpose of business. 4.4. We have heard the rival submissions and perused the materials available on record. The assessee claimed that it has paid a sum of Rs.2,42,33,641/- towards commission to dealers and according to the assessee, it is wholly and exclusively incurred for the purpose of business. Further, assessee submitted the list of payments made to various parties and also furnished the details of deductions of TDS at the time of payment of commission to various dealers. It was also noted that in the case of receipt of this commission by those parties, the department has accepted it. However, in the hands of assessee it was treated as not incurred by the assessee, which is incorrect. Further, the books of accounts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd 10)Affiance Medi Tech Pvt Ltd 11)Olympus Medical Systems India Pvt Ltd 12)Weldon Biotech (India) Pvt Ltd 13)Pinnacle Biomed Pvt Ltd 14) Schiller Healthcare India Pvt Ltd 15) Stryker India Pvt Ltd 16)Everest Instruments Pvt Ltd 17)Confident Sales India Pvt Ltd 18)Narang Medical Ltd 19)Indifoss Analytical Pvt Ltd xiii) The Learned AO / TPO / DRP erred in failing to rely on decision of the ITAT in assessee's own case for the years 2002 - 03 to 2004 - 05 and subsequent orders of the ITAT for other assessment years. xiv) The Learned AO / TPO / DRP erred in adopting TNMM as the MAM ignoring the findings of ITAT in the appellant's own case for earlier years and accepted by department on the same issue. xv) The Learned AO/TPO/DRP have failed to apply the provisions of Rule 10B(4) ,(5) and 10CA(2) while selecting the criteria and filters. xvi) The Learned AO / TPO / DRP erred in not carrying out the adjustments like risk, working capital, et:c., as required under law as well as the facts. xvii) The learned AO/TPO/DRP erred in rejecting the price per unit adjustment carried out by the appellant xviii) The learned AO/TPO/DRP erred in rejecting the import duty adjustment carried ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) Pvt Ltd 7.14 13 Pinnacle Biomed Pvt Ltd 7.41 14 Schiller Healthcare India Pvt Ltd 8.00 15 Stryker India Pvt Ltd 9.17 16 Everest Instruments Pvt Ltd 12.55 17 Confident Sales India Pvt Ltd 15.40 18 Narang Medical Ltd 15.63 19 Indifoss Analytical Pvt Ltd 18.17 35th Percentile 4.93 Median 6.79 65th Percentile 7.41 Computation of arm s length price by the TPO and the adjustment made: Operating Revenue (OR) Rs.1769,15,48,168/- Operating Cost (OC) Rs.1902,13,13,780/- Adjusted Arm s length Margin 6.79% of operating revenue Arm s Length Price (ALP) (100%-6.79% = 93.21%) of operating revenue Rs.1649,02,92,047/- Price Received Rs.1902,13,13,780/- Adjustment u/s 92CA Rs.253,10,21,733/- 7.2 The adjustment made by the TPO of Rs.253,10,21,733/- in the Distribution Segment has been adopted by the AO in the Draft assessment order u/s 143(3) rws 144C(1) of the Act dated 30.12.2019. The assessee filed objections before DRP on 27.01.2020. The assessee filed its written submissions before DRP on 29.01.2021 emphasizing on the binding decisions of the Tribunal in assessee s own case for earlier years. Without appreciating the submissions of the assessee, the DRP passed its directions u/s 144C(5) on 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28,856 OP/OC 3.52% OP/OR 3.41% 28.2. Comparables selected by Assessee in TP report and their arithmetic mean: Sl. No. Name of the company ( %) 1 ADS Diagnostic Limited 8.41 2 Advanced Micronic Devices Ltd 2.07 3 Central Scientific Supplies Co. Ltd -0.15 4 Frontline Electro Medical Ltd 0.01 5 Kusum Electrical Inds Ltd 9.84 6 Softouch Hygiene Products Ltd 10.41 Arithmetical Mean 5.10 28.3 Out of the 6 comparables selected by the Assessee, the TPO accepted the 1 highlighted above, viz. Advanced Micronic Devices Ltd and rejected the other 5 comparables. 28.4 Final Comparables selected by TPO and their arithmetic mean: Sl No Company Name (OP/OR) (in%) 1 Maestors Medline Systems Ltd (seg) 29.57 2 Advanced Micronic Devices Ltd (seg) 7.29 Average 18.43 Computation of arm s length price by the TPO and the adjustment made: PLI Margin 18.43 OR 1388,87,76,432 ALP* 81.57% 1132,90,74,935 OC 1341,57,47,576 Shortfall 208,66,72,641 Value of International Transaction (to be benchmarked) 791,22,27,227 Percentage to Total Cost 43.80% Proportionate adjustment 91,39,62,617 28.5 The adjustment made by the TPO of Rs.91,39,62,617/- in the Distribution Segment has been adopted by the AO in the Draft assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .9 Similarly, the Tribunal in assessee s own case for the AY 2005-06 vide order dt.21.04.2017 in IT(TP)A 40/Bang/11 and 1647/Bang/2013 held that the adjustment on account of transfer pricing can be made only in respect of the international transaction and in this case to be confined to the purchases made from AE. Relevant portion is extracted hereunder: 15. Having considered the rival submissions as well as the relevant material on record, we find that the TPO while computing the ALP has apparently taken the gross profit margin of the AMDL at entity level by assuming that the entire activity of AMDL is only trading in the medical equipments. So far as the issue of considering the segmental details of the comparable companies, on principle we do not find any error on this point as the comparability of the assessee's trading segment in medical equipment has to be determined by considering the same segment of the comparable companies in the same activity. Therefore if the comparable company is having more than one segment as considered by the CIT (Appeals) then only the trading segment of the said company has to be compared with the assessee. Further the CIT (Appeals) has also rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r on this issue and thus stands concluded. Thus, for the earlier years the lower authorities have followed the binding decision of the Tribunal in assessee s own case. 28.12 It may be noted that the same TPO i.e, DCIT, TP-2(2)(1), Bangalore passed the Order giving effect for both AY 2005-06 and AY 2012-13 on the same day 28.10.2019. Though TPO followed the specific direction of the ITAT for AY 2005- 06, the same was not followed for the AY 2012-13. Thus the TPO has been inconsistent in her own approach. The TPO is in error in not following the orders of the Tribunal in assessee s own case which is a binding precedent. The TPO has tried to take a contrary position on an issue which has been overwhelmingly settled in the earlier years. There being no change in fact or law it was imperative for the TPO to follow the same method of computation as done earlier. Not doing so amounts to violation of law as explained by Hon ble Madras High Court in L.G. Ramamurthi 110 ITR 453. Relevant portion extracted hereunder: Appeal(Tribunal) Precedent Tribunal coming to conclusion that gifts were sham In subsequent assessment year a differently constituted Tribunal came to a different conclusion, viz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed in next assessment year unless and until there is a change in facts of the case. In the present case, the Ld. D.R. not brought on record any change in circumstances to deviate from earlier order of the Tribunal for the assessment year especially 2005- 06 and 2006-07 in IT(TP)A No.40/Bang/2011 1647/Bang/2013 dated 21.4.2017 wherein the Tribunal followed the earlier order of the Tribunal for the AY 2002-03 and 2004-05, which has been reproduced in earlier para of this order. Being so, we direct the AO/TPO to pass fresh order in the light of above observation of the Tribunal in AY 2005-06 and 2006-07. Once the AO/TPO pass the order in conformity with earlier order of the Tribunal, other issue raised by the assessee with regard to comparables is infructuous. This ground of assessee is partly allowed for statistical purposes. 10.1 Same view was taken in assessee s own case in A.Y. 2012-13 in IT(TP)A No.703/Bang/2021 dated 7.10.2022. 10.2 In view of the above order of the Tribunal this ground is remitted to the file of AO/TPO on similar lines. This ground of appeal is partly allowed for statistical purposes. Software Development Segment: Ground No.14: 11. Ground No.14 of the appeal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Private Limited f) Nihilent Technologies Ltd g) Inteq Software Pvt Ltd h) Persistent Systems Ltd i) Infobeans Technologies Ltd j) Thirdware Solutions Ltd k) Infosys Ltd l) Aspire Systems (India) Pvt Ltd m) Cybage Software Pvt Ltd n) C G VAK Software Exports Ltd o) R S Software (India) Ltd p) Larsen , Toubro Infotech Ltd 11.1 Facts of the case are that the assessee is engaged in providing software services and technology solutions to its parent for products manufactured worldwide. 11.2 Wipro GE has entered into a master development agreement with GE Healthcare (GEHC), whereby Wipro GE provides software services. The software services are part of the GEHC Global Technology Operations. The services pertain to the development of software, which is vital in terms of the functionality of the medical products manufactured by GEHC. The services rendered are in the nature of coding to sub-system work and providing image solutions as well as IT service solutions including base support, business, product and infrastructure software across all technologies and home grown or purchased software. It also includes expertise in various technologies, implementation, monitoring and support of IT inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of arm s length price by the TPO and the adjustment made is as under: Particulars Rs. Arm s length price 851,20,33,963/- Price received 740,73,35,817/- Shortfall 110,46,98,146/- 11.7 The adjustment made by the TPO of Rs. 110,46,98,146/- in the Software Development Segment has been adopted by the AO in the Draft assessment order u/s 143(3) rws 144C of the Act dated 30.12.2019. The assessee filed objections before DRP on 27.01.2020. The assessee filed its written submissions before DRP on 29.01.2021 seeking inclusion and exclusion of comparables interalia on various filters. The DRP passed its directions u/s 144C(5) on 11.02.2021 and directed exclusion of M/s. E-Zest Solutions Ltd and inclusion of M/s.Sasken Communication Technologies Ltd as comparable. The AO passed the final assessment order u/s 143(3) rws 144C(13) and 144C(13) rws 143(3A) 143(3B) of the Act dated 30.03.2021 retaining the TP adjustment in Software Development segment at Rs. 110,46,98,146/- as per draft assessment order. 11.8 Before the Tribunal the assessee has filed a chart seeking exclusion/inclusion of comparables on various grounds. The same are outlined hereunder. 11.9 The assessee is seeking exclusion of al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in the case of M/s. Acusis Software (I) Pvt. Ltd., Vs. ITO in ITA No. 223/2017, dt. 14-08-2018, following the relevant observations of the Tribunal, held as under:.. 11.12 Applying the said decision, the companies having turnover less than Rs.200 crores and more than Rs.2000 crores should be eliminated from the list of comparables as the assessee s turnover is Rs.740.73crores. 11.13 The assessee is seeking exclusion of the following 11 comparables on account of turnover filter. Sl no Company name Turnover (in Crores) 1 Kals Information Systems Pvt. Ltd. 2.88 2 E-Zest Solutions Ltd 56.51 3 Rheal Software Private Limited 6.27 4 Sybrant Technologies Pvt. Ltd. 4.28 5 Harbinger Systems Pvt Ltd 71.68 6 C G- V AK Software Exports Ltd. 10.24 7 R S Software (India) Ltd. 171.41 8 Larsen Toubro Infotech Ltd. 5,847.13 9 Orion India Systems Private Limited 63.09 10 Inteq Software Private Ltd. 17.47 11 Infobeans Technologies Ltd. 61.93 12 Infosys Ltd. 54,153 11.14 The turnover of the above companies are far higher/lower than that of the assessee company. Since the assessee falls under category of companies having turnover between Rs.200crores to Rs.2000crores, the ld. A.R. submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd in AY 2008-09 by following the decision rendered by another co-ordinate bench in the case of 3DPLM Software Solutions Ltd (IT(TP)A No. 1303/Bang/2012 dated 28-11-2013, wherein the decision rendered in the case of Triology E Business Software India P Ltd (ITA No. 1054/Bang/2011) was followed and it was held that M/s Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has huge revenues from software products. It was further observed that the break-up of revenue from software services and software product is not available. 6.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee's own case in AY 2008-09, we direct exclusion of M/s Infosys Ltd. 7. In AY 2008-09, the co-ordinate bench has excluded M/s Persistent Systems Ltd also by following the decision rendered in the case of 3DPLM Software Solutions Ltd (supra), where in it was held that M/s Persistent Systems Ltd is engaged in product development and product design services while the assessee is a software development service provider. Further, the segmental details were not available. 7.1 It was stated that there is no chang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... moved from the list of comparables. Regarding the comparable Nihilent Technologies Ltd the assessee had objected before the TPO and DRP that the same is not functionally comparable and regarding the comparable Aspire Systems (India) Private Limited the assessee had objected it is functionally dissimilar and fails the threshold limit of 15% RPT filter. The DRP rejected the objections of the assessee. It is submitted that the Hon ble Bangalore tribunal in the case of SanDisk India Device Design Centre Pvt. Ltd in IT(TP)A 288/Bang/2021 dt.30.06.2022 has directed to exclude the comparables Nihilent Technologies Ltd and Aspire Systems (India) Private Limited from the list. Relevant portion is extracted hereunder: 17.9 In respect of Nihilent Ltd., Infobeans Technologies Ltd. and Aspire Systems (India) Pvt. Ltd., Hon ble Mumbai Tribunal in case of Red Hat India Pvt. Ltd. vs. Addl. CIT (supra) observed as under: Comparable Sought to be excluded by the assessee Aspire System India Pvt. Ltd. (Aspire) 40. The assessee sought exclusion of Aspire from the final set of comparables for benchmarking SDS segment on the ground that it fails Related Party Transaction (RPT) filters as its RPT/ sales r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not available it cannot be a valid comparable vis- -vis assessee which is a routine software development service provider working on cost + markup model, hence ordered to be excluded .. 17.10 Perusal of the annual report, filed before us in respect of the above two comparables, we note that the segmental financials are not available in respect of Nihilent and Infobeans and the RPT in respect of Aspire Systems India Pvt. Ltd. is more than 25% being the threshold limit considered by the Ld.TPO. Nothing has been placed before us by the Ld.DR in order to take a different view. Respectfully following the Hon ble Mumbai Tribunal, we direct the Ld.TPO to exclude Nihilent, Infobeans and Aspire Systems from the final set. In view of the above decision, it is requested that the companies Nihilent Technologies Ltd. and Aspire Systems (India) Private Limited be removed from the list of comparables. Regarding the comparable Cybage Software Pvt. Ltd., the assessee had objected before the TPO and DRP that the same is not functionally comparable, lacks segmental information and has extraordinary high margins. However, the TPO and DRP rejected the objections of the assessee. It is submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we note that this company is engaged in providing Software services including network engineering services and is functionally comparable to the assessee. As per information in the annual report, the company has R D activities patents of its own which give rise to revenue stream for the company. However, the company has provided segmental information for its revenue from software services products. Accordingly, we consider it appropriate to direct the TPO to include the software services segment margin for the purpose of comparability. AO is directed accordingly. Though the AO has mentioned in the final assessment order that the said comparable has been included it is not clear whether the AO/TPO has adopted the margins of software services segment alone. Hence it is requested that AO/TPO may adopt the directions of the DRP. 2) Taal Tech India Pvt Ltd - This company has been considered as a comparable in the TP report by the assessee. The TPO rejected this as a comparable on the ground that it has different financial year ending. The DRP also upheld the same overlooking the submissions made and annual report provided by the assessee. The copy of the Balance Sheet and Profit Loss ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II page 675, para 7.3.1 5 Harbinger Systems Pvt Ltd TPO 71.68 15.06 Fails Turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II page 675, para 7.3.1 6 C G- V AK Software Exports Ltd. TPO Assessee 10.24 18.50 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II page 675, para 7.3.1 7 R S Software (India) Ltd. TPO Assessee 171.41 20.87 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II page 675, para 7.3.1 8 Larsen Toubro Infotech Ltd. TPO Assessee 5,847.13 24.83 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II page 675, para 7.3.1 9 Orion India Systems Private Limited TPO 63.09 25.64 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II page 675, para 7.3.1 10 Nihilent Technologies Ltd. TPO 251.22 26.36 Functionally different Lacks segmental details SanDisk India Device Design Centre Pvt. Ltd - IT(TP)A 288/Bang/2021 dt.30.06.2022 PB-III page 1107 to 1109, para 17.9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r: The Learned AO/DRP erred in disallowing deduction claimed of Lease payments on financial lease of Rs. 26,12,77,130/- under section 37 of the I T Act. 14.1 Facts of the case are that during the course of assessment proceedings the assessing officer noticed claim of deduction of its. 26,12,77,130/- under the head lease payments on financial lease. The assessee was asked to provide details of such payments made and why it should be allowed as a deduction. The assessee didn't furnish any reply before the AO. The assessing officer treated the transaction as a financial lease which involved purchasing of an asset with the help of a loan and treated it as a capital expense. Accordingly, the claim of deduction of Rs.26,12,77,103/- was disallowed. Before the ld. DRP, the assessee has submitted that the details sought were voluminous in nature and time given to comply notice was very short, therefore the assessee sought time vide its reply dated 26.12.2019 before the ld. DRP, which is as under: 'The above dated notice has been served on the assessee on the same day at 13.19.33 IST seeking compliance by 26.12.2019 at 4.00pm, thus giving hardly any time for the assessee to comply wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich remained unsubstantiated for want of supporting documents. As the assessee has not produced details such as lease agreements and other supporting evidences, the ld. DRP was not in a position to agree with the arguments of the assessee and accordingly, rejected the claim of the assessee that the action of the AO is contrary to the law and the addition required to be vacated and accordingly the ld. DRP rejected this ground of appeal. 15. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in the case of Texas Instruments (India) Pvt. Ltd. Vs. JCIT in ITA Nos.852 831/Bang/2017 dated 29.6.2022, , wherein held as under: 39. Ground No.6 is regarding disallowance of lease rentals paid on equipment and motor cars. The grounds raised by the assessee in this regard are as follows:- 6.1 The learned CIT(A) and the AO have erred in law and on facts in disallowing an amount of Rs 25,500,765 and Rs 77,520,788 pertaining to lease rentals paid by the Appellant on account of assets taken on lease being equipment and motor car respectively by treating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was computed and debited in the P L A/c. The following accounting treatment was adopted by the assessee as per AS 19, in the case of finance lease, the lessee (to whom significant risks and rewards have been transferred) would for all practical purposes be treated as the owner of the asset and expenditure on the same shall be capitalised in his books, while the lessor would not be considered as the owner, but the lease rentals received by the lessor shall be recorded as revenue in its books of accounts. In summary, the accounting treatment prescribed for finance leases for a lessee is as follows:- - The assets taken on finance lease are capitalised in the books of accounts of the lessee and depreciation is computed in the books of accounts. However, the value at which the purchase is recorded does not contain margin on sale of the lessor; - This margin is accounted by way of interest in the books of the lessee (ie finance lease): - The monthly instalments paid by the lessee are towards principal and interest charges components - The interest component is booked as finance charges in the books of accounts; and The principal amount is reduced from the lessor's account in the book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit of Rs 5,570,701 on account of the foreclosure of the lease has been excluded from the net profits; and The aggregate amounts of monthly instalments amounting to Rs 77,520,788 towards vehicles and Rs 23,059,332 towards equipment have been claimed as a deduction. 44. The AO however, disallowed the claim of the assessee for deduction on account of lease rentals for the following reasons:- The Assessee is the owner of the assets acquired under finance lease. Therefore, Assessee is only eligible to claim depreciation on the assets acquired under finance lease and not the lease rental paid towards acquisition of these assets; If the Assessee claims the lease rentals as revenue expenditure, the Assessee ought to have debited the same to profit and loss account. An expenditure not debited to profit and loss account cannot be claimed as revenue expenditure; The assessee has not deducted tax on the lease rental paid under section 1941 of the Act. Therefore, lease rentals are disallowed under section 40(a)(ia) of the Act; The Assessee and the lessor have collided with each other, wherein both the parties have made undue claims with an intention to suppress their profits. 45. On appeal b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase financing of motor vehicles and therefore there could be no disallowance under section 40(a)(ia) of the Act. In so far as the applicability of provisions of section 40(a)(ia) of the Act in respect of lease rentals paid for lease of equipment is concerned, it is seen from the submission made by the Assessee before the CIT(A) at page 672 of the Assessee s PB that the Assessee has duly deducted tax at source on payment of lease rentals. On a perusal of the order of the Revenue authorities, we do not find any specific discussion on this issue. In these circumstances, we deem it fit and proper to remand the question whether the lease rentals were subjected to TDS by the Assessee. The AO will afford due opportunity of being heard being to the Assessee. Thus, ground No.6 is partly allowed. 15.1 In view of the above, taking a consistent view, we remit this issue to the file of AO/TPO on similar lines. This ground of appeal is partly allowed. Ground No.16: 16. Ground No.16 of the assessee s appeal is reproduced below: The Learned AO/DRP erred in disallowing Miscellaneous Expenses of Rs. 16,27,83,384/- under section 37 of the I T Act. 16.1 Facts of the case are that during the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d annual/ quarterly returns as per law and requests your honour to kindly verify the factum of deduction of tax at source from the records available with the department 64.1 However the AO has made the disallowance for want of documentary evidence. The DRP rejected the objections of the assessee and upheld the action of the AO. 64.2 The disallowance has been made inspite of submitting all the details and particulars which has been duly noted by the AO. The entire breakup of expenditure including the name of the party, amount, TDS made alongwith description is available at paperbook-II page 396. The AO did not ask for any other evidence or detail. The notice u/s 142(1) on this issue does not bring out any lapse on the part of the assessee to submit any detail/evidence. This is a case wherein the AO has made an addition without any justification and for no lapse on the part of the assessee. The details furnished by the assessee are self-explanatory and has been incurred wholly and exclusively for the purpose of business and is allowable u/s 37 of the Act. Hence the addition has to be deleted. 65. After hearing both the parties, we are of the opinion that assessee has to establish the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oubtful receivables and advances. The same being interest in nature, the provision is increased to such extent and the corresponding income is reflected under 'Income from Other Sources . Therefore, considering the above two adjustments, the final amount disallowed under provision for doubtful receivables and advances is Rs.15,70,63,610/-. Since the assessee has explained the difference, it is requested that the disallowance being unwarranted be deleted in the interest of justice. 18.3 The assessee was asked to substantiate its arguments with documentary evidences and submit necessary reconciliation in support of his argument. However, no documentary evidences and reconciliation statement could be filed before the ld. DRP, which substantiates that assessee's argument. As the assessee has not discharged its primary onus, ld. DRP found it difficult to agree with the contention of the assessee. Accordingly, the ld. DRP upheld the disallowance of Rs. 1,63,36,390/-made by the Assessing Officer. 19. We have heard the rival submissions and perused the materials available on record. The main contention of the ld. A.R. is that the AO has not followed the ld. DRP s order and requeste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uate, reasonable and sufficient opportunity as required under law and the Act. 20.3 Before the DRP, the assessee submitted the details of the provisions made for AY 2016-17 which is as under: Particulars Rs. Legal and Professional fees 23,87,20,611 Advertisement and Sales promotion 2,62,71,514 Repairs and Maintenance - Building 10,76,60,089 Repairs and Maintenance Plant machinery 19,32,810 Repairs and Maintenance - others 52,94,053 Dealer Commission 4,17,98,786 Total 42,16,77,863 20.4 The assessee submitted that during the impugned assessment year it had made provisions for expenses of Rs.42,16,77,863 in the nature of legal professional fees, Advertising and sales promotion, Repairs and maintenance and dealer commission. Such amount has been reversed in the subsequent year and offered to tax in the year of reversal. Based on the above, the assessee submitted that the aforesaid amount, being in the nature of provision, the same should not be disallowed on the ground of non-deduction of taxes at source. The provision made was not credited to any party s or individual account, as it was not clear to whom payment was required to be made. Further, if the assessee was required to deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on before this Tribunal as follows: (i) Ground No.18 in assessee s own case in IT(TP)A No.2525/Bang/2017 dated 23.3.2018 for the AY 2013-14 wherein held as under: 4. Having carefully examined the orders of the lower authorities and the orders of the Tribunal for the AYs 2010-11 to 2012-13, we find that in the earlier years also, the DRP did not admit the additional evidence filed before him and the Tribunal for that reason set aside the order of the DRP and restored the matter to the TPO/AO to re-adjudicate the issues raised before them after affording opportunity of being heard to the assessee. Copies of the orders of the Tribunal are placed on record. From a careful perusal of the orders of the TPO, we find that he started the proceedings from 28.07.2016 and concluded it on 25.10.2016 within a period of less than 3 months; whereas the DRP started its proceedings on 30.01.2017 and concluded it on 22.09.2017 after taking almost 8 months. Before the DRP the assessee has filed additional evidence on 29.08.2017 but it was not admitted by the DRP having observed that these evidence should have been filed before the TPO. Without looking to the additional evidence, the DRP has adjudicate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jections raised by assessee against comparables selected by Ld.TPO and simply followed DRP directions issued for AY 2013-14. As AY: 2013- 14 has been set aside by this Tribunal, we deem it fit and proper to remit the issues to file of Ld. AO/TPO for taking necessary action of passing a speaking order by granting fair opportunity to assessee of being heard. It is also observed that all these issues are pending before lower authorities and we find no reason to adjudicate these issues at this stage. Accordingly, following earlier orders passed by this Tribunal in assessee s own case, we set aside all issues to Ld.AO for readjudication of issues in the light of the findings given in earlier years.(Refer Annexure I) 6. In the result appeal filed by assessee stands allowed for statistical purposes. 21.2 Keeping in view of the above decision, we remit this issue in ground No.19 to the file of AO/TPO for reconsideration in the light the above decision. 21.3. Ground No.20:- We are of the opinion that this issue came for consideration in assessee s own case in IT(TP)A No.2442/Bang/2019 dated 11.12.2020 for the AY 2015-16, wherein held as under: 5. We have perused submissions advanced by both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound Nos.18 to 20. Ground No.22: 23. Ground No.22 of the assessee s appeal is reproduced below: The Learned AO/DRP erred in not giving TDS credit amounting to Rs. 1,58,77,886/- and no reasons or explanations have been given for denying the credit. 23.1 After hearing both the parties, we are of the opinion that this requires verification by the AO/TPO on the basis of TDS deduction made by the respective parties. Accordingly, this issue is remitted to the AO to verify the same and grant the eligible TDS to the assessee. 24. The last grounds in this appeal in ground Nos.23 24 are with regard to charging of interest u/s 234A 234B of the Act. According to the ld. A.R., the assessee filed return of income within the time stipulated in section 139(1) of the Act and as such there was no delay in filing the return of income. The levy of interest u/s 234A of the Act is bad in law. In our opinion, this requires to be verified at the end of the AO if the return has been filed within the due date prescribed u/s 139(1) of the Act. If return for this year has been filed within due date u/s 139(1) of the Act, there cannot be any levy of interest u/s 234A of the Act. With regard to levy of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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