9911796707
TMI Blog2023 (5) TMI 1352X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Deselection of companies as functionally dissimilar. 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. 937.19 crores. Working capital adjustment to be allowed on actual basis. TP Adjustment in SWD segment - As assessee s margin for the SWD segment is 10.72% and the margins of the comparable companies i.e, 11.37% (before working capital adjustment) which is within the tolerance range of 3% and in view of the above submissions, the transaction is at arm s length and therefore we direct the ld. DRP to delete the TP adjustment made in the interest of justice. Interest on delayed receivables ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP erred in failing to rely on decision of the ITAT in appellant's own case for the years 2002 - 03 to 2004 - 05 and subsequent orders of the ITAT for AY: 2005-06 2006-07. 4. Facts of the case are that the assessee M/s.Wipro GE Healthcare Pvt Ltd is a Joint Venture between General Electric Company, USA ( GE or the parent ) and Wipro Limited. The assessee is engaged in contract manufacturing of medical diagnostic imaging equipment, ultrasound systems, patient monitoring and Xray systems ( medical equipment ), provision of engineering and software services and distribution of medical diagnostic imaging equipment, therapy equipment and life sciences products ( medical products ). The following additions have been made by the Assessing Officer on which the assessee is in appeal: Particulars As per Final Assessment order (Rs.) As per Draft Assessment order (Rs.) Transfer Pricing adjustments: 2,19,25,70,261 2,21,03,46,332 Royalty 9,41,83,707 9,41,83,707 Distribution segment 1,24,42,65,469 1,24,42,65,469 Software Development segment 85,35,47,785 87,13,23,856 Interest on delayed trade receivables 5,73,300 5,73,300 Other Issues: 46,61,17,921 1,54,31,94,088 Disallowance u/s 37 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered royalty as part of international transaction in the trading segment. Thus, without adhering to the orders of the ITAT in assessee s own case, the TPO made the Royalty adjustment in para 23.6 of the TP order extracted as under: 23.6 Regarding the taxpayer s contention that the TPO has to follow a proper benchmarking and the ALP of Royalty cannot be held as NIL, it is stated that, the DRP in its order for the AY 2014-15, in the taxpayer s own case has held that when the taxpayer is not eligible to pay Royalty itself, then to find a comparable as per the taxpayers contention becomes superfluous. Hence the entire amount of Rs. 9,41,83,707/- is treated as adjustment u/s 92CA of the Income Tax Act 1961. 4.4 The TPO in the second round of proceedings for AY 2005-06 2006-07 did not follow the direction of the ITAT and upon appeal the Tribunal in IT(TP)A 701 702/Bang/2021 dated 05.08.2021 has held as extracted hereunder: 3.7 We have heard the rival submissions and perused the materials available on record. In earlier occasion, assessee came in appeal before this Tribunal. The Tribunal remitted the issue with the directions in IT(TP)(A) No. 40/Bang/2011 1647/Bang/203 dated 21.4.2017 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. 4.8 The ld. A.R. submitted that the Tribunal in assessee s own case for AY 2017-18 in ITA 291/Bang/2022 dated 15.03.2023 has followed the order for AY 2016-17 in IT(TP)A 285/Bang/2021 dated 03.02.2023. Relevant portion extracted hereunder: 5. We have heard both the parties and perused the materials available on record. After hearing both the parties, we are of the opinion that this issue came for consideration before this Tribunal in assessee s own case in assessment year 2016- 17 in ITA No. 285/Bang/2021 dated 03.02.23, wherein held as under:- . 5.1 In view of the above decision of the Tribunal in assessee s own case, we allow the ground taken by the assessee. This ground of assessee is allowed. 4.9 In view of the above, the ld. A.R. requested that the orders of the Tribunal for AY 2005-06 AY 2006-07 in IT(TP)A 701 702/Bang/2021 dated 05.08.2021, for AY 2012-13 in IT(TP)A 703/Bang/2021 dated 07.10.2022, for AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 and for AY 2017-18 in ITA 291/Bang/2022 dated 15.03.2023 be followed for the impugned year as well. 5. The ld. D.R. relied on the orders of the lower authorities. 6. After hearing both the parties, we are of the opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd for its product. Therefore, as Wipro GE uses the 'GE' trademark and tradename which is owned by GE Company, Wipro GE is able to sell its products in the Indian market and meet the growing demand in the medical equipment industry. The Assessee also submits that, the Assessee is able to sell its products because of the GE brand associated with the products. The customer places its order with the Assessee and the Assessee in turn places the orders with the AEs to meet the customers demand. The prices are negotiated between the Assessee and the customers and the prices are market driven. The distribution of medical equipment along with its service component will help the Assessee in the long-term business with the customers. Further, in terms of the arrangement with the affiliates, Wipro GE is responsible for local pricing in the domestic market. 4.2 The TPO observed that the arguments of the assessee are fallacious for the following reasons. As per the TP study report and the submissions made by the assessee, WGE identifies the customers and forecasts the demands of the customers for the products of the AEs in Indian Market. Most of the goods imported from the AEs are deliv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interconnected transactions. Import of raw material for manufacture would possibly be an independent transaction viz., marketing and distribution activities or functions. 'A careful perusal of the judgment of the Hon'ble jurisdictional High Court divulges that though a number of closely linked transactions can be aggregated, but, the transactions which are not closely related to each other would require determination in a segregated manner. 4.6 Further, the ld. TPO observed that the Punjab ..Haryana High Court in knorr-Bremse India Pvt. Ltd. held that It further laid down emphatically tit: 'the contention that as the services and goods are utilized by the assessee for the manufacture of the final product they must be aggregated and considered to be a single transaction and the value thereof ought to be computed by the TNMM is acceptable. Merely because the purchase of each item and the acceptance of each service is a component leading to the manufacture/production of the final product sold or service provided by the assessee, it does not follow that they are not independent transactions for the sale of goods or provision of services. When 'we consider more than one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th regard to TP adjustment of Rs. 1,74,04,730/- towards royalty payment. 3.1 This issue was considered by this Tribunal on earlier occasion in assessee s own case and this Tribunal in IT(TP)A No. 40/Bang/2011 for the assessment 2005-2006 and the Tribunal vide order dated 21.4.2017 set aside this issue to the file of AO/TPO for fresh consideration, of which the TPO/AO sustained addition of Rs. 1,74,04,730/-. Against this assessee is in appeal before us. 3.2 The assessee has paid royalty of Rs. 1,74,04,730/-. Royalty has been paid having regard to the support services by the Group company. The assessee is in the business of advanced diagnostic equipment. After sales support becomes a critical component for the equipment sold. The assessee s group affiliates have extended a unique condition wherein the equipment is under constant monitoring through the network of satellites. The advantage of such a system is that it allows remote monitoring besides remote maintenance. The assessee is a beneficiary of such facility. It would have cost hundreds of millions of dollars to have an own exclusive facility besides the assessee also does not have such technology to put up the facility. It woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt as the company has no trademark licensed to it. Due to lack of comparable transaction, ex-facie the company cannot be considered as a comparable with the assessee. The adoption of CUP method is also not as per law in the absence of comparable transaction. Hence in the impugned case, there is no comparable identified as required in law by the TPO. In the absence of comparable transaction, the Tribunal has held as extracted supra that the royalty payment be considered as operating cost in the trading segment. The TPO has adopted M/s Advanced Micronic Devices Ltd as a comparable in the trading segment. By applying the same, the assessee in its reply dt.05.06.2019 has worked out the margin by considering royalty as part of the trading segment. The margin of the assessee in the trading segment works out to 39.49% after considering royalty as operating cost as against the margin of the comparable M/s Advanced Micronic Devices Ltd being 28.06%. Since the margin of the assessee is higher than that of the comparable, the transaction is at arm s length and consequently the addition requires to be deleted. 3.6. The Ld. D.R. submitted that there is no proof of any services having actually b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee once again in appeal before us. 4.1. The Ld. A.R. submitted that the impugned issue was set aside by the Tribunal in IT(TP)A 40/B/11 dt.21.04.2017 to the AO for reconsideration and adjudication. The AO vide his notice dt.11.11.2019 sought details of dealer commission. The assessee vide replies dt.27.11.2019 11.12.2019 submitted the party wise details of provision and payments along with the details of deduction of TDS and prayed that the same should be allowed as business expenditure. However, rejecting the details and information provided and the practice consistently followed by the assessee, the AO has disallowed the dealer commission as not incurred wholly and exclusively for the purposes of business and disallowed the same u/s 37 of the Act. 4.2 The assessee disagrees with the findings of the AO as he has erred in wrongly interpreting the facts, submissions, method of accounting and the practice consistently followed by the assessee. The sales are booked by various dealers appointed by the assessee and commission is paid on the sales made by them, however, the actual payment is made upon realization of the sales proceeds and on fulfilling other concomitant services / o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the books of accounts of the assessee is not rejected by challenging the entries in the books of accounts. On this point also, we are of the opinion that the claim of assessee is to be allowed as genuine. Accordingly, we allow this ground of appeal taken by the assessee. 4.5 In the result, the appeal of the assessee in ITA No. 701/Bang/2021 is partly allowed for statistical purposes. 6.1 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. 6.2 In view of the above decisions, taking a consistent view, we allow the ground taken by the assessee. 5.1 In view of the above decision of the Tribunal in assessee s own case, we allow the ground taken by the assessee. This ground of assessee is allowed. 6.1 In view of the above decision of the Tribunal, taking a consistent view, we allow the payment of Royalty and this ground taken by the assessee. 7. Ground No. 13(a) to 13(u) are with regard to Distribution Segment at Rs. 124,42,65,469/-, which reads as follows: 13. a) The Learned AO / TPO / DRP erred in making adjustment towards the Arm's Length Price difference in the distribution segment amounting to Rs. 124,42,65,469/-. b) The L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired under law as well as the facts. q) The learned AO/TPO/DRP erred in not considering the after sales support service segment while determining operating margin of distribution segment. r) The learned AO/TPO/DRP erred in rejecting the corroborative analysis provided by the appellant. s) The Learned AO/TPO/DRP erred in applying the trading income threshold of 50% to sales to select comparable companies. t) The learned AO/TPO/DRP erred in applying the Related party transactions threshold of 25% to revenues to select comparable companies. u) The learned AO/TPO/DRP erred in not applying the Turnover filter as per law. 8. Facts of the case are that Wipro GE markets, distributes and services the complete range of GE s medical diagnostic imaging and therapy equipment in the Indian market. Based upon customer requirements, Wipro GE imports medical systems from other GE Healthcare global entities. Wipro GE also caters to the after sales market segment by way of supply of spare parts and service of equipment. Based on the functional analysis, Wipro GE is classified as a Distributor of medical products which provides after sales services on diagnostic and therapy equipment. Margin of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strict the adjustment to the international transaction i.e, AE purchases of Rs. 1057,23,13,092/- has not been adhered to by the TPO. The TPO yet again has made the adjustment on domestic sales of Rs. 2207,96,53,929/- which is not an international transaction. 8.4 The ld. A.R. further submitted that the TPO/DRP have adopted TNMM as the MAM to benchmark the transaction. It was submitted to the TPO/DRP that the ITAT in ITA 810 to 812/Bang/2007 dated 16.05.2008 for the AY s 2002-03 to 2004-05 has held Resale Price Method as the MAM to benchmark the transaction. Relevant portion is reproduced as under: Accordingly, he has held Resale Price Method as explained in Rule 10B(1)(b) will be the MAM since the trading segment involves purchases of goods which is resale. In my view resale price method offers a solution for the issue on hand. Accordingly TPO is directed to adopt resale price method of ALP determination. In doing so gross margin being the difference between the purchase price paid to AE and sale price realized offers a simple and reliable basis. Accordingly, TPO will do so. This decision takes care of the guidance offered in rule 10(c) of the rules. 8.5 The ld. A.R. submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgins of the comparable as well as assessee by considering the fresh material which was not available with the TPO/A.O. which it is not permissible to the CIT (Appeals) to do this exercise of recomputation without giving an opportunity to the TPO/A.O. The proper course of action on the part of CIT (Appeals) would have been to ask the TPO/A.O. for remand report by considering all the relevant material. However, the CIT (Appeals) did not choose to issue any remand order but undertaken the entire exercise on his own. Thus it is clear that the TPO/A.O. was not given an opportunity in this process of recomputing the margins of the comparable as well as assessee. Accordingly in view of the above facts and circumstances of the case, we set aside this issue to the record of the TPO/A.O. to consider and verify relevant record and then determine the ALP in the light of our above observations. 8.7 The TPO for the AY 2005-06 while passing the order giving effect vide order dt.28.10.2019 has followed the direction of the ITAT of applying RPM method and restricting the adjustment only in respect of the international transactions and thus held that no adjustment was required. Relevant portion is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecially 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 The Tribunal in assessee s own case for AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 has dealt with this issue by following the order for AY 2012-13 in IT(TP)A 703/Bang/2021 dated 07.10.2022. Relevant portion extracted hereunder: 10. 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 2012-13 in ITA No. 703/Bang/2021 dated 7.10.2022, wherein held as under: 10.1 Same view was taken in assessee s own ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned AO / TPO / DRP erred in not granting the variances deduction envisaged in the Act and Circular. h) 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. i) The learned AO/TPO/DRP erred in rejecting R D expense more than 3% on turnover to eliminate companies engaged in R D activities. j) The learned AO/TPO/DRP erred in applying the software development service income threshold of 75% to sales to select comparable companies. k) The learned AO/TPO/DRP erred in applying export turnover threshold of 75% to sales to select comparable companies. 1) The learned AO/TPO/DRP erred in rejecting the comparable companies having ratio of employee cost to sales less than 25%. m) The learned AO/TPO/DRP erred in applying the Related party transactions threshold of 25% to revenues to select comparable companies. n) The learned AO/TPO/DRP erred in not applying the Turnover filter as per law. o) The Learned AO/TPO/DRP erred in not considering the following companies as comparables rejecting the submissions made by the appellant. 1. E-Zest Solutions Ltd 2. 3D PLM Global Services Pvt Ltd 3. Bhilwara Infotechnology Ltd 4. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee as computed by the TPO in the TP Order Particulars Rs. Operating revenue 937,19,25,706 Operating Cost 846,47,95,936 Operating profit 90,71,29,770 OP/OC 10.72% 12.4 The Comparables selected by Assessee and their margins are as under: Sl No Name of the Company Wt. Avg (%) Remarks 1. 3D PLM Global Services Pvt Ltd 23.23 Failed Export filter, hence rejected 2. AXISCADES Engineering Technologies Ltd 13.40 Accepted 3. Bhilwara Info technology Ltd 26.45 Failed Export filter, hence rejected 4. C G-VAK Software Exports Ltd 8.19 As seen from note 17 of Annual report for AY 2018- 19, the company is earning revenue from two segments including ITeS segment and no segmental details are available; Hence rejected. 5. E Zest solutions 9.29 No data available, hence rejected 6. Harbinger Systems Pvt. Ltd. 6.94 Accepted 7. I-Design Engineering Solutions Ltd 14.05 Failed Export filter, hence rejected 8. InfoBeans Technologies Ltd 25.85 Accepted 9. Isummation Technologies Pvt Ltd 3.44 Failed Networth filter, hence rejected 10. L T Technology Services Ltd 20.58 Accepted. 11. Larsen Toubro Infotech Ltd 18.24 Accepted. 12. Maveric Systems Ltd 0.19 Failed Export filter, hence rejected 13. O F S Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Ltd, Harbinger Systems Pvt Ltd, Bechtel India Pvt Ltd and inclusion of Sasken Technologies Ltd, Sagarsoft India Ltd, Maveric Systems Ltd, Issumation Technologies Ltd as comparables. The TPO while giving effect to the directions of the DRP vide order dated 22.07.2022 did not exclude Tech Mahindra Ltd and did not include Sasken Technologies Ltd and arrived at TP adjustment of Rs. 85,35,47,785/- in the software development segment. The AO passed the final assessment order u/s 143(3) rws 144C(13) rws 144B of the Act dated 25.07.2022 adopting the TPO order giving effect dated 22.07.2022. 13. The ld. D.R. relied on the orders of the lower authorities. 14. We have heard the rival submissions and perused the materials available on record. Before the Tribunal the assessee is not seeking for inclusion of any of the comparables. The assessee has filed a chart seeking exclusion of comparables on various grounds. The same are outlined hereunder. Sl. No. Name of company Comparable of Turnover (in crs) OP/OC % Comparable margin Rejected as comparable On Grounds Rejected as comparable in Page/ Para 1 Issumation Technologies Pvt Ltd Assessee 2.37 2.37 Accepted 2 Maverick Systems Ltd. Assessee 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT in assessee's own case for AY 2016-17 in ITA 285/B/2021 vide order dated 03.02.2023 based on the decision in SanDisk India Device Design Centre Pvt. Ltd - IT(TP)A 288/Bang/2021 dt.30.06.2022 PB-III, page 866 to 875, para 11.16 to 13.1 Rejected by the Hon'ble ITAT in assessee's own case for AY 2017-18 in ITA 291/B/2022 dt. 15.03.2023 PB-III, page 937 to 939, para 9.10, 9.11 10 19 Wipro Ltd. TPO 4,327.00 26.83 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 634, para 7.3.1 20 Tata Elxsi Ltd. TPO Assessee 1,361.33 28.24 Functionally different Rejected by the Hon'ble ITAT in assessee's own case for AY 2017- 18 in ITA 291/B/2022 dt. 15.03.2023 based on the decision in ADP Pvt Ltd vs DCIT - ITA 227 228/Hyd/2021 dt.03.02.2022. PB-III, page 938, para 9.12 10 21 Infobeans Technologies Ltd. TPO Assessee 80.12 28.52 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 634, para 7.3.1 22 Nihilent Ltd. TPO 280.06 30.17 Functionally different and lack of segmental details Rejected by the Hon'ble ITAT in assessee's own case for AY 2016- 17 in ITA 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal in the case of Fulcrum is extracted as hereunder: 7.3. We have given a careful consideration to the rival submissions. The Bangalore Bench of the ITAT had an occasion to deal with an identical issue in the case of DCIT Vs. M/s. Northern Operating Services (supra), wherein the Tribunal came to the conclusion that turnover was relevant criteria in choosing comparable companies and that a company, whose turnover is more than Rs. 200 Crores, cannot be compared with the company, whose turnover is less then Rs. 200 Crores. In Coming to the aforesaid conclusion, the Tribunal relied on the decision rendered by the ITAT, Bangalore Bench in the case of Autodesk India P. Ltd., Vs. DCIT (2018) [96 taxmann.com 263] (Bangalore-Trib) reviewing all the conflicting decisions on the point, and concluding that the application of turnover filter still holds good and has not been in any manner diluted by the decision of Hon'ble Karnataka High 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:.. 14.3 Applying the said decision, the companies having turnover less than Rs. 200 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment Year 2014-15 in the case of LG Soft India (P.) Ltd. v. DCIT [IT(TP) Appeal No. 3122 (Bang.) of 2018, dated 28-5-2019]. In this order rendered in a case of assessee rendering SWD services such as the assessee, the Tribunal excluded 3 out of 5 companies referred to in the earlier paragraph and remanded 1 company for fresh consideration with the following observations:- 5. The Ld A.R submitted that M/s Infosys Ltd, M/s Persistent Systems Ltd and M/s Thirdware Solutions Ltd have been excluded by the co-ordinate bench in the assessee's own case in AY 2008-09 in IT(TP)A No. 1673/Bang/2012. .. 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 change in facts. Accordingly, following the decision rendered in the assessee's own case in AY 2008-09, we direct exclusion of M/s Persistent Systems ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agement, Digital transformation services and Enterprise IT services but segmental financials are not available as is apparent from its financials available at page A305, A412 A413 of the paper book. When this company is into various segments but segmental financials are 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. 14.7 The Tribunal in assessee's own case for AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 considering the above decision in Sandisk has rejected Persistent Systems Ltd. and Nihilent Ltd as comparabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Systems Ltd, the objections of the assessee are as under: a) The Company is functionally not comparable. It is engaged in selling of the following: i. Software products (IP); ii. Platforms (Solutions Integration); and iii. services (product engineering) b. There are no segmental details between software products and services. 28. In the case of Tata Elxsi, the assessee has taken the following objections: a) It is not functionally comparable to the assessee. In the financial statements of the company, the nature of business carried out by Tata Elxsi is given below: i) Corpoprate Information Tata Elxsi Ltd was incorporated in 1989. The Company provides product design and engineering services to the consumer electronics, communications and transportation industries and systems integration and support services for enterprise customers. It also provides digital content creation for media and entertainment industry 29. We find that in the case of Infor (India) (P) Ltd vs. ACIT in ITA No. 2307/Hyd/2018, the Coordinate Bench of the Tribunal has considered similar objections of the assessee therein and has held that these two companies along with Thirdware Solutions Ltd is not comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of comparables. 14.11 Similarly, the Hyderabad Tribunal in the case of Infor (India) Pvt Ltd - IT(TP)A 198/Hyd/2021 dt.06.10.2021 has directed exclusion of Cybage Software. Relevant portion is extracted hereunder: 4.3. Next come M/s. Thirdware Solution Limited and M/s. Cybage Software Private Limited which have already have been ordered to be excluded by the tribunal after holding the same to be functionally different than software development services and having abnormally average high margin; respectively. 14.12 The Tribunal in assessee's own case for AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 considering the above decisions in Optiva and Infor has rejected Cybage Software Pvt Ltd as comparable. The Tribunal in assessee's own case for AY 2017-18 in ITA 291/Bang/2022 dated 15.03.2023 has rejected this company as comparable. In consideration of the above, we direct the ld. DRP to remove the company Cybage Software Pvt Ltd. from the list of comparables for the impugned year. 14.13 The final list of comparables after considering the above arguments of ld. A.R. are as hereunder: Sl. No Name of the Comparable company (OP/OC)% before WC Adjustment 1 Issumation Technolog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds as follows: 15. The Learned AO/TPO/DRP erred in making adjustment towards Interest on delayed receivables amounting to Rs. 5,73,300/- . Further the AO/TPO/DRP erred in not identifying comparable as required under law. 16. Facts of the case are that during the course of proceedings u/s 92CA of the Act, the TPO vide notice dated 26.07.2021 asked to furnish invoice wise aging details of outstanding receivables. The TPO proposed to treat the delayed receipts from AE s as unsecured loans and charge interest at SBI PLR if the invoices are raised in domestic currency or LIBOR rate if the invoices are raised in foreign currency. The assessee vide reply dated 28.07.2021 duly furnished the details sought by the TPO and made elaborate submissions. The assessee submitted that interest cannot be levied on delayed receivable as it has delayed payables. An amount of Rs. 141 lacs is outstanding as receivable as on 31 March 2018. The assessee also highlighted that the total payables with these parties itself is Rs. 248 lacs. The snapshot of the total receivables vs. total payable as per the Form 3CEB is tabulated below Particulars Amount as per Form 3CEB Trade Receivables 14,19,19,482 Trade Paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Aztec Software Technology Services Ltd vs ACIT (294 ITR (Trib) 32) that broader indices general averages etc cannot be the benchmark as an arms length transaction unless such a transaction is specifically identified which are comparable to that of the assessee and hence no addition can be made. In this case such an effort has not been undertaken by the TPO and hence the ld. A.R. requested that the adjustment made may be deleted in the interest of justice. 17. The ld. D.R. relied on the orders of the lower authorities. 18. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in the case of ISG Novasoft Technologies Ltd. in IT(TP)A No. 3284/Bang/2018 dated 18.3.2021, wherein held as under: 24. We have heard both the parties and perused the material on record. The Id. AR fairly conceded that outstanding amount on account of sales/services billed to AE akin to loan advanced by assessee is an international transaction. As held by the Hon'ble Delhi High Court in the case of Avenue Asia Business Advisors (P.) Ltd. v. DCIT [2017] 398 ITR 120 (Del), there should be TP adjustment on this count after making proper TP s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,65,471/- as allowable. 20.2 The ld. A.R. submitted that the disallowance made by the AO is unsustainable being double in nature. The difference in approach between the accounting of lease transaction and claim for lease rentals in the income tax assessment is consistent with the past years and the same has been accepted by the department. The ld. A.R. prayed that since the method of allowance of rent is a part of method of accounting consistently followed, no departure is called for unless the circumstances mentioned in section 145 of the Act warrants the same. 20.3. The ld. A.R. for the assessee submitted that the ITAT Bangalore under similar facts and circumstances in the case of Texas Instruments (India) Pvt Ltd vs JCIT in ITA 852 831/B/2017 dt.29.06.2022 has allowed the lease payment on finance lease as revenue expenditure and negated the contention of the department of considering the payment as capital expenditure. Relevant portion is extracted hereunder: 46. We have heard the rival submissions. We have also perused copies of the lease agreement entered into between the assessee and the lessor. It is clear from the terms of the agreement that the assessee was only a lessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further submitted that the issue has been dealt by the ITAT in assessee's own case for AY 2017-18 in ITA 291/Bang/2022 dated 15.02.2023 in para 11 to 13.1. Relevant portion extracted hereunder: 13. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in ITA No. 285/Bang/2021 dated 3.2.2023 for the AY 2016-17, wherein held as under: --------- 13.1 In view of the above order of the Tribunal, taking a consistent view, we remit this issue to the file of AO/TPO on similar directions. This ground of appeal is partly allowed. 20.6 In view of the above, it is prayed that the disallowance u/s 37 of the Act Rs. 10,08,65,471/- be deleted in the interest of justice. 21. The ld. D.R. relied on the orders of the lower authorities. 22. After hearing both the parties, we are of the opinion that this expenditure has been disallowed since the assessee has not produced the details of the expenditure inspite of giving sufficient opportunity to the assessee. Before us, the assessee prayed for remitting the issue to the file of AO to examine the issue in the light of earlier decision in assessment year 2017-18 in assessee s own case in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtion is extracted hereunder: 46. We have heard the rival submissions. We have also perused copies of the lease agreement entered into between the assessee and the lessor. It is clear from the terms of the agreement that the assessee was only a lessee and the lessor was the owner of the equipment as well as the vehicles. The AO in the order of assessment has culled out certain clauses of the agreement and came to the conclusion that the assessee is the owner of the assets and the lease rentals paid was nothing but an expenditure paid for acquiring an asset which was to be regarded as a capital expenditure. This conclusion of the AO, in our view, is clearly erroneous. Even assuming that the expenditure has to be regarded as a capital expenditure, the AO ought to have allowed depreciation to the assessee. In this regard, we find that in the computation of total income which is at page 52 of the assessee s PB that the assessee has added to the profit as per the P L A/c the finance charges on lease and reduced lease rentals paid. Therefore, whatever be the position with regard to the books of account in compliance with AS-19; as far as computation of the total income for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 with the notice as 25th being Christmas holiday and 26th is the only working day available for the assessee to comply with the voluminous data and information sought by your good selves. The assessee submits that sufficient and reasonable opportunity and time be given as required under law so as to enable it to comply with notice as the required information is voluminous: not available in the required format and not readily available as the same has to be sourced / assimilated fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 the same as capital in nature. 6.2. Without prejudice to the above, the learned AO has erred on facts in disallowing an amount of Rs 25,500,765 pertaining to lease rentals on equipment as against the amount of Rs 23,059,332 claimed by the Appellant in the computation of income. 6.3. The learned CIT (A) and the AO have erred in law and on facts in disregarding the reliance placed by the Appellant on the decision of the Honourable Supreme Court in the case of M/s ICDS Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 books of the lessee; - Any profit / loss on account of disposal of the leased asset are to be charged to the profit and loss account. 42. As far as Tax treatment of finance lease for income tax purposes is concerned, as per Circular No. 2 dated February 9, 2001 ( the Circular ) issued by the Central Board of Direct Taxes ( CBDT ), pertaining to finance lease arrangements, it has been clarified that the provisions of AS 19 shall not be applicable for tax purposes. This Circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 by the assessee, the CIT (A) upheld the order of the AO. Aggrieved by the order of the CIT(A), the assessee has preferred ground No. 6 before the Tribunal. 46. We have heard the rival submissions. We have also perused copies of the lease agreement entered into between the assessee and the lessor. It is clear from the terms of the agreement that the assessee was only a lessee and the lessor was the owner of the equipment as well as the vehicles. The AO in the order of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 13.1 In view of the above order of the Tribunal, taking a consistent view, we remit this issue to the file of AO/TPO on similar directions. This ground of appeal is partly allowed. 22.1 In view of the above, we remit the issue in dispute to the file of AO/TPO on similar directions. 23. Ground No. 17 is with regard to disallowance of Rs. 36,52,52,459/- u/s 37 of the Act under the head Any other amount allowable as deduction , which is reproduced below:- 17. The Learned AO erred in disallowing the claim of deduction under the head 'Any other amount allowable as deduction' amounting to Rs. 36,52,52,459/- under section 37 of the IT Act overlooking the details and clinching evidence submitted by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... double disallowance. As regards rest of the expenditure claimed and disallowed, the assessee has not been able to evidence that these expenses, reversal of certain liabilities and duties have been disallowed in the respective years in the computation of those years in which the provisions were created. In the absence of the same, the disallowances made (excluding the double disallowance on lease payments on finance leases) are upheld. Ground partially allowed 24.1 Following the directions of the DRP, the assessee submitted the details before the AO on 25.07.2022. Without considering the submissions of the assessee, the AO passed the final assessment order on 25.07.2022 deleting the double addition and retaining the disallowance at Rs. 36,52,52,459/- and the assessee claimed for expenses that they are incurred in the ordinary/regular course of business and for the purpose of business. 24.2 In view of the above, the ld. A.R. prayed that the disallowance being unwarranted be deleted in the interest of justice or in the alternative may be set aside to the file of AO to verify and decide the issue afresh in the light of the decisions given in earlier years. 25. The ld. D.R. relied on t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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