9911796707
TMI Blog2024 (8) TMI 1167X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount and number of days outstanding beyond the grace period for each and every invoice. The assessee shall provide complete information in this regard to the TPO. Also, turning to the number of days of grace period, there is no thumb rule that grace period of 30 days, 60 days or 90 days should be allowed AR submitted that the assessee is a captive service provider and there are no comparable transactions with the Non-AEs. Thus, we are left with no choice but to remand this issue to the file of the TPO to examine if there are any agreements with the AE and what is the grace period in those agreements. If there are no agreements with the AEs, the TPO should consider the market practice in the relevant sector and then grant the grace period. Respectfully following the above decision of the Co-ordinate Bench in assessee's own case we direct the AO to re-compute the interest on receivable with similar directions. Disallowance of employee contribution to PF in the intimation under section 143(1) - HELD THAT:- Respectfully following the decision rendered by in case of Checkmate Services P. Ltd. [ 2022 (10) TMI 617 - SUPREME COURT ] we are of the considered view since the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical Systems Inc. is not correct. Accordingly, we delete the interest charged on the amount receivable from Varian Medical Systems Inc. This ground of the assessee is allowed. Short grant of advance tax credit and credit towards TDS - AR submitted that the AO failed to give credit towards advance tax paid by VMSS, which merged with assessee and that the AO did not consider the TDS deducted in the name of VMSS. Our attention in this regard was drawn to the relevant evidences to substantiate the claim. Accordingly, we issue direction to the AO to consider the claim of the assessee based on the documentary evidences and give credit in accordance with law. - SHRI NARENDER KUMAR CHOUDHRY, JM MS PADMAVATHY S, AM For the Appellant : Shri Ajit Jain a/w Shri Siddesh Chaugule, AR For the Respondent : Shri Nihar Samal, Sr. DR ORDER Per Padmavathy S, AM: This appeal is against the final order of assessment passed by Assessment Unit, Income Tax Department dated 29.07.2022 under section 144C r.w.s. 144C(13) of the Income Tax Act, 1961 (in short 'the Act') for the AY 2018-19. 2. The assessee is a private limited company engaged in the business of services of medical and radiotherapy equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vy of income tax and interest thereon Ground No.1 (1.1) Transfer Pricing - General Ground No.2 (2.1 to 2.3) Transfer Pricing- provision of software development services and related support services Ground No.3 (3.1 to 3.8) Transfer Pricing- interest on outstanding receivables Ground No. 4 (4.1 to 4.6) Disallowance of employee contribution to PF in the intimation under section 143(1) Ground No. 5 (5.1 to 5.3) Addition on account of accretion to reserve treated as LTCG Ground No.6 (6.1 to 6.6) Disallowance of Finance Cost under section 37(1) of the Act Ground No.7 (7.1 to 7.3) Short grant of advance tax credit Ground No. 8 (8.1 8.2) Short grant of TDS credit Ground No. 9 (9.1 9.2) Incorrect calculation of interest under section 234B of the Act Ground No. 10 (10.1 to 10.3) Levy of additional interest under section 234C Ground No.11 (11.1 to 11.3) Initiation of penalty under section 270A of he Act Ground No. 12 (12.1 12.2) 4. Ground No.1 and 2 are general not warranting any separate adjudication. T.P. Adjustment towards software developments services and related support services - Ground No.3 (3.1 to 3.8) 5. During the year under consideration, the assessee has rendered software develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of assessee (A) 13,63,96,203 OP/OC of assessee 14.88% Arm s Length Rate (Median of comparable)- ALP 18.20% ALP Profit (B) 16,67,95,356 Transfer Pricing Adjustment (B-A) 3,03,99,153 9. The ld. Authorized Representative (AR) during the course of hearing submitted a chart contending the inclusion of twelve (12) comparables added by the TPO. The ld. AR submitted that all the comparables have been added by the TPO based on the T.P. order for the earlier AY i.e. AY 2017-18 and that the Co-ordinate Bench in assessee's own case for AY 2017-18 (ITA No. 510/Mum/2022 dated 27.12.2023) has excluded all the twelve comparables for the reason that certain comparables fails Related Party Transaction (RPT filter) and certain comparables are functionally not comparables. The ld. AR further submitted that since the TPO has added the comparables based on the TP order for AY 2017-18, the decision of the Co-ordinate Bench for AY 2017-18 in assessee's own case will be applicable for the year under consideration for the purpose of exclusion of comparables on the similar ground. 10. The ld. Departmental Representative (DR) on the other hand, submitted that each AY is separate and therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e RPT filter of more than 25%. 13. The assessee is seeking exclusion of Cadsys (India) Ltd., Cygnet Infotech Pvt. Ltd., Dun Bradstreet Technologies Data Services Pvt. Ltd., E-Infochips Ltd., Interglobe Technology Quotient Pvt. Ltd., Cybage Software Pvt. Ltd. , Nihilent Ltd. And Info Beans Technologies Ltd. (Formerly known as InfoBeans Systems India Pvt. Ltd.), for the reason that these comparables are functionally dissimilar to the assessee and therefore, cannot be included in the list of comparables. In this regard, we noticed that the Co-ordinate Bench of the Tribunal in assessee's own case has considered the issue of exclusion of the above comparables based on functional dissimilarity and has held that 33.1.**** 33.2 Dun Bradstreet Technologies Data Services Pvt. Ltd . is not functionally comparable since it is engaged in rendering predictive analytics, software development and related technology services and solutions. 33.3 Interglobe Technology Quotient Pvt. Ltd. is not functionally comparable since it is engaged in data processing export services travel technologies, and other support services. Further it is noted that the employee cost to total sales ratio of this compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cygnet Infotech Pvt. Ltd., Dun Bradstreet Technologies Data Services Pvt. Ltd., E-Infochips Ltd., Interglobe Technology Quotient Pvt. Ltd., Cybage Software Pvt. Ltd. , Nihilent Ltd. InfoBeans Technologies Ltd. (Formerly known as InfoBeans Systems India Pvt. Ltd.) 15. The TPO is also directed the re-compute the ALP based on the directions given above. T.P. Adjustment towards interest on receivables - Ground No. 4 (4.1 to 4.6) 16. The TPO during the course of T.P. Proceeding noticed that the assessee is having outstanding receivables from its AE and called on the assessee to show- cause why ALP interest should not charged on the receivables. The assessee submitted the Ageing Analysis of the outstanding to submit that the outstanding of Varian Medical System Inc., USA and Varian Medical Systems, GMBH, Germany are less than 20 days. The assessee further submitted that it is also having outstanding payable to AEs for which no interest is charged. Accordingly, the assessee submitted that no interest shall be charges on the outstanding receivables. The TPO accepted the submission of the assessee with regard to Varian Medical System Inc,. USA and Varian Medical Systems, GMBH, Germany and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od is ignoring the business realities. 45. Coming to the last issue of rate of interest we have considered the arguments of both the sides. Following various judicial precedents, we hold that the rate of interest of Libor + 200 bps should be applied. We hold accordingly. 19. Respectfully following the above decision of the Co-ordinate Bench in assessee's own case we direct the AO to re-compute the interest on receivable with similar directions. It is ordered accordingly. Disallowance of employee contribution to PF in the intimation under section 143(1) - Ground No. 5 (5.1 to 5.3) 20. In the intimation under section 143(1) a sum of Rs. 27,58,890/- has been disallowed on account of employee contribution to PF under section 2(24)(x) r.w.s. 36(1) (va) of the Act. The ld. AR in this regard submitted that the disallowance could not be made in the intimation under section 143(1) as a prima facie adjustment. The ld. DR on the other hand submitted that the issue is squarely covered by the decision of the Hon'ble Supreme Court in the case Checkmate Services Pvt. Ltd. Vs. CIT (2022) 448 ITR 518 (SC) 21. We heard the parties and perused the material on record. With regard to contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) an incorrect claim apparent from any information in the return shall mean a claim, on the basis of an entry, in the return, (i) of an item, which is inconsistent with another entry of the same or some other item in such return; (ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or (iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction; 9. Clause (i) of Explanation (a) refers to a situation in which there is a claim of income or expenditure at two places in the return of income and there is inconsistency in them. For example, if deduction is claimed under a specific section for a sum of Rs.100/- in the Profit and loss account accompanying the return, but in the computation of income, the amount has been taken as Rs.110/-, leading to inconsistency, requiring an adjustment. Clause (ii) of Explanation (a) covers a situation in which claim is made, say, for a deduction u/s.80IA for which audit report is required to be furnished, but such report has not been furnished along with the retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The word indicated is wider in amplitude than the word reported , which envelopes both the direct and indirect reporting. Even if there is some indication of disallowance in the audit report, which is short of direct reporting of the disallowance, the case gets covered within the purview of the provision warranting the disallowance. However, the indication must be clear and not vague. If the indication in the audit report gives a clear picture of the violation of a provision, there can be no escape from disallowance. Turning to the facts of the case, it is clear from the mandate of section 36(1)(va) that the employees share in the relevant funds must be deposited before the due date under the respective Acts. If the audit report mentions the due date of payment and also the actual date of payment with specific reference in column no. 20(b) having heading: Details of contributions received from employees for various funds as referred to in section 36(1)(va) , it is an apparent indication of the disallowance of expenditure u/s 36(1)(va) in the audit report in a case where the actual date of payment is beyond the due date. Though the audit report clearly indicated that there was a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at : Amounts debited to the profit and loss account, to the extent disallowance under section 36 due to non-fulfillment of conditions specified in relevant clauses . Thus, it is evident that it is a case of disallowance of expenditure and not increase of income . Further, the entire challenge by the assessee throughout has been to the disallowance of expenditure made by the AO. It set up a case before the authorities below, including the ld. CIT(A), taking shelter of section 43B of the Act by arguing that the disallowance cannot be made because such payment was made before the due date u/s.139(1) of the Act. As such, the contention of adjustment u/s 143(1)(a)(iv) due to increase in income is jettisoned. 12. Another argument point was put forth on behalf of the assessee that the assessee did not claim any deduction in the Profit and loss account of the amount under consideration and hence no disallowance should have been made. This argument is again bereft of force. The assessee claimed deduction for salary on gross basis, inclusive of the employees share to the relevant funds. To put it simply, if gross salary is of Rs. 100, out of which a sum of Rs.10 has been deducted as contribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act is untenable, hence the same is rejected. 23. On merits it is noticed that in assessee's case the Employees contributions for Provident Fund and ESI has been deposited after the due date, as prescribed in the respective statutes, which resulted into making the disallowance/addition of Rs. 27,58,890/- u/s. 36(1) (va) read with section 2(24)(x) of the Act. The Hon ble Apex Court in the case of Checkmate Services Pvt. Ltd. (supra) has laid down the dictum that payment towards Employees contribution on account of PF/ESIC made after the due dates, as prescribed under the relevant statutes, is not allowable as deduction under section 36(1)(va) of the Act, by concluding as under: 52. When Parliament introduced section 43B, what was on the statute book, was only employer's contribution (Section 34(1)(iv)). At that point in time, there was no question of employee's contribution being considered as part of the employer's earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting section 36(1)(va) and simultaneously inserting the sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers' income, and the later retains its character as an income (albeit deemed), by virtue of section 2(24)(x) - unless the conditions spelt by Explanation to section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts - the employer's liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees' income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under section 43B. 54. In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer's obligation to deposit the amounts retained by it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is not entitled for any deduction. Accordingly, we dismissed the ground raised by the assessee in this regard. Addition on account of accretion to reserves under LTCG - Ground No.6 (6.1 to 6.6) 25. During the year under consideration Varian Medical Systems India Software Pvt. Ltd. (VMSS) was merged with assessee w.e.f. 01.04.2017 the said scheme of amalgamation was approved by the National Company Law Tribunal vide order dated 20.12.2017 pursuant to such merger all assets and liability of VMSS were transferred to assessee against which the assessee allotted shares in the ratio of 1:2 to the shareholders of VMSS whereby 315000 shares in assessee company at a face value of Rs.10 were allotted. The assessee recorded the said transactions in the books of accounts following the pooling of interest method as per the Accounting Standard (AS) issued by the Institute of Chartered Accountants of India (ICAI). The above transactions were also duly disclosed in the TPSR of the assessee. The AO after perusing the financial statements observed that the assessee has not given proper explanation for the adjustment to and accretion to capital reserve and security premium reserve. The AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction is not considered as transfer as per the provisions of section 47(vi) and therefore, the AO is not correct in treating the amount as capital gain and making addition under section 68. 28. The ld. DR on the other hand vehemently supported the order of the AO. The ld. DR further submitted that the assessee has submitted additional evidences before the DRP and the AO did not get an opportunity to examine these additional evidences and therefore, prayed that the issue should be remitted back to the AO for re-examination. 29. We have heard the parties and perused the material on record. During the year under consideration the assessee has merged with VMSS pursuant to which the shares of the assessee were allotted to the shareholders of VMSS. The face value of the shares of VMSS was Rs. 100/- per share whereas the share value of the assessee is Rs. 10/- per share. As per the scheme of amalgamation the shares were issued to the shareholders of the VMSS at 1:2 ratio. Accordingly the shareholders of VMSS were allotted 315000 shares against 157500 shares of VMSS. The difference arising in the face value of shares i.e. Rs. 80/- multiplied by the numbers of shares issued i.e. 1,57,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the conclusion that the amount recorded as part of amalgamation scheme is not to be treated as transfer and therefore does not result in capital gains. In view of these discussions, we hold that the addition made towards amount credited to capital reserve account as part of merger of assessee and VMSS cannot be treated as LTCG and the addition made in this regard is hereby deleted. This ground is held in favour of the assessee. 32. Through Ground No. 6.6 the assessee is contending that the AO while preparing the computation statement of assessed income has considered the addition of Rs.1,26,00,000/- sustained by the DRP twice. In this regard our attention was drawn to page no.14 of the final assessment order wherein the AO has computed the proposed total income at Rs. 40,58,90,210/- (page 14 of final assessment order) which includes the addition of Rs. 1.26 crores. Our attention was further drawn to the computation-sheet of the AO (page 1 of PB3) wherein the AO has considered the income from Business or Profession at an amount as mentioned in the assessment order and has further made an addition of Rs. 1.26 crores under the head Income from Capital Gains . We have already held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dical Systems Inc. and that the TPO while arriving at the interest on receivables has already held that the amount outstanding from Varian Medical Systems Inc. is less than 20 days thereby accepted that no interest is attributable on the amount outstanding. The ld. AR in this regard drew our attention to the relevant observations of the TPO which is extracted below: 6.4 Rebuttal of the Reply and Comments of the TPO: The issue of charging interest on receivables has been examined with reference to the above submissions of assessee. The contention of the assessee that credit period issued to Varian Medical Systems Inc, USA and Varian Medical Systems Pt Gmbh, Germany are less than 20 days is accepted and no interest is attributable on these receivables, as the credit period allowed is reasonable. In respect of other receivables, the contentions of the assessee are found to be not acceptable for the following reasons: 35. Therefore, the ld. AR argued that the amount of interest levied on the amount outstanding from Varian Medical Systems Inc. should also be deleted. The ld. DR on the other hand, supported the order of the DRP. 36. We have heard the parties and perused the material on r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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