9911796707
TMI Blog2024 (9) TMI 1120X X X X Extracts X X X X X X X X Extracts X X X X ..... P adjustment made by the TPO/AO, separate AMP adjustment is uncalled for. In assessee s own case, coordinate bench has considered the similar issue and remitted the issue back to file of AO/TPO to verify the reimbursement of Marketing expenses after verification of AMP expenses afresh. When the above decision passed by the coordinate bench, the issue under consideration was not settled. In our view, now the decision of Hon ble High Court decision in Maruti Suzuki [ 2015 (12) TMI 634 - DELHI HIGH COURT] is before us, therefore, we need to follow the same. DR has made submissions that recent decision of coordinate bench has to be followed and remit this issue back to file of AO/TPO to bench the mark the AMP separately. We are not inclined to agree with the submissions made by DR and inclined to follow the decision of higher wisdom. Further observed that the issue raised in the subsequent AYs are sub-judice before Hon ble High Court, we refrain from commenting on the issue raised by the assessee before Hon ble high court. In our view, coordinate bench has not commented anything on merit on the issue of AMP vis-a-vis BLT and remitted the issue back to AO/TPO. Since the facts in the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... add 20% of the reimbursement of expenses and complete the bench marking of the international transaction. Accordingly, the ground raised by the assessee is partly allowed. Bench marking the ALP relating to software division of the assessee - Deselection of companies as companies functionally dissimilar with that assessee. Depreciation on Dharuhera Unit - This Court is of the opinion that the reliance placed upon Allied Electronics [ 2007 (2) TMI 213 - DELHI HIGH COURT] cannot be of assistance to the Revenue. That did not take into account the changes brought about through the amendment and appears to have been on an appreciation of Maharashtra Minerals Corporation Ltd. [ 1992 (11) TMI 5 - BOMBAY HIGH COURT] That decision was in the context of law prevailing in 1972-73 obviously before the amendments were made to the Act prior to the introduction of the concept of block assets. Dividend as declared, distributed or paid by a domestic company to a non-resident shareholder(s), which attracts Additional Income Tax (Tax on Distributed Profits) referred to in Sec.115-O - As Special Bench in the case of Total Oil India Pvt Ltd [ 2023 (4) TMI 988 - ITAT MUMBAI (SB)] we are conscious of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is engaged primarily in import and distribution of authorised Sony products (audio/visual entertainment products) in the Indian market. The assessee had undertaken international transactions with its Associated Enterprises (AE) and it has entered into international transactions which was more than Rs. 15 crores. By following approval process under section 92CA of the Act, the case was referred to TPO u/s 92CA (3) of the Act). Before TPO, documentation prescribed under Rule 10D of the Income-tax Rules, 1962 was submitted. 5. After considering the documents submitted by the assessee, ld. TPO observed that the assessee has entered into international transactions mainly engaged in import and distribution of various Sony consumer electronic products in India and it has also rendered software services through Software Architecture Design (SARD) established in 1998 and SID s Software Centre (SISC) established in 1997 which are specialised in software development in real time embedded software for the internal requirements of Sony Corporation, specialised in software development enhancement and support/maintenance of mission critical business application for Sony Group companies in the Asi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xii. RS Software (India) Ltd. 10.29 10.28 xiii. Sasken Communication Tech. Ltd. 17.54 17.97 xiv. Tata Elxsi Ltd. 19.82 17.14 xv. Thinksoft Global Services Ltd. 17.35 13.73 xvi. Thirdware Solutions 41.63 38.16 Average 27.82% 25.34% and determined the Arms Length Price (ALP) adjustment as under :- Particulars Amount in INR Operating Cost 1142325818 Arm s length margin (%) 25.34% Arm s length margin (Rs.) 289,465,362 Arm s length Price 1,431,791,180 Price charged by the assessee 1,348,772,041 105% of Price charged in international transaction 1,416,210,643 Difference between ALP and Price charged by assessee 83,019,139 9. Further, the TPO observed that assessee is a distributor of Sony electronic products in India and thus primarily engaged in import and distribution of Sony products in the Indian market. He observed that transfer pricing report and other documents furnished during the assessment, the international transaction relating to receipt of advertisement cost from AE have been benchmarked aggregating with the other transactions and analysing the same under Transactional Net Margin Method (TNMM). In this regard, TPO observed that after careful examination of receipt of market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopt Bright Line Test (BLT) for benchmarking the AMP expenses and selected 9 comparables and benchmarked the same as under :- Particulars Amount in INR Advertisement and sales promotion 2,584,217,000 Rebates of discount including commission on sales 1,287,705,032 Reimbursement of marketing expenses 5,044,649 Reimbursement of share of advertisement expenses received from Intel and Microsoft 72,435,827 Expenses i.r.o Receipt of marketing support services 64,060,599 Total expenditure on AMP 4,013,463,107 Value of Gross Sales 37,050,888,068 AMP/Sales of assessee (%) 10.83 Particulars Amount in INR Total Sales 37,050,888,068 Arm s length level of AMP exp (% of sale) 3.58% Arm s length AMP 1,326,421,793 Amount actually spent on AMP exp. 4,013,463,107 Amount spent in excess of bright line and on creation of marketing intangible 2,687,041,314 Mark-up @ 12.25% 329,162,561 The amount by which the assessee company should have been reimbursed by A.E. and for which the adjustment is proposed to be made 3,016,203,875 Reimbursement receipt from AEs (5044649 + 72435827) 77,480,476 Adjustment required to be made i.r.o. AMP Exp. 2,938,723,399 and based on the above computation, the TPO made the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concept, the assessee reduced the sales price of assets disposed-off during the year from the WDV of the respective block of assets, and claimed depreciation on such residuary WDV. (vi) The above method of computing depreciation is in accordance with the scheme enshrined in the law. (vii) The Act nowhere stipulates that, the assessee would not be eligible to claim depreciation in respect of a particular asset if he is not the owner of such asset for the entire year or on the last day of the year. Further, there is nothing in the aforesaid provisions to interpret that the use of particular asset is a requirement of law for claiming the depreciation. Reliance in this regard can be placed on following judicial precedents. CIT vs Bharat Aluminium [Delhi HC in ITA No. 659/2007 and 1484/2006} CIT vs. Oswal Agro Mills Ltd. [ITA No. 161 of 2006} Anand and Anand vs AC/T [2009} 33 SOT 148 (Del) (viii) Once a particular asset is merged into the block of assets, such asset loses its identity and only the block survives. Therefore, the test of use has to be applied on the block as a whole instead of on an individual asset. Reliance can be placed upon following decisions. Packwell Printers vs A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of excess depreciation on licence fee and sustained the other disallowance made by the Assessing Officer/TPO. 14. Aggrieved with the above assessment order and order of ld. DRP, assessee as well as Revenue is in appeal before us raising following grounds of appeal :- ITA NO.1026/Del/2015 (Assessee s appeal) The following grounds of appeal are mutually exclusive of and without prejudice to each another. Re: General Grounds 1. That on the facts and circumstances of the case and in law, Assessing Officer ( Ld. AO ) erred in assessing the income of the Appellant at INR 465,93,68,008/-as against the returned income of INR 148,63,60,592/-. 2. That on the facts and circumstances of the case and in law, the Final Assessment order passed under section 143(3) read with 144C of the Income Tax Act, 1961 ( the Act ) by the Ld. AO is bad in law and calls for being quashed. TRANSFRR PRICING GROUNDS Re: Transfer Pricing Adjustment in respect of Advertisement, Marketing and Promotion Expenses( AMP Expenses ) 3. That on the facts and circumstances of the case and in law, the Ld. AO/ Transfer Pricing Officer ( Ld.TPO )/ Dispute Resolution Panel ( Hon'ble DRP ) erred in enhancing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MP expenses are held to be nonroutine and excessive , the Appellant was not required to be reimbursed compensated by its AE, considering that the purported benefit caused to the AE on account of incurring of A M expenses by the Appellant was only incidental. 11. That the Ld.AO/Ld.TPO/Hon ble DRP have selectively applied the principles laid down by the LG Special Bench and ignoring the fact that the sales promotion expenses could not partake the character of AMP expenses for the purposes of making any adjustment on account of alleged excessive AMP expenses. 12. That the Ld.AO/Ld.TPO/Hon'ble DRP erred in concluding that the non-routine functions (being the alleged excessive AMP expenditure) amounted to a service being rendered by the Appellant to its AE and that a mark-up of 12.25% was required to be charged in respect of such services. 13. Without prejudice, even if AMP expenses are held to be a separate transaction, transaction of incurrence of AMP expenses should be benchmarked along with the main transaction of import and distribution of goods under the combined transaction approach. Re : Transfer pricing adjustment on account of Software services 14. That on the facts and ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f acquisition. 24. That the Ld.AO failed to appreciate that once an asset forms part of block of assets it loses its individual identity and thus the test of use has to be applied to the block of asset instead of the individual assets. Re: Disallowance of deduction under section 10AAof the Act 25. That on the facts and circumstances of the case and in law, the Ld.AO/Hon'ble DRP have grossly erred in disallowing INR 7,10,15,300/- being deduction claimed under section 10AA of the Act by Special Economic Zone ( SEZ ) unit, by allocating additional expenses of INR 10,96,31,427 to the SEZ unit. 26. That on the facts and circumstances of the case and in law, the Ld.AO/Hon'ble DRP have grossly erred by allocating additional expenses to the SEZ unit merely on the ground that income of the SEZ unit is disproportionately high vis-a-vis the income of the non-SEZ units. 26.1 That on the facts and circumstances of the case and in law, the Ld. AO/ Hon ble DRP failed to appreciate that the SEZ unit was an independent unit having a separate and identifiable set of facility, manpower and infrastructure and therefore, no portion of the common indirect expenses set off against the profits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 128,77,05,032 respectively in the allocated expenditure without considering the fact that these have already been disallowed by the Learned TPO and therefore resulting in double disallowance of INR 65,82,26,745 in the hands of the Appellant. 31. That on the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 271(1)(c) of the Act. ITA No.1166/Del/2015 (Revenue s Appeal) On the facts and in the circumstances of the case the Hon ble DRP-V, New Delhi has erred in law and on facts in directing to recomputed depreciation on software licence as per Item No.III (5) of Part A of Appendix 1 of the Income-tax Rules, 1962 as against depreciation allowed by the AO as per Part-B of Appendix 1 considering it as Intangible assets which stand was confirmed by ITAT in ASSESSMENT YEAR 2006-07, 20007-08 and 2008-09 15. The assessee has also raised additional ground as under :- 1. That on the facts and circumstances of the case and in law, the assessing officer/DRP ought to have restricted the levy of the dividend distribution tax, on the dividend of Rs. 588,151,791 distributed I paid to Sony Holding (Asia) B. V, Netherlands, being resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Transfer pricing adjustment towards software development services Rs. 8,30,19,139/- iii) Grounds of appeal 22 to 24 - Disallowance of depreciation on Daruhera Unit Rs. 92,34,278/- iv) Grounds of appeal 25 to 30 - Disallowance of deduction relating to SEZ unit u/s 10AA disallowance of equal amount - Rs. 21,92,62,854/- Final Computation of income can be found at page 460 of Appeal set Grounds of Appeal 1, 2 and 31 are general/ consequential. B Transfer pricing Study: Kindly refer Paper book 2 A - page 1 to 265 Sony India Private Limited is engaged in distribution of Sony's consumer electronic products in India- Brief profile of Company and Group (refer pages 3 7 of Paper book 2A). As can be seen from Profit Loss Account for FY 2009-10, (kindly refer page 295 of paperbook) Sony India sales revenue for Ay 10-11 was Rs. 3705 Crores. Details of all international transactions entered into with associated enterprises are set out at page 4. Largest international transaction (as can be seen from page 4) was import of finished goods for resale of Rs. 2358 crores. Transactions 1 to 8 in such list are benchmarked as combined transaction. It may kindly be noticed that 'Receipt of marke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement for advertisement expenditure. By reference to page 477 it was explained how margin accrues due to various functions involved in 'import of finished goods for resale' and not just 'by act of importing goods'. Most importantly by reference to Page 480 of paper book 2B (part of submission dated 20 January 2014 made before Ld. TPO) it is pointed out that all the companies accepted as comparable in the context of international transaction of import of finished goods for resale have carried out marketing as one of the functions. At paper book 2B page 485, para 5.3 it is once again explained on how marketing function carried out in the context of international transaction of import of finished goods for resale is bench marked and compensated. By reference to page 326 of paper book 2A page 526 of paper book 2B, it was explained that full details of AMP expenditure incurred by Sony India for its distribution business was provided to Ld. TPO. It can be seen that out of the total expenditure only an amount of Rs. 132 crores is advertisement - all others fall in the category of direct selling expenditure, discounts, commission etc., which anyway are to be excluded f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ld. TPO persisted with his reference to such agreement and conveniently ignored this aspect mentioned in form 3CEB of Ay 06-07. Reference to Ld. TPO's observations and conclusions is invited inter - alia at pages 81 82, para 40 wherein TPO states that aggregated transaction approach and fact that overall margins do not establish AMP expenditure was compensated. It may be useful to draw attention to para 40.7 on page 83, Appeal set. Conclusions reached therein are directly contrary to guidelines laid down by Hon'ble Jurisdictional High court in Sony Ericsson 374 ITR 118 (refer para 193 and paras 194 (v), (viii) and (Xii). By presuming that advertising services were rendered to AE Ld. TPO not only marked up entire expenditure further thus digressing totally and unjustifiably from benchmarking of receipt of advertisement expenditure of Rs. 50.44 lacs which he set out to examine. Lastly, kind attention is invited to page 102 and 103 of Appeal set for determination of AMP adjustment by Ld. TPO. It is noteworthy that Ld. TPO returned a categorical finding at page 103 that other international transactions are found to be at arm's Length. This categorical finding can only be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e etc., as set out at page 439 to 441, Ld. AO passed impugned assessment order as explained above. By drawing reference to DRP objections at page 396 to 400 it is submitted that such disallowance in relation to section 10 AA and further addition were totally unjustified and misconceived. G By reference to para 61 of Bausch Lomb Eyecare (India) private limited 381 ITR 227 it is submitted that AMP function and international transaction of distribution being bench marked are distinct (pg 749-766 of convenience compendium). By reference to para 43 of Hon'ble High court decision in Maruti 381 ITR 117 (pg 767-791 of convenience compendium) it is submitted that Hon'ble court notes that conclusion on international transaction in Sony Ericsson case 374 ITR 118 (pg 377-452 of convenience compendium) appears to result from none of the parties questioning existence of international transaction of AMP. By reference to para 70 of Hon'ble High court decision in Maruti it is out respectful submission that burden of showing existence of international transaction of AMP is on the revenue, which in present case department has failed to discharge. By reference to paras 60 and 74 of Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion in Ay 9-10 was in appeal before Hon'ble High Court as it involved several contradictions, incorrect presumptions and vague direction. Hon'ble Tribunal order also contrary to specific and clear directions in para 193, 194 of decision in Sony Ericsson 374 ITR 118 (pg 377-452 of convenience compendium) as also para 86 of decision in Maruti Suzuki 381 ITR 118 (pg 767-791 of convenience compendium). Detailed submissions were made by reference to para 10 and 11 of said order - where even while remanding to Ld. TPO by observing that - in effect thus the question of whether the reimbursement of AMP by the AEs to the assessee is at arm's length or not stands remitted to file of the AO , Hon'ble Tribunal failed to provide specific directions on how to bench mark such a transaction (which is similar to transaction for present year i.e., Ay 10-11 of reimbursement of advertisement of Rs 50.44 lacs). I Decision of Hon'ble Tribunal dated 21.12.2018 in ITA no 4978/DEL/2011 for Ay 2007-08 in Assessee's own case held that marketing activities were undertaken by Sony India Pvt limited in furtherance of its own core business of distribution (para 8) , it cannot be said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Software development services hence the same are being repeated herein in the interests of brevity (pg 1-3 of convenience compendium). Similarly, on corporate tax issues it was submitted that the issue relating to depreciation for Daruhera unit has been decided by Hon'ble High court in favour of Assessee in ITA Nos. 13/2012 14/2012 (copy of order enclosed at pg 214-228 of convenience compendium). As far as issue arising in the context of computation of section 10AA benefit is concerned, detailed submissions were made by reference to submission before DRP more particularly pages 396 to 400 of the appeal set, which are not being repeated in the interests of brevity. In addition, it is submitted that similar disallowance was made by the assessing officer in the subsequent assessment year 2011-12 (pg 361-364 of convenience compendium) which was initially upheld by the DRP (pg 365-371 of convenience compendium). However, on a rectification application filed by the appellant, DRP vide directions dated 30.05.2016 (pg 375- 376 of convenience compendium) while holding that no double disallowance can be made, directed the assessing officer to verify the record and compute disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Delhi High Court on similar facts i.e for software development services only for same financial year. A. The functional profile with regard to provision of IT/Software development services The assessee company provides software development services to its AE s through software architectural division (SARD) and software application center (SISC) to its AE s The relevant extract functional profile of the assessee company, as mentioned in the para 4.010/page 47 to 52 of TP Study/page 47 to 52 of paper book is given below:- 4.010. Provision of application software services 4.010.1. Nature and terms of international transaction identified As an offs development division of SID, Software applicant center ( SISC ) carries out software development, enhancement and support and maintenance of business applicants for Sony group of companies. In respect of such services, SISC is responsible for the development of some modules in India.. Conceptualization and scoping of project work SID s AEs are primarily responsible for initial conceptualization of application software development work required to be developed by SID. The scope of work required to be undertaken is subsequently decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital irito infrastructure and other facilities, required for the provision of software application services to its AEs. Such infrastructure facilities would depreciate over the fixed period of time. SID is remunerated on the basis of hourly rates determined based on the estimated cost of rendering services. Hence, SID also bears the risk of fluctuation in actual and estimated cost of services. Also, SID is responsible for idle capacity of its employees and infrastructure established for the provision such services. Hence, SID bears the under-utilisation risk. Credit and collection risk SID provides services to its Group entities, and bears no credit and collection risk compared to the risk that independent third party service providers would bear in relation to receivables from their clients. Service liability risk In the agreement entered into by SID with its AEs, there is no warranty clause binding SID. However, in the event there is a quality failure, SID is responsible for rectification of the defect. 4.011. Provision of embedded software services 4.011.1. Nature and terms of international transaction identified Software Architecture Division ( SARD ) of SID renders software d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cations. SID also generates and makes available documentation for the software developed and transferred to its AES. Quality Assurance SID is responsible to monitor operations and quality of the project and works in accordance with the international standards. However, its AEs carry out the final testing and quality assurance procedures. Sales and marketing SID's AEs are responsible for marketing and procurement of business and have complete authority to decide on commercial aspects of terms and conditions of contracts signed with its customers - both within and outside the group. Further, SID's AEs are not under the obligation to subcontract the development work to SARD and the quantum of work subcontracted to SID depends upon the quality of services rendered by SID. Accordingly, SID is required to undertake certain marketing efforts to sell its services to group companies. From the perusal of the function performed w.r.t software services, it is clearly apparent that the Technical Centre of the assessee company, provides services with regard to software development right from the inception to the completion stage i.e. from the design, coding, testing, verification, integr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Fujitsu Services Ltd. and it cannot be taken as comparable. The facts are that the assessee company supplies services only to the customer i.e. Fujitsu Services Ld. Further, it is seen that the holding company of M/s Infinite Data Services Ltd i.e M/s Infinite computer solutions limited has signed an agreement to set up global delivery system in India to provide offshore delivery capabilities to Fujitsu Services Ltd and Fujitsu associated companies. However, it is respectfully submitted that the agreement was signed by the holding company for a separate purpose i.e to set up the global delivery center on built, operate and transfer model and this cannot be the basis for treating M/s Infinite Data Services Ltd. as related party. Also providing services to a single company does not make a company, associated enterprise of the other company. The assessee referred that infrastructure deficit charges of Rs. 31.38 Lacs was received by the assessee but that was received on account of under utilization of infrastructure resources but this in itself is also not the criteria for treating M/s Infinite Data Services Ltd as AE of other company. The assessee has also relied on the case of Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are development services only. 1. Segment reporting (Page 458/459, Para 23) The company s operation comprises of software development, implementation and support services. Primary segmental reporting s based on geographical areas, viz., Domestic = India (products services) and international = Rest of the World (Exports-Software Services). 2. Page 440 in the qualitative details the profile is mentioned as below The company is engaged in implementation and consulting services of software based on ERP and Business Intelligence. The implementation and consulting services of develop and traded software cannot be expressed in any generic unit Hence it is not possible to give quantitative 4C, 4D of part II of schedule VI of the Companies Act 1956. 3. Also with regard to the earning in operation exchange column / page 441 the following is mentioned EARNING IN FOREIGN EXCHANGE :- (On mercantile basis) Income from Software, Development } Rs. 587,931,080/- Services and software services } (Previous Year-Rs. 641,473,049/-) 4. Further at page 459, the geographical segment wise results are mentioned, in which the results for overseas segment clearly shows the segmental details of income/expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... segment reporting, that the figures had, been given on the basis of Geographical segments, i.e. 'India' comprising of Products and other services and 'Overseas' comprising of Software services. The TPO had taken only the 'Overseas' segment for the purposes of inclusion in the list of comparables, which encompassed only export of software services. The segment of the assessee under consideration is also only Software services, said segment of Thirdware Solutions - taken by the TPO fully matched and was held to be comparable. These are findings of facts based upon record. Consequently, taking of Thirdware Solutions Limited as a comparable was in order and cannot be interfered with. Thus as the functional profile and also the comments of the TPO in steria India ltd, are almost similar, this company is fully comparable to the assessee company. 3 E-Infochips Banglore Ltd. The assessee has requested for its exclusion based on the following grounds. 1. Functional not comparable 2. Segment data not available 3. M/s E-Infochips Bangalore Ltd. is involved in diverse activities. All the grounds raised by the assessee against E-Infochips Banglore Ltd. have already been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able companies for the application software services has been mentioned. It is clearly stated that this company is involved in the embedded software which is exactly similar to the services provided by assessee s company division (SARD) to its AE s as mentioned in para 4.011 / page 50 of paper book. Reference is also placed on accept / reject matrix of the assessee company wherein at serial no. 921 / page 151 of paper book it is clearly mentioned that the company is engaged in similar function. Also whether this company is a software product development company or services company ,is a fact which has already been answered in judgments of the Hon ble Delhi ITAT only which are mentioned below: The Hon ble ITAT in its order in the case of Steria India Ltd. vs. Addl.CIT in [2020] 122 taxmann.com 267 (Delhi - Trib.) has treated M/s Persistent systems ltd as comparable in software development services segment only. However more relevant are the comments about profile of Persistent systems Ltd, which has been mentioned in para 115 to 118 , and for ready reference is reproduced below 15. In case of Persistent Systems, limited ld AR submitted that Persistent Systems Ltd. is engaged in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... represents the billing in respect of contracts for which the revenue is not recognized. The Company collects service tax and value added taxes (VAT) on behalf of the government and, therefore, these are not economic benefits flowing to the Company. Hence, they are excluded from revenue. 118. At note no 21 Page No 181 of Standalone Financial statements it has only one stream of Revenue i.e. Sale of Software services as under: 21. Revenue from operations (net) (In ` Million) For the year ended March 31, 2014 March 31, 2013 Sale of software services 11,841.16 9,967.51 Therefore, we do not agree with the arguments of the assessee, and hold that Persistent System Ltd. does not sale products, but it is engaged only in sale of software services. No other reasons were given to us for its exclusion; hence, we are of the view that Persistent system has rightly been included as Comparable company by ld DRP and TPO. Thus this company is clearly held to be involved in sale of software services only and not in sale of software products. Also in the case of Motherson Sumi infotech and Design ltd.. vs/ ACIT 112 Taxmann.com 300 (2019) again this company was held to be involved in software services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors namely Telecom + Wireless, Life sciences + Healthcare and infrastructure + Systems. As the software services are treated as a common and single segment only by the assessee company, accordingly the assessee has treated it as single segment only. Thus the assessee contentions about no segmental information are wrong and deserves to be rejected. 5. Infosys Limited 1. The assessee has requested for its exclusion based on the following grounds. 1. Functional not comparable 2. Ownership of intangibles/brand 3. High turnover/higher volume of business leading to higher profitability All the grounds raised by the assessee against have already been duly answered by the TPO in Page 44-48 of the TPO order and for the sake of brevity are not being repeated. At the outset it is submitted that it is assessee s own comparable selected by itself and based on functional similarity it is accepted by TPO. Reference is invited page 251 of paper book 2A wherein in para 8 the brief business description of comparable companies for the application software services has been mentioned. It is clearly stated that this company is involved in all the stages of software development services which are exact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn the brand and for that, assessee company was entitled to get reimbursement of cost incurred and as has got nominal amount as reimbursement, based on Bright Line Approach, adjustment on account of AMP expenses were made. 2) At the outset, it is submitted that TPO passed the under dated. 27/01/2014 and DRP passed direction s on 24/12/2014. During that time, the decision of the Hon ble Special bench in the case of LG electronics was the reigning decision and both the TPO/DRP followed that decision and as the bright line test was upheld in LG Electronics decision, the same was duly followed. 3) However, in march 2015, the Hon ble Delhi High Court in the case of Sony Ericsson Mobile Communication India (P) Ltd V/s CIT TP, 374 ITR 118 (Delhi) has rejected the Bright line test but upheld the contention that AMP expenses are separate international transaction and also held that, being separate international transaction it has to be benchmarked separately and after considering several decision. has provided a methodology of benchmarking of AMP transaction. Thus, the assessee case is to be seen in the context of changing judicial landscape. 4) Before proceeding further, the GoA of assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant had performed any non-routine function or had incurred non-routine AMP expenditure. 9 Without prejudice to above, the Ld. TPO/ Ld. AO/Hon'ble DRP erred in applying the 'bright line method to determine the excessive/non-routine AMP expenses in complete disregard of the Transfer Pricing Regulations in India and commercial circumstances of the case. 10. Without prejudice, even if AMP expenses are held to be non-routine and excessive , the Appellant was not required to be reimbursed compensated by its AE, considering that the purported benefit caused to the AE on account of incurring of A M expenses by the Appellant was only incidental. 11. That the Ld. AO/Ld. TPO/ Hon'ble DRP have selectively applied the principles laid down by the LG Special Bench and ignoring the fact that the 'sales promotion expenses could not partake the character of AMP expenses for the purposes of making any adjustment on account of alleged excessive AMP expenses. 12. That the Ld. AO/ Ld. TPO/ Hon'ble DRP erred in concluding that the nonroutine functions (being the alleged excessive AMP expenditure) amounted to a 'service' being rendered by the Appellant to its AE and that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said aspect for the simple reason that in most cases the assessed have submitted that the international transactions between them and the AE, resident abroad included the cost/value of the AMP expenses, which the assessee had incurred in India. In other words, when the assessed raise the aforesaid argument, they accept that the declared price of the international transaction included the said element or function of AMP expenses, for which they stand duly compensated in their margins or the arm's length price as computed. 53. We also fail to understand the contention or argument that there is no international transaction, for the AMP expenses were incurred by the assessed in India. The question is not whether the assessed had incurred the AMP expenses in India. This is an undisputed position. The arm's length determination pertains to adequate compensation to the Indian AE for incurring and performing the functions by the domestic AE. The dispute pertains to adequacy of compensation for incurring and performing marketing and 'non-routine' AMP expenses in India by the AE. The expenses incurred or the quantum of expenditure paid by the Indian assessee to third part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts are identical. The assessee has also relied on the ITAT decision in its own case for A.Y. 2007- 08 which is placed at page 229 to 247 of the paper book. The assessee took the ground that based on its own comparables, the AMP expenses should be determined and as they are falling in even the range, the addition made by the TPO is to be deleted. As discussed in detail before the Hon ble Bench, the decision of the Hon ble ITAT in 2007-08 cannot be treated as binding precedent because in that case even the first and the primary issue i.e. whether AMP expenses constitute a separate international transaction has not been specifically decided by the Hon ble Bench. It is difficult to understand that when the Hon ble Delhi High Court in the case of Sony Ericson has held that incurring of AMP expenses is a separate international transaction, in the case of distribution company then why the same was not decided / followed by the Hon ble ITAT. Also to the Hon ble Bench has relied on the assessee s own comparables, however again unless the indepth analysis of a functional profile of the assessee company vis a vis the comparables is undertaken, it is difficult to arrive it ALP or the AMP e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Audit Report of the assessee, whose relevant part is as under: Reimbursement of marketing / business promotion / other expenses Ultimate Holding Company 16,869,213 Ultimate Holding Company (333, 945) Fellow Subsidiaries 378, 197 Fellow Subsidiaries (545, 780) 10. The learned AR stated that the assessee received reimbursement of marketing and promotion expenses to the tune of Rs. 3,33,945/- from its AE. This shows that the assessee's holding company reimbursed AMP expenses only to the tune of Rs. 3.33 lac as against enormous amount spent by the assessee for promotion of the brand owned by its AE pursuant to the agreement dated 1.1.2006. Factum of the existence of an Agreement obliging the assessee to undertake advertisement and brand promotion in accordance with the global guidelines and the AE reimbursing AMP expenses, albeit, to a very nominal extent, goes a long way to establish the existence of arrangement between the assessee and its AE for promoting BMW brand in India. 11. Reliance of the learned Sr. AR on the judgment in the case of Maruti Suzuki (Supra) to fortify his point of view of there being no international transaction of AMP expenses, is misconceived. In that cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uly considering its order passed for the A.Y. 2008-09. Though the tribunal decided this issue in favour of the assessee for the A.Y. 2008-09, it was candidly admitted by the ld. AR that, on an appeal preferred by the Revenue against the tribunal order for such earlier year, a substantial question of law has been admitted by the Hon'ble High Court. In view of the foregoing discussion, we reject the assessee's contention and hold that the authorities below were justified in treating AMP as an international transaction. Further, after holding that AMP expenditure is a separate international transaction, the Hon ble Bench remitted the matter back to TPO for deciding the ALP of AMP expenses based on the comparison of the functions performed by the Indian entity as well as the functions performed by the comparable. Being pertinent, the relevant extract of the order is reproduced below- 18. Further, we note that no detail of the AMP functions performed by the assessee is available on record. Similarly, there is no reference in the order of the TPO to any AMP functions performed by comparables. In fact, no such analysis or comparison has been undertaken by the TPO. The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is no more res-integra and being separate international transactions, AMP expenses are needed to be separately benchmarked. Thus the assessee s arguments for deciding the issue of AMP expenses based on the higher profit margins earned is without any basis and against the provisions of transfer pricing and Income Tax Act and also in violation of the Hon ble Delhi high Court decision in the case of Sony Ericsson. b) The companies selected by assessee as comparable are to be taken for benchmarking The benchmarking done by TPO was only for the limited purpose for determining the ALP with regard to Bright Line Test. As the assessee company is dealing / engaging in substantial marketing functions with are not done by pure distributer accordingly it was held that amount incurred over and above the distribution cost was undertaking only for promotion of Sony Brand in India, for promoting the interest of AE because ultimately the brand is owned by Sony AE. The other companies taken as comparable for the limited purpose of finding average expenditure incurred on advertising / marketing by pure distribution companies, thus, as the functional profile of the comparable companies has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally contrary to the view taken in the earlier judgment, thereby creating a judicial uncertainty with regard to the declaration of law involved on an identical issue in respect of the same Exemption Notification. It needs to be emphasised that if a Bench of a Tribunal, in identical fact-situation, is permitted to come to a conclusion directly opposed to the conclusion reached by another Bench of the Tribunal on earlier occasion, that will be destructive of the institutional integrity itself. What is important is the Tribunal as an institution and not the personality of the members constituting it. If a Bench of the Tribunal wishes to take a view different from the one taken by the earlier Bench, the propriety demands that it should place the matter before the President of the Tribunal so that the case is referred to a larger Bench, for which provision exists in the Act itself. In this behalf, the following observations by a three Judge Bench of this Court in Sub-Inspector Rooplal Anr. Vs. Lt. Governor Ors. are quite apposite : At the outset, we must express our serious dissatisfaction in regard to the manner in which a Coordinate Bench of the Tribunal has overruled, in effect, an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not based on audited financials: Ld. DR submitted that comparables selected by Assessee are being requested for exclusion at this stage - this is factually incorrect as exclusion of 4 companies was requested before TPO as noted in TPO's order. Secondly, Ld. DR emphasised that exclusion of these comparables based on decision of coordinate bench of the Tribunal relating to same assessment year is incorrect as according to Ld. DR comparables cannot be excluded or included by reference to decided cases. As submitted earlier comparable set used by TPO in Sony Mobile Communications case (relied upon case-ITA 6006/Del/2014 at page 248 of convenience compendium) present case are identical ; Sony Mobile Communications case holds the field as department has not appealed against the same; More importantly reasons given in such decision for exclusion are generic i.e., comparable is engaged in diversified business/ has product sale income and segment information is not available. Thirdly and most ironically Ld. DR relied on some other decisions to support his contentions and did not even attempt to make out his case by reference to audited financials available on record-this approach is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee in support of contention to exclude companies from comparable set can be found at page 350 - 352 of the PB 2A. It will be noticed that companies were objected to be included as comparable companies for the reasons mentioned therein viz. E - lnfochips Bangalore Limited at page 350 of the PB 2A (please also refer to page 401 of the PB); Infinite Data Systems Pvt. Ltd.at page 351 of the PB 2A (please also refer to page 401of the PB); Thirdware Solutions Limited at page 352 of the PB (please also refer to page 403 of the PB). Further, Infosys Technologies Limited was objected to at page 562-573 of the PB 2B (the document starts at page 560 of PB 2B). Inclusion of Persistent as comparable company is being objected to before this Hon'ble Tribunal, this fact is clear from the comparable wise detailed chart already submitted. Our Submissions a. Thirdware Solutions Limited Financials of Thirdware Solutions Limited are placed at page 405 - 464 of the Annual Report PB. P L is at page 423. Schedule 12 for sales is at page 426. Segmental details can be found at page 458. It will be noticed that only geographical segment is provided. Moreover page 460 would show that the company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that no company which is functionally similar can be excluded on the basis of turnover (para 33 of the said decision). However, Ld. DR totally ignored to note that the exclusion of this company was sought for not just on the basis that it has a higher turnover as would be evident from detailed reasons submitted at pages 562- 575 of the PB2B. Further attention is invited to audited accounts placed at page 120 of the Annual Report PB. Kindly refer to page 149 of the Annual Report PB where sale of software products is shown as INR 925 crores. The different activities from which Revenue was earned during the year can be seen from para 24 at page 176 of the Annual Report PB. Item 11 at page 174 would show that subcontracting work was got done of INR 372 crores (this by itself shows a different business model) which by itself warrants exclusion as per Rampgreen Solutions Pvt. ltd. vs. CIT (2015) 377 ITR 533 - Para 38. Segmental details are not available in the financials as can be seen from page 183 of the Annual Report PB. All these factors have been taken into account in Sony Mobile Communications International AB in relation to assessment year AY 2010-11 as also in the case of Kapla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Brief synopsis filed on 6 th January 2020(Kindly refer to pages 4- 10 of the Convenience Compendium) 2. Brief synopsis filed on 8 th August 2020 (Kindly refer to pages 485- 492 of the Convenience Compendium) 3. Brief synopsis filed on 29.09.2020(The said synopsis was separately filed during course of hearing and is part of Hon'ble Tribunal's record) Further as submitted during the hearing, enclosed are copies of following orders for kind reference: 1. Reference is drawn to para 10 11 of order dated 28.01.2016 of jurisdictional High Court in the case of Sony Ericsson Mobile Communications India Pvt. Ltd. vs. DCIT, ITA 638/2015 - (annexed and marked herewith as Annexure 'B'), whereby even after decision in 374 ITR 118 issue of whether AMP is international transaction or not is year and fact specific. 2. Reference is drawn to para 15 to 20 of order dated 13.12.2023 of jurisdictional High Court dismissing departments appeal against ITAT order dated 21.12.2018 for AY 2007- 08 in the case of assessee.- (annexed and marked herewith as Annexure 'C'). 3. As explained during oral hearing - it was never the case of assessee that reimbursement transaction OR AMP fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 118, it may be clarified that the Hon'ble High Court kindly clarified that such finding are confined to particular case and cannot be generalised -kindly refer to paras 45 46 on page 783/ 784 of convenience compendium being decision of Hon'ble High Court in Maruti Suzuki. Bright line test method applied in present case is invalidated by Hon'ble High Court in decision Sony Ericsson (supra) (para 113 to para 122 at pages 425 to 431 of convenience compendium) as noted in para 47 of Maruti case at page 784. 6. It is settled principle that Court does not make law it only declares kindly refer paras 35 36 of Assistant Commissioner of Income Tax vs. Saurashtra Kutch Stock Exchange limited [2008] 14 SCC 171. There is no justification for any remand in the present case as all facts were always before the Ld. TPO and Ld. DRP. In this context kind attention is also invited to decision of Hon'ble Jurisdictional High Court in Bacardi India Pvt. ltd. -para 6 at para 747 of convenience compendium. Also decision of coordinate bench in Samsung India Electronics (refer paras 43 44 on pages 553 and 554 of convenience compendium) while dealing with similar facts directly supports pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cations International AB (India Branch Office) ('Sony Mobile BO') which is being relied upon by Assessee herein. Sony Mobile's case is also for same Assessment Year 2010- 11 and copy of the Hon'ble Tribunal's order is placed at page 248 of convenience compendium. 3. Detailed comparable chart having reference to other decided cases also may kindly be referred. Sony India Sony Mobile BO Same comparables selected by Ld. TPO to benchmark software services. Comparables requested to be excluded in present appeal Final set of Comparables proposed by ld. TPO are mentioned at internal page 12 para 21. i. Infosys Ltd. ii. E-Infochips Bangalore Ltd. iii. Thirdware Solutions iv. Infinite Data Systems Private Limited v. Persistent Systems Ltd. (Page 53 and 54 of Appeal Set) Final set of Comparables proposed by Ld. TPO are mentioned at para 16 on page 270 of compendium. i. Infosys Ltd. (para 41 to 45 on page 284 of compendium) ii. E - Infochips Bangalore Ltd (paras 22 to 25 at page 274 of compendium) iii. Thirdware solutions (paras 33 to 34 at page 281 of compendium) iv. Infinite Data Systems Private Limited (para 26 to 29 on page 277 of compendium) v. Persistent Systems Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st deal with the issue of AMP transactions and it is relevant to note that the issue under consideration has checkered history and in AY 2007-08, the issue of AMP was considered as part of distribution business of the assessee and also the assessee has incurred AMP expenditures, the TPO has considered and bench marked the distribution activities and found that the margin declared by the assessee is lesser than the margin determined in the comparative studies by adopting TNM method, however, he further proceeded to bench mark the AMP expenses separately by adopting bright line test dicta. The Hon ble High Court of Delhi in the case of assessee s own case in ITA 7/2023 vide order dated 13.12.2023, held as under: 15. Having heard the learned counsel for the parties, and examined the record, the only issue, as noted at the outset, which arises for consideration, is whether the respondent/assessee was adequately compensated for expenses incurred for AMP activities carried out in India. 16. Before one answers the issue, one way or the other, one must bear in mind the following undisputed facts which obtain in the instant case: (i) First, the respondent/assessee had shut down its manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the declared reimbursement of marketing expenses from its AE and drifted to bench mark the AMP expenses by adopting BLT and ended up disallowing the whole AMP expenses. Since the facts in this AY are exactly similar to AY 2007-08, we are inclined to follow the above decision wherein it was clearly held that in the case of distribution business, when there is no ALP adjustment made by the TPO/AO, separate AMP adjustment is uncalled for. 22. However, in the subsequent AYs in assessee s own case, coordinate bench has considered the similar issue and remitted the issue back to file of AO/TPO to verify the reimbursement of Marketing expenses after verification of AMP expenses afresh. When the above decision passed by the coordinate bench, the issue under consideration was not settled. In our view, now the decision of Hon ble High Court is before us, therefore, we need to follow the same. Ld DR has made submissions that recent decision of coordinate bench has to be followed and remit this issue back to file of AO/TPO to bench the mark the AMP separately. We are not inclined to agree with the submissions made by Ld DR and inclined to follow the decision of higher wisdom. Further observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in our endeavor to resolve the issue under consideration and also cost involved to both the sides, the issue under consideration is only to bench mark the reimbursement cost, to our considered view, to meet the ends of justice, we would like to add 20% of the reimbursement of expenses towards ALP adjustments to resolve the long pending issue. Accordingly, we direct AO/TPO to add 20% of the reimbursement of expenses and complete the bench marking of the international transaction. Accordingly, the ground raised by the assessee is partly allowed. 24. Next coming to the issue of bench marking the ALP relating to software division of the assessee, we heard both sides and considered each of the submissions made by both parties, we observe that the issue under consideration is, the assessee has selected its own comparables to make the TP analysis, however, the TPO rejected the same by adopting certain common filters and selected 16 comparables to bench mark the ALP at 25.34%. Before us, the assessee filed a chart with the prayer to exclude comparables selected by the TPO, they are E-Infochips, Infinite Data systems, Infosys Ltd, Persistent systems and Thirdware Solutions. Further prayed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 the case of Sun Life India Service (supra) wherein while dealing with this company on the comparability test, it has been observed as under : 10.8. After considering the rival contentions and perusing the annual reports placed on record, we are of the opinion that this company cannot be selected as comparable for TP analysis. A perusal of the annual report of this company for assessment year 2010-11, suggests that it is a full fledged IT consulting organization and provides services in the nature of technical consulting, design and development of software, maintenance, system irrigation, implementation, testing and infrastructure management service. Further this company as a sole customer, Jujitsu Services Ltd., and accordingly is exposed to significant single customer risk. The above company cannot be considered as comparable on functional basis. 10.9. As this company is functionally different from assessee and in absence of segmental information, we direct the AO/TPO to exclude this company from the final list of comparables. 29. Respectfully following the decision of coordinate Bench, we direct the AO/TPO to exclude this comparable from the list of comparables selected by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered as a comparable company in the identical facts and circumstances of the case observing as under : 16. We have considered the rival submission and perused the material on record. A co-ordinate Bench of the Delhi Tribunal in the case of Ciena India Pvt. Ltd. v. DCIT in ITA Nos. 2948, 3324/Del/2013, has held as under : 9.2. We have heard the rival submissions and perused the relevant material on record. It can be seen from the information supplied by this company u/s 133(6) of the Act, a part of which has been reproduced in the TPO's order, that this company 'has developed a few of its own products in the area of identity management connectors.' Revenue from product licences stands at Rs. 288.93 million as against the revenue from software development services at Rs. 4829.57 millions. Though this company is more engaged in software development services, but, is also a software product company, which is evident from the information supplied by it to the TPO. Thus, the total profits of the company on entity level also, inter alia, include revenue from product licences. As there is no separate segmental information and it has been considered as comparable on entity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of Tribunal in ITA No. 279 of 2016 observing as under : 6. As far as the first company, i.e., Persistent Systems Ltd. is concerned, the material on record - as found by the ITAT - shows that this company was involved in software development, software products and marketing. Furthermore and perhaps more importantly published segmental data was not available. In these circumstances, having regard to the specificity of the Transfer Pricing Rules under Rule 10(b) to 10(e) of the Income Tax Rules, the data of the said firm, i.e., Persistent Systems Ltd. could not have been included. Respectfully following this decision of Tribunal and the Hon'ble jurisdictional High Court who have considered the functional dissimilarity 6006 6751/Del./2014 34 of this comparable, we direct the AO/TPO to exclude this comparable from the final set of comparables. Thirdware Solutions 34. Having considered the submissions of both the parties, we find that the comparability test of this company has been well examined by ITAT Delhi Bench in the case of Sun Life India Service Centre Pvt. Ltd. (supra) observing as under : 10.12. After considering the rival contentions and pursuing the annual reports pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer/sale, sub-section (2) to Section 50 gets initiated and is accordingly applied. The requirement and pre-condition stipulated is that the block of asset should cease to exist. The block of asset should stand completely depleted and no asset should remain in the block. 19. In the present case, there is no finding of the Assessing Officer or the appellate authorities that the block of assets carrying the same rate of depreciation ceased to exist or that after adding the three elements mentioned in Section 50, there was surplus on the full value of consideration received or accruing as a result of transfer of plant and machinery or the building. It is not the finding of the Assessing Officer that the block of assets entitled to the same percentage of depreciation ceased to exist or there was a surplus in the block of assets carrying the same rate of depreciation. The Assessing Officer has proceeded on the basis that the division itself constitutes a separate and an independent block of assets. Appendix to the Rules as noticed above, is not a unit/division specific but is rate of depreciation specific, as all assets prescribed the same rate of depreciation are clubbed and are a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s amendment also strengthen the claim that now only detail for block of assets has to be maintained and not separately for each asset. 33. Having regard to this legislative intent contained in the aforesaid amendment, it is difficult to accept the submission of the learned counsel for the Revenue that for allowing the depreciation, user of each and every asset is essential even when a particular asset forms part of block of assets‟. Acceptance of this contention would mean that the assessee is to be directed to maintain the details of each asset separately and that would frustrate the very purpose for which the amendment was brought about. It is also essential to point out that the Revenue is not put to any loss by adopting such method and allowing depreciation on a particular asset, forming part of the block of assets even when that particular asset is not used in the relevant assessment year. Whenever such an asset is sold, it would result in short term capital gain, which would be exigible to tax and for this reason, we say that there is no loss to Revenue either. 34. The upshot of the aforesaid discussion is that though we are not entirely agreeing with the reasoning of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to ground nos.25 to 30, during the hearing both the counsels agreed that this issue has to go back to the file of AO for verification. It is brought to our notice that in AY 2011-12, similar issue was considered by the ld. DRP and based on the direction of the ld. DRP, assessment order was passed by the Assessing Officer with the following findings :- 3. The details of expenses of the Sony India Pvt. Ltd. (which includes the expenses of SSIC Global Delivery Centre i.e SEZ unit of Sony India Pvt. Ltd.) and the expenses separately debited to the accounts of SSIC Global Delivery Centre (material for the purpose of determination of available deduction u/s 10AA) have been examined. It is seen that the assessee, on a gross basis, has already debited expenses of Rs. 77.39 crores in the books of the SEZ unit against the respective expense heads considered by the Assessing Officer. As against this, apportion expenses based on the turnover of the SEZ unit and non-SEZ unit as computed by the Assessing Officer is Rs. 22.14 crore. Since, the expenses already debited to the SF7 unit under the various heads taken together is more than the apportioned expenses, the disallowance out of the 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... double taxation of the same income i.e. once at the time of accrual of income and another at the time of its distribution. This double taxation can never be an intent of the legislation and therefore vide the Finance Act, 2020 the provisions of Sec. 115-0 was amended to shift the incidence of tax on dividend on the recipient shareholder. b) The objective of Memorandum was not confined to shifting the charge for administrative convenience, but also to encourage shareholder's investments in domestic company (Para No. 56) Our Submission: The argument that since there is no tax incidence on dividend income in the hands of shareholders and therefore it shall encourage investment in shares of demesne companies is not tenable. Even if it is accepted that DDT is a tax on the profits distributed by the company and it has nothing to do with the income of the shareholder, then also, DDT shall act as a burden on the reserves of the company which is directly proportional to the value of the investments. Therefore, collection of tax either from the hands of shareholders or from the company, should ideally not make any difference in investment related decisions. Further, Explanatory Memorand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not what may come to follow from some observations which .11m! place therein', The Hon'ble Supreme Court was not dealing with the nature of DDT as to whether it is Tax on the company or a tax on the shareholder. Thus, decision rendered in case of Toto Tea (supra) does not support the cause of assessee. Our Submission: Hon ble courts on various occasions have defined the term 'ratio decidendi' as 'opinion which are important / relevant for taking a decision.' Thus, where the principles or analogy are such that it forms the basis of passing an order, it should be interpreted in even manner for usage as precent in subsequent cases, Without the principle of ratio decidendi any reliance on precedents, so long as it is not squarely applicable to the matter, can be turned down. Precedents cannot necessarily be result oriented as the reason basis which the order is issued are equally important. Without prejudice it may be noted that, Hon'ble Supreme Court in Godrej Boyce [2017] 81 taxmann.com 111 (SC) were dealing on the issue of applicability of section 14A on dividend income. However, Hon'ble Mumbai ITA T while disposing the appeal on claim of refund of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the case of Tata Tea (supra) placing heavy reliance on Godrej Boyce (supra) is not warranted. f) Hon'ble Bombay High Court in case of Small Industries Development Bank of India -vs.- Central Board of Direct Taxes J 33 taxmann.com 158 has held (hat charge u/s 115-O is on the Company's profits and nor income in the hands of the shareholder. (Para No. 75) Our Submission: In the aforesaid case, the Small Industries Development Bank of India ( SIDBI') was specifically exempted from the provisions of Income Tax Act, 1961 by virtue of the provisions of Sec. 50 of the Small Industries Development Bank of India Act, 1989. An assessee formed under a separate legislation and having specific exemption cannot be relied as a general guiding principle on all the assessee. Thus, the decision of Hon'ble Bombay High Court in SIDBI 133 taxmann.corn 158, a specific entity governed under a separate Act, should not be referred to test the taxability of all the assesses in general. g) Section 115-o(3) and 115-o(1) clarifies that the taxes paid are final payment of tax and no credit shall be claimed by the Company or any other person (para No. 77) Our Submission: As per the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a-Hungary tax treaty) cannot be construed as leading to its automatic exclusion in the other tax treaties. Specific provision may not always be necessitated when the general provisions are wide enough to cover the same. In our case, relying on Article 10 of India- Netherlands tax treaty, it is amply clear that dividend income can be taxed in the other contracting state subject to a maximum rate of 10% and therefore specific extension of tax treaty to DDT is not warranted. Thus, basis the above provisions and judicial precedents it is humbly prayed that DDT is a tax on dividend income of recipient shareholder and therefore benefit of Article 10 of India-Netherlands tax treaty should be allowed to the appellant. Above aspects appear to have gone unnoticed by Hon ble Special Bench of Hon'ble Tribunal while reaching conclusions. It is therefore, prayed that above aspects may kindly taken on record and appropriately considered for deciding additional grounds raised on 15.11.2019 in present case. 30. On the other hand, Ld DR objected to the above submissions and submitted that this issue is already covered in the case of Total Oil India Pvt Ltd. 31. Considered the rival submissions a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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