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TMI Blog2016 (3) TMI 1486X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to the Ld. counsel, the transaction between the assessee and the subsidiary company is in the nature of inter- corporate loan which was granted to protect the wholly owned subsidiary of the assessee. According to the Ld. counsel, the loan advanced by the assessee to its wholly owned subsidiary is for business purpose. Therefore, the Transfer Pricing Officer as well as the Dispute Resolution Panel committed an error in interpreting the financial relationship between the holding and subsidiary company as a lender and borrower. According to the Ld. counsel, there is no relationship as lender and borrower. The investment made is only for business purpose, therefore, there is no question of charging any interest on notional basis. 3. On the contrary, Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that the loan advanced by the assessee to a UK company was free of interest. In fact, the assessee borrowed loan in India and paying interest. However, the money was diverted to a non-resident company and the expenditure incurred for paying the interest on the borrowed loan is claimed as allowance in computation of income. However, the assessee has not charged any i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree loan are deemed to have been shifted to foreign jurisdiction. Therefore, the Dispute Resolution Panel found that LIBOR rate of interest has to be applied. 5. The main object of transfer pricing adjustment provided under the scheme of Income-tax Act is to prevent the assessee from eroding the tax base in one country and shifting the profit to other country. In the case before us, if the assessee has incurred any expenditure on the loan advanced to the Associate Enterprise in UK, then naturally the assessee is shifting the profit earned in India to a foreign jurisdiction by reducing the taxable income in India. In other words, if the assessee borrowed loan in India and the entire borrowed loan or part of the borrowed loan was advanced to the foreign company, without charging any interest, the assessee is reducing the profit in India to the extent of interest paid or payable on the borrowed funds. In case the assessee has surplus interest- free funds after meeting all statutory obligations, including payment of income-tax on the income, then the assessee is open to invest the same in any manner as it likes. Therefore, it needs to be verified whether the assessee has any surplus f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 1962 is mandatory for the assessment year under consideration. The assessee-company invested Rs.2206.57 lakhs in shares/funds as on 31.03.2010 and earned dividend income of Rs.11,35,049/-. The dividend income earned by the assessee was exempted from taxation under Section 10(34) of the Act. However, the assessee has not claimed any expenditure for earning the dividend income which does not form part of total income. Therefore, the Assessing Officer is not satisfied about the claim of the assessee and by following the procedure laid down in Rule 8D, computed the disallowance. The Ld. D.R. further submitted that the assessee is not maintaining any separate books of account for investment in shares/funds. Though the assessee claims that substantial interest- free funds were available, but no material is available on record to show that the interest-free/own funds were used for making the investment. The Ld. D.R. further pointed out that all the funds were in a common pool. Therefore, it is very difficult to segregate the own funds and the borrowed funds. The fact that the assessee borrowed funds on payment of interest is not in dispute. In the absence of any nexus between the own f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e included fee for software licenses, cost of purchase of application software, annual maintenance contract charges, software development and maintenance charges and cost of upgradation of software. According to the Ld. D.R., the maintenance charges and upgradation charges are revenue expenses. Therefore, it has to be allowed in the year in which it was incurred. In the case of purchase of software licenses, there are two types of licences - one type of license is permanent license and another type of license is annual license. In the case of annual license, the entire license fee is allowable as revenue expenditure in the year in which it was incurred as the use of software is for that year only. However, in the case of permanent license, the use of software is over a period of year, therefore, it gives an enduring benefit to the assessee. The cost of permanent license will be a capital expenditure and the assessee is entitled for depreciation only. The Ld. D.R. further pointed out that in the case of purchase of application software, the Assessing Officer is required to see whether the software is a temporary one or for a long period. If the software is purchased for longer perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interfere with the order of the lower authority and accordingly, the same is confirmed. 14. The next issue arises for consideration is with regard to additional depreciation in respect of machinery installed. 15. Sh. R. Vijayaraghavan, the Ld.counsel for the assessee, submitted that the assessee claimed additional depreciation on the plant and machinery purchased in the second half of financial year. The Assessing Officer allowed 10% of the depreciation. The assessee claimed additional depreciation for the year under consideration in respect of the plant and machinery which were put to use in the earlier assessment year for less than 180 days. Placing reliance on the decision of Cochin Bench of this Tribunal in Apollo Tyres Ltd. v. ACIT (2014) 64 SOT 203, the Ld.counsel submitted that the assessee is entitled for additional depreciation. 16. On the contrary, Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that the additional depreciation has to be allowed in the year in which the machinery was put to use. Since the assessee put to use the machinery for less than 180 days, the Assessing Officer allowed 50% of the additional depreciation, i.e. at the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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