MANHATTAN ASSOCIATES (INDIA) DEVELOPMENT CENTRE PRIVATE LIMITED,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4(1)(1), BANGALORE

The Ld.AR submitted that the only issue that is raised before this Tribunal in the present appeal is regarding addition of assets Page 2 of 6 IT(TP)A No. 221/Bang/2021 received free of cost basis taxed as business income u/s. 28(iv) of the Act.

The Ld.AR submitted that this issue has now become academic as an APA has been entered into between the competent authorities, wherein, the said expenses stands subsumed in the operating expenses. The Ld.AR referring to the APA dated 28/02/2020 submitted that the definition of operating expenses has been recorded as under: “Definition.........................(a).............. (b) "operating expense" means costs incurred in the previous year by the Applicant in relation to the covered transactions during the course of its normal business operations, including depreciation and amortisation expenses relating to the assets used by the Applicant, and expenses reflected in Statement of Profit & Loss of MA India on account of Employees' Stock Option Plan ("ESOP") benefits or similar benefits, granted by the AE to the Applicant's employees and charged to the Applicant, but does not include the following, namely:— (i) interest expense; (ii) provision for unascertained liabilities; (iii) pre-operating expenses; (iv)extraordinary expenses such as one-time expenses relating to the change in the accounting policies or accounting standards, (e.g. migration to Ind-AS / IFRS), etc.; (v) loss on transfer of investments or assets, other than on assets whose depreciation is included in the operating expense; (vi) expense on account of income-tax; and (vii) other expenses not relating to normal operations of the Applicant. It is clarified that the following shall also be part of operating expense: .............................A..........D............ E. The following amounts in respect of third-party software, databases, licenses and other assets/tools provided by the "MA US" to "MA India", namely:

The Ld.AR submitted that, pursuant to the above, the assessee filed its return of income, wherein, the cost of the assets received by the assessee from its AE free of cost is considered to be part of operating cost for the covered transaction and has been included to determine the ALP of the covered transaction. He referred to the computation of income which is filed before this Tribunal as additional evidence along with other annexures. 4.1 The Ld.DR has not objected for admission of the additional evidence as the same has been filed by assessee pursuant to the APA. 4.2 For the sake of convenience, the computation of income filed by assessee is scanned and reproduced hereunder.

The Ld.AR referring to the decision of Coordinate Bench of this Tribunal in case of Tesco Bengaluru Pvt. Ltd. vs. JCIT in IT(TP)A Nos. 2898/Bang/2018 & 2387/Bang/2019 by order dated 04.08.2022 for A.Ys. 2014-15 & 2015-16, submitted that identical issue was considered by this Tribunal and has allowed this claim of assessee.

We note that in the case of Tesco Bengaluru Pvt. Ltd. vs. JCIT (supra), this Tribunal observed and held as under: “11.1 Facts of the case are that during the year under consideration, the Appellant received certain capital goods such as computers, scanners, hard disks, etc. from its Associated Enterprise on free of cost basis. The assets were received for usage in rendering services to the AE. The Assessing Officer treated the value of the assets of Rs. 1,64,92,752/- as being benefit arising to the Appellant from its business activities and made an addition under Section 28(iv) of the Act. The DRP affirmed the addition. 11.2 In this regard, Ld. A.R. submitted that pursuant to passing of the final assessment order, the Appellant entered into an Advance Pricing Agreement, covering the subject assessment year. In terms of the agreement, for the purpose of computing the operating profit margin, the operating expense is to include all costs incurred by the Appellant in relation to the covered transaction, including depreciation and amortization expense relating to the assets used by the Appellant. Therefore, since the depreciation on the assets is considered as a part of the operating expense for computing the operating profit margin arising from the transaction, the income from which is offered to tax, no addition under Section 28(iv) of the Act is warranted. It is submitted that since the item has already suffered tax pursuant to the APA, a separate addition would result in double taxation, which is unsustainable. In view of the above, the other contentions are not argued at the present stage and the Appellant reserves liberty to argue the same at a future stage, if required. 11.3. The Ld. D.R. relied on the order of lower authorities. 11.4 We have heard the rival submissions and perused the materials available on record. We find force in the arguments of the assessee's counsel. If the depreciation on assets is considered as part of operating profit margin arising from the transaction, and the income from which it is offered to tax, no addition u/s 28(iv) of the Act is warranted, which is already subject to tax pursuant to APA and no further addition is necessary, otherwise it amounts to double taxation. Accordingly, we allow this ground taken by the assessee.”