Loading judgment…
Facts
The assessee, M/s Philips India Limited, appealed against the order of the Dispute Resolution Panel concerning the Assessment Year 2021-22. The appeal involved several grounds related to transfer pricing adjustments, disallowance of interest, deemed income, leased rental, and short-granting of TDS/TCS credit.
Held
The Tribunal, following its co-ordinate bench's decisions in the assessee's own cases for various assessment years, allowed most of the grounds. This included directing the exclusion of certain comparables in transfer pricing, deleting adjustments for Intra Group Services, Advertisement, Marketing & Promotion expenses, and contract research and development services, and setting aside the disallowance of leased rental.
Key Issues
Whether the comparables selected by the TPO for benchmarking software development services are appropriate, and whether adjustments related to Intra Group Services, AMP expenses, contract research, interest disallowance, deemed income, leased rental, and TDS/TCS credit are valid.
Sections Cited
143(1), 41(1), 234A, 234B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
This is an appeal preferred by the assessee against the order of the AP passed after directions by ld. Dispute Resolution Panel (hereinafter referred to as the “Ld. DRP”] dated 13.09.2024 for the AY 2021-22.
The issue raised in ground no.1 is general in nature.
The issue raised in ground no.2 is in respect of transfer priding adjustment of ₹54,41,41,000/- on account of provision of software development services.
3.2. The ld. DR on the other hand fairly agreed that the Tribunal in assessee’s own case in A.Y. 2020-21 has excluded these comparable while calculating the average margin.
3.3. After hearing the rival contentions and perusing the materials available on record, we find that the issue is squarely covered by the decision of the co-ordinate bench in assessee’s own case for A.Y.
“07. After hearing the rival contentions and perusing the materials available on record, we find that there are two comparables namely Tata Elexi Limited, which has the Profit Level Indicator of 28.02% and Sasken Technologies Ltd., which have profit level indicator at 17.20%. The counsel of the assessee argued in detail as to why Tata Elxsi ltd is not comparable to the assessee as has been held in the f9ollowing decisions: i. Wipro GE Healthcare (P.) Ltd. vs. ACIT [2023] 154 taxmann.com 97 (Bangalore - Trib.)[17-05-2023] ii. Infineon Technologies India (P.) Ltd. vs. Deputy Commissioner of Income-tax [2024] 159 taxmann.com 245 (Bangalore - Trib.)[10-01-2024] iii. Mavenir Systems (P.) Ltd. vs. Deputy Commissioner of Income Tax [2023] 152 taxmann.com 655 (Bangalore - Trib.)[23-03-2023] iv. Infor (India) (P.) Ltd. vs. Assistant Commissioner of Income-tax [2022] 143 taxmann.com 68 (Hyderabad - Trib.)[25-08-2022] 08. Similar in the case of Sasken Technologies Ltd., the assessee submitted that the same should not be considered as comparable for the following reasons: “Functionally not comparable - Sasken is engaged in providing diversified services such as product engineering and digital transformation providing concept-to-market, chip-to-cognition R&D services. Engaged in R&D activities and owns intangible property The company is consistently investing in technology and innovation. During the year, the company has invested to explore the emerging technologies such as computer vision, artificial intelligence, machine learning, blockchain etc. Further, company owns intangible assets in the nature of computer software, unlike the Appellant who does not own any such intangibles. Lack of segmental information No separate data that provides segment wise breakup and revenue from software development services available [Refer page No. 7732 of the Paperbook-Part 11 of 11 and page no. 112 of the annual report Judicial precedence:
09.
We note that the Tata Elexi is engaged in diversified and engineering services to the consumer electronics, broadcast and communications, transport, visualization, provide system integration and support services for enterprise customers unlike business operation of the software development segment of the assessee wherein it is engaged in providing results, information, etc. relevant to the business of the Associated Enterprises generated from such software development activities. We note that the same is not functionlly comparable. The said comparable undertakes R&D activities and own the intellectual property in the form of technology and brand and thus cannot be compared with the assessee. The case of the assessee find support from the case of the Wipro GE Healthcare (P.) Ltd. vs. ACIT (supra). Similarly, we note that the second comparable taken by the AO post Dispute Resolution Panel order i.e. Sasken Technologies Limited is also not comparable to the assessee for the reason that the same is not functionally comparable and is engaged in the R&D activities and owns intangible properties which is not there in the case of the assessee. Moreover, the comparable lacks, the segmental information. The case find support from the decision of Mavenir Systems (P.) Ltd. vs. DCIT (supra), wherein the Hon'ble ITAT has held that the company is not functionally comparable due to its
The issue raised in ground no.3 is in respect of transfer pricing adjustment of ₹108,79,48,589/- on account of Intra Group Services (IGS) received by the assessee.
4.1. At the outset, the ld. Counsel for the assessee submitted that the issue has been decided in assessee’s own case for A.Y. 2009-10 to 2016-17 and 2020-21. Since, the facts of the case in the current assessment year are same, therefore, the ground may be allowed by following the decision of the co-ordinate Bench in the preceding and succeeding assessment years.
4.3. After hearing the rival contentions and perusing the materials available on record, we find that the issue is squarely covered by the co-ordinate bench in for A.Y. 2020-21, vide para no.11 and 12 deciding in favour of the assessee. For the sake of ready reference, we extract the para as under: - “011. The issue raised in ground no.3 is against the transfer pricing adjustment of ₹108,79,48,589/- on account of Intra Group Services (‘IGS’) received by the assessee.
We note that this is a recurring issue in the case of the assessee which has been decided by the co-ordinate Bench in favour of the assessee in vide order dated 06.09.2022 for A.Y. 2016-17 . The operative part of the decision is as under:- “3. Issue raised in ground no. 2 is against the direction of DRP on determination of arms’ length price in respect thereof for intra group services received by the appellant assessee.
4. The Ld. Counsel for the assessee at the outset submitted that the issue is recurring one right from A.Y.2009-10 to 2015-16 and is covered in favour of the assessee by the decisions of the Co-ordinate Benches of the Tribunal deciding the issue in favour of the assessee in all the assessment years. The Ld. A.R took the Bench through the decisions attached in the Paper book and prayed that the ground may be allowed following the said decisions of the Co-ordinate Bench in the assessee’s own case.
5. The Ld. D.R. on the other hand fairly agreed that the issue is squarely covered by the decisions of Co-ordinate Benches in assessee’s own case however relied on the order of DRP.
Having heard rival submissions and perusing the material on record including the decisions of the coordinate benches in assessee’s own case in the earlier assessment years, we find that the issue is squarely covered in favour of the assessee. Therefore, taking a consistent view , we allow ground no. 2 by setting aside the direction of the DRP and directing the TPO/AO to delete the adjustment/addition.”
13. Accordingly, we direct the ld. AO to delete the addition by respectfully following the decision of the co-ordinate Bench in A.Y. 2016-17. The ground no.3 is allowed.”
The issue raised in ground No.4 is in respect of transfer pricing adjustment of ₹94,41,22,563/- towards alleged advertisement, marketing and promotion (AMP) expenses.
5.1. After hearing the rival contentions and perusing the materials available on record, we find that the issue is squarely covered by the decision of the co-ordinate Bench in assessee’s own case for A.Y. 2010-11 to 2016-17 and A.Y. 2020-21. For the sake of ready reference we extract the operative part of the decision in for A.Y. 2020-21 as under: - “014. Ground no. 4, is against the transfer pricing adjustment of ₹94,41,22,563/- on account of advertisement, marketing and promotion expenses.
We note that the impugned issue is recurring one and has been decided by the co-ordinate Bench in assessee’s own case for A.Y. 2010-11 to 2016-17. The operative part of the decision in for A.Y. 2016-17 is extracted below:- “7. Issue raised in ground no. 3 is in respect of determination of arm’s length price and an adjustment made on account thereof towards advertisement, marketing and promotion expenses.
Having heard rival submission and perusing the material on record we find that issue is squarely covered by the decisions of the Co-ordinate Benches in earlier assessment years in assessee’s own case from AY 2010-11 to 2015-16. Accordingly we set aside the DRP direction on this issue and direct the AO/TPO to delete the adjustment made and consequently ground no. 3 is allowed.”
Considering the facts of the instant assessment year being similar to ones as decided by the co-ordinate Bench in assessee’s own case, we hold that the advertisement, marketing and promotion expenses do not an international transaction and accordingly, the TP adjustment made by the ld. Transfer Pricing Officer/ AO is directed to be deleted. The ground is accordingly allowed.” 5.2. Consequently, AO/TP adjustment by the Transfer Pricing Officer, is deleted.
The issue raised in ground no.6 is in respect of transfer pricing adjustment of ₹16,67,57,000/- on account of provision of contract research and development services.
7.1. The facts in brief are that the assessee is engaged in providing the contract research and development services to its Associated Enterprises based on specification provided by the Associated Enterprises and the assessee is compensated for services on cost plus markup of 9.22% of the service agreement. We note that the ld. AO /Transfer Pricing Officer computed the margin of 18.66% by taking six comparables and if we exclude the non-comparable company namely; Aurigene Discovery Technologies Ltd. then the average margin would come to 3.36 which is much lower than the appellate margin of 9.22%. We note that the issue is squarely covered by the decision of the co-ordinate Bench in assessee’s own case for A.Y. 2020-21 in vide order dated 11.03.2025 by Para no.11, wherein the issue has been decided in favour of the assessee. For the sake of ready reference the relevant extract is given below: -
“022. We have considered the submissions of both the parties. The assessee admittedly, doing contract, research and development for medical devices. ADTL, as has been mentioned in its Annual Report is undertaking research relating to contract discovery for its customers and licensing of the intellectual property rights in respect of researched drug discovery. This has nothing to do with any activity which is software related. The activities are purely related to the manufacturing of drugs more specifically, the discovery of new drugs through research and development. It ,admittedly, is not a comparable with the assessee in regard to the functionality. Coming to TCG, it is noticed that TCG is also into early drug discovery and development, which has been, mentioned earlier cannot be considered as the same as a research and development in respect of medical devices. Further, in the case of TCG, the revenue generated from the sale of products are admittedly 80% of the total revenue of TCG which also makes it incomparable with the assessee in so far as
8. The issue raised in grounds no.7 and 8 is in respect of double disallowance of interest paid to MSMED of ₹55,226/- and double addition of deemed income u/s 41(1) of the Act of ₹70,66,297/-.
8.1. After hearing the rival contentions and perusing the materials available and after examining the order dated 23.10.2024, we find that the said interest has been disallowed by the ld. AO in the intimation order passed u/s 143(1) of the Act dated 20th October, 2022. Since the assessee disallowed the said interest suo moto while filing the return of income resulting into double disallowance. Similar is the position with regard to deemed income u/s 41(1). Therefore, the issue needs to be looked into at the end of the ld. AO and accordingly, we restore the issue to the file of the ld. AO to decide the same afresh after looking into the facts and also after affording reasonable opportunity of hearing to the assessee. The grounds are allowed for statiticsl purpose.
The issue raised in ground no.9 is against the disallowance of leased rental of ₹86,47,48,620/-.
“029. The issue raised in ground no.9 is against the disallowance of lease rental of ₹62,13,65,603/-.
The facts in brief are that in the computation of income, the assessee has claimed deduction of ₹62,13,65,603/- on account of lease rental of the assets taken on financial lease. The ld. AO accordingly called upon the assessee to file his submission which was filed on 13.01.2022, in which he submitted that the depreciation claimed on the assets taken on lease has been added back while computing the total income and the assessee has correspondingly claimed lease rental from income excluding the interest as allowable deduction while computing the total income. The submission of the assessee did not find in favour of the ld. AO and he added the same to the income of the assessee which was confirmed by the ld. Dispute Resolution Panel.
After hearing the rival contentions and perusing the materials available on record, we find that the issue is squarely covered by the decision of the co-ordinate Bench in assessee ‘s own case from AO 200-10 to 2016-17, which are already available in the Paper Book. Accordingly, we set aside the ld. Dispute Resolution Panel direction and direct the ld. AO to delete the addition. Accordingly, the ground no.9 is allowed.” 9.2. Accordingly, we set aside direction of the ld. Dispute Resolution Panel and direct the ld. AO to delete the addition.
The issue raised in ground no.10 and 11 is against the wrong levy of interest u/s 234A and 234B of the Income-tax Act, 1961 (the Act).
After hearing the rival contentions and perusing the materials available on record, we are of the view that the issue is required to
12. The issue raised in ground no.14, is against the short granting of TDS/ TCS credit to the tune of ₹3,73,374/-.
After hearing the rival contentions and perusing the facts on record we are of the view that the issue needs to examine at the end of the ld. AO and accordingly, we direct the ld. AO to decide the same afresh after looking into the facts available on record and after affording reasonable opportunity of hearing to the assessee. The ground is allowed for statistical purpose.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 26.08.2025.