M/S. PHILIPS INDIA LIMITED,KOLKATA vs. D.C.I.T., CIRCLE - 11(1), KOLKATA

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 i. Wipro GE Healthcare (P.) Ltd. vs. ACIT [2023] 154 taxmann.com 97 (Bangalore - Trib.)[17-05-2023]

Similar in the case of Sasken Technologies Ltd., the assessee submitted that the same should not be considered as comparable for the following reasons:

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 “4.4 Sasken Communication Technologies Ltd. 4.4.1 It is submitted that this comparable has been excluded by the Ld.TPO as it is involved in R&D activities and owns huge patents. We have hereinabove excluded Infosys Ltd., L&T Infotech Ltd. for the reason that they are into research and development activities and owns huge intangibles which is not akin to a captive service provider. Applying the same principle, we do not find any infirmity in exclusion of Sasken Communication Technologies Ltd. by the Ld.TPO. Accordingly, we reject this comparable sought for exclusion by assessee. Accordingly ground no. 1.6 raised by assessee stands partly allowed.

Ground no. 1.7 has been raised by assessee seeking the correction in the margins of the comparable companies. It is submitted that assessee has filed all the relevant details in respect of the comparables that needs to be verified by the Ld.TPO/AO. We thus direct the Ld.AO/TPO to recompute the margins in accordance with law. Accordingly this ground stands allowed for statistical purposes.

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.

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.

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.”

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.

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:-

Ground no.5 is general in nature which is qua the Rule of consistency and does not require any specific adjudication.

Ground no. 6 is in regard to the determination of arms’ length price in respect of the provisions of Contract, Research & Development Services (CRDS) to the Associated Enterprises (AE). It was submitted by the Ld. AR of the assessee that the assessee is engaged in the provisions of CRDS to this AE. It provides service based on the specification provided by the AE. The assessee applied cost plus mark up 9.59% as per the service agreement as compensation for its services. The TPO and the DRP when adjudicating the issue had considered seven companies as comparable, which are as under:

It was the submissions that if the said two companies which are functionally different and not comparable with the assessee’s business are excluded, then, the average would come to 10.52% as against 9.59% disclosed by the assessee and the same would be within the acceptable variation and consequently, the transfer pricing adjustment was liable to be deleted.

In reply, the Ld. DR vehemently supported the order of the DRP. It was the submission that the two comparable which are being objected to by the assessee were very much comparable in so far as both the companies were also undertaking research and they were also in the same line as the medical field. It was the submission that the submissions of the assessee have already been considered by the TPO and the DRP and the same have already been rejected and nothing new has been pointed out by the assessee, which would call for any modification to the order of the TPO or DRP. It was the submission that the adjustment as made is liable to be upheld.

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

The issue raised in ground no.7, is against the disallowance of expenses of ₹7,50,50,000/- u/s 14A of the Act in relation to earning of exempt income.

The facts in brief are that during the year under consideration, the appellant has not earned any exempt income, however, the ld. AO computed the disallowance u/s 14A read with section 8D of the Rules, at ₹7,50,50,000/- by applying the rate of 1% on the average investments. The ld. Dispute Resolution Panel in its direction vide order dated 30.06.2024, upheld the action of the ld. Assessing Officer.

After hearing the rival contentions and perusing the materials available on record, we note that there is no exempt income during the year and therefore, no disallowance is called for u/s 14A of the Act

The issue raised in ground no.8 is against the direction of ld. Dispute Resolution Panel confirming the addition of ₹27,08,766/- by the ld. AO in the draft assessment order u/s 41(1).

The facts in brief are that the ld. AO observed during the course of assessment proceedings that assessee has written off creditors but has not shown the corresponding income as deemed income u/s 41(1) of the Act in the return of income. Accordingly, the assessee was issued notice u/s 142(1) dated 15.12.2021, which was replied on 07.02.2023. In the said reply the assessee submitted that ₹6,24,98,886/-, pertained to provisions/liabilities which are no longer required and have been written back and have been included in the Profit and Loss account and consequently, offered to tax in the return of income filed. Therefore, no separate addition is required to be made. The ld. AO after perusing the reply of the assessee rejected the same and computed the amount not disclosed as income as per the

After hearing the rival contentions and perusing the materials available on record including the return filed by the assessee ,copy of which is available at page no.7889 of the Paper Book, we note that the amount of ₹6,24,98,886/-as shown by the assessee in the profit and loss account included an amount of ₹27,08,766/- pertaining to cessation of trading liabilities. The ld. AO once again added the amount u/s 41(1) of the Act, which was confirmed by the ld. Dispute Resolution Panel resulting into double addition of the same amount. Consequently, we set aside the order of the ld. Dispute Resolution Panel / AO and direct the ld. AO to delete the addition. The ground no 8 is allowed.

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.

The issue raised in ground no.10, is against the disallowance of deduction u/s 80G of the Act.

The facts in brief are that during the year the assessee claimed deduction u/s 80G of ₹4,84,70,669/-. Accordingly, the ld. AO called upon the assessee to furnish the details thereto which was supplied by the assessee vide his submission dated 31.01.2022, wherein the assessee furnished all the details in respect of the donations made. The ld. AO observed that the assessee has incurred expenses amounting to ₹11,00,15,130/- on account of corporate social responsibility in accordance with Companies Act, 2013, out of this amount, the assessee has claimed deduction 4,84,70,669/- u/s 80G of the Act. According to the ld. AO, CSR expenses are not allowable as claimed either directly or indirectly and therefore, the said claim was disallowed, which was affirmed by the ld. Dispute Resolution Panel in his direction.

After hearing the rival contentions and perusing the materials available on record, we find that the issue is squarely covered in favour of the assessee by the decision of the co-ordinate Bench in case of JMS Mining (P.) Ltd. Vs. PCIT [2021] 130 taxmann.com 118 (Kolkata-Trib), wherein it was held that explanation 2 to section 37(1) which denies deduction for CSR expenses by way of business

In the result, the appeal of the assessee is allowed.