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Income Tax Appellate Tribunal, “C”
Before: SHRI SATBEER SINGH GODARA & DR. DIPAK P. RIPOTE
आयकर अपीलीय अिधकरण “सी” "ायपीठ पुणेम"। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, PUNE BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.2054/PUN/2019 िनधा"रण वष" / Assessment Year : 2015-16 Tata Technologies Limited, The ACIT, Circle-7, Pune. Plot No.25, Phase I, Rajiv Vs Gandhi Infotech Park, Hinjawadi, Pune – 411057. PAN: AAACTG 3092 N Appellant/ Assessee Respondent / Revenue Assessee by Shri Dhanesh Bafana and Smt.Chandni Shah – AR Revenue by Shri Shivraj B. Moray - DR Date of hearing 01/08/2022 Date of pronouncement 18/10/2022 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This appeal filed by the Assessee is directed against the order of ld. Assistant Commissioner of Income Tax Circle-7, Pune dated 30.10.2019 for the A.Y. 2015-16 u/s 143(3)rws 144C(13) of the Income tax Act. The appellant assessee has raised following grounds of appeal: “1. On the facts and in the circumstances of the case, and in law, the Ld. AO, following the directions of the Ld. DRP, erred in confirming the action of the Ld. TPO in rejecting the ALP computation undertaken by the Appellant for benchmarking the international transaction pertaining to payment of commission, thereby making a TP adjustment of Rs.5,79,53,349 in the Software Distribution segment.
ITA No.2054/PUN/2019for A.Y. 2015-16 Tata Technologies Ltd., Vs. ACIT[A]
The Appellant prays that the TP analysis conducted by the Appellant ought to be accepted and consequently the TP adjustment ought to be deleted. 2. On the facts and in the circumstances of the case, and in law, the Ld. AO/Ld. DRP/Ld. TPO erred in computing the ALP of the international transaction of payment of commission as NIL instead of Rs.5,79,53,349 as determined by the Appellant. The Appellant prays that the TP analysis conducted by the Appellant ought to be accepted and consequently the TP adjustment ought to be deleted. 3. While doing so, the Ld. AO/Ld. DRP/Ld. TPO grossly erred in: a) ignoring that the Appellant had supported the claims with appropriate evidences; b) challenging the commercial rationale and expediency of availing services by the Appellant; c) ignoring that the Appellant is not required to establish the benefit arising out of the said services; d) rejecting the comparability analysis carried out by the Appellant to demonstrate Arm’s Length Price (‘ALP’) without giving any finding on the comparable companies adopted; and e) not applying any of the prescribed methods for benchmarking the transaction and not providing any valid comparable uncontrolled transaction to determine the ALP. The Appellant prays that the TP analysis conducted by the Appellant ought to be accepted and consequently the TP adjustment ought to be deleted. Corporate Tax Grounds 1. On the facts and in the circumstances of the case, and in law, the Hon’ble DRP / Ld. AO, has erred in disallowing the claim of the Appellant in respect of amortization of premium on leasehold land amounting to Rs 4,30,886. The Appellant prays that the addition pertaining to amortization of premium on leasehold land ought to be deleted and should be allowed as revenue expenditure. 2. On the facts and in the circumstances of the case, and in law, the Hon’ble DRP / Ld. AO, has erred in disallowing the provision for expenditure of Rs. 64,01,000 in respect of provision under ITA No.2054/PUN/2019for A.Y. 2015-16 Tata Technologies Ltd., Vs. ACIT[A]
Bhavishya Kalyan Yojana (‘BKY’), an employee welfare scheme. The Appellant prays that deduction in respect of the provision made for BKY expenses should be allowed as an ascertained liability. 3. On the facts and in the circumstances of the case, and in law, the Hon’ble DRP / Ld. AO, has erred in invoking Rule 8D of the Income-tax Rules, 1962 and thereby disallowing expenses amounting to Rs. 2,38,39,470 under section 14A by applying Rule 8D of the Act. The Appellant prays that addition made under Section 14A of the Act by applying Rule 8D should be deleted as the Appellant has suo-moto disallowed expenses of Rs 35,95,615 directly attributable to the exempt income. 4. On the facts and in the circumstances of the case, and in law, the Ld. AO/Ld. DRP erred in disallowing the provision debited to Profit and Loss Account for medicare expenses amounting to Rs.3,15,54,000. The Appellant prays that the disallowance on account of provision for medicare expenses debited to Profit and Loss Account ought to be deleted. 5. On the facts and in the circumstances of the case, and in law, the Ld. AO/Ld. DRP erred in not granting an enhanced deduction under Section 10AA of the Act based on the disallowances made in the Assessment Order. The Appellant prays that an enhanced deduction under Section 10AA of the Act on the disallowances made by the Ld. AO ought to be granted to the Appellant. 6. On the facts and in the circumstances of the case, and in law, the Ld. AO/Ld. DRP erred in initiating penalty proceedings under section 271(1 )(c) of the Act. The Appellant prays that the penalty proceedings ought to be dropped 7. On the facts and in the circumstances of the case, and in law, the Ld.AO/Ld. DRP erred in initiating penalty proceedings under section 271AA of the Act. The Appellant prays that the penalty proceedings ought to be dropped”
ITA No.2054/PUN/2019for A.Y. 2015-16 Tata Technologies Ltd., Vs. ACIT[A]
Brief facts of the case are that the appellant assessee had filed return of Income on 27/11/2015 for AY 2015-16 declaring total income of Rs.1,34,62,70,040/-. The case was selected for scrutiny assessment. During the scrutiny assessment the Assessing Officer(AO) noticed that the assessee had entered into transaction with Associated enterprises. Therefore, the AO made a reference to Transfer Pricing Officer(TPO) u/s.92CAof the Act. The TPO passed the order making an upward adjustment of Rs.5,79,53,349/- to international transaction of Commission and Design Engineering Services. In addition to the TP adjustment the AO proposed following disallowances: Disallowance Amount Amortization of lease Rent 4,30,886/- Bhavishya Kalyani Yojna 64,01,000/- Medical Expenses 3,15,54,000/- 14A 2,38,39,470/- 2.1. Aggrieved by the same the Assessee filed an appeal before the Dispute Resolution Panel. The DRP issued directions on 19/09/2019. Aggrieved by the Assessment Order the Assessee filed this appeal.
We have heard both the parties and perused the records. We will discuss ground wise each ground.
Ground Number 1 to 3 Commission Rs.5,79,53,349/- :
4.1 The Ld.Authorised Representative of the assessee(ld.AR) at the outset explained that he will not like to press for the additional
ITA No.2054/PUN/2019for A.Y. 2015-16 Tata Technologies Ltd., Vs. ACIT[A]
grounds raised. The Ld AR submitted that issue of payment of commission is covered in favour of the assessee by Hon’ble ITAT’s order in assessee’s own case for AY 2012-13, 2013-14 and 2014-15. The ld.AR filed copies of the orders.
4.2. The Ld.Departmental Representative for the Revenue(ld.DR) relied on the orders of the lower authorities. Ld.DR submitted that the assessee has failed to establish that any services were actually provided. Ld.DR submitted that mere emails do not establish the genuineness of the services.
Decision: The TPO in para 10 has mentioned, “The nature of payment to TTPL and the basis of such payment remain same as in earlier years.” The assessee has filed a paper book. Page 586 to 593 are the copies of the emails which were also submitted before the lower authorities. The Ld.AR took us through these emails to demonstrate the services availed. As per the TP study report the assessee has availed 16 services out of that assessee clubbed 14 services and applied Transactional Net Margin Method for benchmarking. The TPO has accepted the results of the TNMM. However, the TPO has taken out single transaction of “Commission” payment and benchmarked separately. The TPO has not given any reason in the Transfer pricing Order to segregate the single transaction of Commission payment for separate benchmarking. The ITA No.2054/PUN/2019for A.Y. 2015-16 Tata Technologies Ltd., Vs. ACIT[A]
TPO at end of the order has concluded the ALP of the transaction as “NIL", however, the TPO has not mentioned the method applied by the TPO to arrive at the ALP of NIL.
5.1 The ITAT in ITA No.168, 1708/PUN /2018 for AY 2013-14, 2014-15 has held as under: Quote, “6. We find that similar issue of payment of commission @ 6% on its sales arose before the Tribunal in assessee’s own case in ITA No.723/PUN/2017, relating to assessment year 2012-13. The Tribunal vide order dated 01.02.2019 has noted the rendering of services by TTPL and has held that Commission Agreement dated 01.12.2007 existed between the assessee and TTPL and as per clauses of the said agreement, it was clear that TTPL was facilitating purchases in respect of assessee from Dassault, UK. Further, it was responsibility of TTPL to undertake marketing efforts to telemarketing and inbound enquiries through its dedicated support. The assessee had further furnished evidences demonstrating that the purchase of software license was done by the assessee from Dassault, UK and TTPL was facilitating the entire process in ensuring smoothing selling of transactions In view of tangible evidence filed by assessee, the Tribunal held that payment of commission was justified. Following the same parity of reasoning, we hold that no upward adjustment merits to be made in the hands of assessee, where the commission rate of 6% has been found by the Tribunal to be appropriate and the learned Departmental Representative for the Revenue has failed to bring on record any evidence to the contrary. Applying the said parity of reasoning to the facts of present case, we direct the Assessing Officer to delete the addition made on account of arm's length price of international transactions undertaken by the assessee.” Unquote.
5.2 Since the TPO has accepted that facts of the AY 2015-16 are identical to facts of earlier year, respectfully following the decision of ITAT(supra). We direct the Assessing Officer to delete the ITA No.2054/PUN/2019for A.Y. 2015-16 Tata Technologies Ltd., Vs. ACIT[A]
addition made on account of Arms Length Price of Rs.5,79,53,349/-. Therefore, the Ground No.1 to 3 of the appellant assessee are allowed. Corporate Tax Ground: Ground No.1 relates to Amortisation of Premium: 6. The brief background of the issue as discussed by DRP in para 4.1 is as under: The Assessee paid premium amounting to INR 3,91,80,000 during the FY ended 31 March 2001 towards land acquired on lease from Maharashtra Industrial Development Corporation for a term of 95 years. The payment has been capitalised as leasehold land in the books of accounts and is being apportioned over the period of the lease (i.e. over the period of 95 years). Further, the Assessee incurred landscaping and development charges of INR 16,29,571 in FY 2002- 03 and INR 1,25,841 in FY 2003-04, which are being amortized over the balance of lease term.
During the AY 2015-16, the Assessee has added back the book depreciation for the purpose of computation of taxable income and a deduction of INR 4,30,886 has been claimed towards amortization of premium.
The DRP has upheld the addition made by the AO following earlier years order. The ld.Authorised Representative (ld.AR) submitted that the said issue stands covered by the order of the Tribunal in A.Y. 2013-14 & 2014-15. The ITAT in ITA No.168/PUN/2018 and 1708/PUN/2018 for A.Y. 2013-14 & 2014-15 in para 8 has held as under: “8. The learned Authorized Representative for the assessee pointed out that the said issue stands covered by the order of Tribunal in ITA No.2054/PUN/2019for A.Y. 2015-16 Tata Technologies Ltd., Vs. ACIT[A]
assessment years 2001-02 and 2003-04, which has been applied in assessment year 2012-13. The said issue raised of disallowance of amortization of premium paid on leasehold has been decided by the Tribunal with lead order in ITA No.1345/PN/2011, relating to assessment year 2001-02 vide paras 43 to 46 at pages 14 and 15 of the said order and following the same parity of reasoning, we hold that the said expenditure is not allowable in the hands of assessee. Hence, ground of appeal No.6 raised by assessee is dismissed.”
7.1. Following the same parity of reasoning, the Corporate Tax Ground No.1 of the assessee is dismissed.
Corporate Tax Ground No.2 relates to disallowance in respect of Bhavishya Kalyan Yojana: 8. The ld.Departmental Representative(ld.DR) for the Revenue has submitted that this issued is covered against the assessee by Hon’ble ITAT order in assessee’s own case for earlier years. The ld.AR for the assessee accepted the fact. The ITAT in ITA No.168/PUN/2018 and 1708/PUN/2018 for A.Y. 2013-14 & 2014-15 in para 9 has held as under: “9. Similarly, the next issue raised vide ground of appeal No.7 of disallowance of provision made for expenditure in respect of Bhavishya Kalyan Yojana has also been decided by the Tribunal in ITA No.1346/PN/2011, relating to assessment year 2003-04, vide paras 70 to 87 at pages 24 to 34 of the said order. The said issue has been decided against the assessee. Following the same parity of reasoning, we find no merit in the ground of appeal No.7 raised by the assessee and the same is dismissed.”
8.1. Therefore, respectfully following the decision of ITAT(supra) the Corporate Ground No.2 is dismissed.
ITA No.2054/PUN/2019for A.Y. 2015-16 Tata Technologies Ltd., Vs. ACIT[A]
Corporate Tax Ground No.4 relates to disallowance provision made for Medical Insurance Scheme:
The ld.Departmental Representative(ld.DR) for the Revenue took us through the draft assessment order and DRP directions. Para 8.1 of draft assessment order explains the facts, hence, it is reproduced here as under: “8.1 The Assessee in earlier year has made a provision in its financial statements, in respect of medicare schemes, where the employees are entitled for Medicare coverage for hospitalization upto a specified annual limit after retirement and for reimbursement of medical expenses. The scheme extends the benefit to all retired employees and their spouses till the retired employees attains the age of 70 years. During the year under consideration has made an incremental provision of Rs.3,37,57,907/- and has debited the same in its financial statements. The expenditure is contingent upon the happening of an uncertain and unpredictable event. The computation for provision done on the basis of actuarial principles (normally applied in life insurance business) is again an estimate and projection, based on the small sample of the assessee's employees. It has also been held that the Accounting Standard 15 is not applicable to the facts of assessee's case. In earlier Assessment years the provision has been disallowed considering it as contingent in nature and cannot be considered as revenue expenditure. Therefore the provision (after allowing the expenses incurred during the year i.e Rs.22,03,907/-) of Rs.3,15,54,000/- is disallowed and added back to the total income of the assessee.”
The DRP has held that provision created on contingent liability cannot be allowed, hence, the DRP upheld the disallowance made by the AO of Rs.3,15,54,000/-. The ld.DR submitted that the said issue is covered in favour of Department by the Hon’ble ITAT orders for earlier years. The ld.DR also submitted that during the hearings, the ITA No.2054/PUN/2019for A.Y. 2015-16 Tata Technologies Ltd., Vs. ACIT[A]
appellant has not produced any document to establish that the provisions were not in contingent in nature. The assessee has not submitted the details of actual expenditure incurred vis-à-vis the provisions made. The ld.AR submitted that the provisions have been made scientifically and relied on the Actuarial Valuation Report. The ld.AR submitted the Actuarial Valuation Report at page 616 to 635 of the paper book.
10.1. However, it is a fact that even before us the assessee has not submitted the exact amount spent out of the provisions made. Therefore, we agree with the DRP that the provisions are contingent in nature. The ITAT for A.Y. 2014-15 in para 27-28 has held as under: “27. The ground of appeal No.15 is against disallowance of provision made for expenditure in respect of medical insurance scheme for employees at ₹86,48,000/-. The learned Authorized Representative for the assessee fairly pointed out that the issue stands covered against assessee by the order of Tribunal in assessee’s own case for assessment year 2003-04 (supra).
We find that the Tribunal vide paras 70 to 87 at pages 24 to 34 of order had decided the said issue in assessment year 2003-04 against the assessee. Following the same parity of reasoning, we uphold the order of Assessing Officer / DRP and dismiss ground of appeal No.15.”
10.2. We have already hold that the provision is contingent in nature. Therefore, it is not allowable expenditure. Respectfully following the orders of the ITAT in earlier years, we uphold the order of the Assessing Officer.
ITA No.2054/PUN/2019for A.Y. 2015-16 Tata Technologies Ltd., Vs. ACIT[A]
Corporate Tax Ground No.5 relates to Enhance Deduction u/s.10AA: 11. On perusal of the Draft Assessment Order and the Final Assessment order, it is observed that the AO has not discussed the issue of enhanced deduction u/s 10AA of the Act. The Ld.AR has relied on the orders of ITAT in assessee’s own case for AY 2014-15, 2013-14. The ITAT in ITA No.168/PUN/2018 and 1708/PUN/2018 for A.Y. 2013-14 & 2014-15 in para 21 has held as under : “21. We find that the issue raised vide ground of appeal No.9 is squarely covered by the ratio laid down by the Hon’ble Bombay High Court in CIT Vs. Gem Plus Jewellery India Ltd. (supra). Accordingly, we hold that the assessee is entitled to enhanced deduction under section 10A of the Act on account of corporate tax additions made in its hands. We direct the Assessing Officer to re-compute the aforesaid deduction under section 10A of the Act. Accordingly, ground of appeal No.9 is allowed.”
11.1. Therefore, respectfully following the decision of ITAT (supra) we direct the AO to allow the deduction u/s 10AA on the corporate tax additions sustained by us provided these are with respect to the profits of the eligible units. Therefore, this ground is set aside to the AO. Accordingly, Corporate Tax Ground No.5 is allowed for statistical purpose. Corporate Ground No.3, 14A: 12. The AO in para 9 of the draft assessment order has discussed disallowance under section 14A read with rule 8D. The total disallowance made by the AO is Rs.2,38,39,470/-. The DRP in para
ITA No.2054/PUN/2019for A.Y. 2015-16 Tata Technologies Ltd., Vs. ACIT[A]
7.3 has discussed the issue. The relevant part of DRP’s findings as under: “7.3 Discussion and direction: We have considered the facts of the case and submissions made. The AO has recorded that interest expenditure of Rs 1,37,61,500 was incurred by assessee and as against dividend of Rs 7.07 cr only Rs 35,95,615 was disallowed. The investment in exempt earnings was Rs 3,82,38,32,314/-, the financials were duly examined by the AO before arriving at the satisfaction to apply rule 8D. The objections raised have been addressed by the AO in para 9. As regards the claim that rule 8D(ii) could not be invoked as investment is made out of own funds ,the same could not be established by assessee, no details were filed in support. We have considered the facts of the case and the submissions made. We find that the assessee has neither maintained any separate record of expenses actually incurred in connection with income claimed exempt nor it has been furnished any basis for arriving at the self-disallowance made. Thus the provisions of section 14A(1) are duly satisfied. Therefore this is a case where Rule 8D is applicable. Hence the AO has rightly computed the disallowance applying Rule 8D. There is no error in such computation. Accordingly, disallowance made is hereby upheld and objections are rejected. Reliance in this regard is also placed the Delhi High Court judgement in the case of Indiabulls Financial Services Ltd [TS-643-HC-2016(DEL)] wherein on similar facts, it is held "The fact that the AO did not expressly record his dissatisfaction with the assessee's working does not mean that he cannot make the disallowance...It is sufficient if the order shows due application of mind to all aspects."; HC further states that Sec 14A read with Rule 8D leaves the AO with no choice, but to follow a particular methodology enacted therein, and thus "if AO is confronted with a figure which, prima facie, is not in accord with what should approximately be the figure on a fair working out of the provisions, he is but bound to reject it.." Vide order of Tribunal dated 3.5.19 , the issue of computation of 8D(ii) and 8D(iii) have been referred back to AO for verification and re computation. As regards 8D(ii) we have already examined and hold that the Assessee could not furnish the details as stated above. For 8D(iii) neither any objection is raised before us nor any error pointed in the computation adopted by the AO hence we I uphold the calculation of AO.”
ITA No.2054/PUN/2019for A.Y. 2015-16 Tata Technologies Ltd., Vs. ACIT[A]
12.1. The ld.AR submitted that assessee has more than sufficient own funds. The ld.AR took us through the financials which were filed in the paper book, page no.257 to 336. The ld.AR explained that the reserve & surplus are Rs.532 crores, whereas current investment is only Rs.271.81 crores. He took us through the Note 14 which is part of the financial statement to demonstrated that Rs.271 crores have been invested in various mutual funds. The non-current investment is Rs.233 crores. However, out of Rs.233 crores, Rs.200 crores invested in Tata Technologies Pte Ltd. Singapore. The ld.AR submitted that dividend income of Rs.7,07,10,840/- has been earned on various mutual funds and claimed as exempt income.
12.2. The Assessing Officer has recorded finding that dividend income of Rs.7.07 crores has been shown by the assessee as exempt income. When we analyse all these facts, it is observed that reserve and surplus of Rs.532 crores are much more than the investment made of Rs.271 crores by the assessee to earn the exempt income. On perusal of the financials, it is observed that assessee has earned interest income approximately of Rs.22 crores, whereas expenditure on account of interest as per Note-23 is only Rs.1.37 crores. This fact also explains that assessee was having sufficient funds. The ITAT in assessee’s own case for A.Y. 2013-14 & 2014-15 has held that if assessee’s own funds are more than investments, no disallowance is warranted. The Hon’ble Bombay High Court in the case of CIT Vs. HDFC Bank Ltd., 366 ITR 504 has held that when
ITA No.2054/PUN/2019for A.Y. 2015-16 Tata Technologies Ltd., Vs. ACIT[A]
own funds are more than investments then no disallowance under section 14A read with rule 8D. We have already mentioned that own funds were more than the investments, therefore, respectfully following the Hon’ble Bombay High Court and ITAT(supra), we direct the AO to delete the addition made under section 14A read with rule 8D. Accordingly, the Corporate Ground No.3 of the Assessee is Allowed.
The Corporate Ground No’s.6 and 7 related to penalty leviable are premature, academic in nature, therefore, we are not adjudicating them. Accordingly, Ground No.6 & 7 are dismissed as unadjudicated. Accordingly, grounds of appeal raised by the assessee are partly allowed.
In the result, appeal of the Assessee is Partly Allowed.
Order pronounced in the open Court on 18th October, 2022. (S.S.GODARA) JUDICIAL MEMBER पुणे / Pune; "दनांक / Dated : 18th Oct, 2022/ SGR* आदेशक""ितिलिपअ"ेिषत / Copy of the Order forwarded to : अपीलाथ" / The Appellant. 1. ""यथ" / The Respondent. 2. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. िवभागीय"ितिनिध, आयकर अपीलीय अिधकरण, “सी” ब"च, 5. पुणे / DR, ITAT, “C” Bench, Pune. गाड"फ़ाइल / Guard File. 6. ITA No.2054/PUN/2019for A.Y. 2015-16 Tata Technologies Ltd., Vs. ACIT[A]
आदेशानुसार / BY ORDER, //// Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.