Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH ‘I-1’, NEW DELHI
Before: Sh. N. K. Saini, Hon’ble & Sh. Laliet Kumar
ORDER
Per N. K. Saini, Vice President:
This is an appeal by the assessee against the order dated 27.11.2015 passed by the AO u/s 143(3) r.w.s. 144C(1) of the Income Tax Act, 1961.
Following grounds have been raised in this appeal:
1. On the facts and in law, the learned Transfer Pricing Officer - 11(2), New Delhi ('Ld. TPO') and the learned Deputy Commissioner of Income Tax - Circle 16(2) ('Ld. AO') erred in determining and the Hon'ble Dispute Resolution Panel ('Hon'ble DRP') erred in confirming the addition of Rs. 197,790,802 to the value of international transactions pertaining to provision of software development support services by the Appellant to its Associated Enterprises ('AEs') under Section 92CA(3) of the Income-Tax Act, 1961 ('the Act').
2. On the facts and in law, the Ld. TPO and the Ld. AO erred in re-characterizing and the Hon'ble DRP erred in confirming the functional profile of the Appellant as Contract Research & Development ('R&D') service provider, based on surmises, conjectures and information entirely out-of-context, and in violation of the provision of Rule 10B(2) of the Income Tax Rules, 1962 ('the Rules').
On the facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in selecting certain alleged companies as comparable, without appreciating that in cognizance of Rule 10B(2), the functional, asset and risk profile of these alleged companies are dissimilar to that of the Appellant. 4. On the facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule IOB(2) by alleging Wipro Technology Services Limited as comparable to the Appellant. 5. On the facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule 10B(2) by alleging Zylog Systems Limited as comparable to the Appellant. 6. On the facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule 10B(2) by alleging Sasken Communication Technologies Ltd as comparable to the Appellant. 7. On the facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in rejecting certain comparable companies without appreciating that in cognizance of Rule 10B(2), the functional, asset and risk profile of these comparable companies are similar with that of the Appellant. 8. On facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule 10B(2) by rejecting Akshay Software Technologies Limited from the set of comparables selected by the Appellant.
Mentor Graphics (India) Pvt. Ltd.
9. On facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule 10B(2) by rejecting Evoke Technologies Private Limited from the set of comparables selected by the Appellant.
On facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule 10B(2) by rejecting Goldstone Technologies Ltd. from the set of comparables selected by the Appellant.
On facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule 10B(2) by rejecting Helios & Matheson Information Technology Ltd. from the set of comparables selected by the Appellant.
On facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule 10B(2) by rejecting L G S Global Ltd. from the set of comparables selected by the Appellant.
On facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule 10B(2) by rejecting Mindtree Ltd. from the set of comparables selected by the Appellant.
On facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule 10B(2) by rejecting R S Software (India) Ltd. from the set of comparables selected by the Appellant.
On facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule 10B(2) by rejecting R Systems International Ltd. from the set of comparables selected by the Appellant.
On facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule 1 OB(2) by rejecting Tata Elxsi Ltd. from the set of comparables selected by the Appellant.
Mentor Graphics (India) Pvt. Ltd.
On facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule 10B(2) by rejecting Varna Industries Ltd. from the set of comparables selected by the Appellant.
On facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in grossly misinterpreting the requirement of 'contemporaneous' data in the Rule 10B(4) by necessarily using current year data (i.e. financial year 2010-11), thereby breaching the principles of natural justice and 'impossibility of performance'.
On the facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in computing the Net Cost Plus ('NCP') Margin of the Appellant at 11.12 percent as against correct NCP of 15.04 percent.
On facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in law and on facts in not allowing appropriate adjustments under 10B(1)(e)(iii) and Rule 10B(3) to account for differences in risk profile of the comparables vis-a-vis the Appellant.
On the facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in proposing an adjustment of Rs. 952,441 to the income of the Appellant on account of interest on overdue receivables from its AEs.
On facts and in law, the Ld. AO/ Ld. TPO and the Hon'ble DRP erred in not granting the benefit of proviso to section 92C(2) of the Act.
On facts and in law, the Ld. AO/ Ld. TPO and the Hon'ble DRP erred in initiating penalty proceedings under Section 271(1)(c) of the Act. Corporate Tax 24. That on facts and in law, the order of Ld. AO is erroneous to the extent that it is not giving effect to the binding directions of the Hon'ble DRP for allowing due relief in respect of the additions made for capital expenditure.
The grounds of appeal herein above are independent and without prejudice to each other. The Appellant craves leave to alter, amend and/ or withdraw all or any of the grounds of appeal herein or add any further grounds as may be considered necessary and to submit such statements, documents and papers as may be considered necessary either before or during the appeal hearing.”
3. During the course of hearing, the ld. Counsel for the assessee at the very outset stated that he has the instruction not to press all the grounds except ground no. 24 and furnished the letter of the assessee dated 08.08.2017, which read as under: “We refer to the captioned appeal filed before the Hon'ble Income Tax Appellate Tribunal ('ITAT'). In this regard, we submit as under: “1. The captioned appeal was filed by the Appellant, on 27 January 2016 (refer Annexure 1 for Form 36B along with the grounds of appeal) against the final assessment order passed by the Assessing Officer dated 27 November 2015. The grounds of appeal filed by the Appellant contain (a) Transfer Pricing Grounds (Ground No. 1 to 23) in relation to international transaction pertaining to provision of software development and support services to Associated Enterprises ('AC') and interest imputed on overdue receivables from AEs and (b) Corporate Tax Grounds (Ground No, 24).
2. A Unilateral Advance Pricing Agreement has been executed, under Section 92CC of the Income-tax Act, 1961 ('the Act’) between the Appellant and the CBDT, Department of Revenue, Ministry of Finance, Government of India, on 04 July 2017, specifically on Arm's Length Price in connection with the aforesaid international transactions.
Mentor Graphics (India) Pvt. Ltd. 3. In order to give effect to the rollback provision of the APA, Rule 10RA(4) of the Rules, stipulates that the Appellant is liable to withdraw the grounds of appeal
(i.e. limited to the extent of the subject covered under the APA), prior to furnishing the mandatory modified return in terms of Rule 10RA(2)of the Rules (modified return to be filed within three months from the end of the months of which the agreement is entered into), for the relevant assessment year.
4. Therefore, in compliance with (he aforesaid Rule, the Appellant hereby submits that ground of appeal no. 1 to 23 forming part of the captioned appeal (i.e. transfer pricing grounds in connection with international transaction of provision of software development and support services and interest imputed on overdue receivables) are covered by the APA, and are requested by the Appellant to be withdrawn.
5. Consequently, the captioned appeal still continues in respect of ground no. 24 which pertains to Corporate Tax issue involving allowance of relief on account of capital expenditure in line with the binding directions of the Hon'ble Dispute Resolution Panel.
6. This application is being made within the three-month timeframe prescribed under Section 92CD of the Act. We request Hon'ble Bench to take the above on record. In case the Hon'ble Bench requires any further information or clarification, the Appellant shall be glad to furnish the same.” Yours faithfully, For Mentor Graphics (India) Private Limited Sd/- (Authorized Signatory)
4. The ld. CIT DR did not object if the ground nos. 1 to 23 are dismissed as not pressed.
Mentor Graphics (India) Pvt. Ltd. 5. As regards to ground no. 24, the ld. Counsel for the assessee submitted that the AO had not followed the instruction given by the ld. DRP relating to the appreciation to be allowed on the expenses which were capitalized. He submitted that the AO may be directed to follow the directions given by the ld. DRP.
In her rival submissions, the ld. CIT DR supported the order passed by the AO.
We have considered the submissions of both the parties and perused the material available on the record. As regards to Ground Nos. 1 to 23, the assessee in its application dated 08.08.2017, vide para no. 4 stated that those grounds to be treated as withdrawn. Therefore, Ground Nos. 1 to 23 are dismissed as withdrawn. In the present case, it is noticed that the ld. DRP vide para 15.1 directed the AO as under: “15.1 The assessee submitted that Ld. AO disallowed the expenditure of Rs.333,801 debited to Profit and Loss Account representing assets individually costing less than Rs.50,000. The company's policy of debiting the amount of assets individually costing less than Rs.50,000 to Profit &, Loss Account without capitalizing the same was accepted by the tax department in the assessment proceedings for earlier years and no adverse inference has been drawn in this respect. The assets included in the impugned expenditure are otherwise eligible for depreciation as per section 32 of the Act. Therefore, the Ld. AO has erred in not allowing the resultant depreciation as per the section 32 of the Act in respect of the impugned expenditure of Rs.333,801. 15.2 DRP has duly examined the issue. It is seen that AO has not allowed depreciation on assets which have been capitalized by disallowing the claim of deduction. Accordingly, AO h directed to allow depreciation on these Mentor Graphics (India) Pvt. Ltd. assets as per rules. The objection is disposed off accordingly.”
However, the AO has not given any effect to the aforesaid directions. We, therefore, considering the totality of the facts, deem it appropriate to set aside this issue back to the file of the AO and direct him to follow the directions given by the ld. DRP. In other words, if the expenses had been capitalized by the AO, then the depreciation to be allowed on those capitalized expenditure in accordance with law. Accordingly, this limited issue is restored to the file of the AO.
In the result, the appeal of the assessee is partly allowed for statistical purposes. (Order Pronounced in the Open Court on 06/11/2018)