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Income Tax Appellate Tribunal, “C”, BENCH KOLKATA
Before: SHRI S.S.GODARA, JM &DR. A.L.SAINI, AM
Per Dr. A.L. Saini, AM:
The captioned eight cross appeals filed by the Revenue and as well as Assessee, pertaining to assessment years2010-11 to 2013-14, are directed against the separate orders passed by the Commissioner of Income Tax (Appeal), which in turn arise out of separate assessment orders passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (in short the “Act”).
2.Since, the issues involved in all the cross appeals are common and identical; therefore, these appeals have been heard together and are being disposed of by this consolidated order. For the sake of convenience, the grounds as well as the facts narrated in, revenue’s appeal in ITA No. 2075/Kol/2017 for A.Y. 2010-11 and revenue’s appeal in ITA No. 220/Kol/2018 for A.Y. 2011-12, have been taken into consideration for deciding the above appeals en masse.
The Revenue’s appeal in ITA No. 2075/Kol/2017, for A.Y. 2010-11 is barred by limitation by 4 days. The Revenue filed a petition for condonation of delay requesting the Bench to condone the delay. We have heard both the parties on this preliminaryissue and having regard to the reasons given in the petition for condonation of delay, we condone the delay and admit the appeal of revenue for hearing on merits.
The assessee’s appeal in ITA No. 552/Kol/2019 for A.Y. 2010-11, ITA Nos. 486 to 488/Kol/2019 for A.Y. 2011-12 & 2012-13 are barred by limitation by 553 days, 395 days respectively. The assessee filed a petition for condonation of delay requesting the Bench to condone the delay. The ld. Counsel for the assessee filed before us affidavit stating reasons of delay, which are reproduced below:
The petitioner had offered the above mentioned amount of education cess for tax under the normal provisions of the Act considering the same as an expense disallowable under section 40(a)(ii) of the Act.
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14 3. For the AY 2010-11, the assessment of the petitioner was completed under section 143(3) of the Act after making some additions/disallowances some of which were subsequently deleted by the first appellate authority. The appellate order was received by the petitioner on 14th July 2017 against which the department is in appeal before the Hon’ble Income Tax Appellate Tribunal. The said departmental appeal (ITA No. 2075/Kol/2017) is pending disposal. The notice in respect of the said departmental appeal was received by the petitioner on 6th October 2017 4. Based on a recent pronouncement dated 31st July 2018 of the Hon’ble Rajasthan High Court in the case of Chambal Fertilisers and Chemicals Limited (D.B. ITA No. 52/2018) wherein the Hon’ble High Court held that cess should not be disallowed under section 40(a)(ii) of the Act, the holding company of the petitioner i.e. M/s ITC Limited made a claim for deduction of education cess before the Hon’ble Tribunal in its appeal for the AY 2009-10 (ITA No. 685/Kol/2014) by filing an additional ground. The Hon’ble Tribunal by an order dated November 27, 2018 received by ITC Ltd. on December 31, 2018 was pleased to direct deduction of cess after factual verification. 5. After the said decision of the Hon’ble Tribunal became available, the petitioner sought advice as to what steps it should take to agitate the issue for AY 2010-11 for which only the Department was in appeal before the Hon’ble Tribunal. The petitioner was advised that having regard to the ruling of the Hon’ble Supreme Court in National Thermal Power Co. Ltd. v CIT, (1998) 229 ITR 383 (SC), and since Department’s appeal for AY 2010-11 was pending before the Hon’ble Tribunal, the appropriate step for the petitioner would be to file an appeal along with an application for condonation of delay. 6. Upon being so advised, the petitioner now seeks leave of this Hon’ble Tribunal to prefer an appeal and claim the cess as an allowable expense. In this regard reference is drawn to the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Limited (supra) wherein the Hon’ble Court while deliberating on the powers of the Appellate Tribunal to admit and adjudicate fresh claims held that: “The purpose of the assessment proceedings before the taxing authoritiesis to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pendingbefore the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.”
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14 7. The petitioner states that the Hon’ble Tribunal is vested with plenary powers to admit and adjudicate on questions of law arising in assessment proceedings although not raised earlier. 8. Your petitioner states that in not claiming deduction in respect of cess earlier, it had proceeded according to its own understanding of the law and as such did not agitate the question in assessment or appellate proceedings. It is only because of the recent pronouncements of the Hon’ble Rajasthan High Court and of this Hon’ble Tribunal that the petitioner reconsidered the matter and decided to claim deduction in respect of cess. We note that same reasons were given by the assessee for A.Y. 2011-12, 2012-13 & 2013-14 in the petition for condonation of delay. We have heard both the parties and note that counsel for the assessee advised the assessee only because of the recent pronouncements of the Hon’ble Rajasthan High Court and of this Tribunal about the claim of deduction in respect of education cess. Therefore, the delay occurred in filing the various appeals. Having gone through the affidavit as well the delay condonation application, we are of the considered opinion that in the interest of justice, the delay deserves to be condoned. We, accordingly, condone the delay in all appeals filed by the assessee, as these contain the identical grounds.
Although these appeals filed by the Revenue as well as Assessee for A.Y. 2010- 11 to 2013-14 contained multiple grounds of appeal. However, at the time of hearing, we have carefully perused all the grounds raised by the Revenue as well as Assessee. We note that most of the grounds raised by the Revenue as well as Assessee, are either academic in nature or contentious in nature. However to meet the end of justice, we confine ourselves to the core of the controversy and main grievances of the Revenue and Assessee as well. With this background, we summarize and concise the grounds raised by the Revenue as well as Assessee, as follows:
Grounds relating to Transfer pricing 1.Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) was justified in accepting the contention of the assessee, that foreign AEs Page | 4
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14 can be considered as the tested party by establishing arm’s length price?This ground covers ground no. 1 in revenue’s appeal for A.Y. 2010-11 to 2013-14.
2.Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) was justified in accepting the Cost Plus Method (CPM) as the most appropriate method for establishing arm’s length price in the services rendered by BAT, Pyxis and SNPL? This ground covers ground no.2 raised by the revenue for AY 2010-11.
3.Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) was justified in accepting the segmented accounts for AE for establishing arm’s length price. This ground covers ground no. 3 raised by the revenue in A.Y. 2010-11.
Grounds relating to Corporate issue 4.Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in treating the software expenses of Rs. 39,58,659/- [55,16,940 – 15,58,281] as revenue expenditure ignoring that the said expenses are of enduring measure. This ground covers ground no. 5 raised by the revenue for A.Y. 2010-11, ground no. 2 raised by the revenue for A.Y. 2011-12, ground no. 2 raised by the revenue in A.Y. 2012-13 and ground no. 2 raised by the revenue in A.Y. 2013-14. 5.Whether on the facts and in the circumstances of the case and in law the order of the ld. CIT(A) was erroneous because in absence of breakup of expenses incurred by the assessee and also without ascertaining the nature / utility of the software, it is simply not possible for the Assessing Officer to ascertain whether software were useful for day to day purpose or it gives enduring advantage to the assessee. This ground covers ground no. 3 raised by the revenue in A.Y. 2011-12, ground no. 3 raised by the revenue in A.Y. 2012-13 and ground no. 3 raised by the revenue in A.Y. 2013-14.
Grounds raised by the assessee Deduction of education cess and higher education cess as allowable expenses. This ground covers ground no.1 raised by the assessee in A.Y. 2010-11 to 2013-14 respectively.
Now, we shall take these grounds one by one as follows:
Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) was justified in accepting the contention of the assessee, that foreign AEs can be considered as the tested party by establishing arm’s length price? Page | 5
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14 This ground covers ground no. 1 in revenue’s appeal for A.Y. 2010-11 to 2013-14.
The facts of this issue, which can be stated quite shortly are as follows. The assessee is engaged in providing a wide range of IT solutions. For the provision of these services, the assessee has set up marketing arms in UK(i.e. ITC Infotech Limited UK - 'I2B') and USA (i.e. ITC Infotech (USA), Inc. - 72A') which assist the assessee in enhancing its marketing capabilities by providing marketing and administrative support services in these respective geographies. It is the case in every multinational group, the assessee also provides centralized management support and inside sales support services to these subsidiaries on a cost plus basis. Thus, during the year, the assessee has entered into different transactions with these subsidiaries viz. receipt of marketing and administrative support services, provision of management support services and provision of inside support services.The assessee has followed a transaction level approach for undertaking benchmarking analysis in its Transfer Pricing Study ('TP Study') wherein all international transactions have been analysed separately and the margin earned by 'least complex entity'has been benchmarked from arm's length perspective.In addition, the assessee had also provided IT services to its AEs, British American Tobacco Shared Services, Pyxis Solutions LLC and Surya Nepal Private Limited. The benchmarking approach in the TP Study for all the above transactions entails carrying out a detailed functional, asset and risk analysis ('FAR') and economic analysis for each transaction.Based on the FAR and the facts and circumstances of the respective transaction, the assessee had benchmarked the profitability of the respective transaction. Thus, the economic analysis including the selection of tested party is based on the FAR profile of the transacting entities.The determination of margin for the tested party for the purpose of benchmarking analysis, is based on data derived from audited financial statements of the assessee and respective AE.
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14 ITC Limited is a part of the British American Tobacco (BAT) group and has a diversified presence in product segments ranging from Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri- business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal care, Stationery, Safety Matches and other FMCG products. In order to capture the opportunities offered by the global information technology (IT) business, ITC Limited restructured its IT division into a wholly owned subsidiary named I3L in October, 2000. ITC Infotech India Limited (I3L) I3L is a wholly owned subsidiary of ITC Limited, which is a part of the BAT group. For the purpose of this analysis, all companies in which BAT has equity/ management interest has been considered as associated enterprise of I3L. This is based on the assumption that in all the BAT companies, the equity participation of BAT directly or indirectly exceeds 26%. Besides these, I3L has wholly owned subsidiaries in United States - ITC Infotech (USA) Inc. (I2A) and in United Kingdom - ITC Infotech (UK) (I2B). I3L and its subsidiaries are engaged in the business of Information Technology (IT) Services. They undertake customized software solution development, IT facilities management and provides professional IT services to several clients across the globe.I3L is headquartered in Kolkata and has software development centres in Bangalore and Kolkata. It is engaged in the business of providing software solutions to customers across the globe including India. It has international transactions with associated enterprises as well as unrelated parties. Moreover, I3L also have international transactions with its fellow subsidiaries Surya Nepal Private Limited (SNPL), Pyxis Solutions LLC (Pyxis) and Technico Technologies Inc. The development of the arm’s length price in TP study analysis recognizes that I3L works as a routine software developer which assumes normal risks associated with carrying out such business. The overseas subsidiaries undertake marketing, distribution activities and certain development work and complement I3L in its business process. I3L bears all the significant business and entrepreneurial risks of product acceptability and performance in the market. Page | 7
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14
During the appellate proceedings, ld. CIT(A) accepted the contention of the assessee, that foreign AEs can be considered as the tested party. Aggrieved by the order of ld CIT(A), the Revenue is in appeal before us.
Learned DR for the revenue submitted before us that ld. CIT(A) was not justified in accepting the contention of the assessee, that foreign AEs can be considered as the tested party by establishing arm’s length price. In case of foreign AEs, accounting year ending is (January to December) 31st December every year whereas in case of Indian entity the accounting year ending is (April to March) 31st March every year. Therefore, it is not possible to compare the financial statements of foreign AEs, with Indian entity. If the foreign AEs are selected as tested party then it becomes difficult to find comparable companies for TP analysis. In case of foreign AEs, the revenue recognition method, expenses recognition method, and inventory valuation and recognition method are different therefore comparison of financial data is not possible, hence the foreign AEs should not be selected as a tested party.
10.On the other hand, ld Counsel for the assessee defended the order passed by the ld CIT(A).
We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that the selection of the tested party depends on the comparative evaluation of the functions performed, assets employed and risks assumed ("FAR profile") by the parties involved in an international transaction. The entity which is the least complex based on the evaluation is adopted as the 'tested party'. We note thatbased on a detailed FAR profile conducted by the Assessee, the foreign AEs were selected as the tested party for the purpose of a transfer pricing analysis since their FAR profile as
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14 marketing and administrative service provider is least complex as compared to I3L which is an entrepreneurial company.
We note that the Ld. TPO in the TP Order (Pages 4-6 of the Transfer Pricing order) has himself acknowledged the fact that I3L( M/s ITC Infotech India Limited) is performing the major functions and AEs merely act as the face of I3L in the respective countries. These observations are even more pertinent to demonstrate that I3L was performing most of the complex functions and was acting as an entrepreneur, therefore I3L should not be the tested party.At this juncture, it is appropriate to go through the findings of Ld CIT(A), which is given below:
“The next major contention raised by the Assessee is on the selection of foreign AE as the 'tested party'. The concept of 'tested party' is the very base of any transfer pricing analysis and it is a well-established principle (upheld by Indian judiciary and international guidance) that the tested party is the one performing lesser functions and carrying lesser level of risks. The Assessee has placed reliance on the following literatures to substantiate the point that the least complex entity is selected as the tested party: • United Nation's Practice Manual on Transfer Pricing for Developing Countries, 2013 (Chapter 10- Country Practices- India); (Para 10,4.1.3) • United Nations Practical Manual on Transfer Pricing for Developing Countries, 2017 (Part D- Country ^Practices- India); (Para D.3.2.3) • OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, 2010 (OECD TP Guidelines); (Para 3.18) • US TP Regulations (Section 1.482-5 of the Internal Revenue Service (IRC))
The Assessee has also produced a compendium of various judgments by the higher authorities which have held that the least complex entity should be the tested party (including the Kolkata jurisdiction rulings in case of Development Consultants Limited (ITA No. 1591/KOL/2010) and Landis + Gyr Limited (ITA No. 37 and 1623/Kol/2012)).While the TPO has rejected the adoption of foreign AEs as the 'tested party' in the instant case, he has not brought any specific findings for coming to this conclusion. The TPO has quoted few case laws to reject the foreign AEs of the Assessee as the tested party. I have discussed on the case relied upon by the Assessee a bit later in this order. Page | 9
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14
I have gone through the literatures produced by the Assessee on selection of the 'tested party'. After going through the documents, there seems to be no doubt that the entity with the least complex functions should be adopted as the tested party if reliable data for transfer pricing comparison is available. In the instant case,it is clear that the Assessee is performing the more complex functions when compared with the AEs (the functional profile has been confirmed by the Hon'ble High Court of Calcutta and the Jurisdictional ITATs- as mentioned above) and also the reliable information has been produced by the Assessee which has been used to undertake the transfer pricing analysis. Also out of the literature produced before me, I would like to put a special mention on the United Nations Practical Manual on Transfer Pricing for Developing Countries, 2017 (Part D- Country Practices- India) (Para D.3.2.3) which goes to prove that even the Indian tax authorities acknowledge that the tested party should be the least complex entity.
Further, even the TPO in the TP Order (Pages 4-6 of the Transfer Pricing Order) has himself acknowledged the fact that the Assessee is performing the major functions and AEs merely act as the face of the Assessee in the respective countries. These observations are even more pertinent to demonstrate that the Assessee was performing most of the complex functions and was acting as an entrepreneur; therefore the Assessee cannot be the tested party
Coming to the case laws relied upon by the TPO for rejection of foreign AE as the tested party, the Hon'ble Delhi ITAT in the case of Ranbaxy Laboratories Ltd. vs ACIT reported in (2016) 68 taxmann.com 322 (Delhi - Trib.) has overruled the earlier ruling in case of Ranbaxy Laboratories Ltd [[2008] 110 ITD 428 (DELHI)] which was relied upon by the Ld. TPO while rejecting overseas entities as the tested party . Further, the Mumbai tribunal in its case of Tata Motors European Technical Center Pic [2016] 66 taxmann.com 10 (Mumbai - Trib.) has also overturned the rulings pronounced in the case of Onward Technologies Limited [[2013] 26 ITR(T) 734 (Mumbai - Trib.)] and Cybertech Systems & Software Limited [[2013] 144 ITD620 (Mumbai - Trib.)] which was relied upon by the TPO in his TP Order. Combined to this, I am also in receipt of the jurisdictional ITAT ruling in the case of Development Consultants Limited (ITA No. 1591/KOL/2010) and Landis + Gyr Limited (ITA No. 37 and 1623/Kol/2012 (supra) which are in favour of the Assessee.
Judicial jurisprudence suggest that if there are rulings with different opinions on the same issue, then the jurisdictional authorities ruling should be given weightage, Also, if an earlier ruling is ruled down by a later date ruling on the same issue, the latest ruling will get more weightage.
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14 Further, the jurisdictional Kolkata Tribunal in the case of Landis + Gyr (supra) has held that " 5.2.11 the concept of overseas tested parties and foreign comparable companies is well recognized and acknowledged by Indian Revenue as could be seen from India's commentary in United Nations Practice Manual on Transfer Pricing for Developing Countries. and further has taken cognizance of the Hon'ble Delhi Tribunal ruling in the case of Ranbaxy Laboratories (supra) wherein the concept of overseas tested parties and foreign companies for determination of ALP has been accepted. Consequently, the Hon'ble Tribunal held that the Ld. TPO’s action of "selecting Assessee as the tested party would result in an abnormal outcome in the TP adjustment" and concluded that 5.2.12 ...with regard to correct application of CPM or TNMM, the Associated Enterprises of the Assessee should be selected as the tested party to the transaction, as being the least complex entity. Subsequently an analysis of gross margin by applying either CPM or TNMM retained by AEs should be undertaken for benchmarking the transactions...".
Therefore this ruling overrules the findings made in the ruling of onward Technologies (supra) which was relied upon by the TPO in the assessee’s case and incidentally was also relied upon by the D.R. in the above case of Landis + Gyrbut did not find any favour with the Hon’ble Kolkata Tribunal.
Therefore, for the reasons stated above, I am in agreement with the analysis of the assessee and conclude that the overseas associated enterprise be accepted as the ‘tested party’ being the least complex of the transacting entity for the year for comparability analysis of international transactions of the assessee.”
Having gone through the order of ld CIT(A), we find that there is no infirmity in the order of ld CIT(A) treating the foreign AEs as a tested party.
For better understanding, the Function performed, Assets employed and Risk assumed, that is FAR analysis of the M/s ITC Infotech India Ltd. Vs. Foreign AEs are given below:
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14
We have gone through the FAR analysis, as mentioned above and noticed that Foreign AEs are least complex entities, therefore these should be selected as tested party.
We note that ld TPO has also mentioned in his order u/s 92CA(3) of the Act, stating that the assessee is more complex entity and foreign AEs are least complex entities. The relevant discussion in the TPO`s order is reproduced below for ready reference:
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14
It is abundantly clear that ld TPO has also stated that subsidiaries act primarily as marketing arm of the assessee and perform administrative services. It is the assessee which is entrusted with the task of performing the non-administrative, core and essential services. Therefore, the ld TPO has himself accepted that assessee is more complex entity and foreign AEs are least complex entity. Considering the factual position narrated above, it is abundantly clear that foreign AEs are least complex entity therefore foreign AEs should be treated as tested parties. That being so, we decline to interfere with the order of Id. C.I T.(A) in treating foreign AEs as tested party. His order on this issue is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.
14 Summarised Ground No. 2 reads as follows:
Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) was justified in accepting the Cost Plus Method (CPM) as the most appropriate method for establishing arm’s length price in the services rendered by BAT, Pyxis and SNPL?
This ground covers ground no.2 raised by the revenue for AY 2010-11.
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14 15. Brief facts qua the issue are that main grievance of the assessee during the appellate proceedings was that Ld. TPO grossly erred in not providing due cognizance to the FAR profile of the above transactions of the assessee with its AEs and erroneously rejected the analysis undertaken by the assessee. The Ld. TPO rejected the application of Cost Plus Method (CPM) wherein, margin earned by the assessee from transactions with third parties were compared internally with the margin earned from BAT and Pyxis. The Ld. TPO rejected the application of internal CPM based on the following: i) The CPM method presents some practical difficulties in identifying the costs incurred for the provision of services like whether an indirect costs is towards rendering services or it is an enterprise level expense. ii) There is no discernible link between the level of costs incurred and market price in software as the services are usually compensated on a man hourly basis which may not vary much across the industry for same or similar type of service. So, CPM is not the appropriate method. iii) While applying CPM, the tax payer should have to consider all direct and indirect costs incurred in respect of the services rendered by it. But, it is apparent the assessee itself did not include all the direct and indirect costs while computing gross mark up. In the case of comparable companies, the details of indirect costs incurred in rendering services were simply not available. Thus, it cannot be said that the gross profit worked out in the case of the comparable is after taking into account the same items of expenditure as in the case of the taxpayer.
Aggrieved by the action of AO/TPO, the assessee carried the matter in appeal before the ld CIT(A).
During the appellate proceedings, the assessee submitted before the ld CIT(A) that the Ld. TPO had derived the above conclusion and framed erroneous view in complete disregard to the facts of the transactions and relevant benchmarking analysis. During the appellate proceedings, the assessee submitted before the ld Page | 23
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14 CIT(A), in relation to transaction with BAT and Pyxis the assessee had selected internal CPM as the most appropriate method and not external CPM as erroneously concluded by the Ld, TPO in point (iii) above to establish the arm's length nature of these transactions. While undertaking internal benchmarking and comparing the gross margin, the subjectivity in margin computation does not arise. The accounting convention followed by the assessee for transactions with related and non-related parties is the same. The assessee does not follow separate accounting system and policies for different contracts in determining the gross margin. The accounts of the assessee have been audited by the independent auditor and no inference/ qualification has been made with respect to adoption of any inconsistent accounting policy by the assessee. This demonstrate the fact that internal comparison is based on uniform accounting policies and data convention and no question of subjectivity arises in the same. The assessee also relied on the Tribunal ruling in the case or ITO (Ward (J.) (1) v/s Alumeco India Extrusion Ltd. (ITA 613 and 614), wherein the Tribunal held that as the assessee had internally comparable domestic transactions, internal CPM is justified and more appropriate than TNMM. Where internal comparable transactions are available, internal comparability is preferred over external TNMM. Internal CPM selected by the assessee to establish arm's length nature of transactions with BAT and Pyxis be accepted as the accounting policies and convention are consistently and uniformly followed by the assessee for transactions with AE’s and third parties.
In relation to transaction with SNPL, the assessee submitted before the ld CIT(A) that considering the facts and circumstances of the transaction, gross margin over manpower cost (GP/Manpower Cost) was considered as the most appropriate profit level indicator ('PLI') since, the only cost incurred by the assessee in rendering the said service is manpower cost. While determining the margin (GP/Manpower Cost) of the comparable, same data elements i.e. sales and manpower costs were considered for computing the PLI of the identified comparable companies.
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14 18. During the appellate proceedings, the assessee submitted following written submissions, which is reproduced below:
“Submission dated 26 April 2017 Selection of the Most Appropriate Method (MAM) The Assessee had adopted Cost Plus Method ("CPM") as the most appropriate method for benchmarking the international transactions with its foreign AEs, CPM evaluates the arm's length nature of a controlled transaction by reference to the gross profit mark- up that is realised in comparable uncontrolled transactions. CPM is appropriate to use as the MAM in situation wherein the international transaction involves provision of services to a related party i.e. similar to the instant situation in Assessee's case. This principle is also upheld in the OECD TP Guidelines (Section D.1.2.39). The Ld. TPO has rejected the use of CPM as the MAM by mentioning that CPM presents difficulties in identifying and segregating the cost between direct and indirect cost. The Assessee contends the above as explained below: International transaction with BAT and Pyxis With regard to the transaction with BAT and Pyxis, the Assessee had used Internal CPM to justify the international transaction wherein the Assessee compared the gross margin earned by the Assessee from transactions with independent third parties and the gross margin earned from transaction with BAT and Pyxis. The Assessee therefore submits that while undertaking internal benchmarking, the subjectivity in margin computation does not arise. The accounting convention followed by the Assessee for recording costs related to transactions with related and non-related parties is the same and therefore consistency in identifying the direct and indirect costs exists, contrary to the apprehension raised by the Ld, TPO. The Assessee places reliance in the following judicial pronouncements which have concluded that internal comparables have closer and direct relationship to the transaction under review than external comparables, therefore internal comparables should be preferred over external comparables: • Alumeco India Extrusion Limited [ITA No. 532 & 563/Hya./2014] • Birlasoft (India) Ltd [[2013] 59 SOT 156 (Delhi - Trib.)(URO)]
International transactions with the foreign AEs: Based on a detailed FAR analysis, the Assessee had adopted the foreign AEs as the tested party and accordingly adopted foreign comparable companies for benchmarking the transaction. The gross profit is separately disclosed in the annual reports (For eg: Form 10K for US comparables) for overseas entities. The computation of PLI in case of CPM is therefore consistent and does not suffer from objectivity. Therefore, the Assessee submits that CPM should be considered as the MAM in the instant case. (Please refer Pages 22- 23 of our earlier submission to your office dated 19 November 2015 ) The Assessee had without prejudice submitted calculations using CPM and I3L as the tested party vide its submission dated 20 January 2014, This calculation showed that margins earned by I3L on transactions with BAT, Pyxis and the foreign AEs are at arm's length since the related party margin were in line with unrelated parties (Refer Convenience Paperbook Pages 1270-1292 for details). The Ld. TPO has issued the TP adjustment order without taking cognizance of this calculation.”
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14 19. The ld CIT(A) after taking into account assessee`s submissions and findings of the ld TPO, held as follows: “5. The last major contention of the Assessee is on the selection of the most appropriate method (MAM) for the transfer pricing analysis. It is to be well noted that the Assessee-company has been, following the CPM method for export of software services to its AEs consistently over the years. The Ld. TPO has rejected the use of CPM as the MAM by mentioning that CPM presents difficulties in identifying and segregating the cost between direct and indirect cost, At this juncture, it would be worthwhile to evaluate the situation wherein CPM can be used as the MAM. CPM evaluates the arm's length nature of a controlled transaction by reference to the gross profit mark-up that is realized in comparable uncontrolled transactions CPM is appropriate to use as the MAM in situation wherein the international transaction involves provision of services to a related. This principle is also upheld in the OECD TP Guidelines (Section D,1.2.33). From a reading of the extract from OECD guidelines, it looks like CPM is applicable to the present case of the Assessee
The submissions made by the assessee-company in the matter of the application of CPM as the MAM are noted below:
"International transaction with BAT and Pyxis.
With regard to the transaction with BAT and Pyxis, the Assessee had used Internal CPM to justify the international transaction wherein the Assessee compared the gross margin earned by the Assessee from transactions with independent third parties and the gross margin earned from transaction with BAT and Pyxis. The Assessee therefore submits that while undertaking internal benchmarking, the subjectivity in margin computation does not arise. The accounting convention followed by the Assessee for recording costs related to transactions with related and non- related parties is the same and therefore consistency in identifying the direct and indirect costs exists, contrarytothe apprehension raised by the Ld. TPO.
The Assessee places reliance in the following judicial pronouncements which have concluded that internal comparables have closer and direct relationship to the transaction under review than external comparables, therefore internal comparables should be preferred over external comparables: • Alumeco India Extrusion Limited [ITA No.532&563/Hyd/2014] • Birlasoft (India) Ltd [[2013] 59 SOT 156 (Delhi - Trib.)(URO)] International transactions with the foreign AEs
Based on a detailed FAR analysis, the Assessee had adopted the foreign AEs as the tested party and accordingly adopted foreign comparable companies for benchmarking the transaction.The gross profit is separately disclosed in the anneal reports (For eg: Form 10K for US comparables) for overseas entities. The computation of PLI in case of CPM is therefore consistent and does not suffer from objectivity. " Page | 26
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14
It is also noted that when the assessee has chosen a MAM and substantiated the choice in its transfer pricing study report, in my considered view of the matter it is for the ld. TPO to record and substantiate the reasons as to why the assessee’s MAM is incorrect and why some other TP method needs to be the MAM; that said in the instant case, I do not see any determinative substance in any of the ld. TPO’s arguments for rejection of assessee’s internal CPM and adoption of external TNMM. Based on the above reasoning, I hold that CPM as adopted by the assessee, be adopted as the MAM for the export of software services by the assessee.”
We have gone through the findings of ld CIT(A) and do not find any infirmity. That being so, we decline to interfere with the order of Id. C.I T.(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.
Summarized ground No. 3 reads as follows
3.Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) was justified in accepting the segmented accounts for AE for establishing arm’s length price. This ground covers ground no. 3 raised by the revenue in A.Y. 2010-11.
The brief facts qua the issue are that during the TPO proceedings the ld TPO rejected the segmental data of ITC Infotech, (USA), Inc (”I2A) and ITC Infotech Limited, UK ("I2B"), on the following premise:
".the segmented data has admittedly been prepared by the assesse which would in all likelihood suit their needs and requirements... ."
Aggrieved by the action of the ld TPO, the assessee carried the matter in appeal before ld CIT(A), who has accepted the segmented data/ segmental report observing the following:
“Having carefully considered the observations of the ld. A.O. / TPO and the submissions of the assessee / ld. A.R. of the assessee company, I find that one of the contentions raised by the assessee and the ld. TPO is on the use of the segmental data of the overseas entities by the Ld. TPO for a transfer pricing analysis. The Ld. TPO had rejected the segmental accounts of the overseas entities used by the Assessee for the transfer pricing analysis mentioning that the segmental data which preparedthe Assessee, was not audited either by the statutory auditors or the transfer pricing auditors. Page | 27
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14
On this issue, the Assessee has produced judicial pronouncements before me, wherein the ratio emerges that the segmental accounts used in a transfer pricing analysis need not be audited. The Hon'ble ITAT in Lummus Technology Heat Transfer BV [2014] 162 TTJ 263 (Delhi - Trib.) has held that it is not necessary that a computation should be based on segmental accounts in the books of accounts regularly maintained by the assessee and subjected to audit. The Hon'ble ITAT held that the authorities were in error in rejecting the segmental results on the ground that the segmental accounts were not audited and that these segmental accounts were not maintained in the normal course of business. The Hon'ble ITAT also was unhappy with the action of the Ld. TPO for making vague generalizations to the effect that the accounts are manipulated, that allocation basis of expense is unfair and that these accounts conceal true profitability, since the Hon'ble Tribunal found such observations to lack any merits.
Further, in the case of 3i Infotech Limited [[2013] 35 taxmann.com 582 (Chennai - Trib.], it has been held that it is not open to the Revenue to reject the working prepared by any assessee on the contention that the same has not been audited. During the course of the hearing, the Assessee in good faith has also produced before me self-certification from its CFO that segmental accounts produced are reliable and are captured separately in the accounting system with utmost precision.
Upon carefully analysis, I find myself agreeable with the contentions of the assessee that the transfer pricing legislation nowhere mandates that segmental accounts for transfer pricing analysis should be audited, The segmental accounts prepared for a transfer pricing analysis may not necessarily be same as the segmental accounts prepared for any financial statements. In the absence of any mandate that the segmental for transfer pricing should be audited, I am inclined to accept the contention of the Assessee that till the time the reliability of the segmental account is demonstrated, these can be used for a transfer pricing analysis and need not necessarily be" audited. If it is also to be mentioned that the judicial rulings placed in reliance by the assessee-company support its contentions. The Ld. TPO has not brought out any specific finding to indicate that the segmental data of the Assessee-company are not reliable, and therefore liable for rejection, The Assessee before me explained in length how the segmental accounts are captured and the reliability of the same. Also the certification from the CFO of the Assessee, in my considered view contributes enormously to indicate that the segmental accounts are prepared with reliable accounting system in place. With such view of the matter, I am not inclined to agree with the Ld TPO / AO, and hold that the segmental accounts maintained by the Assessee can be used for the transfer pricing analysis as done in the TP Study.”
Aggrieved by the order of ld CIT(A), the Revenue is in appeal before us. We have heard both the parties and perused the material available on record. We note the assessee explained before ld TPO in thread bare detail of functional analysis of the transactions and the Ld. TPO has failed to give due cognizance to the essence of the respective transaction. All the transactions are independent in terms of activities, purpose and legally through binding agreement. The cost of Page | 28
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14 rendering/ receipt of services are also captured separately in the accounting system. In support of the same, the assessee has provided the segmental data of I2A and I2B for transactions with the assessee, the margin of which was benchmarked from arm's length perspective.We have gone through the findings of ld CIT(A) and do not find any infirmity. That being so, we decline to interfere with the order of Id. C.I T.(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.
Grounds relating to Corporate issue
Summarized Ground nos. 4 and 5 raised by the Revenue are on identical issues and reproduced below for ready reference.
4.Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in treating the software expenses of Rs. 39,58,659/- [55,16,940 – 15,58,281] as revenue expenditure ignoring that the said expenses are of enduring measure. This ground covers ground no. 5 raised by the revenue for A.Y. 2010-11, ground no. 2 raised by the revenue for A.Y. 2011-12, ground no. 2 raised by the revenue in A.Y. 2012-13 and ground no. 2 raised by the revenue in A.Y. 2013-14.
5.Whether on the facts and in the circumstances of the case and in law the order of the ld. CIT(A) was erroneous because in absence of breakup of expenses incurred by the assessee and also without ascertaining the nature / utility of the software, it is simply not possible for the Assessing Officer to ascertain whether software were useful for day to day purpose or it gives enduring advantage to the assessee. This ground covers ground no. 3 raised by the revenue in A.Y. 2011-12, ground no. 3 raised by the revenue in A.Y. 2012-13 and ground no. 3 raised by the revenue in A.Y. 2013-14.
Brief facts qua the issue are that the assessee, M/s ITC Infotech India Ltd, during Financial year 2009-10, relevant to A.Y. 2010-11, has incurred the following software related expenses:
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14
The assessee was subjected to Scrutiny Assessment under section 143(2) of the Act conducted by the AO. After the assessment proceedings the AO issued the order under section 143(3) of the Act dated 27th March 2014 wherein the expenditure incurred on the purchase of application software amounting to Rs.55,16,940/- was treated as capital expenditure and the assessee's claim of treating the same as revenue expenditure was disallowed.
Aggrieved by the order of AO, the assessee carried the matter in appeal before the ld CIT(A), who has partly deleted the addition observing the followings:
“On the issue pertainingto treatment of software expenditure, I have carefully examined the submissions and perused the judicial precedents cited in support of the assessee’ s contentions Though the assessee has relied upon a number of decisions, including appellate order for earlier year, treatment of expenditure on software as capital / revenue is essentially a question of facts, which naturally varies from case to case and even from year to year. Expenditure towards purchase of software can be capital or revenue depending on the facts of the circumstances. With that perspective, the details of the software expenses disallowed were examined. It is seen that the software purchases included following items:- Page | 30
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14
The aforesaid software tools are useful for carrying out projects on a continuous basis. Considering the nature of the business of the assessee, these software items are to beutilized for executing contracts for clients over a long term. They are meant to be used for executing a number of customer contracts giving enduring benefit to the assessee. On this functional test, they fall in the category of capital assets and expenditure on the same, in my considered view, is to be treated as capital expenditure. Considering this, the same were, in my opinion, required to be capitalized. The disallowance is therefore, confirmed in respect of them. The Ld. AO shall however, allow depreciation on the same. However, the remaining items of software are found to be useful for day to day functioning of the assessee and they are either application softwares for office work or tools like anti-virus etc. Therefore, cost of these items is to be considered as revenue expenditure and be allowed as deduction. The Assessing Officer is directed to reduce the disallowance accordingly. Overall, Ground No 2 is partly allowed as indicated supra.”
Expenditure incurred on the purchase of the application softwares used exclusively for the purpose of the business of the assessee company amounting to Rs. 55,16,940/- has been charged as revenue expenditure and debited to the Profit and loss account. These application softwares have not resulted in any enduring benefit to the company. Hence the expenditure is not classified as capital expenditure. These were approximately treated as revenue expenditures and were claimed accordingly for the purpose of Income Tax too. These application software, have had limited useful life and are used as tools of business like any other component or consumable item used for the purpose of earning revenue. The assessee company has incurred these application software expenses to fine tune its business operations thereby, enabling the running of its business more effectively, efficiently and profitably. We note that while disallowing the expenditure Page | 31
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14 incurred on purchase of application softwares the Assessing Officer ignored the fact that Application softwares are used by the assessee for the efficient conduct of its business and do not extend any enduring benefit to the assessee company. After doing critical analysis, the ld CIT(A) noticed that software expenses to the tune of Rs. 15,58,281/- is enduring nature and therefore classified them as capital assests. We do not find any infirmity in the order of ld CIT(A), his order on this issue is hereby accepted and grounds of appeal raised by the Revenue are dismissed.
Now, we shall take grounds raised by the assessee.
Grounds raised by the assessee
Deduction of education cess and higher education cess as allowable expenses. This ground covers ground no.1 raised by the assessee in A.Y. 2010-11 to 2013-14 respectively.
Before us, Ld. Counsel stated that the education cess is an allowable expenditure and relied on the judgment of Hon'ble Rajasthan High Court in the case of Chambal Fertilizers and Chemicals Ltd. vs. JCIT (ITA No. 52/2018) which after taking into account CBDT circular held that Sec. 40(a)(ii) applies only to taxes and not to education cess. Relevant extract of the decision is reproduced for ease of reference:- “13. On the third issue in appeal no. 52/2018, in view of the circular of CBDT where word "Cess" is deleted, in our considered opinion, the tribunal has committed an error in not accepting the contention of the assessee. Apart from the Supreme Court decision referred that assessment year is independent and word Cess has been rightly interpreted by the Supreme Court that the Cess is not tax in that view of the matter, we are of the considered opinion that the view taken by the tribunal on issue no. 3 is required to be reversed and the said issue is answered in favour of the assessee.”
On the other hand, ld DR submitted that education cess is part of income tax and therefore should not be allowed as expenditure.
We have heard both the parties and perused the material available on record. We note that issue raised by the assessee is no longer res integra.We note that Page | 32
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14 Coordinate Benches of this Tribunal in the following cases held that education cess should be allowed as an expense. The relevant judgments are given below:
(i) M/s ITC Limited -vs.-ACIT (ITA No. 685/Kol/2014) –
“The assessee’s additional last/ substantive ground avers that it is entitled for the educations secondary higher education cess as overhead deduction amounting to Rs. 423618317 u/s 37 of the Act. We note that hon’ble Rajasthan high court’s decision in DB Income Tax Appeal No. 52/Kol/2018 M/s Chambal Fertilizers Ltd. vs. DCIT decided on 31.07.2018 takes into account CBDT circular dated 18.05.1967 for holding such cess(es) to be allowable as deduction. Their lordships hold that section 40a(ii) applies only on taxes such than earn cess(es). We therefore reject the Revenue’s contentions supporting the impugned disallowance. The assessee’s instant substantive ground is accepted. The Assessing Officer is direction to verify all the relevant facts and allow the impugned cess (es) as deduction u/s 37 of the Act. The assessee’s appeal I.T.A. No. 685/Ko/2014 is partly accepted in above terms.
(ii).Peerless General Finance & Investment Co. Ltd. -vs. - DCIT (ITA No. 937/Kol/2018) – “37. Additional ground raised by the assessee in ITA No.937/Kol/2018 for A.Y.2010-11 reads as under:“That on the facts and in the circumstances of the case, the authorities below erred in not allowing deduction U/s 37(1) of the Income Tax Act,1961, on account of Education Cesses paid by the assessee while arriving at the assessed income for the year under appeal. ” 38. After giving our thoughtful consideration to the submission of the parties and perusing the judicial decisions relied upon by the Ld. AR, we find that the issue involved in the present ground of appeal is no longer res integra. The education cess being not ‘income tax’ is allowable as deduction under section 37 (1) of the Act. For this, we rely on the judgment of the coordinate Bench of IT AT Kolkata in the case of ITC Limited, ITA No.685/Kol/2014, order dated 27.11.2018, wherein it was held that education cess is an allowable expenditure under section 37(1) of the Act. Therefore, we direct the assessing officer to verify all the relevant facts and allow education cess as deduction under section 37(1) of the Act. ”
(iii) Tega Industries -vs.- ACIT (ITA no. 404/Kol/2017)-
“We further to notice that assessee has raised an identical additional ground in both cases seeking to claim education cess on provision for Income-tax amount of Rs. 71,65,049/- and Rs. 77,76,699 (assessment year wise); respectively as allowable in computing total income other than MAT u/s. 115JB of the Act. Hon’ble Apex Court’s land mark decision National Thermal Power Corporation Ltd (NTPC) V/s. CIT (1998) 229 ITR 383 (SC) as considered by this tribunal’s Special Bench order M/s. All Cargo Global Logistics Ltd V/s. DCIT (12) 137 1TD 26 (Mum.) settles the law that we an very well entertain such a legal question in order to determine the correct tax liability when all the relevant facts form part of records. We thus allow assessee’s additional ground to be raised. Page | 33
M/s ITC Infotech India Ltd. ITA No.2075/Kol/2017 ITA Nos. 220 to 222/Kol/2018 ITA Nos. 486 to 488/Kol/2019 ITA No. 552/Kol/2019 Assessment Years:2010-11 to 2013-14
We accept the submissions of the assessee concurring with the decisions of Rajasthan High Court and binding favourable decisions of Jurisdictional Tribunal and thus we allow the claim of the education cess. The AO is directed to allow the claim of education cess in computing total income of the assessee company. These grounds raised by the assessees are allowed for A.Y. 2010-11 to 2013-14.
In the result, appeals filed by the Revenue in ITA No.2075/Kol/2017 and appeals in ITA nos.220 to 222/Kol/2018 filed by the Revenue are dismissed. Whereas, appeals filed by the assessee in ITA No.552/Kol/2019 and in ITA Nos. 486 to 488/Kol/2019 are allowed.
Order pronounced in the Court on 31.01.2020
Sd/- Sd/- (S.S.GODARA) (A.L.SAINI) �या�यकसद�य / JUDICIAL MEMBER लेखासद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; �दनांक/ Date: 31/01/2020 (SB, Sr.PS) Copy of the order forwarded to: 1. ACIT, Circle-2(1), Kolkata 2. M/s ITC Infotech India Ltd. 3. C.I.T(A)- 4. C.I.T.- Kolkata. 5. CIT(DR), KolkataBenches, Kolkata. 6. Guard File.