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Digest Of 2000 Important Judgments On Transfer Pricing, International Tax And Domestic Tax (Jan To June 2018)

Advocate Sunil Moti Lala (assisted by CA Bhavya Sundesha) has prepared a Digest of 2000 important judgments on Transfer Pricing (605 cases), International Tax (130 cases) and Domestic Tax (1265 cases) pronounced in the period January 2018 to June 2018. The author has meticulously and systematically classified the judgments into various categories to enable ease of reference. A PDF copy of the Digest is available for download. He has also given the appeal numbers in all cases so as to enable the judgements to be retrieved from the website of the respective Court or Tribunal. The digest will prove invaluable to all practitioners of taxation law

The Digest comprises of all the important judgements dealing with transfer pricing, international taxes and domestic taxation laws. A brief head note is given for each case. The Digests for the earlier periods are available here

I. Transfer Pricing

a. International Transactions / Specified Domestic Transactions

1. Where the assessee had sold its IPRs to its AE in the prior years (which was benchmarked under the TP provisions) and the AE in the capacity of owner had exploited the impugned IPR in the year under review by entering into transactions with third parties, the Tribunal held that the TPO was incorrect in imputing an adjustment in the hands of the assessee contending that the economic ownership of the IPR was still with the assessee and that income earned by the AE from exploitation of IPR was in effect an international transaction between the assessee and the AE. The Tribunal held that once IPR was sold and the arm’s length price of such sale was determined, the IPR became the property of AE and any subsequent transaction between AE with outsiders or outside the jurisdiction of the Indian territory did not give rise to international transaction between assessee and AE. Accordingly, it deleted the TP adjustment made.
DQ Entertainment International Ltd v ACIT – TS-19-ITAT-2018(HYD)-TP – ITA No.441/Hyd/2017 dated 12.01.2018

2. The assessee claimed expenditure relating to payment of remuneration of directors. The TPO upon reference by the AO benchmarked the ALP of the transaction at Nil observing that the transaction was a specified domestic transaction as defined under clause (i) of Section 92BA (transactions referred to under Section 40A(2)(b). The assessee raised an additional ground before the Tribunal contending that since transactions under Section 40A(2)(b) were omitted from the definition of international transactions vide amendment made in Finance Act., 2017, transactions under Section 40A(2)(b) could not be considered as international transactions even for the impugned AY 2013-14. Relying on the rulings of the Apex Court in Kolhapur Canesugar Works and General Finance Co & of the jurisdictional HC ruling in GE Thermometrics, the Tribunal held that once a particular provision of section is omitted from the statute, it shall be deemed to be omitted from its inception unless and until there is some saving clause or provision to make it clear that action taken or proceeding initiated under that provision or section would continue and would not be left on account of omission. Noting that clause (i) of Sec. 92BA was omitted by Finance Act, 2017 w.e.f. April 1, 2017, it observed that it would be deemed that clause (i) was never on the statute more so since while omitting the clause (i) of section 92BA, nothing was specified whether the proceedings initiated or action taken under the section would continue. Therefore, the proceeding initiated or action taken under that clause would not survive at all”; Accordingly, it quashed the reference made by AO to TPO u/s 92CA as well as the consequential order passed by TPO/DRP and directed AO to re-adjudicate the issue of claim of expenditure incurred which could not be done on account of provisions of Sec. 92BA(i).
Texport Overseas Private Limited vs. DCIT – TS-1032-ITAT-2017(Bang)-TP – IT(TP)A No.1722/Bang/2017 dated 22.12.2017

3. The Apex Court dismissed Revenue’s SLP challenging the order of the Gujarat High Court wherein the High Court upheld the order of the Tribunal wherein it was held that the assessee and its supplier of rough diamonds viz. Blue Gems BVBA (Belgian entity) were not associated enterprises notwithstanding the fact that there was common control between the two enterprises as none of the conditions laid down in Section 92A(2) were fulfilled.
Pr. CIT vs. Veer Gems – TS-2-SC-2018-TP – SPECIAL LEAVE PETITION (CIVIL) Diary No(s). 37719/2017 dated 05-01-2018

4. The Tribunal deleted the TP-adjustment in case of Renault India (assessee) as the transaction of purchase of cars from a resident entity RNAIPL (related entity with 30% shareholding from Renault France and 70% from Nissan Japan) was not international transaction subject to transfer pricing. It rejected TPO’s contention that as per the Master Supply Agreement and Master License Agreement, the terms and conditions of transactions were predominantly determined by assessee’s foreign parent (Renault France) and therefore, the transaction was an international transaction. Further, the TPO also noted that while the assessee suffered losses, RNAIPL was paying royalty at 5 percent of turnover to Renault France. It held that the master supply agreement between assessee and RNAIPL as well as master License agreement between Renault France and RNAIPL did not show any influence of Renault France on the price determination for supply of cars by RNAIPL to assessee and that Renault France only had 30% of shareholding in RNAIPL whereas balance 70% was held by Nissan. It observed that the influence that could be exerted by M/s. Renault S.A.S France on M/s. RNAIPL was not such that it could freely decide on the pricing of latter’s products. It further held that there was nothing in methodology followed by assessee that could lead to belief that the arrangement was sham or type of scheming which resulted in exorbitant loss for assessee. Accordingly, it held that the transaction could not be classified as a deemed international transaction and accordingly deleted the TP addition.
Renault India P Ltd – TS-87-ITAT-2018(CHNY)-TP – ITA No 1078 / Mds / 2017 dated 30.01.2018

5. The Tribunal deleted TP adjustment in the case of the assessee (engaged in business of providing animation production services) with respect to profit attributed under PSM by the TPO considering the income generated by the AE out of the Intellectual Property Rights sold by the assessee to its AE. It noted that sale of IPR had taken place in earlier AY and the coordinate bench had already deleted the TP adjustment on the basis that once IPR is sold and arm’s length price is determined, IPR becomes the property of AE and any transaction of AE with 3rd party would be outside the jurisdictional territory of India and would not fall under the ambit of international transaction.
M/s DQ Entertainment (Intl) Ltd vs ACIT Circle 14(1)- TS-332-ITAT-2018(HYD)-TP ITA No 546/HYD/2016 dated 06.04.2018

6. The Tribunal deleted the disallowance of alleged excess price paid for purchase of components u/s 40A(2)(b) by following the decision of the coordinate bench in assessee’s own case for earlier year wherein the said disallowance was deleted noting that the parties were not related in terms of definition provided u/s.40A(2)(b) but they were related to the assessee only in accordance with AS-18 issued by the ICAI.
Hero Moto Corp Ltd vs DCIT [TS-823-ITAT-2018(DEL)-TP] ITA No.6990/Del/2017 dated 20.06.2018

b. Most Appropriate Method

Comparable Uncontrolled Price Method

7. The Tribunal remitted the ALP-determination in respect of assessee’s import of goods from AE back to CIT(A). It noted that the TPO/CIT(A) made a TP-addition on imports considering variation in import price for the same unit of good from AE at €204.64 in October 2001 and €75 in February 2002 by discarding the market quote furnished by assessee which supported its contention that there was a drastic fall in the product prices. Relying on the decision of Adani Wilmar [TS-114-HC-2014(GUJ)-TP], wherein the Court held that authentic and reliable market quotes on price publication were relevant while determining the ALP employing the CUP method, the Tribunal directed the CIT(A) to examine the evidence produced by the assessee and verify its authenticity and reliability instead of rejecting it at the threshold level.
DCIT vs. Alcatel India Ltd. – TS-1085-ITAT-2017(DEL)-TP – ITA No. 339/Del/2012 dated 06/12/2017

8. The Tribunal deleted the TP adjustment on call centre services provided by assessee to its US-based AE noting that the assessee’s transactions were at ALP under internal CUP, internal TNMM as well as external TNMM. Vis-à-vis internal CUP, it noted that the average hourly rate earned from AE in USA (Rs. 274.39 per hour) was higher than rate earned from Non AEs in UK (Rs. 108.82 per hour) and dismissed the contention of the Revenue that the internal CUP was not an appropriate method considering different pricing mechanism for AE and Non AEs. As regards the TPO’s contention i.e. that there was a difference in risk profile between AE and Non-AE transactions for which no accurate adjustment could be made, it held that even if the adjustment was made, it would further reduce the average hourly rate charged from the Non-AEs which was lower than the average hourly rate charged from AE in any case. The Tribunal also adjudicated on the appropriateness of internal TNMM and observed that the services provided to AE and non-AEs were identical and that the functions performed, assets used and risks assumed (FAR) in AE as well as non AE business were also similar and therefore held that even internal TNMM could be considered as most appropriate method as per which the operating margin for the AE transactions (74.92%) was higher than non-AE transactions (30.90%).
Vis-à-vis External TNMM, it rejected the Revenue’s argument for the exclusion of All sec and CG VAK and held that i) All Sec was wrongly excluded on account of non-satisfaction of the export filter of 75 percent whereas its export sales to total sales was 74.45% and ii) CG Vak though functionally comparable was wrongly excluded merely because its segmental turnover was less than 1 crore. Accordingly, it noted that once these two companies were included as comparable, even under External TNMM, the assessee’s international transactions would be at ALP.
Effective Teleservices Pvt Ltd vs. ACIT – TS-75-ITAT-2018(Ahd)-TP – ITA. No: 2411/AHD/2014 dated 16 -01-2018

9. The Court admitted the assessee’s appeal on the following questions of law – “1. Did the ITAT fall into error in reversing the CIT (A)’s decision on the appropriateness/maintainability of CUP as the most appropriate for determining the ALP in the circumstances of the case? 2. Did the ITAT fall into error in its treatment of the foreign exchange fluctuation as far as the ALP determination was concerned?”
Ecocat India Pvt. Ltd vs. Pr. CIT – TS-111-HC-2018(DEL)-TP – ITA 152/2018 dated 09.02.2018

10. The Tribunal restricted TP-adjustment in respect of assessee’s s sale of finished goods to AEs in Thailand & Hong Kong. The Tribunal noted that while had assessee applied TNMM, TPO/CIT(A) rejected the same and proceeded to apply CUP-method for benchmarking the transaction. However, the Tribunal considered assessee’s submission that CUP rates for Hong Kong only should be compared to work out the said disallowance as against average rates of various countries taken by TPO. The Tribunal thus restricted the TP adjustment and clarified that the above approach shall remain valid only for this impugned AY and would not be applicable in any other AY.
Lupin Ltd vs ACIT (LTU)-TS-398-ITAT-2018(Mum)-TP-ITA No. 7488/Mum/2013 dated 27.04.2018

11. The Tribunal rejected Revenue’s contention relating to rejection of books of accounts maintained by the assessee by relying on assessee’s own order passed by the Co-ordinate bench for the earlier year as well as the HC order upholding the same on further appeal by the department. In the earlier year, it was held that since the assessee had followed the recognized accounting standard issued by ICAI and no major defects had been found by the AO in the assessee’s books, the AO could not reject the said books.
Further, the Tribunal held that the transaction of executing the onshore part of a project by the Indian PE of the Chinese entity (where the project was awarded by Indian companies to the HO of Chinese entity) between the Indian PE of Chinese entity and its HO in China was an international transaction and subject to transfer pricing provisions. The Tribunal further upheld the CIT(A)’s order, relating to rejection of TNMM (applied by TPO) and accepting of CUP method for benchmarking the said transaction consequent to which there would be no adjustment. Further, the Tribunal also held that there was no difference in the functions performed, asset employed, risk undertaken, price charged in comparable uncontrolled transactions and the entire profit of the foreign entity was charged to taxation through its PE in India and thus there was no shifting base of profits.
ADIT (Intl Tax)-II vs Shandong Tijun Electronic Power Eng. Co Ltd – TS-353-ITAT-2018(Ahd)-TP- ITA No 2926/Ahd/2014 dated 13.04.2018

12. Assessee was engaged in the business of leasing and hiring heavy cranes and had purchased nine cranes from it AE during the relevant year. The assessee got these cranes valued from custom authorities and chartered engineers and accordingly benchmarked the said international transactions. The method adopted by assessee for benchmarking the international transactions was rejected by the TPO who applied the CUP Method. The TPO took the written down value of the cranes in books of AE as ALP which resulted into certain adjustments to assessee’s ALP. The DRP held that the written down value of cranes in books of AE could not be considered as ALP as it was not derived from transactions between enterprises other than associated enterprises and accordingly the TPO was directed by the DRP to accept the valuation report of the assessee and delete the additions made on account of ALP of cranes. The Tribunal on appeal did not find any illegal infirmity in the order of the DRP and upheld the same.
ACIT v. Sarens Heavy Lift (I) (P.) Ltd. – [2018] 93 taxmann.com 431 (Delhi – Trib.) – IT Appeal No. 1027 (DELHI) Of 2015 dated April 2, 2018

13. The Tribunal remanded the issue of benchmarking of transaction with respect to payment of management service fee to AE back to the TPO, noting that the TPO and DRP had rejected the assessee’s TNMM and had adopted CUP method without selecting any comparable for benchmarking the said transaction so as to arrive at Nil ALP by applying benefit test. It held that for selecting CUP method, the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transaction was to be identified and thereafter MAM was to be decided.
Gates Unitta India Company (P.) Ltd. v. ITO – [2018] 93 taxmann.com 10 (Chennai – Trib.) – IT Appeal No. 2745 (CHNY) of 2017 dated April 6, 2018

14. The Apex Court dismissed Revenue’s SLP against Rajasthan HC decision that had upheld Tribunal’s order deleting Rs.2.07cr TP-adjustment. The Tribunal had followed the earlier year decision in the assessee’s own case wherein the Tribunal had rejected the TPO’s approach of adopting CUP method and determining the ALP at Nil (by applying benefit test). Thus, in the earlier year, the Tribunal had accepted the assessee’s benchmarking of the royalty payment to AE using TNMM, holding that the TPO/ AO could not justify the application of CUP method.
Pr. CIT vs. Sakata Inx (India) Ltd [TS-326-SC-2018-TP] SLP (Civil) Diary No.(s) 14221/2018 dated 04.05.2018

15. The Tribunal relied upon the coordinate bench ruling in assessee’s own case and adopted CUP as the MAM in respect of the export transaction and deleted the TP-adjustment in respect of export of printed circuit boards (PCBs) by assessee to its AE in Austria [for further sale in Europe as distributor]. It rejected the TPO’s adoption of entity level TNMM in respect of the export transaction since the Revenue was not able to demonstrate or bring any cogent evidence or material to prove that CUP method was not suitable for the assessee. The Tribunal noted that that there was no value addition by the AEs in the goods manufactured by assessee and prices at which PCBs were sold by the assessee to AE were equal to the prices at which PCBs were sold by AE to independent customers in Europe. Accordingly, the Tribunal adopted the CUP-method as MAM.
AT & S India (P) Ltd v/s. DCIT [TS-336-ITAT-2018(Kol)-TP] ITA No.77/Kol/2017 dated 11.05.2018

16. The Tribunal remitted the matter of ALP determination of assessee’s international transaction in respect of management group cost back to AO/TPO under the CUP method. The Tribunal upheld the TPO’s rejection of the assessee’s approach of aggregating the “management group cost” and “R&D assistance cost” as a single international transaction and opined that management group costs had to be separately benchmarked since the assessee had failed to establish any inextricable link between the transactions as one not surviving without the other. The Tribunal also observed that in assessee’s own case for AY 2011-12, the Tribunal had approved CUP as the MAM. Thus, it directed the TPO to apply CUP and in case of non-availability of relevant data vis-à-vis comparables or any other genuine reason, to apply appropriate method.
Atotech India Pvt Ltd vs. ACIT [TS-340-ITAT-2018(DEL)-TP] ITA Nos.3419&6571/Del/2016 &1112/Del/2014 dated 11.05.2018

17. The Tribunal remitted the ALP determination in respect of assessee’s guarantee commission received back to AO/TPO since the TPO had used the CUP data obtained by issuing notice u/s. 133(6) of the Act without providing an opportunity to the assessee with it. The Tribunal observed that no one should be condemned unheard and restored the issue so that the TPO could confront the CUP data to the assessee. Further, the Tribunal directed the AO/TPO to keep in mind the directions of the DRP in the subsequent assessment years wherein it was held that no addition could have been made on account of receipt of guarantee commission and for which the department had not preferred an appeal.
The Bank of Tokyo-Mitsubishi UFJ Ltd. vs. DCIT [TS-824-ITAT-2018(DEL)-TP] ITA No.7212/Del/2017 dated 11.06.2018

Cost Plus Method

18. The Tribunal rejected TPO’s selection of external TNMM as the most appropriate method (MAM) for benchmarking of assessee’s (engaged in the business of processing blended tea) international transaction of sale of tea to AE and directed the TPO to adopt internal Cost Plus Method (CPM) as adopted by the assessee. It noted that the assessee had adopted internal CPM for export of tea and export of PP Bags and PP Geo frabric but the TPO adopted entity level TNMM and using external comparables proposed an adjustment of Rs. 7.54 Cr despite the fact that the TPO had accepted assessee’s CPM as MAM for earlier years. Noting that the nature of international transactions, functions performed and risks assumed by the parties and method adopted were similar to those adopted by the assessee in the earlier years, it held that there was no reason for the TPO to take a different stand in the year under consideration. Accordingly, it remanded the matter back to the file of the AO.
Madhu Jayanti International Ltd vs. DCIT – S-1069-ITAT-2017(Kol)-TP – I.T.A No. 214/Kol/2016 – dated 01.12.2017

19. The assessee had exported spools to its AE wherein cost plus 10% of product cost was charged. However, TPO was of the view that 10% of indirect cost also needed to be charged and hence made an addition. The Tribunal relied on co-ordinate bench ruling in assessee’s own case in earlier year wherein it was held that there was nothing on record to suggest that any indirect expenses were considered for determining the ALP of export of spools and the TPO had made no such adjustment for AY 2004-05. Accordingly, the Tribunal deleted the adjustment made on account of indirect costs while computing ALP of the export transaction.
Bekaert Industries Pvt Ltd vs. ACIT [TS-349-ITAT-2018(PUN)-TP] ITA No.2376/Pun/2012 dated 14.05.2018

Resale Price Method

20. The Tribunal upheld the CIT(A)’s acceptance of assessee’s selection of RPM over TPO’s TNMM for benchmarking assessee trader’s import transaction for AY 2003-04. The TPO rejected RPM and adopted TNMM as MAM observing that assessee’s P&L account revealed that there were certain expenses which were directly connected with selling & distribution function which had not been considered for comparability in either the case of the assessee or the comparables under RPM and that the benchmarking conducted was faulty. Noting that the TPO had accepted RPM as the MAM in the subsequent years, the CIT(A) reversed TPO’s order. Observing that the Revenue had not brought anything on record to substantiate that the facts for the year under consideration were different from the subsequent assessment, the Tribunal held that the CIT(A) was justified in accepting RPM based on the principle of consistency. Further, it relied on the decision of the Bombay High Court in L’Oreal India (P.) Ltd. (2015) 53 Taxmann.com 432 (Bom.), wherein it was held that the RPM was the most appropriate method for benchmarking the ALP of the trading segment.
JCIT v M/s Michelin India Pvt. Ltd – TS-15-ITAT-2018(DEL)-TP – ITA No. 1874/Del/2011 dated 10.01.2018

21. The Tribunal upheld DRP’s selection of RPM as MAM for assessee’s export of iron ore to AEs and dismissed the TPO’s application of CUP method as faulty. The DRP had held that that the TIPS database (used as CUP by the TPO) was unreliable tool to determine ALP of assessee’s transaction noting that it provided prices of iron ore exported from Vishakhpatanm port as per iron content which did not match the iron content in the assessee’s transaction (50.60 percent). It upheld the DRP’s observation that the difference in iron content would directly impact the market value and therefore held that the CUP method could not be adopted. Accordingly, it upheld the DRP’s direction to consider the mean GP-rate realised in the exports to non-AEs to benchmark the AE-transactions.
ACIT vs. Billion Wealth Minerals Pvt. Ltd. – TS-43-ITAT-2018(Mum)-TP – /I.T.A./1818/Mum/2015 dated 19.01.2018

22. The Tribunal upheld CIT(A)’s deletion of TP-adjustment in respect of international transaction of import of finished goods, accessories, components and spares by the assessee (engaged in trading) from its AE. The assessee adopted RPM as MAM and compared the gross profit margin earned by it on sale of finished goods imported from AE with margin earned on sale of finished goods purchased from unrelated parties. TPO rejected assessee’s approach of computing such gross profit margin earned by considering cost of components, spares, accessories, consumables etc. within the total cost of finished products resold (as their sale price was included in the sale value charged to customers). The Tribunal observed that the assessee was providing power solutions to its customers for which it was not only importing UPS or DP power systems from its AEs but was also attaching various other components, spares, accessories etc. to it including batteries and racks to provide an end-solution to the customers and the assessee had not charged separately for such components. Accordingly, it rejected the TPO’s contention and accepted the assessee’s transactions to be at ALP.
DCIT vs. Eaton Power Quality Pvt Ltd – TS-186-ITAT-2018(PUN)-TP – ITA No.1025/PUN/2014 dated 12.03.2018

23. The TPO rejected RPM and adopted TNMM as MAM which was upheld by the DRP by observing that the assessee was not a simple distributor since the assessee had incurred substantial advertising, marketing and promotion expenses which had also not been demonstrated by the assessee to have been incurred by the comparables. The Tribunal accepted the assessee’s selection of RPM over TNMM applied by the TPO and held that the assessee was a routine market distributor who was selling/distributing products without any value addition on the products. The Tribunal also relied on the order of the coordinate bench in Nokia India Private Limited vs. DCIT (2015) 153 ITD 508 (Delhi Trib.) and held that incurring of high advertisement and marketing expenses by the assessee vis-a- vis the other comparable companies does not in any manner affect the determination of ALP under the RPM.
Burberry India Pvt Ltd vs ACIT [ TS-615-ITAT-2018(DEL)-T ] ITA No.758/Del/2017 dated 22.06.2018

24. The Tribunal set aside the issue of selection of the most appropriate method (MAM) and determination of ALP for the assessee engaged in distribution of medical equipments like capital equipment and surgical implants. It noted that the assessee had selected Resale Price Method (RPM) on the ground that it was engaged in reselling the imported products without any value addition whereas the TPO applied TNMM on the ground that product profile of assessee was totally different. It noted that the co-ordinate bench of the Tribunal for AY 2002-03 had observed that TPO had accepted RPM as the most appropriate method for AY 2007-08 onwards and had remitted the issue back to AO/TPO in view of lack of clarity as to why the Department had adopted TNMM for earlier years while accepting RPM for later years. Accordingly, relying on the Tribunal order for AY 2002-03, it remitted the matter to AO/TPO for fresh adjudication.
Stryker India Pvt. Ltd v DCIT – TS-441-ITAT-2018(DEL)-TP – ITA No. 351-53/DEL/2015 dated 04.05.2018

25. The Tribunal directed the AO/TPO to apply RPM as the MAM method for benchmarking assessee’s import of finished goods from its AE for onwards sale as against the CPM method applied by the TPO. The TPO applied a markup of 11% to benchmark the arm’s length price of international transaction undertaken. In arriving at the above decision, the Tribunal noted that the assessee was importing finished goods from its AE and there was no value addition.
Bekaert Industries Pvt Ltd vs. ACIT [TS-349-ITAT-2018(PUN)-TP] ITA No.2376/Pun/2012 dated 14.05.2018

Transactional Net Margin Method

26. The Court dismissed Revenue’s appeal and upheld the Tribunal’s order accepting TNMM as MAM for exporter assessee and held that since the assessee was an exporter of goods the TPO had wrongly used Resale Method (RM), which was only to be applied to importers. Accordingly, it held that TNMM method was rightly used for exporters and therefore, the resultant concession granted to the assessee on this count was correct.
Pr CIT v Rahman Exports Pvt. Ltd – TS-23-HC-2018(ALL)-TP dated INCOME TAX APPEAL No. – 7 of 2017 dated 11.01.2018

27. The Tribunal upheld the application of TNMM as MAM for benchmarking the export of finished goods by the assessee to AE and deleted the TP-adjustment computed by the TPO adopting the CUP method by benchmarking the transactions with transactions with the Non-AEs. It held that the CUP method was inappropriate owing to i) difference in the volume of goods, and ii) geographical differences and noted that the Tribunal in the assessee’s own case for AY 2002-03 had rejected CUP Method for the identical issue wherein products were supplied to AEs and non-AEs in different countries.
Intervet India Private Limited vs. DCIT – TS-1087-ITAT-2017(PUN)-TP – ITA No.721/PUN/2014 dated 21.12.2017

28. The Tribunal dismissed Revenue’s appeals seeking the use of external controlled comparables in the same sector such as JP Morgan Chase and Bank of America under the Profit Split Method, over uncontrolled comparables under TNMM to benchmark assessee’s marketing of derivative products on behalf of AEs. It deleted the TP- addition which was based on the difference between assessee’s global TP policy prescribed remuneration @ 24.40% of initial net present value (INPV) of derivative transactions as against the 60% multiplier on the same offered by controlled comparables to their Indian branches. At the outset, the Tribunal noted the unavailability of information on the controlled transaction in the public domain, and held that the TPO had violated the principles of natural justice by not confronting the assessee with the comparables used against it which itself was sufficient basis to have the adjustment validly deleted. On the merits, the Tribunal held that it was inappropriate to apply a uniform multiplier effect on the value of sales credit/INPV as the INPV computation was dependent on unique discounting factors that will lead to different values for different banks. Further, following the decision of the Court in Johnson and Johnson ruling, it held that the TPO’s application of PSM was adhoc and not as per the rules, since the said method could not be applied for benchmarking marketing support service functions and was mainly adopted when transactions involved unique intangibles. Considering that the TPO did not adhere to the prescribed methods consciously and that the order of CIT(A) suffered from no legal or factual infirmity, it refused to restore the matter to the file of TPO.
Barclays Bank PLC vs. ADIT – TS-11-ITAT-2018(Mum)-TP – /I.T.A./178/Mum/2011 dated 12.01.2018

29. Where the assessee sought to apply internal TNMM to benchmark its international transactions, the Tribunal rejected Revenue’s contention that internal comparable could not be considered in view of miniscule turnover of the third party transactions and relying on the decision of the Delhi Tribunal in Lummus Technology Heat Transfer BV ([TS-48-ITAT-2014(DEL)-TP] it held that, in a transaction level comparison within same entity, mere difference in size of uncontrolled transactions would not not render the transaction incomparable. Noting that the assessee has separately submitted segmental accounts reflecting business with AEs, non-AEs and idle capacity, the Tribunal opined that there was no bar in adopting uncontrolled transaction for the purpose of internal TNMM. Vis-à-vis the capacity utilization adjustment, the Tribunal noted that the profit margins were arrived without factoring for idle capacity (70% under-utilization in this case), and held that profitability of the organization would be impacted when there was huge underutilization of the capacity. Accordingly, it held that there had to be an adjustment internally within the organization or an adjustment of idle capacity when compared with outside comparables. Considering that the assessee had not properly maintained allocation of overheads, it set aside the issue to the file of the TPO and directed the assessee to submit the segmental results based on the absorption of overhead on utilized capacity and idle capacity considering segments export to AE, export to non-AE, domestic sales to non-AE and idle capacity; Accordingly, the Tribunal remitted the TP issue back to TPO directing it to consider the revised segmental profit and loss reports and arrive at the ALP adjustment by considering non-AE transactions as one of the comparable in determining ALP.
Srini Pharmaceuticals Ltd vs. DCIT – TS-60-ITAT-2018(HYD)-TP – ITA No. 102/Hyd/2015 dated 19-01-2018

30. The Court admitted assessee’s appeal on the following question of law “Whether on the facts and circumstances of the case and in law, the Tribunal was justified in upholding the rejection of segmental Transactional Net Margin Method and adopting the comparable Uncontrolled Price method for determining any adjustment under Chapter X in respect of the purchase of raw materials and sale of finished goods made by the Appellant?”
Henkel Adhesives Technologies India Pvt Ltd vs. DCIT – TS-106-HC-2018(BOM)-TP – INCOME TAX APPEAL NO. 817 OF 2015 dated 20.02.2018

31. In a departmental appeal, The Tribunal set aside the order of the CIT(A) deleting the TP-adjustment as the impugned order was cryptic, non-speaking and stereotyped. The TPO had proposed adjustment on export of cables to AE by using internal TNMM based on margin earned on domestic sale which was deleted by the CIT(A) who observed that the export transaction could not be compared with domestic transaction in view of different economic conditions in different geographic markets. The Tribunal held that under TNMM, a preference was to be given to an internal comparable and that the CIT(A) ought to have carried out FAR analysis for the international transaction and internal comparable transaction (domestic sales) and then made adjustment for differences such as geographical location, etc. Accordingly, it remanded the matter to the file of the CIT(A) to re-adjudicate the issue.
DCIT V Lapp India P. Ltd – TS-129-ITAT-2018(Bang)-TP – LT(TP).A No.114/Bang/2014 dated 17.01.2018
DCIT vs. Lapp India P Ltd – TS-128-ITAT-2018(Bang)-TP – I.T(TP) .. ANos.1017 & 1018/Bang/2014

32. The Court dismissed Revenue’s appeal and held that the Tribunal was justified in holding TNMM as MAM for benchmarking exports to AEs. It noted that the TPO made adjustment on approx. 5% of total exports by applying CUP-method on the basis that there were similarities between goods sold to AE and third parties but the Tribunal, considering the customization of finished goods and the geographical, volume, timing, risk and functional differences, came to a conclusion that CUP method could not be MAM and upheld the assessee’s stand that TNMM was MAM. It dismissed Revenue’s contention that Tribunal had adopted TNMM as MAM without considering FAR-analysis as ’unjustified’ noting that Tribunal had done the necessary FAR analysis and therefore opined that the view taken by the Tribunal on the facts before it, was a possible view on the application of appropriate tests.
Amphenol Interconnect India P. Ltd – TS-205-HC-2018(BOM)-TP] INCOME TAX APPEAL NO. 1131 OF 2015 dated 7th MARCH, 2018

33. The Court admitted assessee’s appeal on the following substantial question of law i.e. whether the Tribunal was justified in rejecting the principle of aggregation of closely linked transactions using the Transactional Net Margin Method.
JCB India Ltd vs DCIT Circle 13(1)- TS-301-HC-2018(DEL)-TP-ITA No 525/2017 dated 18.04.2018

34. The Tribunal ruled on selection of Internal TNMM Most Appropriate Method (MAM) and use of internal comparables for benchmarking export and import transactions of assessee engaged in manufacture of heavy commercial vehicles. In respect of assessee’s export of trucks to developing countries (like South Africa, Ethiopia and Indonesia) through its German AE, it was observed that billings were raised on German AE, but trucks were not routed through Germany and were directly sent to developing countries due to stricter emission norms in Germany. The Tribunal discarding TPO/DRP’s approach of rejecting internal comparables (sale of similar products in India) opined that geographical differences would not be relevant where the products were exported to markets similar to Indian markets, where emission norms were less stringent as compared to Germany.
DCIT Circle-9 vs Man Trucks India Pvt Ltd- TS-228-ITAT-2018(PUN)-TP- ITA No 547/PUN/2014 dated 03.04.2018

35. The Tribunal, in the department’s appeal, upheld the DRP’s aggregation of assessee’s distribution & commission segments and application of entity level TNMM for benchmarking analysis following approach adopted by DRP in assessee’s own case in preceding AYs and noted that though, the TPO had segregated the financials into 2 segments viz. distribution and commission and applied TNMM and CUP-method to benchmark distribution and commission segments respectively, the Tribunal upheld assessee’s reliance on DRP orders for previous years after noting similarity of the international transactions to be benchmarked, assessee’s business model over the past few years and absence of any compelling reasons submitted by Revenue for discarding earlier years’ approach (of aggregating the two aforesaid two transactions). It rejected TPO’s view that higher appellate authorities had not decided the issue at all and therefore there was no question of accepting assessee’s stand to apply aggregation approach accepted in earlier years
DCIT Circle 13(1) vs JDSU Indian Pvt Ltd- TS-287-ITAT-2018(DEL)-TP- ITA No 1120/Del/2015 dated 02.04.2018

36. The Court rejected admission of question of law raised by assessee involving rejection of CUP method by Revenue as the most appropriate method (MAM) for the transaction of sale of railway wagons to AE based on the sale price charged by the AE from the ultimate third-party buyer and noted that Revenue rejected CUP method having regard to the fact that it unduly restricted the choices of the Revenue and TNMM was considered to be a more appropriate method where greater choice was available. The Court thus concluded that appropriateness of the MAM per se does not give rise to a question of law since it involves analysis of facts done first by the Revenue authorities and settled by the Tribunal and held that unless the facts show glaring distortion in the adoption of one or the other method, a question of law cannot be said to arise.
The Court thereafter admitted 3 legal questions raised by the assessee in respect of Tribunal’s order on the issues of cherry-picking of comparables, deletion of comparables selected by the assessee, and intra-group services related to management support. The same are as under:
• Whether on the facts and in the circumstances of the case, the Tribunal erred in law in upholding the action of the TPO in cherry-picking comparables and considering Titagarh and Texmaco as comparable companies for undertaking benchmarking analysis of international transaction of main line segment applying TNMM, not appreciating that the said companies did not satisfy the test of comparability as provided in Rule 10B (2) of the Rules?
• Whether on the facts and in the circumstances of the case, the Tribunal erred in law in upholding the action of the TPO in deleting the comparables proposed by the appellant, viz., Braithwaite and Bharat Wagon, (without prejudice and in response to the additional comparables selected by the TPO),completely ignoring that the same are identical in functional profile to the comparables introduced by the TPO for undertaking benchmarking analysis of international transaction of main line (MLN) segment applying TNMM, not appreciating that the said companies satisfy the test of comparability as provided in Rule 10B(2) of the Rules?
• Whether on the facts and in the circumstances of the case, the Tribunal erred in law in upholding the addition made by the TPO on account of intra-group services related to management support by President and his team, human resources, Six Sigma and operation, and quality and other services, received by the appellant from its associated enterprises, on the erroneous reasoning that such services, rendered by the AEs are in the nature of shareholders activities and of no economic and commercial value to the business of the appellant?
Bombardier Transportation India Pvt Ltd vs DCIT- TS-244-HC-2018(Del)-TP-ITA No 223/2018 dated 09.04.2018

37. The Court dismissed Revenue’s appeal and upheld Tribunal’s application of TNMM as Most Appropriate Method (MAM) for benchmarking assessee’s export & import transactions and noted that Tribunal rightly followed co-ordinate bench ruling in assessee’s own case for previous AYs (which was subsequently confirmed by HC) wherein for the same transactions, TNMM was upheld as MAM over TPO’s CUP-method. Thus, in the absence of any distinguishing facts in subject AY, the court held that the said ratio would equally apply to the facts of the present appeal and accordingly dismissed revenue’s appeal
PCIT- 5 Pune vs Amphenol Interconnect India P Ltd- TS-275-HC-2018(Bom)-TP- ITA No. 1388 of 2015 dated 18.04.2018

38. The Tribunal relying on its order of earlier years allowed assessee’s selection of foreign AE as a tested party and noted that TNMM was rightfully followed as the most appropriate method for benchmarking transactions of payment of fees for advisory and other services to its AE. In the earlier year, the Tribunal had accepted the assessee’s stand of selecting the foreign AE as the tested party, noting that (i) the AE was rendering service to various other entities also (ii) the AE was following a scientific method of allocating cost and charging the same with markup to all the entities at same level and (iii) the relevant details to compute the cost allocation on account of services had been certified and filed before the AO. The Tribunal sent back the matter to AO for limited purpose of verification of assessee’s claim that margin was within 5% range of average comparables margin.
Emerson Climate Technologies (India) Pvt Ltd vs DCIT Circle 1(2)- TS-362-ITAT-2018(PUN)-TP- ITA no’s 359 & 2847/PUN/2016 dated 25.04.2018

39. Where the assessee was engaged in distribution of books, software, electronic products and reprinting of books, publications, noting that the reprinting of books required deployment of assets, employees and involved risk in publishing and selling, the Tribunal held that TPO was correct in adopting TNMM as opposed to RPM as RPM could not be adopted where there was value addition and application of technology. Therefore, it upheld the order of the TPO.
Cengage Learning India Pvt. Ltd vs ITO – TS-736-ITAT-2018(DEL)-TP – ITA No. 5926/DEL/2010 dated 11.05.2018

40. The Tribunal restored the benchmarking of assessee manufacturer’s international transactions for AY 2010-11, noting that the TPO rejected assessee’s entity level TNMM and adopted internal TNMM for benchmarking and proposed a TP-adjustment and that the co-ordinate bench in assessee’s own case in subsequent AY 2011-12 on similar facts had restored matter back to AO for fresh examination as the DRP had failed to adjudicate the issue.
ASB International Pvt. Ltd vs. ACIT – TS-422-ITAT-2018(Mum)-TP – ITA No.1068/Mum/2015 dated 29/05/2018

41. Relying on the co-ordinate bench ruling in assessee’s own case for the assessment year 2011-12 and 2012-13, the Tribunal restored the matter to the file of the AO/TPO to benchmark the assessee’s provision of software development services by adopting internal TNMM (adopted by the assessee) as internal TNMM was to be preferred over external TNMM adopted by the TPO.
Brillio Technologies Pvt. Ltd. vs. DCIT – TS-427-ITAT-2018(Bang)-TP – IT(TP)A No.1897/Bang/2017 dated 31/05/2018

42. The Tribunal upheld assessee’s [manufacturer of bulk drugs, chemicals and intermediates] application of TNMM over TPO’s adoption of CUP-method as the Most appropriate method for benchmarking international transactions of product sales and receipts for contract research services. It noted that while TPO had stated that CUP-method was better than TNMM, he did not mention how TNMM was not applicable on the given set of facts. Further, it held that the DR could not improve the case of the TPO at this level. It also observed that the co-ordinate bench in assessee’s own case for AY 2002-03 had upheld assessee’s adoption of TNMM as MAM and therefore held that there was no justification for deviating from order of the ITAT passed in similar facts of the same assessee.
DCIT vs. Dishman Pharmaceuticals & Chemicals Ltd – TS-440-ITAT-2018(Ahd)-TP – ITA No 692/Ahd/2011 dated 23 /05/2018

43. In a case where the assessee contested the exclusion of the comparables selected by the assessee itself and no comparables were introduced by the Revenue while determining the ALP under the TNMM method, the Tribunal held that the onus was more on assessee to justify the exclusion / inclusion of the comparables. It held that under TNMM method, only a broad functional comparability is required and the statute, itself, has provided for a tolerance range of +/-5% to weed out the dissimilarities since no two entities could exactly be the identical / similar in all respect. It took note of the judicial pronouncements relied on by the assessee to contend that the comparables initially selected by the assessee could be excluded subsequently, finding them to be functionally or otherwise uncomparable in the circumstances. However, it held that there could not be any cherry picking to suit the requirement of the assessee. The Tribunal thus held that keeping in view the overall factual matrix of the case, the matter was to be remitted back to the file of the AO /TPO for fresh determination of ALP of the transactions.
Roche Diagnostics India Pvt Ltd vs ACIT Range 8(3)-TS-803-ITAT-2018(Mum)-TP- ITA No 7566/Mum/2012 dated 04.05.2018

44. The Tribunal rejected TPO’s approach for entity wide benchmarking of the assessee’s international transactions vis-à-vis International express and International freight forwarding segments without considering the segmental accounts, noting that (i) the TPO had not considered segment accounts since he was of the view that the domestic business was suffering losses on account of incorrect allocation of expenses whereas the domestic courier business was suffering losses on account of stiff competition being faced (ii) TPO’s observation of volume being the basis of allocation of expenses was flawed since the assessee had actually allocated the expenses on the basis of revenue, weight and volume. (iii) TPO’s observation that domestic business was an extension of international business was factually incorrect since the assessee’s domestic segment was 10 times the size of the international express segment and was an independent business and also the FAR profile was entirely different.
Aramex India Pvt. Ltd vs. DCIT [TS-351-ITAT-2018(Mum)-TP] ITA No.6749/Mum/2017 dated 18.05.2018

45. The Tribunal upheld the application of TNMM as MAM for benchmarking the sale of products by the assessee to AE and deleted the TP adjustment computed by the TPO adopting the CUP method by benchmarking the transactions with the Non-AEs. It relied on the findings of coordinate bench in the earlier year in assessee’s own case wherein CUP method was rejected in light of the geographical factors and difference in the quantity of the products sold.
Dishman Pharmaceuticals & Chemicals Ltd vs DCIT [TS-958-ITAT-2018(Ahd)-TP] ITA No.955/Ahd/2012 dated 20.06.2018

46. The assessee had benchmarked sale of goods to its AE’s in Bangladesh, Dubai and the United Kingdom (AE) using TNMM which was rejected by TPO who applied CUP. The CIT(A) accepted TNMM adopted by the assessee. The Tribunal dismissed Revenue’s appeal and upheld the CIT(A)’s application of the TNMM as the MAM as against the CUP applied by the TPO. It observed that the TPO/AO had not made any adjustments owing to the differences in market and economic conditions of countries in which products were sold to independent third parties. Further, TPO had failed to take into account the profile of consumers, preference amongst consumers, purchasing power, etc. Thus, It opined that selective application of CUP Method by TPO was ad hoc, and without any cogent basis, hence the entire approach followed by the TPO in rejecting TNMM was unjustified.
DCIT/ACIT vs. Emami Limited [TS-468-ITAT-2018(Kol)-TP] ITA Nos. 1065 and 1066/Kol/2017 dated 15.06.2018

47. The Tribunal directed the TPO to adopt Internal TNMM based on man hour rates as the MAM for determining the ALP of specialized engineering services provided by the assessee to its AE. The Tribunal accepted the assessee’s plea that hourly rates charged by it in providing specialized services to its AEs can be the basis for verifying its stand as to whether the services provided by the assessee to its AEs were at ALP. It further relied upon the coordinate bench decision of DCIT v/s. ManTrucks Pvt. Ltd. [ITA No.547/Pun/2014] wherein it was held that even if costs were identical for providing services to AE, Non-AE’s or domestic parties, the margins earned from domestic parties could be compared to benchmark ALP of international transaction and accordingly, it rejected the Revenue’s contention that since the cost incurred for transaction with AEs as well as domestic transactions were same, the domestic transactions were controlled and thus tainted.
Magna Steyr India Pvt Ltd [TS-625-ITAT-2018(PUN)-TP] ITA No.314/Pun/2014 dated 05.06.2018

48. The Tribunal relying upon the ITAT order in assessee’s own case for the prior year upheld the approach of assessee aggregaring all transactions in the manufacturing segment and adoption of TNMM to benchmark the transaction as compared to CPM applied by the TPO as the MAM. Further, in line with the earlier year, the Tribunal also directed the AO to verify assessee’s claim by applying single year data and accordingly, compute the TP-adjustment, if any.
Sandvik Asia Pvt. Ltd (formerly known as Sandvik Asia Ltd) vs. DCIT [TS 444 ITAT 2018] ITA No.1459/Pun/2010 dated 06.06.2018

49. The Tribunal accepted the stand of the assessee of aggregating installation and commissioning/ engineering services with the manufacturing activity (while determining ALP by applying TNMM) by relying on the co-ordinate bench ruling in assessee’s own case in AY 2007-08 wherein it was held that activity of installation and commissioning/engineering services are closely linked with manufacturing and ought to be combined and construed as single transaction for determining the ALP of transaction.
Terex India Pvt. Ltd (as successor of Demag Cranes and Components (India) Pvt. Ltd) vs. DCIT [TS-477-ITAT-2018(PUN)-TP] ITA No.583/Pun/2016 dated 06.06.2018

50. The Tribunal upheld the CIT(A)’s adoption of TNMM as MAM over RPM applied by the TPO.since the assessee had incurred huge selling, marketing and advertising and promotion in respect of the import of goods for the subject year. The Tribunal relied upon the co-ordinate bench ruling in assessee’s own case for earlier year wherein the reason assigned by the TPO for rejecting RPM was accepted i.e. that the business model of the assessee could not be compared with comparable companies on account of the selling, marketing and advertising and promotion expenses incurred and hence concluded that TNMM would be the MAM.
Abbott Medical Optics Pvt. Ltd. v DCIT (formerly Advanced Medical Optics India Pvt. Ltd) [TS-517-ITAT-2018(Bang)-TP] IT(TP) A No.08/Bang/2014 dated 22.06.2018

Profit Split Method

51. The TPO had rejected the assessee’s TP study on the ground that there was no separate FAR analysis of the transactions performed with the AEs and had recharacterized the activity/functions performed by the assessee company as a KPO instead of “IT services” classified by the assessee company. The assessee had argued that principle of consistency would be applicable and even for the previous years i.e. from AYs 2009-10 to 2011-12, the assessee had been accepted as an IT service provider. The Tribunal opined that the TPO was justified in rejecting the TP analysis undertaken by the assessee since it was not made based on each of the functions performed with the AEs. The Tribunal thus remanded the entire TP issue to the file of AO/TPO with a direction to afford a reasonable opportunity to the assessee to furnish a TP study report covering the functions performed, risks analysed and assets employed in respect of the international transactions with AEs.
The Tribunal however also directed the AO/TPO to aggregate the functions having a direct nexus with AdWords distribution programme having regard to the TP study and to benchmark such aggregated transactions by adopting profit split method, relying on the decisions of Orange Business Services and Global one India wherein it was held that Profit split method was the most appropriate method for cases involving multiple interrelated international transactions which could not be evaluated separately.
Google India Private Limited v. Jt.DIT(IT) & others [TS-335-ITAT-2018(Bang)-TP] – IT(IT)A No.69 & 1190/Bang/2014, 374/Bang/2013, 387, 949 & 950/Bang/2017, 68/Bang/2015 & 559/Bang/2016 dated 11.05.2018

Any Other Method

52. Where the assessee had adopted TNMM for benchmarking its international transactions in all previous years but sought to use residual method which was effective for subject AYs and resorted to TNMM only for transactions not covered by the other method, which was rejected by the AO who applied TNMM on all transactions, the Court held that the Tribunal was not justified in remanding the issue back to TPO stating that it did not find any reasons for change in assessee’s approach (from TNMM to the Other Method). It observed that the TP-report clearly claimed that ‘other method’ was MAM and also outlined the reason for shifting from TNMM to the ‘Other method’, which had neither been considered by the Tribunal nor DRP. Noting that the ‘other method’ was introduced for the first time during the impugned AY, the Court held that the Tribunal ought to have proceeded with the matter afresh instead of having remanded the matter totally to the TPO. Accordingly, it remitted the matter to the file of the Tribunal.
Springer (India) Private Limited vs. ACIT – TS-1062-HC-2017(DEL)-TP – ITA 1148/2017dated 15.12.2017

General

53. The Tribunal, relying upon ITAT order in assessee’s own case for the prior AY remitted the entire TP-issue in case of assessee engaged in import/export and trading of various agricultural/food products. It noted that the TP-adjustments were made in respect of 3 types of transactions viz. a) merchanting transactions b) purchase of fertilizers and c)sale of rice which were benchmarked by the assessee under TNMM for the merchanting transactions and CUP for the others. The TPO rejected the methods selected by the assessee and adopted RPM for the merchanting activities, TNMM for the purchase of fertilisers and TNMM for the sale of rice [which was charged to RPM by the CIT(A)]. Since the issue had not been dealt with properly by the lower authorities so as to reach a logical and reasonable conclusion it directed the AO/TPO to adjudicate the issue de novo.
Cargill India P Ltd v DCIT – TS-92-ITAT-2018(DEL)-TP – ITA No. 2988/Del/2011 dated 09.01.2018

c. Comparability– Inter and Intra Industry

ITES Sector / Software Development Services

54. The Tribunal held that the assessee engaged in providing ITES services to its AE could not be compared to:
• Accentia Technologies Ltd as the company had undertaken a extra-ordinary event during the year under consideration.
• Genesys International Corporation Ltd as the company was engaged in KPO service which required advance skill and hence, not comparable with assessee’s BPO activity.
• Coral Hubs Ltd as the company outsourced its activities rendering it functionally different to the assessee.
• Eclerx Services Ltd as it was providing high end KPO services
Tracmail (India) Private Limited vs. DCIT – TS-8-ITAT-2018(Mum)-TP – /I.T.A./7519/Mum/2012 dated 05/01/2018

55. The Tribunal held that the assessee engaged in providing ITeS to its AE could not be compared to:
• Accentia Technologies Limited as it had undergone extra ordinary events on account of amalgamation and also was engaged in providing the entire gamut of services under healthcare receivables cycle management viz., medical transcription, medical coding and billing and receivables management services and did not have adequate segmental results.
• Cosmic Global Limited as the company had a different business model as it had outsourced significant work to outside ventures and as such, its employee cost was less than 21.30%
• Fortune Infotech Limited as the company was into web application development including mobile applications, e-Commerce applications and SEO services, developing CMS based website using Drupal, Joomla, WordPress, e-Commerce Magento etc., offering onsite and offsite services to various clients and also into web designing services whereas the assessee was into providing routine ITES to its AE.
• Igate Global Ltd as the company was engaged into providing IT and ITES whereas no segmental information was available in its annual report company and it had also undergone restructuring by way of amalgamation.
• Infosys BPO Limited as it was engaged in different and diversifying services like customer service outsourcing, finance and accounting, knowledge services, human resource outsourcing, legal process outsourcing, sales and fulfillment, sourcing and procurement outsourcing, banking and capital outsourcing, media outsourcing, energy outsourcing, retail, etc. as against assessee which was into routine ITES. Moreover, it noted that the said company had i) huge turnover of Rs.1126.63 crores ii) goodwill of Rs.19.30 crores as per annual report iii) incurred selling and marketing expenses to the tune of 6.96% to enhance its business and iv) had an exceptional year of operation due to acquisition of McCamish Systems LLC to provide end to end services.
• TCS e-Serve International Limited and TCS e-Serve Limited as their operations broadly comprised of transaction processing and technical services and therefore was not comparable to the activities of the assessee
• Satyam BPO Limited as the creditability of a company due to the scam was at stake and therefore could not be considered as a reliable comparable
• Vis-à-vis R Systems it accepted the assessee’s plea that a comparable could not be rejected merely on account of different financial year where the company was functionally comparable and the results for the relevant year could be reconciled and remitted the comparability of the said company back to the file of the TPO directing the assessee to provide reconciliation of the profitability with authentic and reliable data
Vertex Customer Services India Private Limited (now merged with Vertex Customer Management India Private Ltd) vs. DCIT – TS-1052-ITAT-2017(DEL)-TP – ITA No.1508/Del./2015 dated 28.11.2017

56. The Tribunal remitted the question of inclusion/exclusion of 5 comparables for assessee’s provision of ITeS to AE noting that there was no observation of the DRP on the said issue. Vis-à-vis i) Alphageo, it observed that the company had been excluded in co-ordinate bench ruling in Flour Daniel on grounds of functional dissimilarity and for having a very high net fixed asset/sales ratio as compared to the assessee and accordingly, directed the AO/TPO to verify if the same held good for this case and ii) Mahindra Engineering, it directed the AO/TPO to reject the company as a comparable if its RPT was found to be greater than 25% as the said issue had not been brought before TPO/DRP.
Eigen Technical Services Pvt. Ltd. vs. DCIT – TS-78-ITAT-2018(DEL)-TP – ITA No.244/Del/2012 dated 22-01-2018

57. The Tribunal held that the assessee engaged in providing liasioning, administrative support and other ITeS could not be compared to:
• E-Clerx Services Ltd as the company was engaged in high-end KPO not comparable to the assessee and also since the company had acquired a UK-based Igentica Travel Solutions Limited (“ITS”) company during the year
• Accentia Technology Ltd as the revenue earned by it from services was less than 75 percent, the company was engaged in software development and it had undertaken mergers / demergers during the year under review
• Coral Hub Ltd as the working model of the company was outsourcing based and therefore it could not be compared with the assessee moreso considering its employee costs were merely 4.39 percent of its total costs.
• Mod-Tek Technologies Ltd as the company was engaged in providing structural engineering service not comparable to the activities of the assessee.
NCS Pearson India Private Ltd. vs. DCIT – TS-99-ITAT-2018(DEL)-TP – ITA No.5577/Del/2014 dated 03.01.2018

58. The Tribunal held that the assessee engaged in providing call centre services could not be compared to:
• Accentia Technologies Ltd & E4e-health Solutions Ltd as it was engaged in providing high-end KPO services
• Cosmic Global Limited as it was engaged in translation and prescription of data which was entirely different from the functions performed by the assessee and also since it was operating a different business model as it was outsourcing its activities.
• Vishal Information Technologies Limited as it was functionally incomparable to concern providing BPO services since it was outsourcing its work.
• Cross Domain Solutions Ltd & E-clerx Services Ltd as they were engaged in KPO services
Further, it held that CG Vak could not be excluded as comparable on the ground of persistent losses as it earned profits in the earlier years.
Ventura (India) Pvt. Ltd. vs. ACIT – TS-201-ITAT-2018(PUN)-TP – ITA No.1788/PUN/2014 dated 09.03.2018

59. The Tribunal held that the assessee engaged in providing ITES / BPO services to its AE could not be compared to:
• Infosys BPO Ltd as the company was a KPO and it also had huge brand value and possessed intangible assets rendering it functionally dissimilar to the assessee.
• TCS e-Serve Limited as it was engaged in core business processing services, analytics & insights (KPO) and support services for both data and voice processes and no segmental information regarding BPO services were available
• Universal Print Systems Limited as it was into the business of printers whereas the assessee was into the Business Process Outsourcing
Further, it held that BNR Udyog Limited (Medical Transcription segment) could not be excluded as a comparable as medical transcription services fell within the definition of ITES and therefore it could not be held that the company was functionally dissimilar to the assessee.
It also dismissed assessee’s contention for exclusion of Excel Infoways Limited and held that the assessee did not furnish any evidence in support of its plea that the company was functionally dissimilar as it was engaged in both IT and ITES services.
Vis-à-vis assessee’s plea for inclusion of R Systems and Caliber Point, it held that the said companies could not be taken as comparable as they followed a different financial year ending.
XLHealth Corporation India Pvt. Ltd vs. ACIT – TS-162-ITAT-2018(Bang)-TP – IT{TP)A No. 2311/Bang/2016 dated 09.02.201S

60. The Tribunal held that the assessee engaged in providing IT enabled services to its AE could not be compared to Accentia Technologies Ltd as it earned income from various streams and did not have segmental income. Further, the company had undertaken acquisitions during the year under review rendering functionally dissimilar.
It rejected assessee’s contention and held that TCS e-serve International ltd and TCS e-serve Ltd were to be included as comparable. It held that mere high turnover / profit could not be valid grounds for exclusion and further that the companies software testing and validation of software formed part of ITES services and could not be considered as software development . It rejected the assessee’s argument that the company had high brand value noting that the companies expended only 0.43 percent of its total expenditure on brand. Further
Further, it rejected assessee’s contention to exclude Infosys BPO holding it to be functionally similar to assessee and also rejected the plea relating to brand value and acquisition during year noting that the company incurred insignificant expenses on brand building and had infact incurred loss in the acquired business.
However it accepted assessee’s plea to include CG- VAK Software & Exports Ltd and R Systems International Limited as comparable and held that the TPO incorrectly rejected the said companies as comparables. It held that CG Vak could not be excluded merely because it did not satisfy the turnover filter as turnover could not be the basis for rejection of an otherwise functionally similar comparable. Further vis-à-vis R Systems, it held that merely because the company followed a different financial year it could not be excluded where the results of the relevant financial year could be reasonably extrapolated from the data in public domain.
Cadence Design Systems (India) Pvt. Ltd. vs. DCIT – TS-191-ITAT-2018(DEL)-TP – ITA No. 380/Del/2015 dated 05.01.2018

61. The Tribunal held that the assessee engaged in providing ITES services to its AE could not be compared to:
• Eclerx Services Ltd as it was a KPO and mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field of retail, manufacturing and financial services (including consulting, process outsourcing, process re-engineering and automation services )
• TCS e-serve Ltd as it was engaged in transaction processing and technology services and separate segmental details were not available.
H&S Software Development & Knowledge Management Centre Pvt Ltd vs. ITO – TS-136-ITAT-2018(DEL)-TP] – ITA No. 2200/Del/2014 dated 15.02.2018

62. The Court dismissed Revenue’s appeal challenging Tribunal’s exclusion of 6 comparables for assessee providing ITeS to its AE. With respect to 3 comparables (TCS E-Serve, TCS E-Serve International and Infosys BPO), it noted the Tribunal had correctly excluded these companies as they had high brand value and therefore, were able to command greater profits, besides they operated on economic upscale. Further, it held that the Tribunal was justified in excluding Accentia Technologies and ICRA Techno Analysis on the grounds of lack of segmental data. It held that e-Clerx Services, a KPO service provider, was also rightly excluded on grounds of functional dissimilarity to assesse BPO.
Pr.CIT vs. Evalueserve SEZ (Gurgaon) Pvt. Ltd – TS-125-HC-2018(DEL)-TP – ITA 241/2018 dated 26.02.2018

63. The Court upheld the order of the Tribunal wherein the Tribunal:
Excluded Infosys BPO as comparable on the ground of its huge brand value
Included R Systems International following the order of the Court in Mckinsey Knowledge Centre wherein it was held that if from the available data on record, the results for financial year could be reasonably extrapolated then the comparable could not be excluded.
However, it admitted 2 questions of law regarding comparability of Surya Pharmaceutical Ltd. and Excel Infosys with the assessee engaged in providing ITES.
Pr. CIT vs. Baxter India Pvt Ltd – TS-135-HC-2018(DEL)-TP – ITA 260/2018 dated 27.02.2018

64. The Tribunal held that the assessee providing business support services & ITeS to AE could not be compared to:
• Infosys BPO Limited as it was a giant company with turnover of INR1,312 crores as against the assessee’s turnover of only INR 11.47 crores.
• TCS E-Serve Limited as it had significantly high turnover of INR1,578 crores as against the assessee’s turnover of only INR 11.47 crores
• Informed Technologies India Limited as it had granted interest free loan of INR74.56 lakhs to related party which was irrecoverable which had a direct impact on its profitability.
XM Software Solution Private Limited vs. ACIT – TS-190-ITAT-2018(COCH)-TP dated 07/02/2018

65. The Tribunal held that for benchmarking IT enabled services Excel Infoways Ltd was to be excluded as a comparable, as the said company was in the process of shutting down its BPO business for the year under consideration. As regards another comparable namely Universal Print Systems, the Tribunal, relying on the judgement in case of Goldman Sachs directed the TPO to verify employee cost to sales ratio of one comparable company and to exclude the same if the said ratio was less than 25%.
Emerson Climate Technologies (India) Pvt Ltd vs DCIT Circle 1(2)- TS-362-ITAT-2018(PUN)-TP- ITA no’s 359 & 2847/PUN/2016 dated 25.04.2018

66. The Tribunal held that assessee providing IT enabled services in the nature of research and analyst services to its AE could not be compared to:
• Infosys BPO Limited considering the huge turnover or giantness of the company (by relying on the precedent judgment namely CIT vs Pentair Water India Pvt Ltd [TS-763-ITAT-2016(PAN)-TP] and New River Software Services Pvt. Ltd Delhi HC)
• Accentia Technologies Ltd due to occurrence of an extraordinary event of amalgamation in the said case.
Further, the Tribunal remanded the following comparable to the file of the TPO
• E4e health care services Pvt Ltd as the annual accounts were not available in public domain. (The Tribunal directed the TPO/AO to provide the copy of financial statements and then decide on the issue of retaining or excluding it as a comparable.)
• Datamatics Financial Services, Optimus Global Services & Sparsh BPO Services as objections raised by the assessee (i.e. negative net worth and export sales filter) were factual in nature, thus required verification.
Further, TCS e serve International Ltd was included as a comparable and the Tribunal held that it was functionally comparable to assessee by relying on Cadence Designs System vs DCIT.
M/s. Smart Cube India Pvt Ltd vs ITO ward 24(1) Delhi-TS-379-ITAT-2018(DEL)-TP- ITA No. 1103/Del/2015 dated 27.04.2018

67. The Tribunal held that the assessee engaged in providing IT enables services could not be compared to:
• E4 Health care business services as it was engaged in transcription of medical prescription and thus functionally dissimilar to the assessee
• ICRA Techno Analytics as it was engaged in various activities namely software development, consultancy services web development etc however, no segmental information was available.
• Infosys BPO Ltd as it had huge turnover and goodwill
The Tribunal included Cosmic Global at segment level and directed inclusion only of its medical transcription and consultancy services segment as comparable and further included Jindal Intellicom P Ltd as not specifically pressed by assessee for exclusion.
Keystroke Pro India P Ltd vs ITO Ward 14(3) – TS-333-ITAT-2018(DEL)-TP ITA No 537/Del/2015 dated 10.04.2018

68. The Tribunal relying on the judgement of Special Bench and co-ordinate bench in assessee’s own case held that assessee engaged in providing IT enabled services and back office support services to its AE could not be compared to:
• Accentia Technologies Ltd as it provided high-end KPO services
• Infosys BPO Ltd on account of its high goodwill, brand value and higher turnover
As regards Acropetal Technologies Ltd the Tribunal remitted back to AO/TPO for fresh adjudication with reference to segmental results and cost allocations.
Further, the Tribunal included R System International Ltd (following different FY-ending) as comparable after relying on the co-ordinate bench decision in assessee’s own case wherein it was held that data available for 9 months in public domain could be extrapolated to make a reasonable comparability analysis.
ACIT 15(2)(2) vs Maersk Global Services Centre (I) P Ltd- TS-299-ITAT-2018(Mum)-TP- ITA No 944/Mum/2016 dated 19.04.2018

69. As the functional profile of Rampgreen Solutions P Ltd and that of the assessee (rendering IT enabled services to its AE) were similar, relying on the judgement of Rampgreen Solutions Pvt Ltd, the Tribunal excluded from the list of comparables Accentia Technologies, I-gate Global Ltd, Infosys BPO Ltd & TCS E-Serve International Ltd stating functionally dissimilarity and extraordinary event of merger.
Further, the Tribunal remitted back the issue with respect to inclusion/exclusion of TCS E-serve Ltd to the file of AO/TPO to decide afresh in light of assessee’s submission that the said comparable had substantial related party transactions
GE India Business Services P Ltd. Vs DCIT Circle 10(1)- TS-330-ITAT-2018(Del)-TP- ITA No 6906/Del/2014 dated 27.04.2018

70. The Tribunal held that the assessee company rendering ITES services to AE could not be compared with –
• Acropetal Technologies Ltd as the company was involved in providing engineering design services.
• eClerx Services Ltd. as the company provided high end KPO services.
• TCS E-serve Ltd. as the company was providing technical services involving software testing, verification and validation of software at time of implementation.
DCIT v. Progressive Digital Media (P.) Ltd. – [2018] 92 taxmann.com 426 (Hyderabad – Trib.) – IT APPEAL NO. 426 (HYD.) OF 2016 dated APRIL 11, 2018

71. The Court held that assessee, a captive unit engaged in IT & ITeS to its AE could not be compared to:
• Kals Information Solutions Ltd as it was engaged in software services as well as software product.
• Vishal Information Technology (now known as Coral Hubs) & Cosmic Global Ltd as it was outsourcing the services to be rendered to third party vendors.
• Accentia Technologies Ltd as it was engaged in developing its own software and rendering medical transcription services (the Tribunal had relied on the ruling in Aptara Technology Ltd.)
• Eclerx Services Ltd as it was providing Knowledge Process Outsourcing (the Tribunal relied on the ruling in case of Aptara Technology Ltd and Rampgreen Solutions)
Further, the Court admitted Revenue’s appeal for inclusion of one comparable namely Bodhtree Consulting Ltd (which was excluded by the Tribunal) after relying on the HC judgement in case of Mindteck India & Cummins Turbo Technologies
PCIT -2 Pune vs PTC Software (I) Pvt Ltd- TS-276-HC-2018 (Bom)-TP- ITA No 598 of 2016 dated 16.04.2018

72. The Tribunal held that assessee engaged in provision of ITES to its AE could not be compared to:
• Accentia Technologies Ltd as it was engaged in diversified activities like healthcare management receivables, medical transcription, software development and film production and there was no segmental information available. [ It relied on coordinate bench rulings in assessee’s own case for earlier years.]
• E Clerx Ltd as it was KPO company, outsourcing substantial work to third parties whereas the assessee was providing back office support services with their own human resource. [ It relied on coordinate bench ruling in assessee’s own case which in turn had followed the ratio laid down in Delhi HC in Rampgreen Solutions.]
• Infosys BPO Limited as the company had a high employee cost base and turnover and intangible in form of brand value which would have huge effect while computing PLI and vitiated the comparability with a company which is a captive service provider without much tangibles and risk.[ It relied on the jurisdictional HC decision in BC Management Services Ltd.]
• TCS e-Serve Limited as the company had a high employee cost base and turnover and intangible in form of brand value which would have huge effect while computing PLI and vitiated the comparability with a company which is a captive service provider without much tangibles and risk. [ It relied on the jurisdictional HC decision in BC Management Services Ltd.]

Further, it included R Systems International Ltd as a comparable relying on the decision of P&H HC ruling in the case of Mercer Consulting India P. Ltd, wherein it was held that R Systems could not be rejected owing to different financial year ending and the financials could be extrapolated if the quarterly financial results were in public domain. The Tribunal relying on the jurisdictional High Court decision in Chryscapital Investment Advisors India Ltd. wherein it was held that turnover could not be the basis of exclusion if the company was functionally comparable included the companies (i) CG Vak Software and Exports Ltd. (ii) Informed Technologies India Ltd. (iii) Microgenetics Systems Ltd. which were rejected by the TPO on account of low turnover.
Cadence Design Systems (I) P Ltd vs ACIT [TS-955-ITAT-2018(DEL)-TP] ITA No.6315 of 2015 dated 02.04.2018

73. The Tribunal held that assessee engaged in provision of ITES services could not be compared to:
• ICRA Online Limited as it failed to satisfy the 75% export filter
• Infosys BPO Limited as it had a high brand value which would impact its pricing and margins
• Accentia Technologies Ltd. as it had undergone merger for the subject year which would impact its profitability
• Infosys BPO Ltd. as it had high brand value and acquired Australian based company thus impacting profitability.
• TCS E-serve Ltd as it was engaged in diversified business activities such as software testing, verification and validation of software.
• Excel Infoway Limited as it had consistent diminishing revenues.
Further, it rejected assessee’s plea with regard to the exclusion of BNR Udyog Ltd noting that on consideration of segmental data of ITES, it passed the RPT filter and 100% of the revenue was from providing ITES (medical transcription) and thus, the company satisfied the filters. The Tribunal accepted the assessee’s plea for inclusion of (i) Informed Technologies Limited (ii) Jindal Intellicom Ltd. since they had been consistently considered as a comparable in the previous years. The Tribunal remanded the comparability of Universal Print systems Ltd on the ground that TPO and DRP had not dealt with various objections of the assessee on its functional comparability.
CGI Information Systems and Management Consultants Private Limited vs ACIT [TS-492-ITAT-2018(Bang)-TP] IT(TP)A Nos. 586 (Bang) of 2015 and 183(Bang) of 2017 dated 11.04.2018

74. The Tribunal held that assessee providing IT and IT enabled services to its AE was comparable to:
• Infosys Ltd, Satyam Ltd, Nucleus Netsoft & Vishal Information relying on HC judgement in case of Chryscapital Investment Advisors. It further held that for an otherwise comparable company high/low turnover was not a valid criterion for rejection.
• Blue Star as CIT(A) had while excluding the same failed to provide proper calculation of RPT.
• Maars Software as the merger was called off and hence, no extraordinary event occurred to justify exclusion
The Tribunal further held that Encore Software was to be excluded as comparable by relying to co-ordinate bench judgement in case of Navisite India wherein it was held that company having diminishing revenue not in conformity with normal operations results could not be considered as comparable. Further, the Tribunal excluded Quintegra on the grounds of high RPT percentage and different financial year ending.
DCIT Circle 11(1) Delhi vs FIS Global Business India Pvt Ltd- TS-321-ITAT-2018(DEL)-TP- ITA No 5944/DEL/2010 dated 11.04.2018

75. The Tribunal held that the following could not be included in the final set of comparables in case of assessee rendering ITES to its AE –
• Coral Hubs Ltd. as it was engaged in e-publishing.
• Cross domain Solutions Ltd. as it was providing high-end KPO services and geographical information services.
• Persistent loss making concerns
• Triton Corporation Ltd. and Maple eSolutions Ltd. as both the concerns were fraud companies.
KPIT Cummins Global Business Solutions Ltd. v. ACIT – [2018] 93 taxmann.com 368 (Pune – Trib.) – IT APPEAL NOS. 246 (PUN) OF 2013 AND 459 AND 525 (PUN) OF 2014 dated April 9, 2018

76. In case of an assessee engaged in IT enabled services to its AE, the Tribunal relied on the co-ordinate bench judgements in case of Ameriprise India, Bechtel India & Sun Life India and accepted assessee’s plea for exclusion of TCS e-serve International on grounds of functional dissimilarity, absence of segmental details, possession of intellectual property and usage of Tata Brand,
Further the Tribunal accepted assessee’s plea for inclusion of Karvy Global as comparable on the basis of functional similarity and similar operating revenues.
Stefanini India Pvt Ltd vs ITO Ward 3(4)- TS-338-ITAT-2018(DEL)-TP- ITA No 5479/Del/2016 dated 25.04.2018

77. The Court dismissed Revenue’s appeal and upheld Tribunals exclusion of 5 comparables for an assessee providing BPO services to its AE. The Court noted that the Tribunal rightly relying on the ruling in case of PTC Software excluded 5 companies namely Accentia Technologies, Cosmic Global, Eclerx Services, Coral Hubs and Crossdomain Solutions on grounds of functional dissimilarity, as the said comparables were engaged in distinct activities such as payroll activity, KPO service, development of products etc.
PCIT -1 vs BNY Mellon International Operations (I) Ltd- TS-293-HC-2018(BOM)-TP- ITA No 1226 of 2015 dated 23.04.2018

78. The Tribunal held that assessee engaged in providing IT Enabled services to its AE could not be compared to:
• Flextronics Software Systems Ltd as the company was engaged in the business of both software products and services and no break-up was available.
• HCL Comnet Systems and Services Ltd due to unavailability of financial data for the same financial year as that of the assessee
• Informed Technologies Ltd on the ground that the company had super normal growth and abnormally high fluctuating profits
• Infosys BPO, relying on the decision of the co-ordinate bench in American Express [India] {P} Ltd vs DCIT [TS-551-ITAT-2017(DEL)-TP] wherein it was held that since the said company had huge turnover it was not comparable to companies operating on a smaller scale such as the assessee
• Wipro Ltd, relying on the decision of the co-ordinate bench in American Express [India] {P} Ltd vs DCIT [TS-551-ITAT-2017(DEL)-TP], wherein it was held that companies such as Wipro having huge turnover and scale of operations could not be compared to companies operating on a much smaller scale such as the assessee.
• Bodhtree Consulting Ltd as the said company was engaged in both software sales and services and no segmental data was available
Cengage Learning India Pvt. Ltd vs ITO – TS-736-ITAT-2018(DEL)-TP – ITA No. 5926/DEL/2010 dated 11.05.2018

79. The Court admitted Revenue’s appeal on whether Tribunal was justified a) in excluding Wipro as a comparable when the TPO/DRP established that the peculiar economic circumstances did not have a bearing on the profits and also whether Tribunal wrongly relied on Sunlife India ruling disregarding the fact that TPO had already established Wipro’s functional similarity and b) in excluding TCS as a comparable when TPO/DRP had established that peculiar economic circumstances and higher turnover did not impact its margins.
Pr. CIT vs. Adobe Systems India Pvt. Ltd – TS-429-HC-2018(ALL)-TP – INCOME TAX APPEAL No. – 59 of 2018 dated 24.5.2018

80. The Court admitted Revenue’s appeal against Tribunal-order and admitted the following questions – i) Whether the Tribunal was justified in directing TPO to exclude 4 comparables (Accentia Technologies, E-Clerx Services, TCS E-Serve and TCS E-Serve International) when the TPO had already established the functional similarity of these companies with assessee. Ii) Whether Tribunal was justified in relying on its earlier order which in turn relied on Bechtel ITAT ruling & Rampgreen HC ruling (against which SLP was admitted by SC) without appreciating the fact that a company which was held as incomparable in one case may actually be a good comparable in another case and iii) Whether Tribunal (being the last fact finding authority) was justified in deciding the issue of inclusion / exclusion of comparables without upsetting the findings of fact recorded by TPO after appreciating the material and evidence available on record.
Pr. CIT vs. Samsung Heavy Industries India Pvt. Ltd – TS-431-HC-2018(ALL)-TP – INCOME TAX APPEAL No. – 60 of 2018 dated 24.5.2018

81. The Tribunal held that the assessee, engaged in provision of ITES to its AE could not be compared to:
• Accentia Technologies Ltd. as the his company providing high-end medical transcription services, and having substantial income from coding coming to about 16% gross receipts without availability of segmental results.
• Acropetal Technologies Ltd. as the company was providing high end services.
• Jeevan Scientific Technology Ltd. as the turnover of BPO services segment was less than 1 Cr.
Further, ICRA online Ltd. was remitted back to decide comparability and to verify whether RPT exceeded 15%. iGate Global Solutions Ltd. was remitted back since the Revenue’s plea was accepted that this comparable be remanded to AO/TPO to enable them to issue notices u/s 133(6) to get the required segmental details to consider the comparability.
Finastra Software Solutions (I) P Ltd. (formerly Misys Software Solutions India Private Limited) vs. ACIT [TS-404-ITAT-2018(Bang)-TP] – IT(TP)A No.529 & 491/Bang/2016 dated 02.05.2018

82. The Tribunal held that the assessee engaged in the provision of BPO services to its AE could be compared to:
• Ace Software Exports Ltd. as it was not a consistent loss making concern.
• Flextronics Software Systems Ltd. and Genesys International Corporation Ltd as the revenue cannot seek exclusion of comparables which were included by TPO in his TP-analysis.
• Aditya Birla Minacs Ltd and Maple Esolutions Ltd. as they were included in TP study
Further, the Tribunal revised the margins of R Systems International Ltd. after considering audited quarterly results of March 2007 and 20006. The Tribunal also excluded of the comparables viz. Asit C Mehta Financial Services Ltd, Ecterx Services Ltd, Informed Technologies India Ltd., Mold-Tek Technologies Ltd and Vishal Information Technologies Ltd by relying on the decision of Steam International. It rejected Infosys BPO Ltd. since it rendered KPO services.
ACIT v/s.Capita Offshore Services Pvt Ltd [TS-399-ITAT-2018(Mum)-TP] IT(TP) A/7141/Mum/2012 dated 16.05.2018

83. The Tribunal held that the assessee engaged in the provision of CAD/CAE services for automotive services to its AE could not be compared to:
• Jeevan Softech as the said concern was engaged in medical writing, clinical data management, bio-statistics and other services and hence functionally dissimilar.
• BNR Udyog Ltd. as the said comparable was engaged into medical transcription, construction and financial activities and therefore, functionally dissimilar. The Tribunal also noted that the said concern failed the RPT filter since the said entity had a filter of 739.04% greater than 25%.
Faurecia Interior Systems India Private Limited vs. ACIT [TS-396-ITAT-2018(PUN)-TP] ITA No.781/Pun/2015 dated 23.05.2018

84. The Tribunal held that assessee engaged in provision of ITeS and financial support services for AY 2009-10 could not be compared to:.
• Coral Hub Ltd as it was outsourcing majority of its activity;
• Cosmic Global and eClerx Services as they were providing high end services. [The Tribunal relied on the rulings of Mercer Consulting (India), PTC Software and Maersk Global Service Centres to exclude the said comparable.]
GE India Business Services Pvt. Ltd. vs. DCIT [TS-381-ITAT-2018(DEL)-TP] ITA No.1423/Del/2014 dated 18.05.2018

85. The Court admitted the appeal of the assessee [engaged in ITeS] for AY 2010-11 on the question whether the Tribunal erred in holding that M/s. TCS E-Serve Limited, TCS E-Serve International and M/s. Infosys BPO Limited could be taken into account as comparables for ALP determination of the asseessee’s international transactions. The Tribunal had included Infosys BPO as comparable and rejected the assessee’s plea that it was not comparable in view of its brand value and acquisition made by it during year and further on the ground that only insignificant expense was incurred on brand building and infact loss had been incurred in the acquired business.
The Tribunal had also included TCS E-Serve and TCS E-Serve International, holding that the companies were functionally comparable since the companies were engaged in ITes and BPO segment and that rise in turnover/profit could not be considered to be a ground for exclusion since the company was to be compared on the basis of FAR. There was no information brought on record as to how Tata’ brand impacted profitability and it was noted that the expenditure incurred on the brand was miniscule (0.43% of total expenses only).
Cadence Design Systems (India) Private Limited v DCIT [TS-369-HC-2018(DEL)-TP] ITA 592/2018 dated 18.05.2018

86. The Tribunal accepted the Revenue’s plea for exclusion of the comparables viz. R System International and Coral Hub for failing financial year filter for assessee providing ITeS to AE for AY 2011-12. Inspite of being functionally similar, they failed the financial year filter adopted by TPO as data for R System International was maintained only from January 1, 2010 to December 31, 2010 and from July 1, 2010 to June 30, 2011 for Coral Hub. The Tribunal relied on the HC ruling in PTC Software and opined that the accounting periods of said two concerns were at variance to the accounting period followed by the assessee and consequently, the margins of said concerns could not be applied to benchmark the arm’s length price of international transactions undertaken by the assessee.
DCIT vs. Ocwen Financial Solutions Pvt. Ltd. [TS-350-ITAT-2018(PUN)-TP] ITA No. 511/Pun/2016 and CO No.01 and 14/Pun/2018 dated 14.05.2018

87. The Tribunal held that the assessee engaged in providing low-end ITES services could not be compared to:
• Persistent Systems Limited as it was engaged in software product development services, which was functionally dissimilar to the activities carried out by the assesse.
• Thirdware Solutions Limited as it was into acquisition/purchase of hardware and software including software as a service and was also engaged in software development, implementation and support services
Further, it held that R Systems International Limited was to be included as a comparable even though its financials were prepared for a different Financial year (December ended) as the data for the relevant financial year could be reasonably extrapolated from the data available in the public domain.
Vis-à-vis Acropetal Technologies Ltd, it directed the TPO to consider the margin of the ITES segment as opposed to the health care segment.
It also included Aspire Systems (India) Private Limited as comparable noting that this company and assessee broadly engaged in the same activities and the assessee could not rebut the reasoning for inclusion as provided by the TPO and DRP.
Vis-à-vis Infobeans Technologies Limited it held that since the assessee could not prove how the extra-ordinary event undertaken by the company had an impact on its profits, the company was to be included as a comparable.
Lionbridge Technologies Private Limited vs. ACIT – TS-438-ITAT-2018(Mum)-TP – I.T.A. No. 7304/Mum/2017 dated 21.05.2018

88. The Tribunal held that the assessee engaged in rendering ITeS to AE could not be compared to Infosys BPO and TCS eServe as they had a high turnover, brand value and intangibles and also had been excluded by the coordinate bench in the assessee’s own case for earlier year
Further, the Tribunal rejected the contention of the assessee as regards the inclusion of E-Clerx Services Ltd since it opined that acquisition of a new company in USA would not have an impact on the financials of the assessee and the coordinate bench in the assessee’s own case had included the said comparable as a company. The Tribunal also retained Crossdomain Solutions as a comparable following the coordinate bench decision of the prior year wherein it had upheld the DRP’s observations that engineering design services rendered by assessee are akin to KPO services rendered by the said company.
The Tribunal remanded the comparability of Crystal Voxx to TPO observing that the DRP had not provided an opportunity to the assessee to be heard while holding that the company was functionally not comparable to the assessee.
Hyundai Motor India Engg Pvt Ltd [TS-503-ITAT-2018(HYD)-TP] ITA No.87/Hyd/2017 dated 08.06.2018

89. The Tribunal upheld the DRP’s order excluding the following comparables for assessee engaged in the provision of call centre services to its AE:
• Infosys BPO Ltd. as it offered wide range of services viz. platforms like Source-to-pay, Business Order Management, Business platform etc. and had high brand value and segmental information was not available. [ It relied on the coordinate bench decision in case of Equant Solutions.]
• TCS E-Serve Ltd. as it was engaged in providing high end technology services like software testing, verification and validation of software and was using Tata brand. [It also noted that DRP in subsequent year had excluded the comparable and relied on the coordinate bench decision of Equant Solutions.]
• TCS E-Serve International Ltd. as it was engaged in providing high end technology services like software testing, verification and validation of software and was using Tata brand.
DCIT vs BA Call Centre India Pvt. Ltd. [TS-470-ITAT-2018(Del)-TP] ITA No.387/Del/2015 dated 08.06.2018

90. The Tribunal held that the assessee engaged in rendering ITES services to its AE could not be compared to Genesys International Corporation Ltd as the company was engaged in diversified business operations providing high-end and complex services such as GIS consulting, 3D mapping, navigation maps, Lidar, photogrammetry etc. as against assessee’s rendering of mere back office ITeS. It also held that comparability failed on account of the company being full-fledged risk taking entity vis-à-vis assessee’s limited risk profile and had significant intangible whereas the assessee did not own any intangibles.
Exl Service.com India Pvt Ltd vs DCIT [TS-486-ITAT-2018(DEL)-TP] ITA No.2559/Del/2014 dated 18.06.2018

91. The Tribunal upheld CIT(A)’s order deleting TP-adjustment in respect of assessee providing IT enabled services. Relying on ITAT order in assessee’s own case for prior year, it excluded Vishal Information Technologies, Wipro Limited, MoldTek Technologies as comparables since there were no change in facts in the present year. Further, it relied on the categorical findings of CIT(A) to exclude Genesys International since its geospatial services were functionally not comparable to assessee and it needed skilled manpower.
DCIT vs Everest Business Advisory India (P) Ltd [TS-622-ITAT-2018(DEL)-TP] ITA No.2562/Del/2013 dated 13.06.2018

92. The Tribunal accepted assessee’s plea for exclusion of TCS E-Serve Limited as comparable while benchmarking the assessee’s IT-enabled services by relying on the order of the coordinate bench in assessee’s own case for earlier year wherein the said comparable was excluded owing to functional dissimilarity, ownership of significant intangibles and impact of ‘TATA’ brand on its profitability. It observed that there was no change in the facts and circumstances as discussed in the assessee’s own case for AY 2011-12, hence the said company was to be excluded as a comparable.
Capital India Private Limited vs DCIT [TS-864-ITAT-2018(Mum)-TP] ITA No.6795/Mum/2017 dated 19.06.2018

93. The Tribunal relying on the decision of co-ordinate bench in the case of Symphony Marketing Services held that the assessee engaged in rendering IT-ES to it AE could not be compared to:
• Acropetal Technologies Ltd. as it was providing high end services such as engineering design service.
• Coral Hubs Ltd as it had low employee cost.
• Crossdomain Solutions Ltd as it was providing high end KPO services, development of product suites and routine low end ITES service and segmental data was unavailable.
• Eclerx Services Ltd as it had super normal profits and provided KPO services
• Genesys International Corporation Ltd as it provided KPO services.
• Infosys BPO Ltd as it was functionally not comparable to to an ITeS provider, had brand value and owned significant intangibles.
• Mold-tek Technologies Ltd as it was providing high end services such as engineering design service
• Wipro Ltd as it was not functionally comparable to an ITeS provider, had brand value and owned significant intangibles
Further the Tribunal upheld the inclusion of Cosmic Global Ltd and held that whether a company provides medical transcription or medical translation, they have to be regarded as being in the ITeS field. It rejected the assessee’s contention that as it was engaged in medical translation and was not comparable with an ITeS company.
DCIT vs Mphasis Limited [TS-890-ITAT-2018(Bang)-TP] ITA 325/Bang/2014 dated 01.06.2018

94. The Tribunal held that the assessee, engaged in providing medical transcription services could not be compared to:
• Vishal Information Technologies Ltd as it’s employment cost as a ratio of turnover was much less than assessee and it outsourced most of its work.
• Nucleus Netsoft & GIS India Ltd as it had undertaken an amalgamation and also outsourced most of its work.
• Tricom India Ltd as it developed its own software and also since it had a related party to sales ratio of 61.86% percent.
Transcend MT Services Pvt. Ltd. vs. ACIT – TS-1091-ITAT-2017(DEL)-TP – ITA No.4048/Del./2013 dated 12.12.2017

95. Where the assessee was a software development service provider in the gaming sector and could not be compared with the general software development providers due to its unique utilization of technical manpower as selected by the TPO, the Tribunal held that since the activities carried on by the assessee were not properly appreciated by the TPO, the entire matter was to be remitted for fresh benchmarking.
Gameloft Software Pvt Ltd v ACIT – TS-16-ITAT-2018(HYD)-TP – ITA No.598/Hyd/2016

96. The Tribunal held that the assessee, engaged in providing software development services to its AE could not be compared to:
• Infosys Ltd on account of its huge turnover (reliance placed on Agnity India Technologies Pvt. Ltd. [TS-312-ITAT-2013(DEL)-TP])
• Exensys Software Solutions Ltd as there was merger of said company and Holool India Ltd which had a material impact on the financial results of the company for the year.
• Thirdware Solutions Ltd as the company was into both software services as well as product development and the segmental details and in particular, details of the expenditure incurred towards software products were not available.
Capgemini Technology Services India Ltd (formerly known as IGATE Global Solutions Ltd vs. ITO – TS-1095-ITAT-2017(HYD)-TP – ITA No.633/Hyd/2011 – dated 29.12.2017

97. The Tribunal held that the assessee engaged in providing software development services to its AE could not be compared to:
• Celestial Bio-labs Limited as it had undergone an extra-ordinary event which resulted in distorted profits
• Avani Cimcon Technologies Ltd as the company had diversified activities and the segmental accounts were not available
• Infosys Technologies Ltd as it owned significant intangible and had huge revenues from software products and the breakup of revenue from software services and software products was also not available
• Kals Information Systems Ltd as this company was engaged in developing of software and was thus not comparable
• Persistent Systems Ltd as it was engaged in product development and product design service and therefore could not be compared to the assessee
• Quintegra Solutions Ltd as it had undergone an extraordinary event and also since it was engaged in business of dealing in proprietary software products.
• Tata Elxsi Ltd since it was predominantly engaged in product designing services and not purely software development services
• Wipro Ltd as it was engaged both in software development and product development services and segmental details were not provided separately and the company also owned intellectual property in the form of registered patents and had several pending applications for grant of patents.
• Lucid Software Ltd as it was engaged in the development of software products
DCIT vs. Verisign Services India Pvt Ltd – TS-1081-ITAT-2017(Bang)-TP – I.T.(T.P) A. No.1230/Bang/2013 dated 25.10.2017.

98. The Court upheld the order of the Tribunal wherein it held that the assessee engaged in software development could not be compared with:
• E-Infochips and Infinite Data Systems as these companies carried out high-end technology-driven services which were entirely different from activities carried on by the assessee
• Accentia Technologies as it operated from multiple locations throughout the globe in healthcare receivable cycle management and also ventured into legal process outsourcing and high-end software service delivery which were functionally different from the assessee‟s activities
• TCS E-Serve Ltd. and TCS E-Serve International Ltd since their established ‘brand value’ drew the profitability upward and also since the merger undertaken during the year had resulted in distortion of the profit figures
Vis-à-vis I-Gate Global Solutions, the Court held that having regard to the submissions made and the material on record, especially the Tribunal’s observations that I-Gate’s functioning was similar to that of the assessee, it admitted the Revenue’s appeal against the Tribunal’s exclusion of the said company as comparable on the ground that it underwent significant change in its profitability in view of the amalgamation undergone.
Pr CIT v UNITED HEALTH GROUP INFORMATION SERVICES (P) LTD. – TS-1080-HC-2017(DEL)-TP ITA 1180/2017 dated 21.12.2017

99. The Tribunal held that the assessee engaged in providing software development services could not be compared to:
• Accel Transmatics Limited as its business activities (i.e. services in the form of ACCEL IT and ACCEL animation services for 2D and 3D) were functionally different from that of the assessee, and its related party transactions were more than permitted level.
• Avani Cimcon Technologies Limited as it was engaged in the software products business and was also earning unusually high profit margin for the subject year
• Celestial Labs Limited as this company was mainly engaged in clinical research and manufacture of software products
• KALS Infosystems Ltd this company was engaged in development of software products as well as providing training
• Helios & Matheson Information Technology Limited as this company was found to be functionally incomparable
• Infosys Technologies Limited as this company owned significant intangibles and had huge revenues from software products with no segment break-up.
• lshir lnfotech Limited as the company outsourced its work and did not pass 25% employee-cost filter.
• Lucid Software Ltd as it was engaged in development of software products and thus, was functionally not comparable to assessee.
• Wipro Limited & Tata Elxsi Ltd as they owned intellectual property and had significant R&D activity, brand value, etc. and therefore was not functionally comparable
• Megasoft Limited as the details of the software service segment were not available
• E-Zest Solutions Limited as the company rendered product development and high end technical services which came under the category of KPO services
• Persistent Systems Ltd & Third ware Solutions Ltd as they were engaged in product development & no segmental details were available.
• Quintegra Solutions Limited as the company developed proprietary software products and owned intangibles.
Yodlee lnfotech Pvt. Ltd vs. DCIT – TS-1077-ITAT-2017(Bang)-TP – 1138/Bang/2011 dated 15.12.2017

100. The Tribunal set aside the DRP’s order and remitted the benchmarking exercise of the assessee’s international transactions (viz. provision of back office support services, corporate IT support services and marketing support services to AE) to TPO. It noted that out of 18 comparables selected by the TPO, the DRP had excluded 15 and retained 3 comparables which were either excluded by it in the earlier or subsequent years. Noting that out of TPO’s 18 comparables, DRP had excluded 15 and the other 3 were also liable to be excluded based on earlier / subsequent years DRP orders, the Tribunal opined that the TPO’s selection of comparables was not proper and therefore restored the matter back to TPO.
Electronic Arts Games (India) Private Limited vs. DCIT – TS-1074-ITAT-2017(HYD)-TP – I.T.A. No. 325/HYD/2016 dated 29-12-2017

101. The Tribunal remitted the comparability of Bodhtree Consulting Ltd vis-à-vis the assessee (engaged in providing software development services) back to the DRP observing that the DRP’s order was very cryptic as it included Bodhtree Consulting by only stating that the TPO made elaborate discussion regarding the comparability of entities engaged in providing software development services with entities engaged in development of software product and therefore, there was hardly any ground for rejecting this entity. The Tribunal directed the DRP to pass a speaking order. Further, the Tribunal rejected the Revenue’s contention for exclusion of FCS Solutions & Thinksoft Global Services as comparables and following the decision of the co-ordinate bench in Logica [TS-187-ITAT-2016(Bang)-TP] it held that the said comparables could not be excluded merely because of a working capital impact of over 4%.
Sonus Networks India Pvt. Ltd vs. DCIT – TS-1076-ITAT-2017(Bang)-TP – l (TP) A No. 193/Bang/2014 dated 01.12.2017

102. The Apex Court admitted Revenue’s SLP against the order of the Delhi High Court wherein the High Court dismissed the Revenue’s appeal and upheld the Tribunal’s exclusion of 3 comparables while benchmarking the ITeS transactions of the assessee. The High Court confirmed exclusion of a). Coral Hub Ltd (which had different business model as services were outsourced) b) e-Clerx Services (on account on functional dissimilarity), observing that the issue was covered against the Revenue by the judgment in Rampgreen Solutions Pvt. Ltd. V. Commissioner of Income Tax” and c) Infosys observing that the issue of exclusion of Infosys as a comparable stood covered against the Revenue by way of the decision of the Court in CIT v. Agnity India Technologies Pvt. Ltd.
Pr. CIT Vs Vertex Customer Services India Pvt Ltd – TS-35-SC-2018-TP] – SPECIAL LEAVE PETITION (CIVIL) Diary No(s). 41889/2017 dated 19-01-2018

103. The Tribunal held that the assessee engaged in providing software development services to its AE could not be compared to:
• E-Infochips Limited as it was engaged in diversified activities viz. software development, hardware maintenance, IT consultancy and did not have segmental information, it was involved in R&D, and had an exceptional year (grew at rate 5 times more than industry average)
• Infosys Limited as it provided a wide range of services encompassing technical design, engineering design etc and in addition offers software products for the banking industry and did not have segmental information, it owned marketing intangibles and Intellectual Property Rights and was also engaged in R&D.
• Persistent Systems Limited as the company was functionally not comparable being engaged in provision of outsourced product development services and did not have segmental information, it owned intangibles, was engaged in R&D, and had undertaken several acquisitions in the year in consideration
• Acropetal Technologies Ltd. (Seg.) as it was functionally dissimilar
• ICRA Techno Analytics Ltd. engaged in the provision of ITeS services along with software development and did not have segmental details
• Larsen &Turbo Infotech Ltd. as the company owned intangibles for its propriety products & services.
• Sasken Communication Technologies Ltd. as it was engaged in ITeS and also outsourced its services.
• Tata Elxsi Ltd. (Seg) as it owned intangibles
DCIT vs. Philips India Ltd – TS-1088-ITAT-2017(Kol)-TP – ITA No.863 & 539/Kol/2016 dated 15-12-2017

104. The Court uphelds exclusion of i) Eclerx Services Ltd and Vishal Information Technologies Ltd considering both companies transacted entirely different business i.e. Knowledge Processing Outsourcing (KPO) ii) Infosys BPO and Wipro BPO Ltd as they had a significant brand presence for profits and large corporate size which could not be compared to the assessee’s transactions and iii) HCL Commet Systems & Services Ltd. on the ground that it did not pass the appropriate filter and related party transactions were used for the pricing exercise. However, regarding Accentia Technology Pvt. Ltd. and Bodhtree Consulting Ltd, it admitted the following questions of law: “(1) Did the ITAT err in its consideration as to whether the amalgamation undertaken by Accentia Technology Pvt. Ltd. for A.Y. 2007-08 had any effect on its finance or profitability in the circumstances of the case. and (2) Did the ITAT err in excluding the reliance placed by the TPO upon information collected by him under Section 133(6) of the Act, having regard to Section 92CA(7) read with Section 92D(3) of the Act”.
Pr. CIT vs. H & S Software Development and Knowledge Management Centre Pvt. Ltd – TS-9-HC-2018(DEL)-TP – ITA 912/2017 dated 03.01.2018

105. The Tribunal held that the assessee engaged in providing software development services to its AEs could not be compared to:
• KALS Information Systems Ltd as it was developing software products and not purely or mainly software development service provider.
• Bodhtree Consulting Ltd as it was a software product company and could be considered as comparable to the assessee merely providing software development services to its AEs
• Tata Elxsi Limited as it operated in the segments of software development services which comprised of embedded product design services, industrial design and engineering services and visual computing labs and system integration services segment and there were no sub-services break up provided in the annual report
• Infosys Technologies Limited as it owned significant intangibles and was functionally different as it generated huge revenues from software products
• Persistent Systems Limited as it was engaged in software product development and product design services, and could not be compared to the assessee merely providing software development services to its AEs.
Further, it included Larsen & Toubro Infotech Ltd and held that the assessee was incorrect in contending that the 15% RPT filter be applied as the RPT filter of 25 percent was well accepted.
Vis-à-vis Thinksoft Global Services Ltd and FCS Software Solutions Ltd it held that the TPO was unjustified in rejecting the companies as comparable merely because their working capital adjustments exceeded 4 percent and accordingly directed the inclusion of the companies as comparable.
TE Connectivity Global Shared Services India Pvt. Ltd vs. ITO – TS-1049-ITAT-2017(Bang)-TP – I.T.(T.P) A. No.1280/Bang/2014 dated 13.12.2017.

106. Pursuant to miscellaneous petition of the assessee wherein the Tribunal accepted the assessee’s contention and recalled the order to decide on the comparability of Bodhtree Consulting, Tata Elxsi Limited (Seg.) and Infosys Ltd, the Tribunal i) excluded Bodhtree Consulting as comparable as it was engaged in software products as well as services and therefore could not be compared to companies providing software development services ii) remitted the comparability of Tata Elxsi Limited (Seg.) and Infosys Ltd. back to the file of CIT(A) noting that CIT(A) had not specifically dealt with, examined or considered any of the objections specifically raised by the assessee for non-inclusion / exclusion of these two companies.
Narus Networks Pvt. Ltd vs. DCIT – TS-1047-ITAT-2017(Bang)-TP – i.T. (T.P) A. No.1631/Bang/2014 dated 23.11.2017.

107. The Tribunal held that the assessee, engaged in providing software development services could not be compared to:
• Infinite Data Systems Private Limited as the company was providing services of technical consulting, design and development of software, maintenance system integration, implementation, testing and infrastructure management services which was not comparable to the assessee
• E-Infochips Bangalore Ltd as it was engaged in development and maintenance of computer software, production and sale of software without adequate segmental results
• Infosys Limited as it was functionally different and had significant R&D, huge brand value, huge turnover, and also has a leading banking product known as “Finacle
• Sonata Software Limited if upon verification it was found that the company did not satisfy the RPT filter.
Freescale Semiconductor India Pvt. Ltd. vs. DCIT – TS-1098-ITAT-2017(DEL)-TP – ITA No1263 /Del/2015 dated 08/12/2017

108. Relying on the decision of the co-ordinate bench in Electronics for Imaging India Pvt Ltd [TS-279-ITAT-2016(Bang)-TP], the Tribunal held that the assessee engaged in providing software development services to its AE could not be compared with:
• ICRA Techno Analytics Ltd as it was engaged in diversified activities of software development and consultancy, engineering services, web development & hosting and substantially diversified itself into domain of business analysis and business process outsourcing, which was functionally not comparable to the assessee
• Persistent Systems Ltd as the company was engaged in diversified activities and earned revenue from various activities including licencing of products, royalty on sale of products as well as income from maintenance contract, etc. the same could not be considered as functionally comparable with the assessee.
• Persistent Systems & Solutions Ltd as this company was earning revenue from software products and services and segmental data was not available
• Infosys Ltd as it had brand value and intangible assets and thus could not be compared with an ordinary entity providing captive services
• Kals Information Systems Ltd as the inventory in the books of accounts of this company showed that it was in the software product business and hence, it could not be compared with a pure software development service provider.
ACIT vs. Cypress Semi – Conductor (I) Pvt. Ltd – TS-118-ITAT-2018(Bang)-TP – IT (TP) A No. 434/Bang/2015

109. The Tribunal held that the assessee engaged in providing software development services to its AE could not be compared to:
• KALS information System Ltd as there was an enormous difference in asset base when compared to assessee. (Reliance was placed on the prior years ITAT order – FreescaleSemiconductor India P.Ltd. [TS-366-ITAT-2014(DEL)-TP]
• Infosys Technologies Ltd and Wipro Ltd as it owned branded / proprietary products.
Further, it remitted the comparability of Bodhtree Consulting back to the file of the TPO to examine the assessee’s claim i.e. that the accounting policy followed by the said company (revenue was recognised based on software developed and billed to client) impacted its profitability.
Freescale Semiconductor India Pvt. Ltd. vs. DCIT – TS-1100-ITAT-2017(DEL)-TP – ITA No. 2427/Del/2015 dated 07/12/2017

110. The Court dismissed Revenue’s appeal challenging the Tribunal’s exclusion of Tata Elxsi Limited and Thirdware Solutions noting that the Tribunal had rightly concluded that they were functionally not comparable to the assessee who was engaged in providing software development services. Further, it held that the Tribunal was justified in including SIP Technologies and Exports Limited as comparable by ignoring its low margin (on the basis of which the TPO had excluded the comparables). However, it admitted the questions of law regarding Tribunal’s exclusion of Tata Consultancy Services Limited (TCS) and Infosys Technologies Limited.
Pr. CIT vs. S.T. Ericsson India Pvt. Ltd (Chemical Construction International Pvt Ltd) – TS-59-HC-2018(DEL)-TP – ITA 821/2017 dated 31.01.2018

111. The Tribunal held that the assessee engaged in providing software design and development services could not be compared to:
• Persistent Systems Ltd as it was engaged in product development which was different from software development services and earned revenue from licensing of products, royalty on sale of products as well as income from maintenance contracts and no segmental details were available
• Sasken Communication Technologies Ltd as this company earned revenue from software services as well as software products and the breakup of operating costs and the net profitability between the two segments was not available
Further, it held that Conexant Systems Private Limited vs. DCIT could not be excluded as a comparable merely because of increase in consultancy charges and held that the increase in consultancy charges were proportionate to the increase in turnover.
Conexant Systems Private Limited vs. DCIT – TS-95-ITAT-2018(HYD)-TP – I.T.A. No. 464/HYD/2016 dated 24-01-2018

112. The Tribunal, relying on the co-ordinate bench decision in Cerner Healthcare Solutions P Ltd [TS-28-ITAT-2017(Bang)-TP]held that the assessee, engaged in providing software development services to its AE could not be compared to:
• Infosys Ltd as the company owned intangibles, had huge brand value as well as bargaining power and it was also engaged in diversified services.
• Tata Elxsi Ltd as it was engaged in diversified activities even in software development segment.
• Kals Information Systems Ltd & Persistent Systems & Solutions Ltd as they was functionally dissimilar being engaged in software product business.
• Sasken Communications Tech Ltd as it earned revenue from 3 segments, but segmental margins were unavailable.
• Persistent Systems Ltd as it was earning revenue from various activities including licensing of products, and segmental data was unavailable.
• L & T Infotech Ltd as it had Revenues reported from software development services and products and segmental information was unavailable.
ITO vs. CSR India Pvt. Ltd – [TS-83-ITAT-2018(Bang)-TP – IT (TP) A No. 256/Bang/2015 dated 24.01.2018

113. The Tribunal held that the for the purpose of benchmarking the provision of software development services the application of the onsite filter was a very relevant filter. Accordingly, noting that RS Software had incurred expenses on foreign branches to the extent of Rs. 12.42 crores (82%) out of total expenses of R.s. 15 crores debited in P & L account, evidencing that it was predominantly an onsite software development company it held that the said company could not be retained as comparable. However, the Tribunal noted that the DRP applied the said filter only in respect of one comparable – RS Software India Ltd and thus directed the DRP to apply the filter to all companies as well as to examine the applicability of all other relevant filters and all other objections such as functional similarity/dissimilarity etc vis-à-vis the other comparables.
ACIT vs. Broadcom Communication Technologies Pvt. Ltd – TS-1105-ITAT-2017(Bang)-TP – IT(TP)A No. 347/Bang/2015 dated 17.11.2017

114. The Tribunal held that assessee engaged in providing software development services to its AE could not be compared to:
• Infosys Technologies Ltd as it provided diversified services viz. end to end business solutions spanning across entire software life cycle as well as offer software product (viz. “finacle” which is owned by Infosys) for banking industry, for which segmental details were not available
• 3K Technologies Ltd as its employee cost was only 3.70 percent which did not satisfy the employee cost filter of 25 percent as applied by the TPO
• KALS Information Systems as it was engaged in development of software, software products as well as training of professionals of which segmental details were not available
• Persistent Systems Ltd as it was Outsourced Software Product Development (OPD) specialist and therefore not comparable to the assessee providing software development services
• Bodhtree Consulting Ltd as the company provided product engineering services ranging from application development and maintenance, web development and outsourced product development to QA and managed testing services; and had highly volatile margins.
• Zylog Systems Ltd as the company acquired two companies during the year under review and also was a software product company not comparable to the assessee.
Siemens Product Lifecycle Management Software (India) Pvt. Ltd. vs. ACIT – TS-182-ITAT-2018(DEL)-TP – ITA No.5922/Del./2012 dated 22.01.2018

115. The Tribunal held that the assessee engaged in providing software development services to its AE could not be compared to:
• Helios & Matherson Information Technology Ltd as it had turnover of Rs. 213 crore which failed the turnover filter applied by the TPO i.e. Rs.200 crore. It dismissed the Revenue’s contention that the company be included as its turnover exceeded the filter marginally
• FCS Software Ltd as it provided both IT services and ITeS and did not have adequate segmental results
• E-Zest Solutions Ltd and Kals Information Systems as the company was engaged in the business of software products which was not functionally comparable to the business carried on by the assessee.
Further, it accepted the assessee’s plea for inclusion of CG Vak Software & Exports Ltd and held that the TPO was unjustified in excluding the company as comparable merely because it suffered losses for the year under consideration. It noted that the company earned profits in the earlier years and accordingly held that the TPO incorrectly held that the company suffered persistent losses. Accordingly, it held that the company ought to have been considered as a comparable.
Amber Point Technology India Pvt. Ltd. vs DCIT – TS-172-ITAT-2018(PUN)-TP – ITA Nos.756 & 757/PUN/2014 dated 25.01.2018

116. The Tribunal held that the assessee engaged in providing software development services to its AEs could not be compared to L&T Infotech as the TPO failed not allocate ‘Unallocable expenses’ to L&T Infotech’s Industrial cluster segment which was considered for benchmarking without which the correct amount of operating profits could not be ascertained. Noting that neither the nature of common unallocated expenses was known nor the information concerning the appropriate allocation keys was available in the present case, the Tribunal held that the inclusion of Larsen & Toubro Infotech Ltd. (Seg.) in the list of comparables would vitiate the comparability. Accordingly, it directed its exclusion.
Pitney Bowes Software India Pvt. Ltd vs. ACIT – TS-163-ITAT-2018(DEL)-TP – ITA No.7034/Del/2017 dated 13.03.2018

117. The Tribunal held that the assessee engaged in providing software development services to its AE could not be compared with:
• Akshay Software Technologies Ltd as it was dealing in software products.
• Thinksoft Global services Ltd as it was engaged in software testing which required different skills, software and assets rendering it functionally dissimilar.
It rejected DRP’s stand of not considering assessee’s contention to include 4 other comparables for which it had filed additional documentary evidence and held that the proceedings before the DRP was a continuation of the assessment proceedings and the purpose of providing the proceedings before the DRP was to ensure due and fair adjudication of the ALP by comparing the operating profit / operating cost of the assessee with that of the functionally comparable companies. Accordingly, it remitted the 4 comparables to the file of the TPO for fresh consideration.
WM Global Technology Services (India) P. Ltd vs. ACIT – TS-144-ITAT-2018(Bang)-TP – I.T(TP).A No.1963/Bang/2017 dated 28.02.2018
118. The Tribunal held that the assessee, engaged in providing software development services could not be compared to:
• Infinite Data Systems Private Limited as the company was providing services of technical consulting, design and development of software, maintenance system integration, implementation, testing and infrastructure management services which was not comparable to the assessee
• E-Infochips Bangalore Ltd as it was engaged in development and maintenance of computer software, production and sale of software without adequate segmental results
• Infosys Limited as it was functionally different and had significant R&D, huge brand value, huge turnover, and also has a leading banking product known as “Finacle
• Sonata Software Limited if upon verification it was found that the company did not satisfy the RPT filter.
Freescale Semiconductor India Pvt. Ltd. vs. DCIT – TS-1098-ITAT-2017(DEL)-TP – ITA No1263 /Del/2015 dated 08/12/2017

119. The Tribunal dismissed the Revenue’s appeal and held that the assessee engaged in providing software development services could not be compared to Infosys Technologies Ltd as it had huge turnover and brand value.
Tieto IT Services India Pvt Ltd vs. DCIT – TS-155-ITAT-2018(PUN)-TP – ITA No.242/PUN/2015 dated : 07.03.2018

120. In the case of an assessee engaged in IT services, the Court dismissed Revenue’s appeal and upheld the Tribunal’s decision of exclusion of 4 comparables company namely Coral Hub, Datamatics Financial (BPO Division), Geneysis International and Mold Tek on the ground of functional dissimilarity between assessee and comparables.
PCIT-6 Vs MPS Ltd-TS-306-HC-2018(DEL)-TP ITA No 255/2018 dated 18.04.2018

121. The Tribunal held that assessee engaged in providing software development & IT services to its AE was not comparable to:
• Aricent Technologies (holding) Ltd. as no separate segment result for software services were available.
• CAT Technologies Ltd.as the company had revenue earnings from consulting services along with software development.
• KPIT Cummins Infosystems Ltd.- as related party transactions were 98.87%,
• Tech Mahindra Ltd as the RPT was greater than 25%, being a filter deployed by the TPO.
• Thirdware Solutions Ltd as the revenue stream of the company consisted of sale of license and revenue from subscription along with software and export services.
As regards Bodhtree Consulting Ltd- The Tribunal remanded the said comparable to verify the issue of accounting entries of revenue recognition from software development and its consequent impact on profit margin of the said company.
M/s. Opera Solutions Management Consulting Services Pvt. Ltd. Vs ITO ward 13(4), New Delhi- TS-389-ITAT-2018(DEL)-TP-ITA no 5761/Del/2014 dated 27.04.2018

122. In the case of an assessee providing software development services to its AE, the Tribunal rejected Revenues plea for inclusion of 3 companies as comparables viz: Infosys Ltd, Sasken Communications Ltd & Sonata Software Ltd- The same were excluded as they had huge turnover as compared to assessee and also had patents. Further, the Tribunal concluded that the above companies fell beyond the Rs 200cr turnover filter, applied by the TPO and thus excluded them from list of comparables.
ITO Ward 1(2) vs Billion Hands Technologies P Ltd- TS-331-ITAT-2018(PUN)-TP- ITA No 372/PUN/2016 dated 27.04.2018

123. In case of an assessee engaged in providing software development services to its AE the Tribunal rejected assessee/TPO’s comparable viz: Thirdware Solutions on grounds of functional dissimilarity and absence of segmental results.
The Tribunal further directed the TPO to consider forex fluctuation as operating in nature for both assessee and comparable company relying on the co-ordinate bench ruling in assessee’s own case.
Further, the Tribunal allowing assessee’s claim for working capital adjustment restored the matter to the file of the AO relying on Co-ordinate Bench ruling in assessee’s own case.
Wipro Ltd vs DCIT Central Circle 7(1)-TS-323-ITAT-2018(Del)-TP- ITA No 1594/DEL/2014 dated 11.04.2018

124. The Tribunal relying on the judgement of coordinate bench in case of Hewlett Packard (I) Software Operation Pvt Ltd held that assessee engaged in providing software development services to its AE could not be compared to:
• Avani Cimcon Technologies Ltd due to absence of segmental data with respect to revenue from software services
• Celestial Labs Ltd as it was engaged in clinical research and manufacture of bio products.
• E-zest Solutions Ltd as it was engaged in development services and high end technical services.
• Flextronics Software Systems Ltd as it had different financial year ending and no reconciliation was made by the department.
• Helios & Matheson Information Tech Ltd as it was engaged in sale of software products.
• Infosys Technologies Ltd as it had huge revenues and significant intangibles
• Ishir Infotech as it outsourced its work and failed employee cost filter.
• Kals Information Systems Ltd as it was not purely a software development service provider.
• Lucid Software as it outsourced its work and failed employee cost filter.
• Persistent Systems as Ltd segmental data were unavailable.
• Wipro Ltd as segmental data were not available, and it owned huge intellectual property.
The Tribunal further, remitted back the comparable of Tata Elxsi after relying on coordinate bench in case of Quark System which has been upheld by the HC (wherein the Tribunal had remanded the issue of comparability of companies considered in the assessee’s own TP study consequent to assessee’s ground challenging the comparability of its own comparable).
M/s. SCM Microsystems (India) Pvt Ltd vs ACIT CC VI(1)-TS-358-ITAT-2018(CHNY)-TP- ITA No 2155/Chny/2011 dated 04.04.2018

125. The Tribunal held that assessee providing software development and consultancy services to its AE could not be compared to:
• Bodhtree Consulting Limited as it was functionally different, and it also failed to qualify turnover filter
• John Deere India P Ltd due to absence of segmental result
• E-zest Solutions Ltd as KPO services of company were not functionally comparable to software development services of assessee
• Helios & Matheson Info Technology Ltd.
• KALS Systems as it was engaged in development of software and other activities.
Further the Tribunal included SIP Technologies & Exports Ltd as comparable based on co-ordinate bench judgement in case of John Deere India P Ltd, where in it was held that exclusion was not warranted as it was not a persistent loss making company and loss in one financial year cannot make it a persistent loss making company
SAS Research & Development (I) Pvt Ltd vs ACIT Circle -6 Pune- TS-313-ITAT-2018(PUN)-TP- ITA No 254/PUN/2013 dated 13.04.2018

126. The Court held that the assessee company rendering software development services to its AE could not be compared with –
• CG Vak Software & Exports Ltd. because apart from earning income form software services it also earned income from ‘Business process outsourcing services’ which fell in realm of IT enabled services and there was no segmental information qua software services alone.
• Quintegra Solutions Ltd. as the company was incurring persistent losses coupled with declining turnover which indicated its abnormal functional circumstances.
Further, the Court dismissed assessee’s plea and included Thirdware Solutions as comparable upholding TPO’s view that the company’s overseas segment encompassed only export of software services, as identical to the assessee.
Steria India Ltd. v. DCIT – [2018] 92 taxmann.com 120 (Delhi) – IT APPEAL NO. 403 OF 2017 dated APRIL 9, 2018

127. The Tribunal held that assessee engaged in software development services and ITeS could not be compared to:
• Acropetal Technologies Ltd as segmental details relating to export sales was unavailable.
• E- infochips Ltd after upholding DRP’s finding that the company did not meet 75% software service income filter.
• Accentia Technologies as the company primarily catered to healthcare industry and lacked segmental data. (The Tribunal relied on the case of Swiss Re Shared Services India Pvt Ltd.)
Further, the Tribunal included RS Software (India) Pvt Ltd as comparable since assessee and TPO both contested to include the comparable and DRP’s suo moto exclusion due to its onsite development activities was not justified.
DCIT Circle 2(1)(2) vs M/s. EMC Software and Services (I) Pvt Ltd- TS-487-ITAT-2018(Bang)-TP- IT (TP) No 273/Bang/2016 dated 25.04.2018

128. The Tribunal held that assessee engaged in software development services could not be compared to:
• Accentia Technologies Ltd due to lack of segmental information
• Acropetal Technologies due to functional differences as compared to assessee
• Eclerx Services as it was engaged in KPO activities
• Infosys BPO Limited due to its exceptional size and brand value.
• TCS eServe Ltd due to functional dissimilarity.
• Microgenetic Systems Ltd as significant expenditure of 23% was incurred towards medical transcription services
• Cosmic Global as it had substantial sub-contracting expenses, which represented a different business model from the assessee.
Further, the Tribunal included Crossdomain Solutions Pvt Ltd as comparable to the assessee
M/s. Excellence Data Research Pvt Ltd vs DCIT Circle 17(1)- TS-484-ITAT-2018(HYD)-TP- ITA No 93 & 34/ HYD/2016 dated 25.04.2018

129. The Tribunal held that the assessee engaged in rendering software development services to AE could not be compared to –
• Acropetal Technologies Limited as the segmental information containing break-up of its export sales and employee cost was not available and, thus, it was not possible to ascertain if it passed export earnings and/or employee costs filters.
• L & T Infotech Ltd. as the company was developing its own software products and had huge marketing intangibles.
• E-Infochips Ltd. as it failed to satisfy software service income filter at 75 per cent.
DCIT v. CGI Information Systems & Management Consultation (P.) Ltd. – [2018] 93 taxmann.com 9 (Bangalore – Trib.) – IT APPEAL NO. 502 (BANG.) OF 2016 dated April 6, 2018

130. The Tribunal held that the assessee company rendering software development services to AE could not be compared with –
• Cat Technologies Ltd. as the company was earning Revenue from software development services as well as consultancy services and did not contain any segmental information.
• Thirdware Solutions Ltd. as the company was earning income from software development services as well as sale of licences and the segmental information was unavailable for the same.
• Tata Elexi Ltd. as the company was engaged in making animated films and there was a functional difference between the assessee and the company.
• Akhay Software Technologies Ltd. as the company was earning income from sale of software products as well as software development services and the segmental information about the same was not available.
Virage Logic International-India Branch Office v. JDIT – [2018] 93 taxmann.com 54 (Delhi – Trib.) – IT APPEAL NOS. 6919 & 7044 (DELHI) OF 2014 dated APRIL 16, 2018

131. The Tribunal held that assessee engaged in provision of software development services to its AE could not be compared to:
• Infosys Ltd as it had significant assets and high brand value and was a full-fledged risk taking entrepreneur developing and engaged in selling of software products. [The Tribunal held it that it could not compared with the captive service and contract software development companies as the comparability analysis failed on all the factors of FAR. It relied on coordinate bench decision in assessee’s own case which in turn had relied on Delhi High Court ruling in Agnity India.]
• Wipro Technology Services Ltd as it earned majority of revenue from Citigroup Inc and was earlier part of Citi Group and subsequently, it was acquired by Wipro and the arrangement of earning revenue from Master services agreement with Citigroup Inc. for the delivery of technology infrastructure services was actually a prior arrangement between assessee’s AE (Wipro Ltd) and third party (Citigroup Inc.) and hence in light of the transaction ceased to be a comparable uncontrolled transaction. [It relied on the coordinate bench decisions in Orange business Systems and Ness Technologies.]
• Acropetal Technologies Ltd. as it failed the filter applied by the TPO viz. employee cost filter of greater than 25% (as Acropetal’s employee cost was only 13.74%).
• E-Infochips Limited as Ltd as it was a software development , software product and ITeS company and as segmental data was not available and not a good comparable to pure software development services undertaken by assessee as a captive service provider.[ It relied on the coordinate bench decision in Saxo India and Ness Technologies.]
• E-Zest Solutions Ltd. as it was engaged in diversified business activities, including product engineering services and outsourced product development services, inventory in the books of account and company’s special expertise in emerging technologies. [ It relied on coordinate bench decision in Symantec Software.]
Further,
• it remitted the comparability of CG-VAK Software and Exports Ltd. and directed the AO to verify the employee cost filter after considering the cost of services under the expenditure head and accept it as comparable if it passes the employee cost filter.
• With respect to R Systems International Ltd. (having a different financial year from the assessee), it directed the TPO to consider the quarterly financial statements for FY 2010-11 for the purpose of inclusion observing that the coordinate bench decision for assessee’s own case had considered it to be functionally comparable.
• It directed the TPO to verify the export sales of Thinksoft Global Ltd. vis-a-vis the total operating revenue from the annual report and to include it in the list of comparables if it passed the export earnings filter.
• It also remanded the comparability of Cat Technologies Ltd. to the file of the TPO to reach a fresh conclusion on the aspect of whether it passes the RPT filter or not.
• It remitted the comparability of LGS Global Ltd. to the TPO to verify whether classification of expenses under the head “purchase and personnel cost” were mainly on account of employee cost since the assessee had pointed out that there were no tangibles or inventory in the books of accounts and directed the TPO to verify again if employee cost filter is satisfied.
• It included Goldstone Technologies Ltd. noting that the DRP in assessee’s own case had held it to be a comparable and Revenue was not able to point out any change in business model of the assessee for the subject year.
Cadence Design Systems (I) P Ltd vs ACIT [TS-955-ITAT-2018(DEL)-TP] ITA No.6315 of 2015 dated 02.04.2018

132. The Tribunal held that assessee engaged in provision of software development services could not be compared to:
• Infosys Ltd. as it provided end to end services encompassing technical consulting, design, re-engineering, systems integration etc. and had a high brand value and owned intangible assets.
• KALS Information Systems Limited as it was engaged in sale of software products.
• Persistent Systems Ltd. as it was engaged in diversified activities and and earning revenue from various activities including licencing of products, royalty on sale of products as well as income from maintenance contract, and segmental data was not available.
• Tata Elxsi Ltd.as it was engaged in development of niche products and services coupled with lack of segmental information
• Persistent Systems and Solutions Limited as it was engaged in software development products and no segmental details were available.
• L& T Infotech Ltd as it was a software product company and segmental details for software development services were unavailable.
• Genesys International Corporation Ltd as it was engaged in rendering mapping and geospatial services and and as part of rendering these services it developed software.
CGI Information Systems and Management Consultants Private Limited vs ACIT [TS-492-ITAT-2018(Bang)-TP] IT(TP)A Nos. 586 (Bang) of 2015 and 183(Bang) of 2017 dated 11.04.2018

133. The Tribunal held that assessee engaged in provision of Software Development services to its AE could not be compared to:
• Avani Cincom as it was into production of products such as DExchange, lTrak, Law firm Solution, hotel and restaurant booking engines etc and no revenue bifurcation between Software development services and products was given.
• Bodhtree Consulting Ltd. as it was engaged in Software consulting, web services integration ,Data management and Data warehousing services (which were classified as lTES).
• E-Zest Solutions Ltd as the company was rendering product developmentservices and high end technicalservices which came under the category of Knowledge Process Outsourcing (KPO) services
• Infosys Technologies Ltd. as it owned intangibles and engaged in sale of software products and had no segmental bifurcation between revenue from software development services and products.
• PersistentSystems Ltd. as it was engaged in product development and product design services.
• Quintegra Solutions Ltd.as it was engaged in product engineering and extensive R&D and owned its own intangible
• Tata Elxsi Ltd. as it was predominantly engaged in product designing services and not purely software development services.
• Thirdware Solutions Ltd. as it was engaged in product development and earned revenue from sale of licenses and subscription.
• Wipro Ltd. as it was engaged both in software development and product development services and no segmental bifurcation between them was available.
• Softsol India Ltd. as it had RPT of 18.3% thereby failing the RPT filter of 15%
• Lucid Software Ltd. as it was engaged in software product development and hence functionally dissimilar.
SAP Labs India Pvt Ltd vs Addl CIT [TS-298-ITAT-2018(Bang)-TP] IT(TP)Appeal Nos.981 and 1070 of 2016 dated 06.04.2018

134. The Tribunal held that the assessee engaged in providing software development services could not be compared to:
• Bodhtree Consulting Ltd it was engaged in product engineering and engineering services while the assessee was engaged in software development.
• E-Zest Solutions Ltd as it rendered product development and technology services, which fell under the category of KPO services which could not be compared to the assessee engaged in providing software development services
• Helios & Matheson Information Tech, relying on the decision John Deere India Pvt. Ltd. [TS-553-ITAT-2015(PUN)-TP], wherein it was held that the company was functionally dissimilar.
• Kals Information System as the company was engaged in development and sale of software products and was not comparable to software development services provided by the assessee.
• Goldstone Technologies Ltd as it was engaged in activities related to Media & IP TV and further carried inventory of set top boxes and movie rights in its Balance Sheet for the previous year rendering it functionally dissimilar to the assessee.
Further, it held that SIP Technologies and Exports Ltd and CG-Vak Software Exports Ltd could not be excluded merely on the ground that they incurred losses for the year under review. It held that companies could be excluded only if they were persistent loss making companies i.e. incurred losses for three continuous years.
Nihilent Technologies Pvt. Ltd vs ITO – TS-658-ITAT-2018(PUN)-TP – ITA No.2428/PUN/2012 dated 10-05-2018

135. The Tribunal held that the assessee engaged in providing software development services to its AE cannot be compared to:
• Thirdware Solution Ltd as it was engaged in the business of software products as well and therefore functionally dissimilar
• Kals Information Technology System Ltd as it was engaged in software services as well as Software products and had reported inventory and work in progress in annual report indicative of the fact that it was functionally dissimilar to the assessee.
• Bodhtree Consulting Ltd as it was a product company and had also undertaken major business restructuring during the year
Vis-à-vis Goldstone Technologies Ltd, it held that the company was erroneously excluded by the TPO on the ground that it was loss making as only companies that were persistently loss making were to be excluded.
MSC Software Corporation India Pvt. Ltd vs. ACIT – TS-489-ITAT-2018(PUN)-TP – ITA No.379/PUN/2014 dated 31-05-2018

136. The Tribunal held that an assessee providing software development services could not be compared to E-infochips engaged in IT, ITES and sale of products due to absence of segmental details following Alcatel Lucent ruling (which was subsequently confirmed by Delhi HC)
M/s. Labvantage Solutions Pvt Ltd vs ACIT Circle 2(1)- TS-405-ITAT-2018(Mum)-TP- ITA No 927 & 2400/Kol/2017 dated 11.05.2018

137. Where the assessee was engaged in providing software services to its AEs and distribution of products on behalf of its AEs, the Tribunal held that the following companies could not be considered as comparable:
• CompU Learn Tech India Ltd as the company was also engaged in R&D to enhance the quality of its products while assessee was into simple software development services.
• E-Infochips Bangalore Ltd as it was not only into software development services but was also into consultancy services and segmental data was unavailable
• Kals Information System Ltd as it was engaged in software services, software products and ITeS and no segments were available.
• Tata Elxsi as the company was functional dissimilarity because of its complex activities.
Further, it held that the following companies were to be included as comparables:
E-Zest Solutions Ltd (‘E-Zest’) as its operations were similar to the software services rendered by the assessee.
Open Text Corporation India Pvt Ltd (earlier known as Cordys Software India Products Ltd) vs. DCIT – TS-500-ITAT-2018(HYD)-TP – ITA No.486/Hyd/2015 dated 18.05.2018

138. The Tribunal held that the assessee engaged in providing IT based engineering design services to its AE could not be compared to:
• Coral Hub Ltd as it adopted a different business model (outsourcing) and therefore was functionally dissimilar to the assessee
• Chakkilam Infotech Limited as the company did not satisfy the 75 percent export turnover filter
• ICRA Techno Analytics Limited as the financials of the said company and segmental data of the engineering design segment were not available
• ISmart International limited as the financials of the said company were not available in public domain.
• Valuemart Info Technologies Limited as the company was engaged in consultancy and software development which fell within the ambit of KPO Services and could not be compared to the services rendered by the assessee.
Visteon Engineering Center (India) Private Limited vs. ACIT – TS-462-ITAT-2018(PUN)-TP – ITA No.316/PUN/2015 dated 28-05-2018

139. Noting that the assessee’s business activities i.e. software development services were similar to the activities carried on by Yodlee Infotech, the Tribunal relying on the decision of the co-ordinate bench in Yodlee Infotech Pvt Ltd [TS-465-ITAT-2014(Bang)-TP] held that the following companies could not be considered as comparable to the assessee:
• Bodhtree Consulting Ltd as it was software product company and therefore functionally different to the assessee
• Infosys Technologies Ltd as it had considerable intangibles like IPR and was also engaged in software product development.
• Persistent Systems Ltd as the company was into product designing services and into software product development.
• Tata Elxsi Ltd as the company was engaged in developing niche products and rendering product designing Services
It remitted the comparability of Larsen & Toubro Infotech to the file of the TPO and held that merely because the company had turnover in excess of 10 times the turnover of the assessee it would not render it non-comparable. Relying on the decision of the Court in Chryscapital Investment Advisors (India) Pvt Ltd [TS-173-HC-2015(DEL)-TP] it remitted the matter to the TPO directing him to attempt to provide a reasonable adjustment to eliminate the material effect of such difference.
Manhattan Associates (India) Development Centre Pvt. Ltd vs. DCIT – TS-464-ITAT-2018(Bang)-TP – IT(TP)A No. 1293/Bang/2014 dated 31.05.2018

140. The Tribunal held that the assessee engaged in providing software development services could not be compared to:
• Infosys Ltd as the company had been rejected as a comparable on account of functionality, high turnover, brand value and significant AMP expend by the co-ordinate bench in its own case for the earlier year which had been upheld by the High Court – MentorGraphics (India) P Ltd [TS-420-HC-2017(DEL)-TP] and Mentor Graphics (India) Private Limited [TS-799-ITAT-2017(DEL)-TP]
• KALS Information Systems Ltd as the company was engaged in development of software products rendering it functionally dissimilar (as also held in the assessee’s own case for the prior year)
• Bodhtree Consulting Ltd as it had fluctuating profitability and was excluded by the co-ordinate bench in its own case for the earlier year which had been upheld by the High Court
• Tata Elxsi Ltd as it was engaged in the development of specialized/niche products which was entirely different from the assessee. (as also held in the assessee’s own case for the prior year)
• Avani Cincom Technologies Ltd as the company was engaged in both software products and services and the segmental data was not available.
• Wipro Ltd as the company was engaged in both software products and services and the segmental data was not available.
• E-Zest Solutions Ltd as the company was into software products development services and providing high end technical services which fell under the ambit of KPO services.
• Persistent Systems Ltd as the company was engaged in both software products and services and the segmental data was not available.
Mentor Graphics (India) Pvt. Ltd. vs. DCIT – TS-432-ITAT-2018(DEL)-TP – I.T.A .No. 410/DEL/2013 dated 23.05.2018

141. The Tribunal held that assessee engaged in software development services could be compared to:
• CG Vak Software Exports Ltd- as the company was into software product development which would tantamount to software development services
• L&T Infotech- as it provided software development services to 3 clusters (Banking, manufacturing and telecom), rejecting the assessee’s contention that it was functionally dissimilar because assessee was servicing banking segment only. It also rejected the assessee’s contention of presence of intangibles and non-availability of segmental data, noting that the said company didn’t not own any intangibles in the form of brand and that there was only one segment of software development.
• Persistent Systems as its entire revenue was from software services and there was no software product segment.

The Tribunal also held that assessee engaged in software development services could not be compared to:
• Cigniti Technologies Ltd. engaged in software testing by holding that though software testing was only a part of software development life cycle but could not be equated with software development services
Further, the Tribunal remitted the issue of comparability of Helios and Matheson Information Technology Ltd. (having different financial year-end vis-à-vis the assessee) back to the file of TPO in view of assessee’s submission that on the basis of financial results for two years, which financial results for relevant financial period could be ascertained.
Advice America Software Development Center Pvt. Ltd. vs. ITO [TS-373-ITAT-2018(Bang)-TP] IT(TP)A No.2531/Bang/2017 dated 23.05.2018

142. The Tribunal held that the assessee, engaged in provision of software development to its AE could not be compared to:
• Acropetal Technologies Ltd. as the company did not satisfy the 75% revenue filter of software development services revenue applied.
• E-Infochips Ltd. as the company was earning revenue from softwareproducts and segmental details were unavailable.
• ICRA Technologies Ltd. as the company was functionally incomparable with pure softwaredevelopment service provider and its RPT was exceeding 15%.
• Infosys Ltd as the company had huge brand value, intangibles and huge turnover.
• Larsen & Toubro Infotech Ltd. as the company’s RPT filter was exceeding 15%.
• Persistent Systems Ltd. since it was engaged in diversified activities and earning revenue from various activities including licensing of products, royalty on sale of products as well as income from maintenance contract.
• Sasken Communication Technologies Ltd. as the segmental details were not available for its 3 segments of activities.
The Tribunal held that the assessee, engaged in provision of software development could be compared to Thinksoft Global Ltd on the ground of being functionally comparable and could be excluded for the reason that the working capital adjustment to be done was very high.
Further, with regard to the assessee’s contention of excluding E-Zest Solutions Ltd. the issue of functional comparability was remitted back to AO/TPO by following the decision in Toluna India [TS-247-ITAT-2014(DEL)-TP], wherein also the issue of comparability was remanded back to the AO/TPO noting that insignificant variation in activity could not be a determinative factor under TNMM. Similarly, as regards the assessee’s contention for inclusion of LGC Global Ltd, the Tribunal remitted the issue of functional comparability back to AO/TPO by relying on the decision of the Tribunal in Applied Materials Pvt. Ltd wherein also the matter was remanded to decide on functional comparability.
Finastra Software Solutions (I) P Ltd. (formerly Misys Software Solutions India Private Limited) vs. ACIT [TS-404-ITAT-2018(Bang)-TP] – IT(TP)A No.529 & 491/Bang/2016 dated 02.05.2018

143. The Tribunal accepted the assessee’s contention and excluded E-infochip Ltd. as a comparable relying on the decisions of Philips India and Ness Technologies where the said comparable was excluded in case of assessee’s engaged in like activities of provision of software development and technical support services as E-Infochip was engaged in manufacturing and trading of printed electronic circuit boards and had income from software development, hardware maintenance, information technology consultancy and information technology services and selling software product and no separate segmental information was available and was also held to be an undertaking engaged in ITES.
Redknee (India) Technologies Private Limited vs. DCIT ITA No.486/Pun/2016 dated 29.06.2018

144. The Tribunal relying on the decision of co-ordinate bench in the case of 3DPLM Software Solutions held that the assessee engaged in providing software development services to its AE could not be compared to:
• Celestial Lab Ltd. as it was engaged in the manufacture of industrial enzymes and pharmaceutical ingredient
• Avani Cimcon Technologies Ltd as the company was into software products
• E-Zest Solutions Ltd as it was engaged in rendering product developmental services and high end technical services which come under the category of KPO services
• KALS Information Systems Ltd as the company was developing software products and was not purely or mainly a software service provider.
• Persistent Systems Ltd as the company was engaged in product development and product design services and no separate segmental details available
• Tata Elxsi Ltd as the company was predominantly engaged in design services and the segment ‘software development services’ relates to design services and are not similar to software development services performed by the assessee
• Thirdware Solutions Ltd. as the company was engaged in product development and earns revenue from sale of licences and subscription, which is different from software developmental services.
• Wipro Ltd as the company was into software products also and no seperate segmental details were available.
• Soft Sol India Ltd as RPT filter exceeded 15%
• Lucid Software Ltd as it was engaged in development of software products.
• Infosys Technologies Limited as segmental breakup of towards the products and services segments was unavailable.
DCIT vs Mphasis Limited [TS-890-ITAT-2018(Bang)-TP] ITA 325/Bang/2014 dated 01.06.2018

145. The Tribunal held that a company engaged in providing software development services to its AE could not be compared to:
• Infosys BPO Ltd as the company had a high turnover, global brand value, operations on a large scale, large talent pool and significantly different FAR and was also excluded by ITAT in assessee’s own case for earlier years
• TCS E Services Ltd. as the company provided technology services involved in software testing, verification and validation of software at the time of implementation and data in the management. to the assessee. Also it had its own brand value and its scale and operations were different from the assessee.
Further, the Tribunal rejected assessee’s plea for exclusion of E-Clerx Services Ltd. on the ground that it was a KPO and provided data analytics, operations management and process improvement and thus functionally different. It observed that since the assessee had been categorized as a KPO in its own case for the earlier year, E-Clerx could not be excluded on the basis of functional dissimilarity.
Avineon India Pvt Ltd vs Dy.CIT [TS-893-ITAT-2018(HYD)-TP] ITA No.82/Hyd/2017 dated 27.06.2018

146. The Tribunal remanded the following comparables to file of TPO for the assessee engaged in the provision of software development services:
• R Systems International Limited with a direction to include the company if the financial results for the year ending on 31.03.2013 can be worked out from audited accounts by relying on the HC ruling in the case of Mercer Consulting (India) Pvt Ltd
• ICRA Techno Analytics Ltd for computing the RPT and also held that RPT filter of 25% was proper
• L&T Infotech Limited for the TPO to be satisfied whether the brand value, hugh profits or high turnover materially affected the price or cost and secondly, an attempt to be made to eliminate the effect of such differences in light of the HC ruling in the case of Chryscapital Investment Advisors Ltd wherein it was held that high profits or high turnover cannot be a reason to exclude a company.
• Mindtree Ltd noting that orders of TPO and DRP were not speaking order on the aspect that the company was engaged in diversified activities and had high IP with a direction to provide the assessee with an opportunity of being heard before considering the aforesaid aspects.
• Persistent Systems Limited noting that the orders of the TPO and DRP were not speaking orders on the aspect that the company was functionally dissimilar and was engaged in product engineering, technology consulting, strategic partnership to build platforms and IP-led business etc. with a direction to provide the assessee with an opportunity of being heard.
Tecnotree Convergence Pvt Ltd vs DCIT [TS-925-ITAT-2018(Bang)-TP] IT (TP) A No.1616/Bang/2017 dated 27.06.2018

147. The Tribunal directed the TPO to conduct a fresh search for comparables for the assessee engaged in software development to determine the arm’s length price. The Tribunal observed that the DRP erred in upholding the set of 13 comparables selected by TPO even after noticing that 9 out the 13 comparables were functionally dissimilar. In so far as the assessee’s plea for exclusion of Persistent Systems as comparable was concerned, the Tribunal noted that the assessee itself had taken Persistent Systems Ltd as one of the comparables and no objection against the same was raised before the DRP. The turnabout by the assessee at a later stage without raising a specific ground of appeal was rejected by the Tribunal.
Steelwedge Technologies Pvt Ltd [TS-473-ITAT-2018(HYD)-TP] ITA No.385/Hyd/2017 dated 06.06.2018

148. The Tribunal remitted the functional classification of services rendered by assessee to AE for fresh adjudication. The Tribunal noted that the AO/DRP had considered nature of services rendered by assessee as software development services instead of manpower supply/ IT Consulting Services as claimed by assessee. The Tribunal opined that there was merit in the contentions of the assessee that services rendered were of man power/personnel on perusal of the Service Agreement between assessee & AE as well as invoices raised which showed that billing was done on man days of employees, billing rates were different for various grades.
Enzen Technologies Private Limited vs ACIT [TS-533-ITAT-2018(Bang)-TP] IT (TP) A No.2540/Bang/2017 dated 04.06.2018

149. Relying on the co-ordinate bench decisions in the case of Alcatel Lucent and Symantec Software, the Tribunal excluded the following comparables for the assessee engaged in providing software development services to its AE:
• Persistent System and Solutions Ltd. as it was a product development company with diversified services and separate segmental information was not available.
• Sankhya Infotech Limited as it was engaged in diversified services, which included the provision of customized products and services for training purposes. It also owned a research and development center.
• E-Zest Solutions Ltd. as it was engaged in diversified services such as product engineering, outsourced product development, enterprise application development, IT services, industries solutions and technical expertise, without any segmental information. Its high end services were classified as KPO.
• Infosys Ltd as it was not functionally comparable, had hugh scale of operations, high brand value, R&D with significant revenue and capital expenditure which created significant intangibles.
• Wipro Ltd. as it was engaged in the development of a product, namely FLOW which was used in the retail sector and was a result of significant R&D activities
• Sasken Communication Technologies as it was functionally different
• Zylog Systems Limited as the company had earned income from both, software development services and products but no separate segmental information was available
Clear 2 Pay India Pvt Ltd vs ITO TS-757-ITAT-2018(DEL)-TP ITA No.2788,2744 and 594/Del/2017 dated 22.06.2018

150. The Tribunal held that the assessee engaged in providing software development services to its AE could not be compared to:
• Tata Elxsi as the company was engaged in diverse activities, which included product design, services, innovation design, engineering services within the software development segment.
• Akshay Software as the company had onsite revenue.
The Tribunal also included R S Software as a comparable since both the parties i.e. the assessee and Revenue contested against the exclusion of the said comparable by the DRP and had agreed for its inclusion.
Further, the Tribunal remanded the comparability of Evoke Technologies in view subsequent availability of relevant data which was not available during assessment proceedings and also remanded L&T Infotech with specific directions to consider segmental results of the services segment, if available
Autodesk India Private Limited vs DCIT [TS-532-ITAT-2018(Bang)-TP] IT (TP) A Nos.303/Bang/2015 and 422/Bang/2015 dated 08.06.2018

151. The Court dismissed Revenue’s appeal and upheld the Tribunal’s order wherein the Tribunal had excluded the following comparables in case of assessee providing software services:
• Kals Information System Ltd. as it was a software product company. [The Court noted that the Revenue was not able to distinguish the decision of jurisdictional High Court in PTC Software wherein the aforesaid comparable was excluded in case of assessee engaged in similar business applicable.]
• Cosmic Global Ltd.as it had a different business model (subcontracted its work) as against the assessee which had an in-house business model. [The Court noted that jurisdictional High Court in Aptara affirmed the Tribunal’s order in not including Cosmic Global because of identical difference in business model.]
• Transworld Infotech Ltd. as its data pertained to July 2008 to June 2009 whereas the assessee ‘s financial year was from April to March and did not satisfy TPO’s filter. The Court noted that the finding of fact was a possible view and hence no substantial question of law arose
• Compucom Software Ltd as its software development services were different from the assessee and it customer profile was that of government companies whereas the assessee company rendered services to only its AE. The Court noted that the finding of fact was a possible view
• Infosys BPO Ltd. as its turnover was high i.e.( Rs.9028 crores) vis-à-vis assessee (Rs.18 crores). The Court noted that that the finding of fact was a possible view.
CIT vs. Principal Global Services [2018] 95 taxmann.com 315 (Bombay) ITA No.57 of 2016 dated 12.06.2018

Investment advisory services

152. The Tribunal held that the assessee engaged in providing non-binding investment advisory services could not be compared to ICRA Online which was engaged in providing e.knowledge Process Outsourcing and information Services and Technology Solutions which was functionally different as compared to the activities of the assessee.
Sparkles Dhandho Advisors Pvt. Ltd v ITO – TS-18-ITAT-2018(Mum)-TP – I.T.A./1047/Mum/2015 dated :03/01/2018

153. The Tribunal held that the assessee engaged in providing non-binding investment advisory services (‘IAS’) to AE could not be compared with Ladderup Corporate Advisory as the said comparable was engaged in providing merchant banking services which was functionally dissimilar.
Following its order in the case of the assessee for the earlier assessment year, it held that ICRA Management Consulting and Informed Technologies were to be considered as comparable.
Vis-à-vis CRISIL and ICRA Techno Analytics, it remanded the matter to the file of AO/TPO considering that that no reasonable opportunity of being heard had been afforded to the assessee by DRP on these companies and also observed that i) CRISIL ought to be excluded if found to have RPT of more than 25% and ii) ICRA Techno Analytics ought to be excluded if verified to be a software development service provider.
Temasek Holdings Advisors India Private Limited v ITO – TS-17-ITAT-2018(Mum)-TP – ITA No. 1429/Mum/2017 dated 03.01.2018

154. The Tribunal held that the assessee engaged in providing non-binding investment advisory services to its AE could not be compared with:
• Ladderup Corporate Advisory Pvt. Ltd. as the company was registered with SEBI for engaging in merchant banking services which was also duly substantiated by the website of the company as well as its Annual Reports
• ICRA online Ltd as the assessee failed to bring anything on record to prove that the company was comparable to the assessee other than the contention that the Revenue had accepted it to be comparable in the subsequent year.
Further, it held that ICRA Management Consulting Ltd and IDC Ltd were to be included as comparables as they were carrying out investment advisory services similar to that of the assessee.
SUN-Ares India Real Estate Private Ltd (formerly known as SUN AREA Real Estate Pvt. Ltd) vs. DCIT – TS-84-ITAT-2018(Mum)-TP – /I.T.A. No.621/Mum/2016 dated 09 /02/2018

155. The Tribunal held that the assessee engaged in providing non-binding investment advisory services to its AE could not be compared with
• Ladderup Corporate Advisory Pvt. Ltd. as the company was engaged in providing merchant banking services.
• Motilal Oswal Investment Advisors Ltd as it was engaged in four different business verticals such as equity capital markets, merger and acquisition, profit equity syndications and structure debts and its core competence is in the field of merchant banking
Further, relying on the decision of AGM India Advisory Pvt. Ltd [TS-1-ITAT-2017(Mum)-TP] wherein it was held that this company was a valid comparable for assessee providing non-binding investment advisory services. Accordingly, it upheld the assessee’s contention for inclusion of ICRA Management Consulting Services Ltd.
It also held that IDC (India) Ltd was to be included as a comparable as it was considered as a valid comparable to companies engaged in providing non-binding investment advisory services by the High Court in General Atlantic Pvt. Ltd and had also been considered as comparable in the assessee’s own case for earlier years.
DCIT vs. General Atlantic Pvt. Ltd – [TS-181-ITAT-2018(Mum)-TP – ITA no.1717/Mum./2016 dated – 21.02.2018

156. The Tribunal, relying on the decision of the co-ordinate bench in Temasek Holding Advisors India [477/Mum/2016] held that the assessee engaged in providing non-binding investment advisory services could not be compared with:
• Motilal Oswal Private Equity Advisers India Private Ltd as the company was engaged in investment in portfolio companies, managing the ‘India Business Excellence Fund I’ and ‘India Reality Excellence Fund I’ and also had multiple sectors of operations for which no segmental information was available.
• Ladderup Corporate Advisory Private Ltd. as it was engaged in merchant banking /investment banking services.
Further, it held that the TPO erred in excluding i) ICRA Management Consulting Services Ltd merely on the ground that it had fluctuating profit margins without appreciating that the company was accepted to be comparable in the prior assessment year and ii) Informed Technologies Ltd on the ground that it had declining turnover without appreciating that the company was accepted to be comparable in the prior years. Vis-à-vis Informed Technologies, it held that declining turnover was not relevant for service companies as their margins were not dependent on the scale of operations.
Wells Fargo Real Estate Advisors Pvt. Ltd. (Previously known as Wachovia Management Services Private Limited) vs. DCIT – TS-66-ITAT-2018(Mum)-TP – /I.T.A./1520/Mum/2016 dated 17/01/2018

157. The Court dismissed Revenue’s appeal and held that assessee engaged in Investment advisory could not be compared to:
• Brescon Corporate Advisors Ltd as segmental result in case of income schemes were not available
• Keynote Corporate Services Ltd due to occurrence of an extraordinary event of Amalgamation approved by the HC
PCIT- 2 vs M/s Chrys Capital Investment Advisors- TS-295-HC-2018(Del)-TP- ITA no 634/2017 dated 16.04.2018

158. The Tribunal held that the assessee engaged in providing investment advisory services could not be compared with:
• Motilal Oswal Investment Advisors Private Ltd as the said company providing a variety of services and had delivery capacity in cross border product acquisition for its clients, which could not be compared to the work done by the assessee
• Khandwala Securities Ltd business operations of this company included investment banking, corporate advisory services, institutional broking and private client broking which could not be compared to the activities of the assessee
• Axis Private Equity Ltd as it was an asset/funds management company entrusted with the responsibility of investing funds in the best possible way whereas the assessee only provided research based information and advised the clients so that they could take informed decisions about where they should invest their money to get maximum returns.
• Almondz Global Securities Ltd as it was engaged in merchant banking, investment advisory and loan syndication fee which was functionally dissimilar to the activities carried out by the assesse.
• Milestone Capital Advisors Private Ltd as the company was more into asset management rather than investment advisory
Sungroup Enterprises Private Limited vs. DCIT – TS-461-ITAT-2018(DEL)-TP – ITA No.1029/Del/2014 dated 21.05.2018

159. The Tribunal restored the functional characterization & selection of comparables in the case of the assessee back to the TPO, noting that the TPO had wrongly characterized the assessee as a stock broking and trading firm whereas the assessee did not provide such services and rendered other financial services. It observed that the Tribunal in the assessee’s own case for AY 2010-11 & 2011-12 remitted a similar issue back to the TPO to carry out FAR analysis of assessee after characterizing its activity on the basis of evidence on record and then proceed to select comparables as per law, pursuant to which the TPO had passed orders for AY 2010-11 & 2011-12 admitting that assessee was incorrectly characterized as provider of investment and financial advisory. Accordingly, it remitted the matter back to the TPO in line with the earlier years orders.
Control Risks India Pvt. Ltd vs. ACIT – TS-723-ITAT-2018(DEL)-TP – ITA No. 1480/Del/2017 – 30.05.2018

160. The Tribunal relying upon the ITAT order in assessee’s own case for earlier year held that under TNMM, a foreign AE could be used as a tested party in respect of the transaction of payment of fees by the assessee to its AE for advisory and other services and the said transaction was to be benchmarked by comparing the margins of the tested party with the margin of external comparables i.e. foreign companies engaged in providing similar advisory services. In the earlier year, the Tribunal had accepted the assessee’s stand of selecting the foreign AE as the tested party, noting that (i) the AE was rendering service to various other entities also (ii) the AE was following a scientific method of allocating cost and charging the same with markup to all the entities at same level and (iii) the relevant details to compute the cost allocation on account of services had been certified and filed before the AO. Thus following the earlier year’s order, the Tribunal remitted the matter back to the AO for limited verification that the margin shown by the AE was at ALP vis-à-vis foreign comparables selected by the assessee.
Emerson Climate Technologies (India) Private Limited [TS-531-ITAT-2018(PUN)-TP] SA.No 70/Pun/2017 arising out of ITA No.2432/Pun/2017 dated 06.06.2018

161. The Tribunal held that the assessee engaged in providing investment research services to its AE could not be compared with:
• Brescon Corporate Advisors Limited as the company was mainly carrying out merchant banking, restructuring and syndication of debt. Further, the Tribunal noted that there was no segmental information vis-à-vis various streams of fees, i.e., financial restructuring and re-capitalisation, syndication of debt equity related advisory, M & A Advisory, etc
• Khandelwal Securities as the company was engaged in diversified activities like institutional equity sales, sales trading and research, private client broking and portfolio management services and no separate segmental information was available.
• India Venture Capital as the company was into software products & services while assessee was purely into ITeS in the nature of business and investment research services.
Pipal Research Analytics and Information Services India Pvt Ltd [TS-733-ITAT-2018(DEL)-TP]- ITA No.6374/Del/2012 dated 18.06.2018

162. The Tribunal held that the assessee engaged in providing non-binding investment research services to its AE could not be compared with Motilal Oswal Investment Advisors Ltd as the company was engaged in the business of investment banking/merchant banking activity.
Further it held that ICRA Management Consulting Services Ltd and IDC (India) Ltd were to be included as comparables as they were carrying out investment advisory services similar to the assessee.
IIML Assets Advisors Ltd v DCIT [TS-800-ITAT-2018(Mum)-TP]-ITA No.4060/Mum/2016 dated 20.06.2018

163. The Tribunal following the coordinate bench decision in assessee’s own case for AY 2008-09 and held that the assessee was a mere investment advisory company and could not be categorized as a KPO as alleged by the TPO.
The Tribunal excluded the following comparables for assessee engaged in rendering investment advisory to its AE:
• Coral Hubs Ltd. as it was engaged in outsourcing and also the TPO had included it while categorizing assessee as a KPO;
• E-Clerx Ltd. as it was rejected by the Tribunal in assessee’s own case for the previous year;
• Cosmic Global as it was engaged in the business of translation services and had a different business model which was functionally different from the assessee
The Tribunal included ICRA Management consultancy P. Ltd relying on the coordinate bench in assessee’s own case.
Further, the Tribunal dismissed the Revenue’s appeal with regard to the inclusion of IDC(India) Ltd as a comparable since it could not bring anything on record to contradict the findings of the DRP that the company was a market research company dealing in research services and products.
Apax Partners India Advisers Pvt Ltd [TS-832-ITAT-2018(Mum)-TP] ITA No.1682/Mum/2014 and 1738/Mum/2014 dated 08.06.2018

Manufacturing and contracting

164. The Tribunal held that the TPO erred in excluding the following companies as comparable while benchmarking the manufacturing and contracting activities of the assessee:
• Dragger-Frost Tools Ltd as the company was wrongly excluded by the TPO on the ground that the company stopped operations during the year under review, which was not the case.
• Hittco Tools Pvt. Ltd.as the TPO wrongly excluded the company as comparable as it was a consistent loss maker whereas the company was consistently making profits in the subsequent years
• Rajasthan Udyog and Tools Ltd as the company was wrongly excluded on the ground of persistent losses whereas it had earned profits in the earlier years.
DCIT vs. Seco Tools (India) Pvt. Ltd. – TS-1101-ITAT-2017(PUN)-TP] – ITA No.606/PUN/2014 dated 29.11.2017

165. The Tribunal held that Assessee engaged in manufacturing and marketing of measuring instruments, could not be compared to
• Schrader Duncan Ltd as the product manufactured by this company (tyre pressure gauges) were different from assessee as observed, by the Tribunal in assessee’s own case for previous A.Y.
• Areva T&D India Ltd as the company was engaged in different business activity (power transmission and distribution business), further it did not meet the turnover filter applied for comparable selection and had different accounting period as observed, by the Tribunal in assessee’s case for previous A.Y.
Further, the Tribunal accepted assessee’s contentions for inclusion of Aplab Ltd as comparable since the strike of 8 days during relevant year, which was the TPO’s basis for rejection the said comparable had insignificant impact on the comparable company’s turnover.
The Tribunal also held that ALP-adjustment should be restricted to transactions with AEs only and cannot be made at entity level, relying on Bombay HC ruling in case of Thyssen Krupp Industries India P. Ltd. It further accepted the additional ground raised by assessee and directed the Revenue to consider foreign exchange fluctuations as part of operating income by relying on Pune ITAT ruling in case of Approva Systems (P.) Ltd
WIKA Instruments India Pvt. Ltd vs DCIT Circle 12 Pune -ITA No 760&764/ PUN/2015- TS-425-ITAT-2018(PUN)-TP dated 25.04.2018

166. The Tribunal rejected assessee’s contention and held that Hindustan Copper Ltd, engaged in the manufacture and production of copper wires was comparable to the assessee who was engaged in the manufacture, production and export of Steel Wire Ropes and held that what was required under TNMM was broad comparability and therefore copper and steel being includible within the broad category of metals was indeed comparable.
Usha Martin Limited (Earlier known as Usha Beltron Limited) vs. ACIT – TS-442-ITAT-2018(RAN)-TP – ITA No .68/Ran/2017 dated 31.05.2018

167. The Tribunal noted the proposition laid down in the Delhi High Court decision in Rampgreen Solutions wherein it was held that though product comparability can be of broad level under TNMM, the nature of products manufactured by the comparables, vis-a-vis that of the tested party should be considered and if found to be entirely different from the tested party, such comparables should be excluded. On the above basis, the Tribunal held that the assessee, engaged in manufacturing of a wide range of equipments used for Dynamic Weighing, Feeding and Controlling flow of sold materials could not be compared to Bharat Bijli Limited (manufacturing Electric Motors and Transformers), CTR Manufacturing Industries Limited(manufacturing engineering and electronics products being tap changers, capacitors, railway equipments, fire systems, wind turbine generation etc.), GMM Pfaudler Limited (manufacturing chemical process equipments, mixing system, filtration and separation), and even Greaves Cotton Limited (manufacturing diverse products such as high-pressure pumps, gear boxes, etc.) and Lincoln Helios (manufacturing of lubrication systems).
DCIT vs. Schenck Process India Limited [TS-397-ITAT-2018(Kol)-TP] ITA No.130/Kol/2016 dated 18.05.2018

Support Services

168. The Tribunal held that the assessee, engaged in providing marketing support services to its AE could not be compared to:
• Aptico Ltd as it derived the revenue from various sources like skill development, tourism and research studies, project related services etc. thus not functionally comparable to the assessee.
• Choksi Laboratories Ltd as the said company was a leading analysis and research group providing complete solution for improving quality in process, products and services, that it provides contract laboratory services including pharmaceutical analysis, food and beverages analysis, etc and the company treated analytical charges and consultancy receipts as a single segment and the details of segments were not separately reported.
• Genins India TPA Ltd as the company provided third party administrative services in the field of health insurance including receiving of insurance claim and revenue was recognized as and when Medicare policy was issued by general insurance companies in favour of the policyholders and therefore was not functionally comparable
• Rites Ltd as this company has business operations in four distinct fields namely consultancy in transportation infrastructure section, construction activities, export and leasing of railway equipments and running railway system on concession and therefore was not functionally comparable
• WAPCOS Ltd as it was basically engaged into project engineering consultancy and therefore not comparable to the functional profile of the assessee.
Abacus Distribution Systems (India) Pvt Ltd vs. DCIT – TS-34-ITAT-2018(Mum)-TP – ITA Nos.1766 & 2183/Mum/2015 dated 10/01/2018

169. The Tribunal excluded 8 of the TPO’s comparables on the ground of non-satisfaction of the 25% export-filter, functional dissimilarity, extraordinary events like amalgamation impacting profitability, non-availability of segmental results, unreliable financial data etc and observed that the TPO had adopted faulty search process wherein only ‘ITeS’ companies and not those from the fields of ‘Back-Office Support Services’ and ‘Software Development Services’ were analyzed for potential comparables. It dismissed the Revenue’s contention to remand the matter to the TPO noting the discrepancies between TPO’s order (finalizing 13 comparables) vis-a-vis the show cause notice issued to assessee (wherein 17 comparables were selected) and accordingly held that if the Revenue’s contention of remanding the matter was to be accepted it would tantamount to allowing the TPO premium on his carelessness and callousness of the and would encourage unnecessary litigation.
Franklin Templeton International Services (India) Private Limited vs. DCIT – TS-10-ITAT-2018(Mum)-TP – /I.T.A./7472/Mum/2010 dated 10.01.2018

170. The Tribunal held that CG-VAK Software and Export Private Limited could not be excluded as comparable merely because its margin post accounting for working capital adjustments was negative moreso since the company was accepted to be comparable to the assessee in the earlier AY.
Further, it held that following companies were to be excluded while benchmarking the engineering support services rendered by the assessee to its AE:
• Jindal Intellicom as it had different financial year reporting period (15-month) as against that of the assessee (April to March).
• Coral Hub Limited as the company followed an outsourcing model and also followed a different accounting period (April – June) in its preparation of financial statements as compared to that of the assessee
• Cosmic Global Ltd as it had a different business model (outsourcing) as compared to that of the assessee
• Accentia Technologies Ltd as it had undergone and extra-ordinary event during the year and also since the company was not functionally comparable being engaged in transcription, hoarding and billing.
• E4e Healthcare Business Services Pvt. Ltd. as it was engaged in providing healthcare outsourcing services.
Schlumberger India Technology Centre Pvt. Ltd. (formerly known as Schlumberger Global Support Centre Pvt. Ltd. ) vs. DCIT – TS-36-ITAT-2018(PUN)-TP – ITA No.640/PUN/2014 dated 10.01.2018

171. The Tribunal held that the assessee engaged in providing marketing support services to its AE could not be compared to:
• Aptico Ltd. (AL) as it was generating revenue from 10 different sources like skill development, tourism and research studies, environmental management etc.
• Choksi Laboratories Ltd.(CLL) as it was a leading analysis and research company providing complete solution for improving quality in process, products and services
• Genins India TPA Ltd.(GITL) as it provided third-party administrative services in the field of health insurance including receiving of insurance claims
• Rites Ltd as it was engaged in the consultancy business in relation to transport infrastructure sector, construction activities, export and leasing of railway equipments and running railway system on concession
• WAPCOS Ltd as it was engaged in project engineering consultancy
.Abacus Distribution Systems (India) Pvt. Ltd vs. DCIT – TS-116-ITAT-2018(Mum)-TP – ITA Nos.1402/Mum/2014 dated 05/01/2018

172. The Tribunal held that the assessee, engaged in providing marketing support services to its AE could not be compared to TSR Darshaw Ltd as it was engaged in provision of share registry and related financial services and therefore could not be compared with the assessee, a captive market support service provide. Further, it held that Global procurement Consultants Ltd providing shipping logistics, payment and accounting, know-how transfer (training) and bid support services was to be considered as comparable to the assessee.
Freescale Semiconductor India Pvt. Ltd. vs. DCIT – TS-1098-ITAT-2017(DEL)-TP – ITA No1263 /Del/2015 dated 08/12/2017

173. The Tribunal dismissed Revenue’s appeal and upheld CIT(A)’s order rejecting TPO’s re-characterization of assessee as ‘trader’ instead of business support services provider. Relying on the decision of the High Court in Li & Fung, it observed that in view of the undisputed fact that AEs of the taxpayer was into trading activities of various product and the assessee was merely rendering business support services to these AEs in the form of facilitation services to source goods from India, the activities carried out by the assessee could not be classified as trading activities. It further noted that the assessee did not bear any risk in the nature of credit risk, price risk, inventory risk, storage and handling risk etc and accordingly held that the TPO erred in his recharacterization. Considering that assessee had not developed any intangibles or accorded location savings to AE and had earned net operating profit margin on cost of 129.34% against that of its comparables i.e. 14.05%, it held that the assessee was adequately compensated.
ACIT vs. Itochu India Private Ltd. – TS-120-ITAT-2018(DEL)-TP – ITA No.6612/Del./2014 dated 21.02.2018

174. The Tribunal held that assessee providing marketing support services to its AE was not comparable to:
• Choksi Laboratories as the same was a heavy asset-based company
• WAPCOS as it was a Government Company undertaking engineering contracts and turnkey contracts
• Basiz Fund Services as it possessed huge intangibles.
• HCCA Business Services P Ltd as it was engaged in payroll processing services.
The Tribunal included Cyber Media as comparable as it was engaged in providing marketing and advertisement services being functionally similar to assessee. Further, it remitted back to TPO for evaluating inclusion of one comparable namely ICRA management, after verifying the filter of 25% RPT
Genzyme India Pvt Ltd vs ACIT Circle 1(1)- TS-339-ITAT-2018(DEL)-TP- ITA No 892/Del/2014 dated 20.04.2018

175. The Tribunal held that assessee engaged in Marketing Support and Technical Support Services could not be compared to:
• Aptico Ltd as segmental data was not available. Further, it rejected Revenue’s argument that there was no requirement to have identical services for applying TNMM after relying on Rampgreen Sales P Ltd case.
• Mahindra Consulting Engineers Ltd as the company was providing consultancy services in the areas of SEZ, water supply and sewage etc as against the assessee providing installation, commissioning and testing of telecommunication equipment; post implementation equipment support; and after-sales support and maintenance services.
• STUP Consultants Pvt Ltd as the segment being compared was of Civil Engineering and Architecture Consultancy.
• Semac Ltd as the company was primarily engaged in engineering consultancy of industrial projects and related activities.
• Intarvo Technologies as the company was providing call centre services of technical support catering to hardware of computers and installation of BTS equipment for telecom towers.
• Microland Ltd as it was engaged in providing end to end IT infrastructure management services.
• Alphageo (India) Ltd as it was engaged in providing seismic services to the oil exploration and production centres.
Alcatel- Lucent India Ltd vs ITO Ward (1)(4)- TS-256-ITAT-2018(Del)-TP- ITA No 2209/Del/2014 dated 06.04.2018

176. The Tribunal held that the assessee rendering marketing support services to its AE could not be compared with-
• Aptico Ltd. as it provided services in nature of project management consulting, feasibility studies and micro enterprise development.
• Choksi Ltd. as it was engaged in providing testing services for various products and was also offering services in the field of pollution control.
• WAPCOS Ltd. as it was awarded with project of Emergency Transport and Infrastructure development and projects of development and hygiene education development.
Fujifilm Corporation v. ITO – [2018] 92 taxmann.com 411 (Delhi – Trib.) – IT APPEAL NOS. 5826 (DELHI) OF 2011 & 195 (DELHI) OF 2013 dated APRIL 4, 2018

177. The Tribunal held that assessee providing marketing support services to its AE could not be compared to Empire Industries Ltd as its major chunk of revenue was from trading activity whereas the assessee was predominantly a service providing entity.
ACIT 14(2)(1) vs Hitachi Data Systems India Pvt Ltd- TS-420-ITAT-2018(Mum)-TP-ITA No 1012/Mum/2016 dated 04.05.2018

178. The Tribunal held that the assessee, engaged in provision of marketing support services to its AE could not be compared to:
• Asian Business Exhibition & conferences Ltd. as it was engaged in organization of exhibitions and events as well as conducting conferences on behalf of the various clients for their various products and businesses.
• AMD India P Ltd as the company derived its income from trading activity and also maintained inventories.
Finastra Software Solutions (I) P Ltd. (formerly Misys Software Solutions India Private Limited) vs. ACIT [TS-404-ITAT-2018(Bang)-TP] – IT(TP)A No.529 & 491/Bang/2016 dated 02.05.2018

179. The Tribunal deleted the TP adjustment and the rejected the TPO’s approach of discarding 2 comparables selected by assessee for benchmarking technical support services to BMWAG [ a German entity] on the basis that they were not from Germany but from USA and Japan respectively. The Tribunal relied upon the decision of Bharati Airtel and held that difference in geographical location of market is not sufficient reason to reject a comparable until it can be substantiated that the same resulted in different market conditions. The Tribunal accepted assessee’s contention that pricing /cost structures and market dynamics of developed countries like Germany, USA Japan were similar and the service providers from developed countries like USA and Japan have similar economic environment as Germany.
BMW India Pvt Ltd v/s. ACIT [TS-401-ITAT-2018(DEL)-TP] ITA No.6160/Del/2014 dated 14.05.2018

180. The Tribunal held that assessee engaged in providing sourcing support services to AE for AY 2013-14 could not be compared to Axis Integrated Systems. The Tribunal noted that assessee was a routine captive sourcing service provider while Axis Integrated Systems was engaged in the business of issuing digital certification, however, TPO/DRP included it as a comparable after holding there was a broad similarity in the functionality as both the companies were providing business support services. The Tribunal observed that TPO/DRP had not elaborated as to how it had reached the conclusion that there was a broad functional similarity between assessee and Axis Integrated Systems. The Tribunal relied on Rampgreen Solutions HC ruling and co-ordinate bench ruling in Avenue Asia Advisors and held that DRP as well as the TPO had overlooked the essential requirement that even under TNMM the standard for selection of the comparable transactions could not be diluted. Thus, it dissented with the findings of the lower authorities that a captive sourcing service provider like the assessee could be considered functionally similar to a company providing liaisoning services like Axis Integrated Systems Ltd and directed exclusion of the said company.
Li & Fung (India) Pvt. Ltd vs. ACIT [TS-352-ITAT-2018(DEL)-TP] ITA No.7549/Del/2017 dated 14.05.2018

181. The Tribunal held that assessee engaged in rendering market support services for AY(s) 2007-08 and 2008-09 could not be compared to:
• Priya International Ltd. – as the said entity’s business model of earning commission on sales was different from assessee’s business model of getting remunerated at Cost plus basis. It was observed that Priya International Ltd. (Seg.) had a huge amount of unallocated expenses which was ignored by the TPO in computing the segmental margin of this company.
• Hightemp Techmat Pvt. Ltd.as the said entity was mainly into Processing business which was different from assessee’s business.
• ICRA Management Consulting Services- as the company apart from the corporate advisory practices, had established two specialized divisions, viz., Information technology and Research activities
• IDC (India) Ltd.- as the comparable was a research company, primarily dealing in research and survey services and products, and it was also engaged in selling products
• IL & FS Ecosmart Ltd.- as the company was engaged in four business lines, namely, Waste management; Resource conservation; Information systems; and Consulting & advisory services and there was ostensible differences in activities carried out by this company
• Inmacs Management Services Ltd.- as the true nature of services was not discernible even from its Annual report.
• RITES Ltd.- as the said entity had diverse nature of services and segmental details were not available.
• Shree Raj Travels and Tours Ltd- as the said entity’s business model of earning commission on sales was different from assessee’s business model of getting remunerated at Cost plus basis irrespective of actual sales.
• Spencer’s Travel Services- as the company was engaged in making sales which was not similar to the assessee company
• Choksi Lab Ltd.- as it was engaged in providing testing services unlike assessee company engaged in marketing support services.
• WAPCOS Ltd- as it was engaged in infrastructure development projects
• Interads Ltd.- as the company was earning income from participation fee, onsite service fee and other miscellaneous receipts and thus the nature of services rendered by this company were nowhere close to that of the assesee.
• PL Worldways Ltd- as the company was earning income on commission basis which was distinct from the cost-plus model followed by the assessee.
Brown Forman Worldwide LLC India vs.DDIT [TS-347-ITAT-2018(DEL)-TP] ITA Nos.433 and 6139/Del/2012 dated 11.05.2018

182. The Tribunal restored back to AO/TPO, the issue of TP-adjustment in respect of assessee’s project management services (PMS) and marketing support services (MSS) segment for AY 2009-10 to verify as to whether it was a combined segment or a single segment respectively and accordingly, make adjustments. During the assessment proceedings, the TPO had rejected the assessee’s approach of aggregating PMS and MSS services and had proceeded to examine the income pertaining to both these services on standalone basis whereas, the coordinate bench in assessee’s own case for subsequent year(s) AY 2010-11 and 2011-12 had combined the segments and compared them with comparables providing low end services. However, the Tribunal also noted that assessee had not given any plausible reason as to why these segments should be combined for benchmarking other than relying on the Tribunal order in its own case for AY 2010-11 and 2011-12 .The Tribunal also observed that neither the TPO nor DRP elaborated on this aspect.
Rolls Royce India Pvt. Ltd vs. DCIT [TS-367-ITAT-2018(DEL)-TP] ITA No.1042/Del/2014 dated 02.05.2018

183. The Tribunal directed the AO/TPO to re-examine the functional comparability of the three government companies viz. Certification Engineers International Limited, Wapcos Limited and NTPC Electric Supply Co Limited via-a-vis the assessee providing business development, advisory and other support services to Boeing Group and also to verify if these companies were benefitting from preferential treatment from Government in getting contracts impacting profits, any grants/ subsidies and if so, to exclude the same from the list of comparables.
Boeing International Corporation India Private Limited [TS-471-ITAT-2018(DEL)-TP] ITA No.1118/Del/2014 dated 07.06.2018

184. The Tribunal remanded the comparability of the following comparables for assessee engaged in providing technical support services in the nature of erection, installation, commissioning, etc. of power plants and turbines to its AE:
• HSCC India Ltd as it was not clear whether the company being a government company had received any grants or subsidies. Further, it also directed the TPO to keep in mind that the said company was rejected as a comparable in the assessee’s own case for the previous year.
• Mahindra Consulting Engineers Limited to verify the functional profile and clearance of RPT filter.
• Mitcon Consultancy Engineering Services Ltd to verify the RPT filter and segmental information to decide comparaibility..
• Mahindra Engineering Services as the RPT of the company was 58.63 observing that it had been retained as a comparable in the assessee’s own case for the last two years.
• EDCA Engineering to decide on the functional comparability
Further, the Tribunal directed for inclusion of MN Dastur & Company Pvt Ltd as the company was functionally comparable since it is engaged in the provision of engineering services which are akin to the assessee’s functions and it was selected as a comparable for the previous two years.
Granite Services International India Private Limited vs DCIT [TS-628-ITAT-2018(DEL)-TP] ITA No.740/Del/2017 dated 19.06.2018

185. The Tribunal held that the assessee engaged in providing marketing support services could not be compared to Asian Business Exhibition & Conferences Ltd as the said company was in the business of organizing exhibitions and conferences and it operated as an event manager and hence was functionally dissimilar to the marketing and support activities performed by the taxpayer.
Autodesk India Private Limited vs DCIT [TS-532-ITAT-2018(Bang)-TP] IT (TP) A Nos.303/Bang/2015 and 422/Bang/2015 dated 08.06.2018

186. The Tribunal upheld the DRP’s order excluding Basiz Fund Services as a comparable for benchmarking the marketing support services provided by the assessee to its AE. Noting that the detailed analysis of the international transaction, financial statements of the company justify the findings of the DRP that the company was functionally not comparable to the assessee in as much as the company was involved in the fund accounting services, possessed significant intangible assets, had a different employees profile, significant growth in the revenue and was earning of profits at supernormal level. It also observed that the Revenue had not filed an appeal against the DRP order of the earlier year excluding the said comparable and held that the Revenue ought to follow a consistent view.
Microsoft Corporation India Pvt. Ltd vs DCIT [TS-926-ITAT-2018(DEL)-TP] ITA No.1206 and 2529/Del/2014 dated 22.06.2018

187. The Tribunal held that assessee engaged in the distribution, agency & marketing support segments could not be compared to:
• Apitco Limited- as it was into diversified business like asset re-construction and management services, project related services, infrastructure planning & development, research studies and tourism, skill development, environment management, cluster development and no separate segmental information is available.
• Choksi Laboratories Ltd as it was providing end to end solution and was into commercial testing and analysis laboratory engaged in analyzing food and agricultural products while the assessee was a routine market service support provider and also there were no segmental details
• Wapcos as it is engaged in high end technical services by rendering technical consultancy services for various projects and absence of segmental details
Corning SAS-India Branch Office vs. DDIT [TS-495-ITAT-2018(DEL)-TP] ITA No.5713/Del/2012 dated 18.06.2018

188. The Tribunal held that assessee engaged in provision of market support services to AE could not be compared to:
• Apitco Ltd as its operations were mainly based on the policy requirements of the government whereas the assessee was a private company in the field of providing business support services.
• Cameo Corporate Services as it was engaged in diversified activities and no separate segmental information was available
• Global Procurement Consultants Ltd. as the company was primarily engaged in preparing and reviewing technical specifications, estimation of castes, selection of vendors, inspection and expediting and quality control and time management and also rendered financial advisory services with a high volatile margin which would not be comparable with routine market distributors.
• Killik Agencies and Marketing Ltd as it was engaged in diversified activities such as agent for various foreign clients for sale of dredgers, Dredging Equipment, steerable Ruddar propulsion, maritime and aviation lighting, acoustic communication equipment etc. and also offered after sales services hence it was functionally dissimilar
• TSR Darashaw Ltd as it was involved in outsourcing with a new global payroll ERP application called RAMCO for its payroll business and undertook registrar and transfer agent activity functions for equity and preference shares, venture instruments and bonds, commercial paper and private placements.
Philip Morris Services India S.A v DDIT [TS-488-ITAT-2018(DEL)-TP] ITA No.827/Del/2014 dated 21.06.2018

Research and Development services

189. The Tribunal held that the assessee, engaged in providing contract research and development services to its AEs could not be compared to:
• Chocsi Laboratories as the said company performed diverse activities and did not have segmental results
• TCG Lifesciences Ltd & Transgene Bioteck Ltd as the said companies, engaged in the pharmaceutical industry were functionally dissimilar to the assessee engaged in the automobile industry. Further, it noted that the companies owned intangible assets and undertook high risks and therefore held that they could not be adopted as comparable.
DCIT vs Akzo Noble Car Refinishes India Pvt. Ltd – TS-51-ITAT-2018(DEL)-TP – ITA No. 2936/Del/2014 dated 08.01.2018

190. The Tribunal remanded comparability of the two companies viz. Celestial Lab Ltd. and Tonira Pharma Ltd. to the AO/TPO for benchmarking product development services carried out by the assessee engaged in research and development activities for its AE:
• Celestial Lab Ltd. as the authorities did not reach a conclusion as to how the company was functionally dissimilar since the company was engaged in activities of research and development in the pharma industry which were similar to the product development services rendered by the assessee to its AE in the pharma industry. Further, noting that the said company launched an IPO which was an extraordinary event, it directed the AO/TPO to exclude the expenses incurred in connection with it for arriving at the PLI;
• Tonira Pharma as the basis of exclusion adopted by TPO that the the said company was having effluent treatment plant/waste disposal system was not justified since the requirement of having the said system was State Policy mandate. Noting that one of the units of Tonira Pharma was hit by an extra-ordinary event of attachment of its inventory by the Excise and Custom Departments, the Tribunal directed that the impact of extraordinary event should be excluded while computing PLI
Ferring Pharmaceutical Private Limited [TS-457-ITAT-2018(Mum)-TP] ITA No.6072/Mum/2014 dated 01.06.2018

191. The Court dismissed Revenue’s appeal and upheld the Tribunal’s order as regards the inclusion of Dolphin Medical Services Ltd in case of the assessee providing contract manufacture, contract research and development of drugs services to its AE since Revenue had not disputed the Tribunal’s finding that the said company was engaged in the business of clinical trial and was broadly similar to assessee
CIT vs Watson Pharma Pvt Ltd [TS-480-HC-2018(BOM)-TP] ITA 124 of 2014 dated 25.06.2018

Others

192. The Tribunal held that the assessee engaged in rendering freight and forwarding services in domestic and international sector (including ancillary services) could not be compared to:
• Balmer Lawrie & Co. Ltd. as company earned revenue from sale of Manufactured goods, Trading goods, Turnkey projects and Services and that the Logistics Segment of the company could not be accurately compared as there were unallocable costs which were wrongly apportioned to the segment based on gross revenue as there were many other considerations such as cost of capital and labour which were to be factored.
• ABC India Limited as the company had 2 streams of income, namely, Transport division and Petrol pump division which could not be compared to the assessee’s activities
• S.E.R. Industries Ltd and Delhi-Assam Roadways Corporation Ltd as the companies were not providing any ancillary services, such as, storage and warehousing and custom clearance & documentation etc which were being provided by the assessee
• Transport Corporation of India Ltd. as computation of the profit margin of the Transportation Division of this company by allocating common unallocated expenses in the proportion of revenue was not accurate as held above in the case of Balmer Lawrie.
Further, it held that the following companies were to be included as comparables:
• Premier Road Carriers Ltd as the basis of exclusion adopted by the TPO i.e. it had a high ratio of lease rent to sales of 79.01% was not justified as the assessee itself had a similar ratio of 66.56%
• Roadways India Ltd. as the TPO was incorrect in excluding it merely based on low profits without disputing the functional similarity of the company
• Skypack Service Specialists Ltd as the company was wrongly excluded on the ground of persistent losses wheras it had suffered losses only for the year under review and the immediately preceding year.
CEVA Freight India Private Limited (Formerly Known as EGL Eagle Global Logistics (India) Pvt Ltd) vs. DCIT – TS-40-ITAT-2018(DEL)-TP – ITA No. 4956/Del/2013 dated 18.01.2018

193. The Court dismissed Revenue’s appeal against the Tribunal order confirming CIT(A)’s inclusion of three companies as comparables for benchmarking the transactions of the assessee engaged in manufacturing and trading of medical devices and diagnostic equipments. Noting that the CIT(A) and Tribunal observed that the companies all qualified as manufacturers and sellers of medical and diagnostic equipment (Span Diagnostic – manufacture of diagnostic regents, elissa kits for AIDS; Hicks Thermometers – manufacture of elissa kits, thermometers and Centenial Surgical – manufacture of surgical suture), it held that the TPO was unjustified in excluding the comparables. It further held that the exclusion or inclusion of one or the other comparable would by itself not constitute a question of law unless it was shown that there were important functional dissimilarities or that vital material facts which go to the route of profitability or other material circumstances were involved, which was not so in the instant case and accordingly, it dismissed the appeal.
CIT vs. Becton Dickinson India Pvt. Ltd – TS-45-HC-2018(DEL)-TP – ITA 48/2018 dated 16.01.2018

194. The Court admitted 2 questions of law raised by Revenue on comparables selection and risk adjustment viz.- “1. Did the Income Tax Appellate Tribunal (ITAT) fall into error by including M/s. Petron Engineering Consultants Ltd. and M/s. Simon India Ltd. in the list of comparables for the purpose of ALP determination in the circumstances of the case? and 2. Was the ITAT correct in law in concluding that the risk adjustment could be allowed in the comparability analysis on general appraisal of facts and without returning any findings, to displace the reasoning of the Disputes Resolution Panel (DRP), in the circumstances of the case?”
Pr. CIT vs. Haldor Topsoe India Pvt Ltd – TS-44-HC-2018(DEL)-TP – ITA 74/2018 dated 23.01.2018

195. The Tribunal held that Arcadia Shipping Ltd (ASL) could not be rejected as comparable to the assessee engaged in the business of ship management services considering both these companies were engaged in shipping business and were conducting similar activities. It rejected Revenue’s contention that while the overall functions of ASL were similar to assessee some of the activities were different, and opined that TP proceedings especially selection of valid comparables-are not meant to put the proverbial fly in place of a fly and that there might be some differences in each model of business and therefore two comparables could not be expected to be mirror image of each other. Further, it noted that that in earlier year TPO himself had included ASL as a valid comparable and Revenue could not bring out any difference in facts in the subject years and accordingly directed inclusion of ASL. Additionally, it excluded HSCC (a government of India enterprise), selected by TPO/DRP, as comparable on grounds of functional dissimilarity as it was awarded the work of rendering consultancy services for design and engineering, project management, procurement of medical equipments, drugs and pharmaceuticals for various prestigious and big projects and it was participating in exhibitions organised by various agencies & also since it was earning abnormal profit vis-à-vis the previous year. However, it clarified that a government enterprise could not be rejected as a valid comparable merely because it is a government undertaking.
Anglo-Eastern Ship Management (India) Pvt. Ltd. vs. DCIT – TS-29-ITAT-2018(Mum)-TP – /I.T.A./1500/Mum/2016 dated 03/01/2018

196. Relying on the decision of the co-ordinate bench in the assessee;’s own case for the prior year, the Tribunal held that the assessee, engaged in the business of engineering, design and related support services could not be compared to:
• Accentia Technologies Ltd as the company was engaged in sale of products apart from rendering ITeS and both these components of income for which no segmental details were available
• Eclerx Services Ltd as the company was rendering Financial as well as Sales & Marketing services and income from both these services was clubbed without any segmental break-up
• TCS E-Serve Ltd as the company’s operations broadly comprised of transaction processing and technical services which was not functionally comparable to the assessee
Samsung Heavy Industries Pvt. Ltd. vs. DCIT – TS-117-ITAT-2018(DEL)-TP – ITA No. 402/Del/2017 dated 01.01.2018

197. The Tribunal held that assessee engaged in business of formulations, purchased from its AE could not be compared to:
• Engineers India Ltd, Rites Ltd and Water & Power Consulting Services Ltd (WAPCOS) as they were Government entities and had different business model
• TCE Engineers Consulting Limited as it was engaged in providing high end engineering services as against the assessee who was engaged in providing low end business support services.
Further, the Tribunal upheld CIT(A)’s decision to determine ALP based on single year data instead of multiple year data as assessee had failed to bring on record any evidence indicating influence of earlier 2 years data on ALP-determination.
M/s Eli Lily & Co (India) Ltd. Vs ACIT Gurgaon- TS-407-ITAT-2018(DEL)-TP- ITA No 6819/Del/2014 dated 11.04.2018

198. The Tribunal held that the assessee company carrying out R & D activities in relation to development of hybrid seeds for its group could not be compared to –
• Venus Diagnostics Ltd. as it was operating a diagnostic centre and was not engaged in research services.
• Syngene International Ltd. as it had two sets of income i.e. income from contract research fees and sale of compounds and the segmental details were absent.
DDIT v. Pioneer Overseas Corporation India – [2018] 93 taxmann.com 274 (Delhi – Trib.) – IT APPEAL NOS. 2934 (DELHI) OF 2013 dated APRIL 13, 2018

199. In respect of the assessee engaged in outsourced publishing services the Tribunal remitted back the issue of inclusion/exclusion of comparables to AO/TPO for fresh consideration based on the following particulars and judgements submitted by the assessee:
• Cosmic Global by taking into consideration assessee’s reliance on the decision in case of Xchanging Technology Services, Rampgreen Technologies, Parexel International & Cummins Turbo Technologies on the contention of functional difference
• Fortune Infotech Ltd by taking into consideration assessee’s relinace on Symphony marketing solutions and Capital IQ Information system decision for exclusion of the said comparable due to occurrence of extraordinary events
• Jeevan Scientific Technologies Ltd by taking into consideration assessee’s reliance on Amtel R&D India Pvt Ltd to emphasize that entire ITeS as classified in schedules of P&L should be considered.
Further, with respect to inclusion of 2 comparable companies namely Caliber Point Business Solution Ltd & R Systems International Ltd, the Tribunal directed assessee to furnish comparables data for verification by TPO.
M/s. MPS Ltd vs DCIT CC 4- TS-337-ITAT-2018(CHNY)-TP- ITA No 963/Chny/2015 dated 03.04.2018

200. The Tribunal after relying on coordinate bench ruling in assessee’s own case for previous AY, held that the assessee engaged in rendering advance analytic service related to market research to its AE could not be compared to E Clerx Services Ltd (engaged in diverse functions comprising of consulting, business analysis and solution testing) due to absence of segmental data
M/s. Fractal Analytics Pvt Ltd vs ACIT Circle 9(3)(2)- TS-236-ITAT-2018(Mum)-TP-ITA No 6621/Mum/2017 dated 06.04.2018

201. The assessee was a wholly owned subsidiary of Oriflame Investments Ltd., Mauritius and was engaged in the distribution and sale of cosmetic products manufactured by AE primarily through direct selling channel. During the TP proceedings, the TPO included a comparable viz Modi Care Ltd which apart from cosmetics was also engaged in the marketing of other products. The assessee challenged the inclusion before the Tribunal on the ground that dissimilarity with respect to products sold and the proportion borne by each of the products on turnover would impact profitability of the comparable entity. Although the Tribunal accepted the plea of functional dissimilarity, yet it did not pass an order for exclusion of the comparable and remanded back the matter to the TPO. The Court on further appeal, remanded the matter back to the Tribunal with a direction for disposal of the case on merits and directed the order of the Tribunal, to remand the matter to the TPO, to be set aside.
Oriflame India (P.) Ltd. v. ACIT – [2018] 93 taxmann.com 185 (Delhi) – IT Appeal Nos. 811 to 813 & 825 of 2017 dated April 10, 2018

202. The Tribunal held that assessee being a captive design centre and engaged in providing design services could not be compared to:
• Rolta India Ltd as the company had expertise in CAD/CAM/GIS providing IT solutions addressing customers total requirement of engineering services and generated 90% income from such activity.
• Infosys Technology Ltd as it had high brand values and ownership of proprietary products. (The Tribunal relied on assessee’s own case in previous AY and Agnity India Technologies ruling.)
• Quintegra Solutions Ltd as it was mainly engaged in software development and developing own software products.
Further, the Tribunal held that assessee could be compared to:
• Infotech Enterprises Ltd after considering segmental results.
• Federal Technologies Ltd as it was rendering design and development services comparable to assessee
• Mindteck (India) Ltd as it was engaged in area of embedded systems and segmental information were available.
Motorola Solutions India Pvt Ltd vs DCIT Circle-2 – TS-346-ITAT-2018(Del)-TP-ITA No 1652/Del/2014 dated 27.04.2018

203. The Court dismissed Revenue’s appeal challenging Tribunal’s exclusion of Wipro Technology Services as comparable to assessee and held that exclusion was justified as the said comparable had a strong brand presence and unusual events such as amalgamation, merger which could have a miserable impact on the profits.
PCIT Delhi-1 vs Agnity India Technologies P Ltd- TS-273-HC-2018(Del)-TP- ITA No. 447 of 2018 dated 13.04.2018

204. The Tribunal followed co-ordinate bench ruling in assessee’s own case for previous AY 2011-12 wherein the assessee had selected software distributors as comparables in absence of data available in public domain with regard to channel distributors and the Tribunal had remitted the benchmarking of assessee’s payment of distribution fee on the ground that the assessee had not furnished agreement with AEs and revenue sharing agreement with Non-AEs (so as to enable the AO to apply internal CUP). Thus, the Tribunal also remitted the benchmarking of assessee’s payment of distribution fees to AEs (channel operators) for AY 2012-13.
MSM Discovery Private Limited vs. ACIT [TS-316-ITAT-2018(Mum)-TP] ITA No.1935/Mum/2017 dated 02.05.2018

205. The Tribunal held that the assessee [engaged in the business of transportation to various destinations in the domestic and international sectors] could not be compared to:
• Sical Logistics Ltd. as the company was engaged in the business of port handling, customs house agency, ship agency, road logistics and goodwill travel. It also did not have segmental information and did not have any earnings in foreign exchange, indicating that the company did not have international operations
• All Cargo Logistics Ltd as the consolidated financial statements included financial results of not only the Indian operations but also of the multimodal transport business carried on by the company’s subsidiaries in other countries. The Tribunal also noted the asset base of the company vis-à-vis the assessee which was Rs.1330 crores as against the assessee’s asset base of Rs. 11crores.
• SDV International Logistics as the company was following a different financial year and quarterly audited financial data was not available in public domain, hence no such adjustment could be made
• Om Logistics Ltd as it was was engaged in providing air cargo, train Cargo services factory relocation, home shifting/office relocation services which by no stretch of imagination could be compared to courier business of assessee.
Further, the Tribunal also held that Indo Arya Central Transport Ltd. could be included as a comparable and the TPO was unjustified in rejecting the company on the reasoning that it was incurring losses. TheTribunal observed that the reasoning was factually incorrect since the said comparable had earned a profit but only post working capital adjustment, it was showing a loss.
Aramex India Pvt. Ltd vs. DCIT [TS-351-ITAT-2018(Mum)-TP] ITA No.6749/Mum/2017 dated 18.05.2018

206. The Tribunal, in second round of proceedings, excluded 7 channel/content owner companies as comparables for assessee’s distribution segment. Further, it noted that distribution segment of the assessee was different and independent from assessee’s production/ancillary activities which was carried out as a captive service provider and found to be at arm’s length by the TPO. It disapproved the action of DRP/TPO of mixing functionality of independent activities of distribution and production/ancillary to distort the functionality to justify the selection of channel owner companies especially when the transaction from such production/ancillary services constituted only 4% of the value of the international transaction. The Tribunal relied on the co-ordinate bench ruling in assessee’s own case for subsequent AYs 2007-08 & 2008-09 to re-iterate that that Satellite TV channels and cable network operators had significantly different operating models and directed exclusion of the said companies. The Tribunal accepted the stand of the the assessee that software distribution companies could be considered for comparability analysis by following the co-ordinate bench decision in NGC Network wherein it was held that the aforesaid companies can be taken for comparability analysis, when no direct comparable dealing with distribution of satellite channels are available. Thus, Trijal Industries Ltd (trader in computer packages) as a comparable was accepted and the Tribunal further noted that TPO in subsequent years also had accepted software distributors as valid comparables. However, it excluded Syam Software (also a software distributor) in view of its persistent losses.
Turner International India Pvt. Ltd v ACIT [TS-483-ITAT-2018(DEL)-TP] ITA No.1204/Del/2018 dated 18.06.2018

207. The Tribunal excluded Hindustan Syringe and Medical devices as a comparable for assessee engaged in business of import of assembly of component and re-export of assembled medical disposable balloon catheters] for AY 2010-11 by relying upon co-ordinate bench ruling in assessee’s own case for AY 2009-10 wherein it was held that the said company was functionally dissimilar with the assessee since the said company had been using intangible assets for which royalty was paid whereas the assessee was merely a job worker. Further, an observation was made that the said company was engaged in trading activities without any segmental accounts available for different activities whereas the assessee was only an assembler.
Degania Medical Devices Pvt Ltd v Dy.CIT [TS-523-ITAT-2018(DEL)-TP] ITA No.1254/Del/2015 dated 27.06.2018

208. The Tribunal dismissed the assessee’s appeal for exclusion of Advanced Micronic Devices as it was also engaged in trading of health-care products like the assessee and only the relevant segmental details were considered. Further, the Tribunal remanded the comparability of RFL Ltd. to the AO/TPO to bring on record sources of information since the TPO was silent on this aspect and also remitted the calculation of margin as it was engaged in diversified activities and segmental information was not available.
Abbott Medical Optics Pvt. Ltd. v DCIT (formerly Advanced Medical Optics India Pvt. Ltd) [TS-517-ITAT-2018(Bang)-TP] IT(TP) A No.08/Bang/2014 dated 22.06.2018

209. The Tribunal held that assessee engaged in providing tourism services to customers of AE could not be compared to:
• Kerala Travels Interserve Ltd as the revenue was from different activities such as airline commission and not from tour operations
• Cox & Kings Limited as the company had its own brand value and was engaged in multiple activities.
Enchanting Travels Private Limited vs ITO [TS-744-ITAT-2018(Bang)-TP] IT (TP) A No.2149/Bang/2017

210. The Tribunal rejected the contention of the assessee for inclusion of Neelkanth Rock Minerals as comparable on the ground that it was functionally dissimilar since it had activities of granite quarrying and processing whereas the assessee was not into mining but only processing. Further, the Tribunal also rejected the contention of the assessee for inclusion of Vajra Granites Ltd. as comparable on the ground that it was functionally dissimilar since unlike the assessee it had quarry land on which the company had claimed depreciation also on the basis of depletion of mineral resources.
Indigra Exports Pvt Ltd v DCIT [TS-509-ITAT-2018(Bang)-TP] IT (TP)A No.488/Bang/2016 dated 22.06.2018

211. The Tribunal remitted the issue of determining the ALP to AO/TPO and directed them to include two comparables viz. Haldiram Bhujiawala and Capital Foods for benchmarking assessee’s sale of Ready-to-Serve products to AE. It observed that the comparables had been accepted by the assessee in subsequent assessment year and relied on the ruling of Bobst India where the TPO was directed to include a company in the list of comparables as the said company was found to be comparable entity in the subsequent assessment year.
Tasty Bite Eatables Limited vs DCIT [TS-730-ITAT-2018(PUN)-TP] ITA No.337/Pun/2014 dated 11.06.2018

212. The Tribunal observed that the TPO excluded the three comparables viz. Akasaka Electronics Ltd, DR Electricals & Switchgears Pvt. Ltd. and JK Switchgears& Cable Pvt. Ltd by merely stating that they did not meet the criteria of one or more filters with respect to the assessee engaged in manufacturing of medium voltage switchgear components, ring main unit components, etc. Further, the DRP had confirmed the TPO’s order of exclusion without any findings. The TPO/DRP had failed to consider the submissions of the assessee vis-à-vis the comparables satisfying all the filters. Thus, the Tribunal directed the DRP/TPO to give clear finding on their inclusion/exclusion after considering all details and evidence available and remanded the matter.
Efacec Switchgear India Pvt Ltd vs DCIT [TS-830-ITAT-2018(DEL) TP] ITA No.7817/Del/2014 dated 13.06.2018

General

213. The Tribunal remitted issue of determination of functional profile of assessee (engaged in the business of integration of hardware and software in the simulation and services) back to TPO . It noted that the assessee contended that its functions were divided into various departments such as marketing department, technical department, quality department, pricing department and finance, human resource and administration and therefore considered itself to be in the field of project management while TPO considered assessee to be engaged in software development services since the assessee undertook independent verification and validation of software including design, coding and testing in various programming languages. As both assessee & Revenue agreed that these aspects in assessee’s TP study were not examined by TPO/DRP while adjudicating the main issue with regard to functional profile of the assessee, the Tribunal opined the matter ought to go back to the TPO to first re-examine the issue with regard to functional profile of the assessee and thereafter adopt the comparables of same profile.
CAE India Pvt. Ltd vs. ITO – TS-1096-ITAT-2017(Bang)-TP – IT(TP) A No 762 / Bang / 2017 dated 22.12.2017

214. The Tribunal relying on the decision of the High Court in Mckinsey Knowledge Centre ITA 217/2014 held that a functionally comparable company cannot be rejected merely because of different financial year. Accordingly, it remitted the inclusion of R Systems International Ltd for software developer assessee provided that the results for financial year could reasonably be extrapolated.
ST Microelectronics Pvt. Ltd vs. Addl. CIT – TS-48-ITAT-2018(DEL)-TP – ITA No. 4396/Del/2017 dated ITA No. 4396/Del/2017

215. The Apex Court dismissed revenue’s SLP against Delhi HC judgment wherein the Court upheld the Tribunal order regarding comparable selection and had upheld exclusion of 2 comparables for the purposes determining the ALP of international transactions observing that no substantial question of law arose from Tribunal order.
Pr. CIT vs. ST Microelectronics Pvt Ltd – TS-46-SC-2018-TP – SPECIAL LEAVE PETITION (CIVIL) Diary No. 42218/2017 dated 22.01.2018

216. The Court admitted 2 questions of law raised by Revenue on comparables selection and risk adjustment; Questions admitted are – “1. Did the Income Tax Appellate Tribunal (ITAT) fall into error by including M/s. Petron Engineering Consultants Ltd. and M/s. Simon India Ltd. in the list of comparables for the purpose of ALP determination in the circumstances of the case? and 2. Was the ITAT correct in law in concluding that the risk adjustment could be allowed in the comparability analysis on general appraisal of facts and without returning any findings, to displace the reasoning of the Disputes Resolution Panel (DRP), in the circumstances of the case?”. It listed the final hearing on April 23, 2018.
Pr. CIT vs. Haldor Topsoe India Pvt Ltd – TS-44-HC-2018(DEL)-TP – ITA 74/2018 dated 23.01.2018

217. The assessee was engaged in business of electronic manufacturing service provider and assembling electronic components in printed circuit board for mobile chargers. While proposing TP-adjustment, TPO made certain adjustment to PLI of comparables observing that assessee’s capacity utilization was higher than comparables while ratio of depreciation to operating income was higher for comparables companies as against that of assessee. The Tribunal accepted the contention of the assessee that it’s capacity utilization was in fact lower than average capacity utilization of the comparables and that the cause of higher employment cost of the comparable companies could not be attributable to their level of capacity utilization as incorrectly done by the TPO. Therefore, it noted that the higher employee cost of the comparables indicated use of skilled labour which was not required in the work done by the assessee. Accordingly, considering the above findings, it held that the comparable companies adopted by the assessee company and the Revenue could not be strictly viewed as comparable companies as the functional analysis with respect to employee cost had not been carried out. Accordingly, it remitted the matter to the file of TPO for fresh adjudication.
Flextronics Technologies (India) Pvt. Ltd. V ACIT – TS-1090-ITAT-2017(CHNY)-TP – I.T.A.No.1195/Mds/2016 dated 04.12.2017

218. The Tribunal accepted Revenue’s plea for exclusion of Jindal Intellicom as a comparable while benchmarking the assessee’s ITES transactions as the company had a different financial year ending (on 31.12.2008) as compared to assessee’s (on 31.03.2009). Referring to Rule 10B(4) as well as the decision of the Bombay High Court in PTC Software (I) Pvt Ltd [TS-835-HC-2016(BOM)-TP] it held that Rule 10B mandated that the comparable ought to have data for the same financial year in which the international transaction had been entered into and if such a data was not available, then, a company could not be considered as functionally comparable.
ITO vs. Copal Research (I) Pvt. Ltd. – TS-32-ITAT-2018(DEL)-TP – ITA No.1865/Del/2014 dated 09.01.2018

219. The Tribunal remitted the functional comparability of 7 companies back to the DRP observing that the DRP passed a cryptic order without deciding on the issue of functional comparability of the individual companies and merely mentioned that assessee’s arguments were dealt with by the TPO. It directed the DRP to pass a reasoned and speaking order on comparability of individual companies. Regarding the treatment of foreign exchange gains/loss while computing the margin of companies, the Tribunal noted that the DRP had not applied its mind while rendering its decision rejecting the assessee’s claim, even though arguments were raised before it and accordingly restored the issue to the file of the DRP for examination and adjudication by passing a reasoned and speaking order.
Telsima Communications Pvt. Ltd. vs. DCIT – TS-1084-ITAT-2017(Bang)-TP – IT(TP)A No.1178/Bang/2010 dated 17.11.2017

220. The Tribunal allowed Revenue’s appeal and held that the CIT(A) erred in applying the 25% related party transaction (RPT) filter for excluding Wipro BPO Solutions as comparable, noting that the assessee did not raise any ground to that effect before the CIT(A). However, it held that it’s finding on the CIT(A)’s erroneous application of the RPT filter would not in any way affect the finding of the learned CIT (Appeals) in excluding Wipro BPO Solutions Limited from the list of comparables on grounds of brand and intangible ownership and huge turnover. Further, it also accepted Revenue’s contention that the CIT(A) erred in holding that assessee was eligible to benefit of standard deduction of 5% from ALP under the proviso to Sec. 92C(2) and held that by virtue of the retrospective amendment to the Act made by Finance Act, 2012 w.r.e.f. 1.4.2002 it was clear that the + / – 5 % variation was to be allowed only to justify the price charged in international transactions and not for adjustment purposes.
DCIT vs. Nirvana Business Solutions Pvt. Ltd – TS-56-ITAT-2018(Bang)-TP dated I.T. (T.P) A. No.171/Bang/2012 dated 19.01.2018

221. The Tribunal upheld TPO’s aggregation of ITES and software development services (SDS) for benchmarking under TNMM absent assessee’s substantiation for bifurcation of the segments as the assessee failed to indicate number of employees actually rendering SDS and ITES and provide evidence such as worksheets/reports of work done for substantiating revenue bifurcation between 2 segments. Further, there was no separate mention of service fee for ITES or SDS in the invoices issued as well as relevant bifurcation in annual accounts and accordingly rejected assessee’s contention that since SDS & ITES were benchmarked separately in the past, no deviation should be allowed in subject year. However, it rejected TPO’s approach of benchmarking the transactions by only selecting comparables relating to ITES segment and accordingly remitted the ALP-determination for considering comparables which are rendering both SDS and ITES.
Orange Business Services India Solutions Pvt. Ltd vs. DCIT – TS-88-ITAT-2018(DEL)-TP – ITA No.6570/Del/2016 dated 15.02.2018

222. The Court upheld ITAT’s application of 25% RPT filter for comparability analysis and held that the RPT filter is relevant and fits in with the overall scheme of a transfer pricing study. It held that if a particular entity predominantly had transactions with its AE in excess of a certain threshold percentage its profit making capacity may result in a distorted picture and therefore the RPT filter was necessary. Further, it upheld the exclusion of Wipro Ltd owing to its significant brand presence in the market, opining that brand value of an entity has a significant role in its ability to garner profits and negotiate contracts despite the fact that the companies are otherwise similar in terms of services or products they offer. Accordingly, it dismissed Revenue’s appeal.
Pr. CIT vs. Oracle (OFSS) BPO Services Pvt. Ltd. – TS-67-HC-2018(DEL)-TP – ITA 124/2018 dated 05.02.201

223. The Court admitted Revenue’s appeal challenging the exclusion of E-Infochips as comparable on ground of unavailability of segmental data by framing the following question of law as “Is the impugned order in error of law in so far as it excludes M/s. E-Infochips Limited from the list of comparables on the ground of unavailability of segmental data, in thecircumstances of the case?”
Pr.CIT vs. Sapient Consulting Pvt. Ltd – TS-124-HC-2018(DEL)-TP – ITA 261/2018 dated 27.02.2018

224. The Tribunal remanded the TP-issue to the file of AO/TPO since the TPO/DRP rejected assessee’s TP study and selected a fresh set of comparable without considering turnover filter as a result of which the TPO/DRP’s selection of comparables was not correct. Accordingly, it directed the AO/TPO to re-examine matter and give assessee opportunity of being heard on selection of comparables.
PB Systems (India) Pvt. Ltd v DCIT – [TS-132-ITAT-2018(CHNY)-TP – ITA No.3164/Mds/2016 dated 28.02.2018

225. The Tribunal held that Government undertakings/companies are not suitable comparables for benchmarking of assessee rendering network support services and accordingly directed the AO to verify all the Government undertakings either benefitting from preferential treatment from Government in getting contracts etc. or those that are not driven by profit motive alone and to exclude from the list of comparables.
AT & T Communication Services India Private Limited vs. ACIT – TS-127-ITAT-2018(DEL)-TP – ITA No.1016/Del./2015 dated 15.02.2018

226. The Court dismissed Revenue’s appeal on selection of foreign AE as tested party issue absent discussion in CIT(A) / ITAT order on the said issue. It noted that the assessee had used 2 tested parties (Dupont Asia Pacific and Dupont USA) and selected 7 and 20 comparables respectively for benchmarking its transactions, however the TPO rejected the same and applied CUP instead of assessee’s TNMM. It observed that even the assessee met with only limited success in its transfer pricing exercise and its most appropriate method was also rejected. Accordingly, it dismissed the appeal holding that the question of law framed did not arise for consideration.
Pr. CIT vs. E.I. Dupont India Pvt Ltd – TS-138-HC-2018(DEL)-TP – ITA 25/2017 dated 13.02.2018

227. Where the assessee sought the exclusion of 5 of its own comparables, the Tribunal observing that nothing precluded the assessee from doing so and that prima facie there was a case in favour of the assessee on facts and in law, remitted the matter to the file of the TPO observing that the matter would require input from the TPO.
Vis-à-vis assessee’s claim for economic adjustments (capacity utilisation adjustment, working capital adjustment, custom duty adjustment and cash PLI adjustment), noting that the similar issues were remanded by the Tribunal for the earlier year in assessee’s own case with a direction to note that such adjustments were allowed in subsequent AYs but were not considered by the DRP/TPO/AO for the impugned AY, it remanded the issue to the file of AO/TPO for fresh adjudication.
NORD Drive systems Private Limited vs. ACIT – TS-140-ITAT-2018(PUN)-TP dated ITA No.509/PUN/2015 dated 07.02.2018

228. Noting that while selecting comparables the TPO failed to apply the filters uniformly to all the comparables the Tribunal remitted the issue back to the TPO to re-examine the comparables of the assessee as well as those of the TPO by applying the same filters uniformly.
Swiss Re Global Business Solutions India Private Ltd vs. DCIT – TS-161-ITAT-2018(Bang)-TP – IT(TP)A No.2028/Bang/2017dated 28.02.2018

229. The Court admitted Revenue’s appeal on question of law viz. “Did the ITAT fell into error in upsetting the concurrent view of the TPO and the DRP with respect to desegregation of the intra group service transaction for the purpose of ALP determination under Section 92CA of the Income Tax Act, 1961 in the circumstances of the case?”.
CIT vs. Corning SAS- India – TS-184-HC-2018(DEL)-TP – ITA 1074/2017 dated 19.03.2018

230. The Court remitted the issue of comparability of Keynote Corporate Service Ltd and Motilal Oswal Investment Advisors Pvt. Ltd vis-à-vis the assessee engaged in investment advisory service back to the file of the Tribunal. As regards Keynote Corporate Service Ltd, it accepted Revenue’s contention that abnormal profits could not be a ground for exclusion of an otherwise functionally comparable company in view of co-ordinate bench ruling in assessee’s own case (for earlier years i.e. AY 2006-07). However, it also noted assessee’s argument that after High Court ruling (wherein the HC remitted the comparability of Keynote back to the DRP), the Tribunal had held Keynote Corporate Services as functionally incomparable to assessee in the earlier year. Accordingly, it remitted the matter back to Tribunal to consider the findings of the Tribunal in the earlier year and to record its appropriate findings year-wise on the issue of functional similarity. With respect to Motilal Oswal Investment Advisors Pvt. Ltd, the Court noted that the Tribunal had adopted RPT filter only in the case of this company and held that adopting one procedure for only one entity and adopting another for all other entities or comparables would lead to a distorted picture. Accordingly, it remitted the matter to the Tribunal for consistent application of the filter.
Chryscapital Investment Advisors (India) Pvt Ltd vs DCIT – TS-173-HC-2015(DEL)-TP – ITA 417/2014 dated 27.03.2018

231. The Court held that the mere fact that an entity makes high/extremely high profits/losses does not, ipso facto, lead to its exclusion from the list of comparables for the purposes of determination of ALP. It held that that mere huge profit or huge turnover of a company which otherwise conforms to all stipulations in Rule 10B, ipso facto does not lead to its exclusion. It held that the TPO should first ensure that such differences do not materially affect the price or cost, and then attempt to ‘adjust’ or ‘eliminate the material effects’. Further, it rejected assessee’s contention for relying on previous years’ data and held that while there could be a wide fluctuation in the profit margins of comparables from year-to-year, this by itself does not justify the need to take into account previous years’ profit margins and held that Rule 10B(3) would account for such volatility. It dismissed assessee’s reliance on OECD Guidelines, firstly, observing that since India is not an OECD member, the Guidelines would only have persuasive status without legal sanction. Further, it acknowledged that in the present case, both OECD Guidelines and Income-tax Rules were in consonance since both did not prescribe automatic exclusion of entities with extreme financial results, and provide for consideration of multiple year data only for the purposes of factoring in material changes in, inter alia, economic conditions, third party variables, etc. Further, remits comparability of 3 high-profit companies to DRP, with the direction to first conduct fresh enquiry regarding functional similarity and then to carry out analysis under Rule 10B(3) for these companies to determine if there were material differences on account of exceptionally high profits, capable of elimination and only if such differences could not be eliminated, would the company be excluded.
Chryscapital Investment Advisors (India) Pvt Ltd vs DCIT – TS-173-HC-2015(DEL)-TP ITA 417/2014 dated 27.03.2018

232. The Court dismissed Revenue’s appeal and upheld Tribunal’s deletion of TP-adjustment. It observed that the Tribunal deleted the adjustment on the ground that the TPO had wrongly compared transaction of export of components with net margin of domestic sales of finished goods which was unjustified considering the difference in the nature of customers in the domestic and export market and the fact that the exports were of parts whereas the domestic sales were of finished goods. Noting that both the CIT(A) and the Tribunal, on facts, had held that the comparable adopted by the TPO was incorrect, it held that since the finding of fact was not shown to be perverse the question raised by the Revenue did not give rise to any substantial question of law.
CIT vs. Keihin Fie Pvt. Ltd – TS-189-HC-2018(BOM)-TP – INCOME TAX APPEAL NO. 1176 OF 201 dated 21.03.2018

233. The Tribunal dismissed Revenue’s appeal and upheld assessee’s segregation approach for benchmarking the purchase of Compound Alcoholic Preparation (CAP) from its AE. The assessee, under Bottled in India Scotch (“BIIS”) segment, processed CAP, imported from its AE, into scotch/whiskey and sold it in India while in India Made Foreign Liquor (“IMFL”) segment [pertaining to domestic business], IMFL was manufactured from a purified form of spirit/alcohol called the Extra Neutral Alcohol which was manufactured by the assessee in India. The assessee benchmarked the import from its AE by segregating the BIIS segment from its IMFL segment. The TPO clubbed assessee’s BIIS and IMFL segments and compared the net profit margin (NPM) of the combined manufacturingoperations of the assessee with those of broadly comparable companies. Observing that the manufacturing of ultimate product, market conditions, price and functions of both segments were completely different and distinct, the Tribunal opined that both the segments of the assessee are totally different and independent after noting that TPO / AO did not scrutinize the differences in both segments. It rejected the Revenue’s reference to AS-17 stating it was not applicable for undertaking TP-adjustment and observes that assessee had adopted same accounting method on year-to-year basis and filed segmental accounting on both the segments before the authorities below which was undisputed; Thus, it held that the economic analysis undertaken by the assessee in respect of international transaction pertaining to the purchase of CAP following segmental approach by segregating manufacturing operations into BIIS and IMFL business verticals was in accordance with the relevant Transfer Pricing Regulations.
DCIT vs. Allied Domecq Spirits & Wine India Pvt. Ltd – TS-147-ITAT-2018(DEL)-TP – ITA.No.54/Del./2011 dated 09.03.2018

234. The Tribunal in this case sent back the matter to TPO for reapplication of TP analysis as the assessee had not used data for relevant FY for benchmarking its various international transactions. Further the TPO had also made adjustments to non AE transactions.
Makino India Pvt. Ltd. Vs ACIT Circle 4(1)(2) Bangalore- TS -416-ITAT-2018(Bang) TP- IT(TP) No 3/Bang/2012 dated 20.04.2018

235. The Tribunal remitted TP adjustments on various international transactions of assessee such as receipt of licensing revenue, corporate guarantee, payment for media rights and signage fees. With respect to international license revenue receivable by the assessee from its AE, the Tribunal also noted that the assesse had not applied RPT filter for comparables selection and remitted the issue for fresh consideration with a direction to assessee to furnish fresh set of comparable after applying RPT filter. With respect to transaction of purchase of signage and media advertisement rights, it accepted assessee’s request for remand back for selection of fresh set of comparables.
Nimbus Communications Ltd. vs. DCIT – TS-520-ITAT-2018(Mum)-TP – LT.A. No. 1988 / Mum / 2016 dated 21.05.2018

236. The Tribunal held that the assessee engaged in the business of market development, dissemination of product information, research and development activities and providing onsite and back office support services could not be compared with Neeman Medical International Asia Ltd as the company was a consistent loss making company.
Further, it accepted assessee’s contention that Pfizer was to be included as a comparable observing that the said company had adequate segmental results and was accepted as a comparable by the DRP in the assessee’s own case for the preceding years.
ExxonMobil Company India Private Limited vs. CIT – TS-390-ITAT-2018(Mum)-TP – /I.T.A./3601/Mum/2014 dated 23/05/2018

237. The Tribunal upheld the CIT(A)’s order accepting separate benchmarking of assessee’s transactions under Business model 1 – receipt of marketing & support services from AE (choosing foreign AE as tested party) and Business model 2 – assessee’s rendering of ITeS to AE (choosing assessee as tested party). It noted that under Business model 1, risks and rewards were with the assessee and AEs [which were remunerated on cost plus basis] were insulated from the risks borne by assessee as an entrepreneur and therefore upheld CIT(A)’s view that AE was rightly chosen as the tested party being the least complex entity. Vis-à-vis Business model 2, it noted that major risks were borne by WNS UK, which functioned as an entrepreneur and therefore held that the assessee (which was only a captive service provider bearing limited risks) was rightly chosen as the tested party. Observing that the transactions undertaken by assessee were not interlinked as various transactions formed part of different business models adopted by assessee, the Tribunal held that the TPO’s approach of aggregating these international transactions and benchmarking the assessee at an entity level was not appropriate since the far profile of the Indian assessee was different in both the transactions.
ITO vs. WNS Global Services Pvt. Ltd – TS-474-ITAT-2018(Mum)-TP – ITA No 2318 / Mum / 2009 dated 04.05.2018

238. The Tribunal allowed Revenue’s miscellaneous petition against its order and accepted Revenue’s submission that while remitting comparability of Denison Hydraulics India for verification of RPT filter, Tribunal had inadvertently mentioned RPT percentage at 25% instead of 15%. Accordingly, finding merit in Revenue’s petition, the Tribunal modified its order to reflect RPT percentage at 15% and allowed the miscellaneous petition.
DCIT v British Engines (India) P Ltd – TS-430-ITAT-2018(Bang)-TP – MP 114 / Bang / 2018 dated 14.05.2018

239. Where the TPO had excluded India Japan Lighting Ltd [introduced by TPO himself] as a comparable though assessee had not requested for its exclusion and also rejected assessee’s contention for inclusion of 6 more comparables having FAR similar to India Japan Lighting Ltd, on perusal of the TPO/DRP’s order, the Tribunal observed that the assessee’s plea for including 6 new comparables was rejected in a summary manner without giving a proper reasoning and therefore held that the comparables had not been properly analysed by the Ld. TPO in light of the submissions of the assessee which had been simply disregarded without any reasoning. Accordingly, it restored the entire issue of the selection of the comparables to the file of the TPO for making a fresh comparability analysis after duly considering the evidences and submissions of the assessee.
Denso India Limited vs. ACIT – TS-456-ITAT-2018(DEL)-TP – ITA No. 4788/Del/2010 dated 31.05.2018

240. In the case of assessee engaged in manufacturing of chemicals, the Tribunal remitted back to the file of AO/TPO, comparability of Calchem Industries (India) Limited as comparable which was rejected due to non-availability of annual report, which was later filed by assessee as additional evidence before the Tribunal.
Imerys NewQuest (India) Pvt Ltd vs DCIT [TS-727-ITAT-2018(PUN)-TP]- ITA No 590/Pun/2015 dated 23.05.2018

241. The Tribunal remitted back to the file of AO/TPO, the issue of TP-adjustment in case of assessee engaged in import and distribution of biomedical diagnostic equipment, where the dispute arose as regards the rejection of comparables selected by the assessee by TPO applying the turnover filter exceeding 1000 crores. The Tribunal took note of the fact that the assessee and the Revenue were not able to demonstrate whether turnover filter was relevant for arriving at the margins in the peculiar line of business that the assessee was engaged in.
Roche Diagnostics India Pvt Ltd vs ACIT Range 8(3)-TS-803-ITAT-2018(Mum)-TP- ITA No 7566/Mum/2012 dated 04.05.2018

242. In the case of an assessee engaged in manufacturing of optical and magnetic storage media, the Tribunal directed the AO to re-examine issue of selection of assessee’s foreign AE [GDM Dubai] as tested party for AY 2005-06 and 2006-07 in the event the assessee was able to provide complete financials of GDM Dubai along with complete financials of relevant comparables required to benchmark the international transaction. The Tribunal also directed the TPO to verify if the AE was the least complex entity requiring minimum adjustment and for which comparables are available in public domain. It rejected assessee’s submission regarding its inability to obtain the required financials of tested party. The Tribunal opined that in case the assessee was not able to provide the financials of its AE as mentioned, it shall be treated as tested party and TPO shall consider the other argument advanced by assessee that it cannot be expected to earn profit more than the combined profit of assessee and AE which was accepted by the Tribunal for earlier year.
Moser Baer India Ltd. vs. DCIT [TS-334-ITAT-2018(DEL)-TP] ITA Nos.883,894/Del/2008 and 988, 1139 and 4484/Del/2013 dated 01.05.2018

243. With regard to assessee engaged in investment advisory services, the Tribunal accepted the assessee’s contention by relying on the ruling of Goldstar Jewellery that reimbursements not affecting profitability should be excluded for RPT transactions and hence directed the AO/TPO to recompute the RPT filter for Future Capital which was previously excluded for the reason that its RPT filter exceeded 25%.
Apax Partners India Advisers Pvt Ltd [TS-832-ITAT-2018(Mum)-TP] ITA No.1682/Mum/2014 and 1738/Mum/2014 dated 08.06.2018

244. The Tribunal relying on the Bombay HC ruling in Pentair Water India held that turnover filter is an important filter to select comparables for assessee engaged in the manufacture of bulk drugs. Further, observed that though there were conflicting judgments on the aspect of application of turnover filter, the Revenue failed to bring to its attention any judgment of jurisdictional HC which prohibited application of turnover filter. The Tribunal affirmed the turnover filter criteria applied by the CIT(A) which held that since the assessee has a turnover of 15.84 crores, turnover of companies exceeding Rs.30 crores could not be considered to be comparable. On the basis of filter set by the CIT(A), the Tribunal included Welcure Drugs which was bulk manufacturer of drugs as a comparable and deleted the adjustment since no adjustment would be required as per the provisions of section 92(3) of the Act after the inclusion.
Schutz Dishman Biotech P Ltd [TS-472-ITAT-2018(Ahd)-TP] ITA No.1229/Ahd/2012 and 954/Ahd/2012 dated 05 June 2018

245. The Tribunal held that the assessee engaged in the business of manufacturing of power conditioning systems for solid oxide fuel cell using power electronics technology to its AE could not be compared to Acropetal Technologies as its average operating margin (57.66%) was significantly high vis-à-vis other comparables.
Bloom Energy India Pvt. Ltd v DCIT [TS-626-ITAT-2018(CHNY)-TP] ITA No.2857/Chny/2017 dated 20.06.2018

246. The Tribunal held that the assessee engaged in manufacture of material handing equipments could not be compared to WMI Cranes Ltd. as it had undergone extraordinary event of demerger during the AY 2011-12
Further, the Tribunal included Brady & Morris Engineering Company Ltd. observing that increase in profits from ₹ 28.61 crores to ₹ 30.24 crores i.e. turnover shown in the last year as against the turnover of this year, cannot be said to be exceptional.
Terex India Pvt. Ltd (as successor of Demag Cranes and Components (India) Pvt. Ltd) vs. DCIT [TS-477-ITAT-2018(PUN)-TP] ITA No.583/Pun/2016 dated 06.06.2018

247. The Tribunal held that the assessee engaged in the business of trading in Uninterrupted Power Supply (UPS)/ Invertors with its AE could not be compared to Su-Kam Power Systems Ltd. (Rs.680.41 crores) and Swelect Energy Systems Ltd (turnover of Rs.534.64 crores) since it failed the turnover filter criteria applied by the TPO of more than one crore and less than 200 crores.
The Tribunal further noted that as a result of the two comparables being excluded the PLI applying the Berry ratio of comparable left would be within the ±5% margin and there would be no need for any further adjustments.
Socomec Innovative Power Solutions Private Ltd [TS-428-ITAT-2018(CHNY)-TP] ITA No.848/Chny/2018

248. The Tribunal set aside TPO’s application of 75% export revenue filter which was neither used in the past or subsequent years and opined that rule of consistency demands uniform filter to be applied for transactions on year to year basis unless there is a material change in facts.
Tasty Bite Eatables Limited vs DCIT [TS-730-ITAT-2018(PUN)-TP] ITA No.337/Pun/2014 dated 11.06.2018

d. Computation / Adjustments

Capacity Utilization Adjustment

249. The Tribunal upheld the assessee’s claim for grant of capacity under-utilization adjustment in manufacturing segment and explained the step by step mechanism for computing capacity under-utilization adjustment viz. – (I) ascertain the percentage of capacity utilization vis-a-vis the installed capacity for assessee and comparables, (ii) give effect (positive or negative) to the difference in the percentage of capacity utilizations of the assessee vis-a -vis comparables, one by one, in the operating profit of comparables by adjusting their respective operating costs. Noting that the operating costs could be variable, semi-variable and fixed costs, it held that adjustment was required only in respect of fixed cost and fixed portion of semi-variable cost. Noting that complete financials of comparables were not on records it remitted the issue of computation of adjustment for under-utilization of capacity to AO/TPO with a direction that adjustment should be computed with respect to installed capacity and not licensed capacity.
Daikin Airconditioning India Pvt. Ltd. v DCIT – TS-176-ITAT-2018(DEL)-TP – ITA Nos.2536/Del/2014

250. The Tribunal allowed the in principle, capacity adjustment claim of assessee [engaged in business of manufacture and trade of in-line helical gear boxes, electric motors, shaft mounted gear boxes and related sub assembly and spare parts that from parts of the Machine Tools and Component industry in India] observing that the assessee’s business had taken a hit mainly on account of change in the business conditions in respect of wind mills on account of withdrawal of the accelerated depreciation benefit and the withdrawal of the generation based incentive under the wind power sector (amendments made in 2012). It noted that consequent to such changes the assessee’s manufacturing capacity utilization fell to 47% as against national average of 75% (as indicated in RBI’s report) during the year under review and therefore held that the assessee was entitled to have the benefit of capacity utilization adjustments. However, observing that capacity utilization data was not available, it granted liberty to assessee to obtain variable data and prove its claim before TPO.
Bonfigioli Transmissions Private Limited vs. DCIT – TS-388-ITAT-2018(CHNY)-TP – /I.T.A.No.2977/CHNY/2017 dated 14-05-2018

251. The Tribunal relied on the coordinate bench ruling in assessee’s own case for AY 2008-09 and allowed the adjustment towards rent and maintenance of unutilized area of premises. It directed the TPO to work out the requisite adjustment after giving assessee an opportunity of being heard. The assessee had taken on lease a premises with 6.5 floors out of which only 4.5 floors were being utilized during relevant year while balance remained vacant in anticipation of future growth of business. The Tribunal noted that DRP had accepted that approximately 25% of the assessee’s premises were lying vacant/idle and co-ordinate bench in assessee’s own case for AYs 2004-05 and 2006-07 had allowed capacity under-utilization adjustment considering assessee was bearing substantial risk of idle capacity.
C.R.M. Services India Pvt. Ltd vs. DCIT [TS-343-ITAT-2018(DEL)-TP] ITA No.5930/Del/2012 and 1630/Del/2014 dated 14.05.2018

252. The Tribunal remitted the issue of grant of adjustment for unutilized capacity cost to AO for AY 2007-08, in respect of assessee’s international transactions relating to manufacture of crop protection products for verification of material facts relevant to tested party i.e. assessee as well as to the comparables . The Tribunal had noted that the coordinate bench in assessee’s own case for the previous year had remitted the issue of capacity under-utilization adjustment to the TPO while determining ALP of purchase of raw material from AE under TNMM. Further, on Revenue’s appeal against the Tribunal’s order for previous year, the Court had upheld the remand but kept the question open to be decided on merits whether the adjustment of unutilized capacity cost could be worked out by excluding the unused capacity cost and whether such unutilized capacity cost should be excluded/included in the case of comparables also.
DCIT vs. E.I. Dupont India Private Ltd [TS-354-ITAT-2018(DEL)-TP] ITA Nos.5043&4774/Del/2014 dated 10.05.2018

253. The Court dismissed Revenue’s appeal and upheld the Tribunal’s order as regards the inclusion of comparable Thirumalai Chemicals Ltd. was concerned. Noting that the Tribunal on facts had held that the assessee and the said company dealt in specialty chemicals and that the capacity utilization of assessee (working at 46% of capacility utilization) and said comparable (working at 50% of capacity utilization) was approximately the same due to an economic downturn, the Court held that on facts the view taken by the Tribunal was a reasonable view.
Pr. CIT vs. Petro Araldite Pvt. Ltd [TS-446-HC-2018 (Bom)] ITA No.368 of 2015 dated 06.06.2018

254. The Court dismissed Revenue’s appeal and upheld Tribunal’s invocation of Rule 10B(1)(e) (iii) for allowing capacity utilization adjustment to the assessee who was engaged in the business of manufacturing and dealing in basic liquid and solid resins including formulations. The Court noted that the Tribunal had upheld assessee’s capacity utilization claim after illustrating how higher capacity utilization would lead to higher profitability as fixed costs would be spread over a larger number of units manufactured and considering that capacity utilization materially affected the profit margin, upheld thus the invocation of rule is valid.
Further, the Court also stated that it was a self-evident position that all aspects/differences between the international transactions and the comparable uncontrolled transactions materially affecting the net profit margin have to be taken into account so as to have the fair comparison while determining the ALP.
The Court also upheld the Tribunal order restricting TP-adjustment only to assessee’s international transaction, relying on various precedents including co-ordinate bench ruling in assessee’s own case.
CIT -8 vs Petro Araldite P Ltd.- TS-317-HC-2018(BOM)-TP- ITA No 1540 of 2014 dated 26.04.2018

Profit Level Indicator

255. The Tribunal relying on the decisions of the Apex Court in Woodward Governor and Ameriprise India rejected the Revenue’s treatment of foreign exchange fluctuation income/loss as non-operating cost while computing assessee & comparables margin.
ST Microelectronics Pvt. Ltd vs. Addl. CIT – TS-48-ITAT-2018(DEL)-TP – ITA No. 4396/Del/2017 dated ITA No. 4396/Del/2017

256. The Court upheld the Tribunal’s consideration of forex gain/ losses as operating for assessee & comparables while determining ALP for AY 2010-11 and its rejection of the applicability of Safe Harbour Rules for subject AY 2010-11 (which provided that forex gain/ losses was to be treated as non-operating in nature).
Pr. CIT vs. Rolls Royce India Pvt. Ltd – TS-1066-HC-2017(DEL)-TP – ITA 419/2016 dated 23.10.2017

257. The Tribunal held that foreign exchange gains were to be considered as operating income as it pertained to debtors and thus were revenue items. It rejected Revenue’s reliance on Safe Harbour Rules in this respect, observing that Safe Harbour Rules are applicable only to the assessees who have opted for them.
Effective Teleservices Pvt Ltd vs. ACIT – TS-75-ITAT-2018(Ahd)-TP – ITA. No: 2411/AHD/2014 dated 16 -01-2018

258. The Tribunal set aside TPO’s order and directed him to consider forex fluctuation gains as operating income for the purpose of PLI computation for AY 2012-13 since the forex fluctuation gains were earned in normal course of business and derived on account of trade sales made during the year. It rejected Revenue’s reliance on Safe Harbour Rules (Rule 10TA) and relying on the decision of the Delhi HC ruling in BC Management Services held that Safe Harbour Rules came into force in 2013 and therefore could not apply to AY 2011-12.
Digital Group Infotech Pvt. Ltd. vs. DCIT – TS-185-ITAT-2018(PUN)-TP – ITA No.475/PUN/2017 dated 28.02.2018

259. The Tribunal rejected assessee’s plea of adjusting forex loss against interest income and upheld TPO’s consideration of considering forex loss as business loss and directed that forex gain/loss should be part of operating income/expense while computing assessee’s margin.
Keystroke Pro India P Ltd vs ITO Ward 14(3) – TS-333-ITAT-2018(DEL)-TP ITA No 537/Del/2015 dated 10.04.2018

260. Relying on the Delhi High Court ruling of Ameriprise India (P.) Ltd, the Tribunal held that foreign exchange gains on sale proceeds in respect of its international transaction should be treated as operating in nature.
SAP Labs India Pvt Ltd vs Addl CIT [TS-298-ITAT-2018(Bang)-TP] IT(TP)Appeal Nos.981 and 1070 of 2016 dated 06.04.2018

261. Relying on the decision of the Tribunal in Haworth (India) P Ltd [TS-940-ITAT-2017(PUN)-TP], the Tribunal held that the write back of provision for doubtful debts was to be treated as operating income for computing PLI. Further, relying on the decision of the Tribunal in Approva System Pvt. Ltd [TS-23-ITAT-2015(PUN)-TP], it held that foreign exchange fluctuation gains were to be treated as operating income. It rejected Revenue’s reliance on the Safe Harbor Rules to claim these items as non-operating in nature, follows Delhi HC ruling in Cashedge India Pvt Ltd and Rolls Royce India Pvt Ltd wherein it was held that safe harbor rules would not apply retrospectively prior to AY 2013-14.
Imersys NewQuest (India) Pvt Ltd vs DCIT – TS-727-ITAT-2018(PUN)-TP – ITA No. 590/PUN/2015 – dated 23.05.2018

262. The Tribunal dismissed the assessee’s appeal praying for treatment of foreign exchange loss as non-operating in nature and followed the assessee’s own ruling for AY 2012-13 wherein it was held that forex loss was operating in nature.
Infac India Pvt Limited (TS-387-ITAT-2018(CHNY)-TP) – I.T.A. No.3195/CHNY/2017 dated 03-05-2018

263. The Tribunal restored the issue of consideration of foreign exchange gain as operating income to the file of TPO. The Tribunal noted that the coordinate bench in the assessee’s own case for AY 2010-11 and AY 2012-13 had held that forex gains should be treated as operating income since the same related to the business of the assessee.
Rolls Royce India Pvt. Ltd vs. DCIT [TS-367-ITAT-2018(DEL)-TP] ITA No.1042/Del/2014 dated 02.05.2018

264. The Tribunal directed TPO to treat forex gain/ loss as operating in nature considering that it was a part and parcel of trading transactions with AE and followed Ramgreeen HC ruling and DRP’s approach of treating the same as operating item for subsequent AY.
M/s. Labvantage Solutions Pvt Ltd vs ACIT Circle 2(1)- TS-405-ITAT-2018(Mum)-TP – ITA No 927 & 2400/Kol/2017 dated 11.05.2018

265. The Tribunal held that the foreign exchange gain and loss was to be treated as an operating item by relying upon the co-ordinate bench ruling in assessee’s own case for AY 2009-10 wherein it was held that the fluctuations pertaining to forward contract with respect to purchase of materials was revenue in nature and hedging was a risk mitigating exercise to reduce the cost of imports.
Degania Medical Devices Pvt Ltd v Dy.CIT [TS-523-ITAT-2018(DEL)-TP] ITA No.1254/Del/2015 dated 27.06.2018

266. The Tribunal accepted the assessee’s stand that treatment of forex fluctuation gain/loss should be treated as non-operating item following the rulings of co-ordinate bench in BNY Mellon International Operations and DHL Express wherein it was held that forex losses are non-operating since it had no nexus with the main operations of the assessee.
Tasty Bite Eatables Limited vs DCIT [TS-730-ITAT-2018(PUN)-TP] ITA No.337/Pun/2014 dated 11.06.2018

267. The Court admitted the assessee’s appeal on the question whether the Tribunal erred in concluding that reimbursement of assessee’s expenses by AE could form part of the receipts as well as cost base of the marketing support services segment while determining operating profitability of such segment.
Pernod Ricard India Pvt. Ltd vs. CIT – TS-1082-HC-2017(DEL)-TP – ITA 1177/2017 dated 21.12.2017

268. The Court admitted the assessee’s appeal on the following question of law ” Did the Tribunal fall into error in upholding the allocation of expenses as computed by the TPO in the Marketing Support Services segment in complete ignorance of the fact that only one employee was devoted full time to such activity and the other employee spent only a meagre of his time in respect of such activity?”
Pernod Ricard India Pvt. Ltd vs. CIT – TS-28-HC-2018(DEL)-TP – ITA 1177/2017 dated 09.01.2018

269. Where the AO failed to exclude depreciation from the operating margin of the assessee as well as the comparables as per the directions of the DRP, the Tribunal refused to adjudicate on the other grounds raised by the assessee (i.e. on incorrect selection of comparables) as the AO had failed to follow the directions of the DRP. Accordingly, it remitted the matter to the AO / TPO to calculate the TP adjustment excluding depreciation from the computation of operating margin.
GSS Infotech Ltd. vs. DCIT – TS-1086-ITAT-2017(HYD)-TP – ITA No. 267/Hyd/2014 & 329/Hyd/2016 & ITA No. 602/Hyd/2017 dated 30-11-2017

270. The Tribunal held that while determining the PLI of comparables, cash profits i.e. profits prior to depreciation should be taken by relying on the coordinate bench decision in ICON Clinical Research wherein it was held that profit before depreciation should be considered while computing PLI on account of higher rate of depreciation charged by the company vis-à-vis comparables which followed Companies Act. It accepted assessee’s contention that cash profits should be adopted for computing PLI of comparables as the method of depreciation adopted by various comparables was variable.
Bonfigioli Transmissions Private Limited vs. DCIT [TS-388-ITAT-2018(CHNY)-TP] ITA No.2977/Chny/2017 dated 14.05.2018

271. The Court admitted the Revenue’s appeal on the Tribunal’s exclusion of depreciation from operating expenses while computing the PLI on account of difference in method of charging depreciation (SLM basis) by the assessee vis-à-vis comparable companies (WDV) and difference in asset turnover ratio between the assessee (ranging from 17%-29%) vis-à-vis comparable companies (71%-177%) .
Pr.CIT vs. Sabic Research and Technology Pvt. Ltd. – TS-1026-HC-2018(Guj)-TP – Tax Appeal No. 243 of 2018 dated 01.05.2018

272. The Tribunal directed the AO/TPO to consider margin after excluding depreciation in case of assessee and comparables. The Tribunal followed the DRP’s direction in assessee’s own case for AY 2012-13 which had relied upon the HC ruling in BA Continuum wherein it was held that PBDIT to Total Cost should be taken as PLI on account of the difference in rate of depreciation charged by the comparables and the assessee .
Indigra Exports Pvt Ltd v DCIT [TS-509-ITAT-2018(Bang)-TP] IT (TP)A No.488/Bang/2016 dated 22.06.2018

273. The Tribunal accepted assessee’s plea for inclusion of Rs. 37.49cr representing write back in connection with revenue items as part of operating profit for AY 2007-08 but treated write back in connection with purchase of capital goods made in earlier years as non-operating income. It dismissed the TPO’s contention that the write back amount of Rs.37.84cr was non-operating income as it was a mere book entry and not connected with assessee’s business operations. Relying on the co-ordinate bench ruling in Sony India and Gillete Diversified Operations (which were both accepted by Revenue absent appeal on this ground before HC) it held that if the reversal of provision / write back was on account of revenue in nature, it was to be included as part of operating income and if the liabilities originally created were on account of capital items then their write back could not be considered to be a normal instance of business and hence to be excluded as operating income. Considering the assessee’s argument that if such write back amount was included as operating income, the operating margin would be 42.94% as against 14.36% of comparables requiring no TP-adjustment, it remitted the matter back to TPO for the limited purpose of verifying this contention.
Suessen Asia Private Limited (merged with Rieter India Private Limited) vs. ACIT – TS-1055-ITAT-2017(PUN)-TP – ITA No.1629/PUN/2011 dated 20.10.2017

274. The Tribunal rejected assessee’s plea of considering provisions written back as operating income, noting that no specific ground had been raised in respect of the issue. However, the Tribunal stated that the issue of write back related to business taken over by the assessee and therefore any profit arising out of business taken by the assessee constituted capital receipt and cannot form part of the operating income for calculating operating margin of the assessee
Abbott Medical Optics Pvt. Ltd. v DCIT (formerly Advanced Medical Optics India Pvt. Ltd) [TS-517-ITAT-2018(Bang)-TP] IT(TP) A No.08/Bang/2014 dated 22.06.2018

275. The Tribunal upheld TPO/DRP’s consideration of provision for doubtful debts as non-operating item while computing profit margins of comparable and stated that provision for doubtful debts cannot be considered for reduction from the profit as it impacts the profit percentage (which is worked out by dividing such profit of the tested party/comparable by its turnover) since only the numerator would be reduced & not the denominator i.e. turnover would not be reduced because turnover is considered in earlier year and not in the present year and thus opined that provision for doubtful debts has to be ignored and added back in the profit of the tested party or of the comparable
Separately, it remitted comparability of 4 companies namely Persistent Systems Ltd, L&T Infotech Ltd, Tech Mahindra Ltd CG- VAK Software & Exports which were excluded by applying 10 times turnover range back to AO/TPO to be decided considering Chryscapital HC ruling (wherein it was held that huge profit or huge turnover ipso facto did not lead to the exclusion of a comparable and the TPO, first, should be satisfied that such differences did not materially affect the price or cost and if it did, an attempt should be made for making reasonable adjustment to eliminate the material effect of such differences.)
M/s. Marvell India Pvt Ltd vs ACIT Circle 4(1)(2)- TS-253-ITAT-2018(Bang)-TP- ITA No 2173/Bang/2017 dated 06.04.2018

276. The Tribunal relying on the co-ordinate bench ruling in case of Kenexa Technologies held that operating expenses of comparable company should include bad debts and provision for bad debts and directed AO/TPO to re-compute the margins of comparable companies.
Hyundai Motor India Engg Pvt Ltd [TS-503-ITAT-2018(HYD)-TP] ITA No.87/Hyd/2017 dated 08.06.2018

277. The Tribunal remanded the issue of computation of operating profit margins of the comparables back to the file of AO/TPO to be adjudicated after considering the submissions and the relevant material furnished by the assessee to contend that the TPO had considered non operating expenses as operating and hence the operating cost base was incorrect. The DRP had not given any finding on the issue.
GE India Business Services Pvt. Ltd. vs. DCIT [TS-381-ITAT-2018(DEL)-TP] ITA No.1423/Del/2014 dated 18.05.2018

278. The Tribunal upheld CIT(A)’s order vis-à-vis treatment of export benefits received for R&D services as part of operating income considering its direct and intimate connection with export of R&D services transaction. Further, the Tribunal also observed that the said benefit arose from usual activities carried on by the assessee and were part & parcel of the same transaction and therefore, formed part of operating income only.
ACIT vs. Colgate Palmolive (India) Limited [TS-319-ITAT-2018(Mum)-TP] ITA No.2778/Mum/2011 &CO No.126/Mum/2011 dated 04.05.2018

279. The Court dismissed Revenue’s appeal and upheld the Tribunal’s order accepting assessee’s treatment of deferred revenue expenditure (written off over a period of five years) incurred before the start of commercial production as non-operating noting that the Tribunal had rightly observed that deferred revenue expenditure was not in the nature of research and development and not recovered from AE after examining the the agreement with its AE where research and development cost could only be reimbursed by the AE. The Tribunal had also observed that the assessee had suo-moto disallowed the deferred revenue expenditure and it relied on the coordinate bench ruling in Pole to Win wherein it had been held that expenses disallowed while computing taxable income are excluded from operating margin. Thus, the Court rejected the plea of Revenue to treat the deferred revenue expenditure as operating.
Pr.CIT vs. Sabic Research and Technology Pvt. Ltd. – TS-1026-HC-2018(Guj)-TP – Tax Appeal No. 243 of 2018 dated 01.05.2018

280. The assessee made a provision on account of change in stock valuation policy and claimed it to be a non-operating expense on the ground that it was a one-time extraordinary event. The Tribunal noted that the adjustment was made while arriving at ‘Stock valuation of raw material / finished goods/work-in-progress at year end and since there was a discrepancy in the corporate tax treatment of this provision, remitted the matter back to the file of Ld. AO / TPO for appreciation of the factual matrix and re-adjudicate the same and directed the assessee to demonstrate / substantiate his stand in this regard. However, on principles, it held that since the stock valuation was done in accordance with policy adopted by the management, the same constituted part and parcel of assessee’s trading operations.
Vishay Semiconductor India Private Limited vs ACIT – TS-478-ITAT-2018(Mum)-TP – I.T.A. No.7503/Mum/2012 dated 04/05/2018

281. The Tribunal dismissed the assessee’s contention that outsourcing cost incurred by it was non-operating in nature and held that the outsourcing cost was directly related to the software development and services. Noting that the assessee had merely developed a part of the software through outsourcing instead of in-house development and the outsourced work was incorporated in the work of the assessee in the final software prior to providing the same to the AE it held that the TPO had correctly considered the outsourcing cost as operating expense of the assessee
Lionbridge Technologies Private Limited vs. ACIT – TS-438-ITAT-2018(Mum)-TP – I.T.A. No. 7304/Mum/2017 dated 21.05.2018

282. The Tribunal directed the TPO to verify margins of three comparables viz.Liners India, India Nippon Electricals and Lucas-TVS on merits since expenses (i.e. sundry expenses written back and excess provision credited back in the case of Liners, -Bank charges in the case of India Nippon Electricals and Bill discounting and cash discount in the case of Lucas TVS) had erroneously been considered as non-operating. Further, with respect to Liners India, it considered assessee’s contention that TPO had not considered working capital adjustment and that the difference between assessee and the TPO’s margin was due to computation error. It thus directed the TPO to verify and re-compute the same.
The Tribunal directed the TPO to treat the provision of doubtful debts as non-operating as provided in Safe Harbour Rules for AY 2009-10. The Tribunal noted that DRP while dealing with the foreign exchange fluctuation losses in the assessee’s own case had followed Safe Harbour Rules. The Tribunal observed that since AO did not object to the said direction of the DRP, the claim of the assessee with respect to doubtful debts following the similar rules could not be objected to.
Federal Mogul Ignition Products India Ltd (formerly known as Federal Mogul Automotive Products India Pvt Ltd) vs. DCIT [TS-394-ITAT-2018(DEL)-TP] ITA No.2691/Del/2014 dated 14.05.2018

283. The Tribunal directed the AO/TPO to calculate the margins of the comparables after treating the bank charges as operating expenses and remitted the issue back. The Tribunal also observed that the DRP had given clear directions to the TPO that the assessee’s submissions ought to be considered yet the AO has failed to consider the same.
Efacec Switchgear India Pvt Ltd vs DCIT [TS-830-ITAT-2018(DEL) TP] ITA No.7817/Del/2014 dated 13.06.2018

284. In case of an assessee engaged in providing to its AE engineering and design services including offshore construction and drilling in oil and gas sector, the Tribunal deleted TP-adjustment and noted that for working out assessee’s PLI, using TNMM, the TPO had allocated operating cost considering man hours committed for AE (81,962 hrs) instead of man-hours actually utilized for AE (8,695 hrs) and accordingly, arrived at TP adjustment. The Tribunal accepted assessee’s contention that man-hours actually utilized should be considered as allocation key and not man-hours committed to AE and held that different yardsticks cannot be adopted for cost allocation to AE and non-AE segment. The Tribunal observed that man-hours actually utilized for AE was only 2% of total man-hours utilized and thus, applying the same for cost allocation purpose, concluded that the assessee’s transaction would be at ALP.
M/s Triune Energy Services Pvt. Ltd. Vs DCIT Circle 25(2), New Delhi- TS-424-ITAT-2018(DEL)-TP- ITA No. 1744/Del/2015 dated 27.04.2018

285. The Tribunal upheld assessee’s approach of benchmarking the international transaction of export to AE by using external comparables with net profit to sales as PLI as against TPO’s approach of adopting internal comparables in the form of domestic sales with net profit to cost as PLI, relying on the Tribunal’s order in the assessee’s own case for previous year wherein it was held that while applying TNMM on aggregate basis, since various transactions are interlinked, comparison had to be made with uncontrolled transactions.
It further held that procurement services were to be aggregated with manufacturing for the purpose of benchmarking after relying upon Delhi HC ruling in Sony Ericsson case and Tribunal’s ruling in assessee’s own case for previous AY. Further, the Tribunal held that the benefit of 5% varaitaion would not be available if the variation did not exceed the tolerance band.
Cummins India Ltd-TS-805-ITAT-2018(PUN)-TP ITA No. 309/Pun/2014 dated 15.05.2018

286. The Tribunal remitted the matter back to the Assessing Officer to consider the assessee’s claim of adopting the PLI of net margin/operating revenue. The assessee engaged in the business of supporting services had used the services of its AE vis-à-vis marketing support services. The TPO had rejected the assessee’s method of computing PLI i.e. operating profit/ total cost and was of the view that in case of operating profit of marketing support service, the PLI should be net margin divided by marketing cost. The Tribunal rejected the contention of the TPO on the ground that in the instant case the ALP of the marketing costs had to be determined and hence could not be considered as a denominator.
First Source Solutions Ltd v/s. ACIT [ TS-423-ITAT-2018 (Mum)] ITA No.3094/Mum/2014 dated 01.06.2018

287. The Tribunal dismissed Revenue’s appeal and upheld the DRP’s order of adjustment to PLI of comparables on account of higher cost of import duty on materials noting that co-ordinate bench in assessee’s own case in earlier years had remitted the issue in light of the coordinate bench decision of Skoda auto India to examine the claim of the assessee vis-à-vis higher import cost incurred by it compared to the comparables and eliminate the difference which was materially likely to affect the profit in open market in terms of Rule 10B(3).
DCIT v Terex India Pvt. Ltd [as successor of Demag Cranes and Components (India) Pvt. Ltd] [TS-477-ITAT-2018(PUN)-TP] ITA No.552 & 583/Pun/2016 dated 06.06.2018

288. The Tribunal upheld CIT(A)’s allowance of adjustment of expenses on recall of products for AY 2005-06 which failed quality check conducted by AE, accepting that it was extraordinary event leading to abnormal cost. It further observed that TPO had allowed adjustment for expenses incurred by customer and reimbursed by assessee, however CIT(A) had rightly enhanced adjustment to cover expenses relating to goods recalled and lying in factory.
However, the Tribunal reversed the CIT(A)’s direction to grant adjustment of Rs. 10.73 Cr towards higher cost incurred on material procured from AE which was supplied to customer at lesser price. It held that merely because the assessee had imported a new product from its sister concern for onward supply and subsequently, the prices stabilized, it did not make the cost as extraordinary. Further, it held that it was on account of increase in the cost of production which is in the normal course of business.
Further it remanded back the issue of adjustment on account of valuation of the inventory of ‘Unicorn’ products (where realizable value was less than the cost) allowed by CIT(A) while noting that risk of diminution in value of inventory was inherent in business. The Tribunal held that any claim to treat expenditure as extra-ordinary and not arising in normal course of business needs to be demonstrated with strict evidence.
Munjal Showa Ltd [TS-345-ITAT-2018(DEL)-TP] ITA No.3296/Del/2013 dated 14.05.2018

289. The Tribunal remitted TP-issue for fresh consideration in case of an assessee engaged in Jewellery business and rejected TPO’s comparison of PLI of MD Overseas Ltd (comparable) [-1.14%] with the PLI of assessee’s non-AE segment [6.36%] to arrive at adjusted margin of Non-AE segment at 7.5% [6.36%+1.14%]. The Tribunal remitted the issue to the file of the AO to refer the matter afresh to the TPO for further TP study.
Joy Alukkas vs ACIT Corporate Circle 1(2)-TS-374-ITAT-2018(COCH)-TP- ITA No 190/Coch/2015 dated 10.04.2018

Restrict adjustment to AE transactions

290. The Tribunal rejected TPO’s application of entity level approach for benchmarking assessee’s international transactions for AY 2009-10 and following the ruling of the co-ordinate bench in the assessee’s own case for the earlier year (ITA/7868/M/2010) which was upheld by the High Court (ITA No.1873 of 2013) held that TP-adjustment should be restricted to international transactions.
Hindustan Unilever Limited v Addl. CIT – TS-21-ITAT-2018(Mum)-TP – I.T.A./1321/Mum/2014 dated 05/01/2018

291. The Tribunal remitted the computation of TP-adjustment on representation services rendered by the assessee to its AE to the file of the TPO for fresh consideration noting that while computing the TP adjustment, the TPO had included the non-AE transactions as well. Observing that the TPO failed to take into consideration the segmental results of the assessee, the Tribunal directed the TPO to examine the same and compute ALP accordingly.
Messe Dusseldorf India Pvt Ltd vs. DCIT – TS-33-ITAT-2018(DEL)-TP – ITA No.5059/Del./2010 dated 04.01.2018

292. The Tribunal ruled against Revenue’s consideration of entity level margin under TNMM to determine ALP of its international transactions of providing software development services despite presentation of segmental results (albeit unaudited) by assessee. It noted that while TPO had complete opportunity to examine the segmental results, he instead simply rejected the segmental result by citing reason that transaction with non-AE is minuscule. It placed reliance on the decisions of Lummus Technology as well as Honeywell Electrical (which in turn relied on 3i Infotec ruling) wherein it was held that segmental results could not be rejected on the ground that the same were not audited and TPO/DRP was required to examine the same if the same were maintained in the ordinary course of business. It held that only international transactions with AEs were to be adjusted for ALP adjustment since non-AE transactions operate on a different model. Accordingly, it remanded the matter to the TPO for fresh adjudication taking into account the assessee’s segments.
CSR Technology (India) Pvt. Ltd. vs. ACIT – TS-1071-ITAT-2017(DEL)-TP – ITA No.1895/Del./2017 dated 14.12.2017

293. The Tribunal reversed the DRP order wherein the DRP made entity level TP-adjustment and held that rules that TP-adjustment has to be made only in respect of transactions with AE after comparing the transaction made by similarly placed companies in uncontrolled transaction with non-AEs. Thus, it set aside DRP’s order and remitted the matter back to AO.
Yongsan Automotive India Pvt. Ltd. vs. ACIT – TS-1046-ITAT-2017(CHNY)-TP – /ITA No.357/Mds/2017 dated 16.11.2017

294. Where the TPO made a TP-adjustment by considering total costs incurred by assessee in respect of transactions with AEs and non-AEs, the Tribunal held that under TNMM it was not permissible to make transfer pricing adjustment by applying the average operating profit margin of the comparables, on the assessee’s universal transactions entered into with both the AEs and non-AEs. It held that the entire exercise under Chapter-X of the Act is confined to computing total income of the assessee from international transactions having regard to the arm’s length price and there was no scope for computing income from non-international transactions also having regard to the ALP. Accordingly, it remitted the matter back to AO/TPO for deciding the issue afresh;
Syniverse Technologies Services (India) Pvt. Ltd. vs. ACIT – TS-169-ITAT-2018(DEL)-TP – ITA No.500/Del/2018 dated 13.03.2018

295. The Tribunal dismissed Revenue’s appeal and restricted TP Adjustment only to assessee’s international transactions, as against TPO’s computation of assessee’s PLI on entire sales, by relying on the HC ruling in case of Thyssen Krupp Industries and upheld the CIT(A) order.
ACIT Circle-1 nashik vs M/s. Haldex India Ltd.- TS-357-ITAT-2018(PUN)-TP- ITA No 1731/PUN/2015 dated 25.04.2018

296. The Court dismissed Revenue’s appeal and upheld restriction of TP adjustment only to assessee’s International transactions. Further, the Court upheld Rajasthan Udyog &Tools Ltd & HITCO Tools as comparable on the ground that the Tribunal rendered a finding of fact and the Department had not attempted to show that the finding was perverse and/or arbitrary and thus no question of law arose.
PCIT-5 vs Sandvik Asia Pvt Ltd-TS-315-HC-2018(BOM)-TP- ITA no 1088 of 2015 dated 26.04.2018

297. The Tribunal upheld CIT(A)’s order and directed AO/TPO to re-compute TP adjustment with regard to the international transactions only and to exclude third parties.
DCIT 8(3) Mumbai vs Tara Jewels-TS-309-ITAT-2018(Mum)-TP- ITA no 1385/Mum/2014 dated 12.04.2018

298. The Tribunal dismissed Revenue’s appeal and upheld the CIT(A)’s order accepting that the adjustment should be made vis-à-vis AE transaction only. It relied on the Bom HC ruling of Tara Jewel Exports Ltd., ThyssenKrup and Goldstar Jewellery Design
SAP Labs India Pvt Ltd vs Addl CIT [TS-298-ITAT-2018(Bang)-TP] CO No.41 (Bang) of 2016 dated 06.04.2018

299. The Court dismissed Revenue’s appeal and upheld the Tribunal’s order wherein the AO/TPO was directed to benchmark only the transactions only with AE and not at the entity level.
Pr. CIT vs. Petro Araldite Pvt. Ltd [TS-446-HC-2018 (Bom)] ITA No.368 of 2015 dated 06.06.2018

300. The Tribunal relying upon the coordinate bench in Demag Cranes & Components directed the AO/TPO to restrict TP-adjustment only to international transactions with the AE’s.
Terex India Pvt. Ltd (as successor of Demag Cranes and Components (India) Pvt. Ltd) vs. DCIT [TS-477-ITAT-2018(PUN)-TP] ITA No.583/Pun/2016 dated 06.06.2018

Risk Adjustment

301. The Tribunal admitted Revenue’s appeal by refusing to accept DRP’s 1% risk adjustment to the average margin by arbitrarily relying on Intelligent and Hello Soft rulings to account for the risk differential between assessee and comparable companies. Noting that the risk adjustment workings were not provided by assessee before DRP and DRP’s order was also cryptic, it restored matter to file of DRP for fresh decision by way of a speaking and reasoned order.
ACIT v Momentive Performance Materials (India) Pvt. Ltd – TS-24-ITAT-2018(Bang)-TP – IT(TP)A No. 385/Bang/2016 dated 08.12.2017

302. The Tribunal held that though OECD guidelines allows a risk adjustment wherever necessary, it does not say that any such adjustment was to be given merely based on estimates. It distinguished the ruling of the Bangalore ITAT ruling in Philips Software Centre which had allowed a flat risk adjustment of 5.25% and noted that the order had been stayed by HC and also distinguished Delhi Tribunal’s decision in Sony India ruling which had also allowed a flat 20% as a fair and reasonable risk adjustment and opined that the essential requirement for allowing a risk adjustment was that the assessee should quantify the risk adjustment in its TP documentation based on a clear and logical workings, considering the risk profile of tested party and comparables companies and not based on surmises. Further, it held that just because the assessee was serving a single customer would not mean that it was bearing market risk different from any other competitor and therefore denied the assessee’s claim of 5% risk adjustment.
Infac India Pvt. Limited vs. DCIT – TS-387-ITAT-2018(CHNY)-TP – I.T.A. No.3195/CHNY/2017 dated 03-05-2018

303. The Tribunal upheld the DRP order rejecting assessee’s claim for risk adjustment in the absence of any working and held that (i) the DRP had rightly rejected the assessee’s claim for risk adjustment and held that the assessee’s claim was only a theoretical one since it could not quantify the difference in risk adjustment between the tested party and comparables.(ii) the TPO had also given a categorical finding that the assessee had not been able to demonstrate the risk difference, thus in absence of working it dismissed the assessee’s appeal.
Tecnotree Convergence Pvt Ltd vs DCIT [TS-925-ITAT-2018(Bang)-TP] IT (TP) A No.1616/Bang/2017 dated 27.06.2018

304. With respect to the allowance of risk adjustment by the Tribunal, the Court observed that Tribunal had recorded the fact that the necessary material supporting assessee’s claim (i.e. detailed working of risk adjustment using CAPM) was given by the assessee to the DRP before passing the order which was not shown to be perverse by the Revenue.
CIT vs Watson Pharma Pvt Ltd [TS-480-HC-2018(BOM)-TP] ITA 124 of 2014 dated 25.06.2018

Segments

305. The Tribunal upheld the CIT(A) order deleting TP-adjustment (made in the manufacturing segment of the assessee) on royalty paid by assessee to AE. It held that the TPO was unjustified in rejecting assessee’s segmental profitability working (wherein royalty was allocated to the manufacturing as well as trading segments) and in allocating the entire royalty to the manufacturing segment considering that the royalty agreement provided that the assessee had to pay royalty on goods manufactured as well as traded. Further, the TPO had also included the entire depreciation in the financials towards the manufacturing segment of the assessee which was rightly corrected by the CIT(A) who noted that the amortization of goodwill and other intangibles on acquisition of unit from Hindustan Lever Ltd was to be treated as extra-ordinary item and that the balance depreciation had to be allocated to all segments. It also noted that as even if the TPO’s faulty re-casted segments were considered, the margin of the assessee was still higher than the margin of the 5 comparable companies and accordingly, it held that there was no fault in the order of the CIT(A).
ACIT v Diversity India P Ltd (Formerly known as Johnson Diversity India P Ltd) – TS-85-ITAT-2018(Mum)-TP – I.T.A./305/Mum/2012 dated 03/01/2018
306. The Tribunal upheld assessee’s contention that while determining ALP of software development services rendered to AE, the segmental result of AE-transactions was to be compared and not entity -level results. It noted that the assessee (engaged in telecom software development for domestic and European market) was incorporated to provide services to third parties, however, due to surplus workforce and other resources availability, it started rendering services to AE and revenue from AE was 43% of total revenue. Further, it observed that for the purpose of arriving at the segmental profits, it observed that assessee had applied scientific method of allocating expenses based on man-hours spent and the same method was applied in APA signed by assessee in other years. It accepted assessee’s contention that if segmental profitability was compared, assessee’s PLI would be within 5% range of comparables’ margin and accordingly held that no TP-adjustment would be required.
Tieto IT Services India Pvt Ltd vs. DCIT – TS-155-ITAT-2018(PUN)-TP – ITA No.242/PUN/2015 dated : 07.03.2018

307. The Tribunal remitted assessee’s international transaction of provision of BPO services back to the AO/TPO for verification after considering segmental results. The Tribunal noted that TPO had rejected the segmental results for want of adequate details and justification for allocation of common expenditure and thereafter accepted assessee’s plea that segmental results were available on record and allocation of common expenditure details were also submitted. Thus, the Tribunal remitted the file back for re-adjudication.
Your Lifestyle Pvt Ltd vs DCIT 14(3)(1)- TS-288-ITAT-2018(Mum)-TP- ITA No 314/Mum/2016 dated 13.04.2018

Working capital adjustments

308. The Tribunal dismissed Revenue’s appeal and upheld the DRP’s order directing TPO to grant working capital adjustment to assessee based on the calculation of working capital adjustment furnished by the assessee. Regarding the TPO’s objection that assessee had not demonstrated that there was a difference in the levels of working capital employed by it vis-a-vis the comparables which affected price, the Tribunal upheld the finding of the DRP i.e. that holding of inventories, trade debtor/creditors, trade receivable/payable has always an interest cost and also accepted DRP’s finding that the average of opening and closing balance of debtors/ creditors would give representative level of working capital over the year.
ITO v H&S Software Development & Knowledge Management Centre Pvt Ltd – TS-41-ITAT-2018(DEL)-TP – ITA No. 6662/Del/2014 dated 04.01.2018

309. The Tribunal, pursuant to the assessee’s miscellaneous petition against the original Tribunal order (wherein the issue of working capital adjustment was not adjudicated upon) accepted assessee’s contention that the matter be sent back to AO to allow the working capital adjustment based on the actual numbers of the comparables.
Zyme Solutions Pvt. Ltd vs. ACIT – TS-156-ITAT-2018(Bang)-TP – IT(TP) A No 85 / Bang / 2016 dated 09.02.2018

310. The Tribunal relying on Demag Cranes & Components allowed assessee’s claim for working capital adjustment.
Further, the Tribunal allowed admission of additional evidence filed by assessee with respect to its transactions relating to cost allocation and cost recharges from its AE and remitted back the computation of ALP to the file to AO/TPO for fresh adjudication considering the additional evidences filed.
Lear Automotive India P Ltd. Vs DCIT Circle- 9 Pune – TS-355-ITAT-2018(PUN)-TP- ITA No 515/Pun/2014 dated 26.04.2018

311. The Tribunal granted working capital adjustment to assessee engaged in IT enabled services to its AE, by holding that working capital difference could materially affect the amount of net profit margin in the open market and hence was allowable as adjustments
Stefanini India Pvt Ltd vs ITO Ward 3(4)- TS-338-ITAT-2018(DEL)-TP- ITA No 5479/Del/2016 dated 25.04.2018

312. The Tribunal upheld the DRP’s order directing the TPO to give working capital adjustment while working out the average margin of comparables noting that the direction of DRP was justified view of the impact of trade receivables, trade payables and inventory on interest cost.
Dy.CIT vs JDSU Indian (P.) Ltd. [ 2018] 93 taxmann.com 295(Delhi-Trib) ITA No.1120 of 2015 dated 02.04.2018

313. The Tribunal remitted the issue of risk adjustment to AO/TPO for fresh consideration since in the subsequent year in AY 2011-12 in assessee’s own case, the same was allowed by the Tribunal.
Rolls Royce India Pvt. Ltd vs. DCIT [TS-367-ITAT-2018(DEL)-TP] ITA No.1042/Del/2014 dated 02.05.2018

314. The Tribunal dismissed Revenue’s appeal against DRP order allowing working capital adjustment in respect of assessee’s international transactions for AY 2011-12. The Tribunal noted that DRP had considered various judicial decisions while allowing working capital adjustment and Revenue did not bring on record any contrary decision to rebut it. The Tribunal observed TPO had actually allowed working capital adjustment after considering assessee’s detailed computation of margin of comparables.
DCIT vs. Kyocera Asia Pacific India Pvt. Ltd [TS-376-ITAT-2018(DEL)-TP] ITA No.1029/Del/2016 dated 17.05.2018

315. The Tribunal relied on co-ordinate bench ruling in Capgemini India Private Limited and held that working capital adjustment should be granted to account for differences in working capital employed by the assessee and the comparable companies. The Tribunal accepted the assessee’s contention that in case of companies additionally identified by TPO, the TPO had wrongly considered the unadjusted margins.
Aramex India Pvt. Ltd vs. DCIT [TS-351-ITAT-2018(Mum)-TP] ITA No.6749/Mum/2017 dated 18.05.2018

316. The Tribunal upheld the CIT(A) and the AO’s order rejecting/denying the assessee’s claim for working capital adjustment since the assessee had not furnished sufficient data for proving the said claim. It noted that the assessee had not taken the actual rate of interest paid on the loans by itself or the comparables but considered the prime lending rate @18.5% and there was no data pointing out whether the actual rate of interest paid was @18.5% or if there was any deviation. The Tribunal thus opined that the claim of working capital adjustment at 3.18% was based on mere estimate.
Infac India Pvt Limited (TS-387-ITAT-2018(CHNY)-TP) – I.T.A. No.3195/CHNY/2017 dated 03-05-2018

317. The filed a Miscellaneous petition for rectification of the Tribunal’s mistake in not adjudicating the ground raised by the assessee against the TPO’s action of unreasonably restricting the working capital adjustment to 1.63%, whereas the TPO had himself worked out the same at 2.72% (before such unreasonable restriction). The Tribunal allowed the assessee’s petition and directed the TPO to allow adjustment of 2.72%, following the decision in the case of Zyme Solutions Pvt. Ltd. v ITO [M.P. No.36/Bang/16 in TP(TP) No.465/Bang/2015] wherein the TPO had similarly restricted the said adjustment on identical reasoning and the Tribunal had directed the TPO to compute adjustment based on actual figures from the final list of comparables without such restriction.
Obopay Mobile Technology India Pvt. Ltd v DCIT [TS-525-ITAT-2018(Bang)] IT(TP)A No.238/Bang/2016 dated 04.06.2018

318. The Tribunal dismissed the assessee’s appeal against the TPO/ AO’s computation of negative working capital adjustment on the margins of the comparable companies (thus increasing the said margins), where the asessee claimed that it did not bear any working capital risk as it did not have any borrowings and thus no working capital expenditure was incurred. The Tribunal held that the working capital risk and whether there is interest burden or not are not relevant factors for deciding working capital adjustment since the said adjustment is done because working capital position affects the pricing of any service or goods in the open market. In the present case, the TPO had given a finding that working capital position affected the pricing. The Tribunal also refused to follow binding decision relied upon by the assessee for deletion of working capital adjustment wherein adjustment was made for the time value of money lost when credit time is provided to the customers. According to the Tribunal, the aforesaid stand of the assessee had no basis since in TP analysis comparison is made of profit before interest and therefore the interest cost has no relevance. It also held that in those decisions, the aspect that working capital position affects the pricing of any goods and services was not dealt with.
Tecnotree Convergence Pvt Ltd vs DCIT [TS-925-ITAT-2018(Bang)-TP] IT (TP) A No.1616/Bang/2017 dated 27.06.2018

319. The Tribunal directed the AO to compute working capital adjustment only on the opening & closing balance of working capital employed at the beginning and end of the year by relying on the co-ordinate bench ruling in assessee’s own case in AY 2009-10.
Degania Medical Devices Pvt Ltd v Dy.CIT [TS-523-ITAT-2018(DEL)-TP] ITA No.1254/Del/2015 dated 27.06.2018

+ / – 5% adjustment

320. Noting the assessee’s contention that the price of exported items charged to its AE would be at ALP if an adjustment of commission expenses was granted in the price from unrelated parties and the assessee was granted the +/- 5 percent adjustment, the Tribunal remitted the matter to the file of the TPO for fresh adjudication as the supporting details for adjustment in commission were not provided by the assessee.
DCIT v JSL Ltd. – [TS-1079-ITAT-2017(DEL)-TP] – ITA No.4111/Del/2013 dated 03-11-2017

321. The Tribunal remitted the ALP determination of the assessee’s international transaction of purchase of automotive parts directing the AO to verify assessee’s claim that ALP is within 5% tolerance range. It noted that the TPO made a downward adjustment of Rs.1.92 crore in respect of international transaction, price of which was Rs.40.24 crore and had therefore arrived at an ALP of Rs.38.32 crore and held that based on the aforesaid figures, the contention of the assessee that the ALP determined by the TPO was within ±5% range as provided in the second proviso to section 92C(2) prima–facie appeared to be correct. It held that as per the said proviso, the ±5% range was applicable to the arm’s length price and not arm’s length profitability. Accordingly, it remitted the matter back to AO to verify the working of 5% and held that that if the assessee’s claim was found to be correct, no TP-adjustment was to be made.
DCIT vs. Exedy India Ltd. (Formerly known as Ceekay Daikin Limited) – TS-160-ITAT-2018(Mum)-TP – ITA no.7220/Mum./2016 dated 21.02.2018

322. The assessee was engaged in in foreign inward money transfers, buying and selling of foreign currencies and traveller’s cheques, air ticketing, corporate agency for insurance and provision of other exchange house services. With respect to the assessee’s international transaction of selling foreign currency to its AE, the TPO applied RBI reference rate as the ALP and computed the TP adjustment without giving the 5% tolerance benefit under proviso to Sec 92C(2) on the ground that the said benefit was not available when the ALP is determined based on only one price/ rate. DRP upheld the TPO’s order. The Tribunal set aside the TPO/ DRP’s order denying 5% tolerance benefit under proviso to Sec 92C(2) relying on the co-ordinate bench ruling in assessee’s own case for an earlier year wherein it was held that the assessee was justified in claiming benefit under proviso to Sec 92C(2) as the RBI reference rate itself was derived as an average of several rates. It also noted that the DRP had confirmed the TP-addition primarily on the ground that the Revenue had appealed before HC against Tribunal orders of earlier years. Thus, the Tribunal held that till the time the co-ordinate bench order was not reversed it would hold good for the present case and accordingly it set aside the TPO/DRP’s order
UAE Exchange & Financial Services vs DCIT Circle 7(1)(1) TS-261-ITAT-2018(Bang)-TP- IT(TP) No 2788/Bang/2017 dated 13.04.2018

Others

323. The Tribunal rejected AO’s attribution of 50% profits made by Corning SAS in France (AE), from direct sales made in India, to its India Branch office (BO) noting that the BO earned commission income @ 3% on direct sales made by it to customers in India and that in all other AYs (preceding as well as succeeding), AO himself had accepted the 3% commission without attributing additional profits to BO in respect of direct sales made by Corning SAS France in India. It rejected AO’s assignment of a relative weightage of 60% to the assets utilized by the BO [without providing any rational basis], observing that the BO only provided sales representation services in India and the same prima facie did not involve utilization of assets. Since the sales made by Corning SAS France to the Indian customers were wholly channeled through the BO for which it was remunerated with 3% commission and no substantial functions were performed, and no risks undertaken or assets were employed by BO in India in relation to the direct sales made by Corning SAS France in India, the Tribunal held that no additional profit in addition to the 3% commission income earned, was required to be attributed. Further, stating that “the Economic Nexus is an important feature for Attribution of Profits (profits attributable to the PE) in Corporate World”, it held that the ratio of Morgan Stanley SC ruling was applicable to the present case as there was no direct economic nexus between the assessee and the Corning SAS, France in respect of the transaction in dispute.
Corning SAS- India Branch Office (Formerly known as Corning SA-India Branch Office) vs. DDIT – TS-421-ITAT-2018(DEL)-TP – I.T.A .No. 4678/Del/2010 dated 30.05.2018

e. Specific Transactions

Advertisement, Marketing and Promotion expenses

324. The Tribunal deleted the AMP-adjustment made by TPO/DRP on alleged engagement by assessee (trader of life saving devices) in brand promotion on behalf of its AE by i) rejecting TPO’s application of the Bright Line Test to assess the alleged AE-benefit and arrive at an arm’s length compensation by observing that no such method was prescribed under the Act and the Rules; and ii) observing that in the absence of any agreement for sharing AMP expenses between the assessee and the AE, the marketing expenditure of the assessee could not considered as an international transaction. It noted that the agreements between the assessee and the AE in the present case merely mentioned “best efforts to market and distribute the product or promote the products in a commercially reasonable manner”, but did not contain any ‘condition’ or ‘indication’ about sharing of AMP expenses.
It held that if the AE was benefitted indirectly by the AMP expenditure incurred by the assessee, it could not be held that the assessee and the AE had entered into agreement for sharing AMP expenses.
India Medtronic Private Limited vs. DCIT – TS-38-ITAT-2018(Mum)-TP – /I.T.A./1600/Mum/2015 dated 17.01.2018

325. Where the Tribunal in the first round of proceedings had remitted the AMP TP adjustment back to the TPO with the specific direction to recompute the ALP after allowing marketing expenses as a deduction but the TPO proceeded to determine ALP afresh, the Tribunal, in the second round of proceedings, remitted the issue back to the TPO observing that the TPO had not been granted any discretion in the first remand and directed the TPO to to calculate ALP exactly in the way directed by it in the first round of proceedings.
St. Jude Medical India Pvt. Ltd vs. DCIT – TS-64-ITAT-2018(HYD)-TP – ITA No.1425/Hyd/2014 dated 24.01.2018
326. The Tribunal, in second round of proceedings, remitted the AMP-issue back to AO/TPO for determining ALP afresh. It noted that, in first round of proceedings, the Tribunal had remitted matter back to AO/TPO for determining AMP-adjustment by applying Special Bench ratio in LG Electronics and also giving certain specific directions for such computation. It rejected assessee’s contention that credit notes issued by foreign AE were towards compensation for brand promotion observing that they were only in respect of sales price of product to assessee and not to compensate it for other expenses and therefore held that such credit notes could not be considered as reimbursement of AMP expenses. Regarding assessee’s claim for exclusion of selling expenses from the base amount of AMP-expenses, the Tribunal remitted the matter back to AO/TPO for deciding the same after stressing that each and every item of expenditure should be properly examined for ascertaining if it was for promotion of sales or in connection with the sales It rejected the assessee’s contention that incurrence of AMP-expenses is not an international transaction as this issue was not raised in first round of proceedings and Tribunal had not restored the entire AMP issue to be decided de novo.
Motorola Solutions (India) Pvt. Ltd vs. DCIT – TS-102-ITAT-2018(DEL)-TP – ITA No. 1933/Del/2017 dated 07.02.2018
327. The Court dismissed Revenue’s appeal against the order of the Tribunal setting aside the TPO’s application of bright line method in determining whether the advertisement, marketing and promotional (AMP) expenses incurred by the assessee amounted to an international transaction and remanding matter to AO/TPO. It noted that Special Bench’s decision in LG Electronics India case (upholding the use of Bright Line Test) was set aside by the High Court judgment in Sony Ericsson Mobile Communication and accordingly held that no question of law arose.
Pr. CIT vs. Sony India Pvt Ltd – TS-137-HC-2018(DEL)-TP – ITA 159/2018 dated 09.02.2018

328. The Tribunal remitted the issue of TP-adjustment on Advertising, marketing and promotion (AMP) expenses incurred by assessee for fresh consideration following earlier year ITAT order wherein the co-ordinate bench directed the AO/TPO to decide on existence of international transaction and also to exclude selling expenses from ALP-computation.
Daikin Airconditioning India Pvt. Ltd. v DCIT – TS-176-ITAT-2018(DEL)-TP – ITA Nos.2536/Del/2014

329. The Tribunal deleted TP-adjustment on Advertising, Manufacturing and Publicity (AMP) expenses incurred by the assessee absent any agreement/arrangement with AE for incurring of AMP-expenses. It observed that the assessee was a new entrant in the field of manufacturing & sale of cosmetic/personal care products and had incurred AMP expenses to promote its products to compete with similar products of other players. It held that there was a subtle but definite difference between product promotion and brand promotion, i.e. in the first case product is the focus of the advertisement campaign and the brand takes secondary or back seat, whereas in second case, brand is highlighted and not the product and held that since the basic purpose for incurring expenses by assessee was to expand its business in India and not to look after AE’s interest, it could safely be said that the expenses incurred by the assessee were wholly and exclusively for its own business and not an international transaction. Accordingly, it deleted the TP adjustment.
Nivea India Pvt. Ltd vs. ACIT – TS-187-ITAT-2018(Mum)-TP – /I.T.A./7744/Mum/2012 dated 21/03/2018

330. In assessee’s appeal against the Tribunal’s order remanding Advertising, Marketing and Promotion (AMP) adjustment back to TPO/AO, the Court noted that TPO made the adjustment on account of AMP’s expenses on the basis of bright line test and the Tribunal remanded the same to TPO/AO for re -examination. Further the Court observed that TPO/DRP had applied the reasoning of HC judgement in case of Sony Ericsson Mobile Communication and thus the Court stated that the Tribunal ought to address the issue in light of the Court findings and thus directed the Tribunal to consider the matter afresh and report on the merits of the case.
Callaway Golf India P Ltd Vs PCIT-2- TS-300-HC-2018(DEL)-TP-ITA No 106/2018 dated 20.04.2018

331. The Tribunal dismissed Revenue’s appeal challenging deletion of AMP-adjustment in case of assessee engaged in the business of production, marketing and sale of instrument, implants and biomaterials for surgical fixation and noted that issue was covered against Revenue by order of co-ordinate bench in assessee’s own case for previous AY’s wherein AMP-adjustment was deleted after noting that assessee had made payment under AMP head for promotion of its own business and there was no agreement between assessee & AE for sharing AMP-expenses.
Synthes Medical Pvt Ltd vs JCIT LTU-1- TS-266-ITAT-2018(Mum)-TP- ITA No. 1784/Mum/2016 dated 13.04.2018

332. The Tribunal remitted back to AO/TPO AMP-adjustment in respect of assessee engaged in the business relating to import, manufacture, sale and export of all kind of high end crystal components for jewellery, fashion accessories and home decoration after following co-ordinate bench ruling in assessee’s own case for previous AY wherein AMP-issue was remitted for determining existence of international transaction following HC decisions in various cases including Sony Ericson, Rayban Sun Optics & Toshiba India.
Swarovski India Pvt Ltd vs ACIT Circle 22(2)- TS-250-ITAT-2018(Del)-TP-ITA No 4080/Del/2013 dated 02.04.2018

333. The assessee ‘Fujifilm’ had an Indian branch which was engaged in import and resale of Fujifilm products in India and ‘Provision of marketing and technical support services’ to its head office. The TPO observed that huge AMP expenditure was incurred by the Indian branch on promoting the brand name ‘FUJI’ and considered the said AMP expenses as a separate international transaction and proposed the transfer pricing adjustment by applying the bright line test. On appeal, the Tribunal restored the matter back to the TPO and held that the bright line test could not be applied for determining ALP of international transactions of AMP expenses and stated that the TPO applied the bright line test as he did not have any occasion to consider the ratio laid down in various judgments of jurisdictional High Court. The Tribunal further held that as per Article 7 and Article 9 of DTAA between India and Japan, though deduction of AMP expenses was to be allowed but simultaneously, ALP of AMP expenses for brand promotion was also to be determined and the adjustments to the profits had to be made accordingly.
Fujifilm Corporation v. ITO – [2018] 92 taxmann.com 411 (Delhi – Trib.) – IT APPEAL NOS. 5826 (DELHI) OF 2011 & 195 (DELHI) OF 2013 dated APRIL 4, 2018

334. The Tribunal deleted the TP adjustment of AMP expenses by following the High Court ruling in assessee’s own case stating that TP adjustment was not sustainable as the Revenue failed to demonstrate existence of international transactions. Further, it deleted TP adjustment on royalty payment made to AE by relying on assessee’s previous tribunal judgement, wherein it was held that if goods are sold on principal to principal basis, disallowance of royalty on export was unjustified.
Honda Siel Power Products Ltd vs DCIT Circle 11(1)- TS-402-ITAT-2018(DEL)-TP- ITA No. 1579/DEL/2017 dated 17.04.2018

335. The Tribunal deleted the AMP adjustment by relying upon the decision of coordinate bench in assessee’s own case for AY 2010-11 wherein it was held that in absence of any agreement/arrangement between the assessee and its AE for sharing of AMP expenses, it could not be termed an international transaction.
India Medtronic Private Limited vs. DCIT [TS-400-ITAT-2018(Mum)-TP] ITA No.7555/May/2012 dated 04.05.2018

336. The Tribunal deleted the TP adjustment on AMP expenses incurred by the assessee following the coordinate bench decision in assessee’s own case for earlier year which had relied on the coordinate bench decision of Thomas Cook to hold that the in absence of agreement between the assessee and AE for sharing of AMP expenses, it was not an international transaction. It also noted that the TPO erred in applying BLT to determine the existence of international transaction after the HC decision in Sony Ericsson. Thus, the Tribunal allowed the assessee’s appeal.
India Medtronic Private Limited vs DCIT [TS-318-ITAT-2018(Mum)-TP] ITA No.1246/Mum/2016 dated 02.05.2018

337. The Tribunal deleted the AMP-adjustment for assessee [engaged in manufacturing and marketing of diversified pharmaceutical products] in absence of any agreement obliging assessee to undertake brand building on AE’s behalf for AYs 2005-06 & 2007-08. The TPO proposed AMP-adjustment and noted that sales on which royalty was being paid by assessee had recorded a faster growth and AMP expenses [which were the driving force for enhancing business] were to be shared by overseas AE in proportion to benefit accruing to it. It rejected revenue’s only argument that brand value of assessee group as a whole had reflected healthy growth during the period 2000-2006. The Tribunal observed that there was no evidence to demonstrate the co-relation between the growth and quantum of AMP-expenditure, and hence the addition on basis of mere surmises could not be sustained. It distinguished Sony Ericsson ruling as it was rendered in the context of distributor of products manufactured by foreign AE and further relied on Bombay HC ruling in Johnson & Johnson and various Delhi HC rulings including Maruti Suzuki & Bausch & Lomb and deleted the AMP adjustment.
ACIT vs. Colgate Palmolive (India) Limited [TS-319-ITAT-2018(Mum)-TP] ITA No.6073/Mum/2014 &CO No.243/Mum/2014 dated 04.05.2018

338. The Court remitted the issue pertaining to advertising, marketing and promotion expenditure and directed the Tribunal to carry out necessary inquiry if needed by resorting to a limited remand to the TPO/DRP as the case may be and decide whether the AMP expenses in the instant case involved international transaction and if so, to what extent.
Vodafone Mobile Services Ltd [TS-419-HC-2018(DEL)-TP] ITA 660/2018 dated 01.06.2018

339. The Tribunal deleted the assessee’s AMP adjustment made by TPO in the second round of proceedings on a ‘protective’ basis for AY 2009-10 by relying upon the co-ordinate bench ruling in assessee’s own case for subsequent years.The Tribunal, at the outset, noted that the addition proposed by TPO was on a ‘protective’ basis and no substantive addition had been made. The Tribunal relied on Delhi HC ruling in Sony Ericsson that Bright Line Test Method cannot be applied for making any kind of adjustment under AMP expenses.
Toshiba India Private Limited vs ACIT [TS-609-ITAT-2018(DEL)-TP] ITA No. 1438/Del/2018 dated 18.06.2018

Loans / Receivables / Corporate Guarantee

340. The Tribunal dismissed Revenue’s appeal against CIT(A)’s deletion of Rs. 14.91 crore TP-addition on account of discounted interest rate charged on AE-loan, noting that CIT(A) order on the same issue for prior AY had not been challenged on this issue by the Revenue authorities. It relied on the Apex Court decision in Radhasoami Satsang [(1992) 193 ITR 321 (SC)] and held that once the Revenue authorities accepted the stand of the CIT(A) on an issue and allow it to reach finality in one assessment year, it could not be open to them to challenge the same in the subsequent assessment year.
Separately, it deleted the TP-adjustment in respect of corporate guarantee provided by assessee on behalf of its AEs by rejecting the 0.75% guarantee fee confirmed by CIT(A). Following the decision of the coordinate bench in assessee’s own case for AY 2008-09 which in turn relied on the decision Micro Ink ruling (wherein it was held that issuance of corporate guarantees was in the nature of ‘shareholder activities’ / ‘quasi-capital’ and thus could not be included within the ambit of ‘provision for services’ under the definition of ‘international transaction’ u/s 92B), it held that the provision of corporate guarantee without any charge of commission would not constitute an international transaction.
Suzlon Energy Limited vs. DCIT – TS-1089-ITAT-2017(Ahd)-TP – ITA No.2074 & 2179/Ahd/2013 dated 22.12.2017

341. The Tribunal allowed assessee’s appeal against DRP/TPO’s imputing of notional interest on outstanding receivable from AEs noting that the assessee had huge outstanding balances exceeding 6 months in respect of AE-debtors. Relying on the decision of AMD India Private Ltd [TS-840-ITAT-2017(Bang)-TP], it held that the extra credit allowed was to be considered as an independent international transaction and the same was to be compared with the internal CUP being average cost of the total funds available to the assessee. Since no specific period of credit was agreed upon in the case of the assessee it restored the matter to the file of TPO to ascertain the agreed credit period and benchmark the transaction accordingly.
Ingersoll Rand (India) Ltd. vs. DCIT – TS-1061-ITAT-2017(Bang)-TP – ITA 251/Bang/2014 dated 10.11.2017

342. Where the assessee had outstanding receivables from its AEs, the Tribunal, relying on its decision in the assessee’s own case for earlier years (ITA No.1338/PN/2010), held that the TPO was incorrect in imputing notional interest @ LIBOR + 300 basis points + 200 basis points [as guarantee commission] and directed the AO / TPO to re-compute the adjustment on account of interest on outstanding receivables from AEs on the basis of LIBOR plus 300 basis points only on those receivables which were outstanding for a credit period exceeding 25 days after allowing the assessee the benefit of interest received by it, if any.
Capgemini Technology Services India Limited, (in the matter of iGate Computer Systems Limited) vs. DCIT – TS-58-ITAT-2018(PUN)-TP – ITA No. 360/PUN/2015 dated 25.01.2018

343. Relying on the decision of the co-ordinate bench in the assessee’s own case for the earlier year – [TS-129-ITAT-2015(DEL)-TP] (which was subsequently upheld by jurisdictional HC – [TS-412-HC-2017(DEL)-TP]), the Tribunal held that interest adjustment on the outstanding receivables was not warranted if the working capital adjustment took into account the outstanding receivables. Accordingly, it remitted the issue back to TPO for verification of whether while making the working capital adjustment the outstanding receivables were taken into account or not.
Kusum Healthcare Pvt. Ltd vs. DCIT – TS-65-ITAT-2018(DEL)-TP – ITA No.-1440/Del/2016

344. Relying on the decision of the High Court in Kusum Healthcare, the Tribunal deleted the TP-adjustment towards notional interest on outstanding receivable from AE (beyond 30 days) and held that since the assessee earned significantly higher margin than comparables, there was no justification for charging interest on outstanding AE-receivables. It noted assessee’s contention that payments were received only after satisfaction of the customers and therefore, there was delay in receiving the payments and that credit period extended to AE was 57 days as against 66 days in case of non-AEs and accordingly held that the decision of the Bombay HC in Indo American Jewellery was squarely applicable to assessee’s case. Accordingly, considering the nature of business of assessee, it held that there was no justification for the authorities below to make adjustment to the income declared by assessee.
Motherson Sumi Infotech & Designs Limited v DCIT – TS-131-ITAT-2018(DEL)-TP – ITA.No.6331/Del./2016 dated 26.02.2018

345. The Tribunal deleted the TP -adjustment towards interest on outstanding AE receivables The TPO had re-characterized outstanding AE-receivable as loan and imputed notional interest at SBI base rate plus 300 points i.e. at 12.87%. The Tribunal relying on the order of the Delhi High Court in Kusum Healthcare held that every AE-receivable could not be characterized as international transaction and such characterization was permissible only where the TPO undertook proper inquiry by analysing the statistics over a period of time to discern a pattern which would indicate that there existed an international transaction intended to benefit the AE. Relying on the aforesaid decision, it held that since the assessee had already factored in the impact of receivables on working capital and thereby on its pricing/profitability vis-a-vis that of comparables, adjustment only on the basis of outstanding receivables was impermissible.
Terradata India Pvt. Ltd v ACIT – TS-133-ITAT-2018(DEL)-TP – ITA.No.7885/Del./2017 dated 21.02.2018

346. The Tribunal relying on co-ordinate bench ruling in Kadimi Tool Manufacturing Co (subsequently confirmed by HC & SC) deleted the TP-adjustment in respect of outstanding AE-receivables observing that the taxpayer was a debt free company and therefore there was no question of charging any interest on receivables by recharacterizing the transaction as loan from its AE and as such, no adjustment on account of arm’s length interest on receivables could be made.
Inductis (India) Private Ltd. vs. ITO – TS-154-ITAT-2018(DEL)-TP – ITA No.2075/Del./2015 dated 06.03.2018

347. The Tribunal held that interest on delayed outstanding receivables amounts to an international transaction for subject AY i.e. AY 2013-14 in light of Finance Act 2012 amendment, and held that once any debt arising during the course of business had been ordained by the legislature as an international transaction, if there was any delay in the realization of debts arising during the course of business, it would be liable to be visited with the TP adjustment on account of interest income short charged or uncharged. However, it remitted the issue back to TPO to verify assessee’s claim that in none of the cases, assessee realized invoices beyond 30 days and then decide the issue afresh.
Pitney Bowes Software India Pvt. Ltd vs. ACIT – TS-163-ITAT-2018(DEL)-TP – ITA No.7034/Del/2017 dated 13.03.2018

348. The Court dismissed Revenue’s appeal against Tribunal’s deletion of TP-adjustment on loan given to AE considering LIBOR as a comparable for ALP-determination noting that the co-ordinate bench had dismissed Revenue’s appeal for the earlier AY on the same issue. Further, it dismissed Revenue’s appeal against Tribunal’s deletion of TP-adjustment on advance given to AE in the form of share application money by considering LIBOR as comparable for ALP-determination, relying on the decision of Tata Autocomp Systems and Aurionpro Solutions rulings. However, it admitted Revenue’s appeal on whether the Tribunal was justified in holding that provisions of corporate guarantee do not affect profits/income/assets of the assessee.
Pr. CIT vs. Videocon Industries Ltd – TS-194-HC-2018(BOM)-TP – ITA NO. 1178 OF 2015 dated 21st MARCH, 2018.

349. Where the TPO re-characterised the outstanding AE receivables of the assessee as a loan and imputed interest @ 17.22 percent thereon, the Tribunal noting that for delays on similar receivables from non-AEs (average 300 days delay, highest being 1178 days delay), no interest had been charged by assessee; deleted the TP adjustment observing that the assessee’s transaction were at ALP under the internal CUP. It held that since under both the scenarios (AE and Non-AE), no interest had been charged on similar nature of receivables, then the transaction with the related parties meets the arm’s length requirement vis-a -vis, the transactions with the unrelated third parties and no addition could be made.
Axis Risk Consulting Services Private Limited – TS-168-ITAT-2018(DEL)-TP – I.T.A. No.3693/DEL/2014
dated 22.02.2018

350. The Tribunal held that TP-adjustment towards notional interest on outstanding AE receivable was required to be made noting that the credit period extended to AE was higher than credit period extended to non-AEs. However, it rejected interest rate of 6.75% applied by TPO based on cost of capital, and directed that the adjustment should be made using interest rate for export packing credit of 1.92%.
Mahindra & Mahindra Ltd. vs. DCIT – TS-199-ITAT-2018(Mum)-TP dated /I.T.A./6074/Mum/2013 dated 21/03/2018

351. The Tribunal deleted the TP-adjustment made by TPO/CIT(A) in respect of outstanding AE-receivables noting that the AO invoked Explanation (1)(c) to Sec 92B inserted by Finance Act, 2012 w.e.f. April 1, 2002 in order to determine interest-ALP to be charged by assessee from its AE on extending credit facility/delay in realization of debit balances outstanding in AEs account by considering it as an international transaction and relying the co-ordinate bench ruling in KGK Enterprises held that Explanation (1)(c) to Sec 92B could not have retrospective effect from April 1, 2002. It held that assuming the transaction was an international transaction, it had to be treated as one from AY 2013-14 whereas taxpayer was before the Tribunal for AY 2009-10. On merits, noting that the Agreement with AE allowed a grace period of 180 days for making the payment of the cost plus mark up it held that when the business agreement was categoric enough to grant the grace period of 180 days to make the payment and all the payments have been made within six months, no adjustment on account of interest on receivables could be made. Further, relying on Kusum Health Care HC ruling it held that when undisputedly the profit margin of the taxpayer has been held to be at arm’s length, there was no need to make separate addition.
Globerian India Pvt. Ltd vs. DCIT – TS-200-ITAT-2018(DEL)-TP – ITA No.1170/Del./2016 dated 20.03.2018

352. Noting the assessee’s contention that no separate adjustment was required to be made on account of receivables as it was subsumed in the working capital adjustment made by the TPO and following the decision of the Tribunal in the assessee’s own case for preceding AYs, the Tribunal remitted the TP adjustment on account of interest on receivables to the file of the TPO absent in-depth analysis of receivables. It directed the TPO to recalculate interest in conformity with Kusum Healthcare HC ruling [wherein HC had stated that the impact of working capital of the assessee was to be studied] and noted though the TPO had allowed working capital adjustment to the assessee, it was not clear as to what point of time whether the receivables, inventory and payables were computed on the basis of the yearly average, as required.
D.E. Shaw India Advisory Services Private Ltd vs. ACIT – TS-72-ITAT-2018(DEL)-TP – ITA No.6735/Del/2017 dated 18.01.2018

353. Where the assessee, a Singapore based company, had provided interest free loans to its Indian AE and the TPO imputed interest @ 10.50 percent based on the PLR, the Tribunal rejected assessee’s contention that since the interest free loan was given by it to strengthen the Indian AE which in turn would improve its own business, no TP adjustment was required. However, it held that the TPO was unjustified in applying the PLR and held that the adjustment ought to have been computed based on LIBOR. Relying on the decisions of the Bombay High Court and the co-ordinate bench it held that LIBOR + 200 basis points was to be used to benchmark the transaction.
Sabre Asia Pacific Pte Ltd (Earlier Known as Abacus International Pte Ltd.) vs. DCIT – TS-112-ITAT-2018(Mum)-TP – I.T.A. No. 486/Mum/2016 dated 16.02.2018

354. Relying on the co-ordinate bench ruling in the assessee’s own case, the Tribunal deleted the TP-adjustment relating to the interest on assessee’s foreign currency loan to AE and held that when a loan was advanced to foreign subsidiary in foreign currency, LIBOR and not the domestic prime lending rate was to be used to benchmark the international transaction. It noted that the earlier year’s orders were upheld by the High Court and that the DRP in assessee’s subsequent year proceedings directed the deletion of the TP-adjustment on interest while in the preceding AY, the TPO himself chose not to propose any such adjustment. Accordingly, it deleted the TP adjustment in the impugned year.
Cotton Natural (I) Pvt. Ltd vs. DCIT – TS-1068-ITAT-2017(DEL)-TP – ITA No.6910/Del/2014 dated 04-12-2017

355. Noting that as per Section 10A(3) of the Act (which was applicable to the assessee) foreign exchange receivables (whether from AEs or Non-AEs) were to be realized within 6 months from the end of the financial year, the Tribunal held that the TPO was unjustified in imputing notional interest on AE receivables outstanding for a period 3 month as the 6 month period as provided in Section 10A was a reasonable period to be allowed to debtors. Accordingly, it directed the TPO to charge interest of LIBOR + 200 basis points only on those receivables outstanding for a period of more than 6 months.
GSS Infotech Ltd. vs. DCIT – TS-1086-ITAT-2017(HYD)-TP – ITA No. 267/Hyd/2014 & 329/Hyd/2016 & ITA No. 602/Hyd/2017 dated 30-11-2017

356. Where the assessee had provided an interest free loan to its parent company AE against which the AE issued shares to the assessee after a period of 3 years, the Tribunal held that the case of the assessee could not be considered as an investment in share capital and therefore distinguished its reliance on the decision of Prithvi Information Solutions Ltd., ITA No. 472/Hyd/2014. However, it remitted the matter to the file of the TPO to determine when the AE had decided to issue shares against the interest free loan and held that if the decision to do so was made in the impugned AY, then the decision of Prithvi Information would apply and the interest free loan would take the nature of investment in share capital on which no notional interest could be computed but if the decision to issue shares was taken subsequently, the TPO was justified in imputing interest @ LIBOR + 3 percent as the transaction could not be considered as investment in equity share capital.
GSS Infotech Ltd. vs. DCIT – TS-1086-ITAT-2017(HYD)-TP – ITA No. 267/Hyd/2014 & 329/Hyd/2016 & ITA No. 602/Hyd/2017 dated 30-11-2017

357. The Tribunal deleted TP-addition in respect of interest on delayed AE-receivables for assessee (engaged in the business of manufacturing of studded gold jewellery) noting that the assessee did not charge any interest on delay in receiving the payment from AE (where average delay was about 290 days) as well as non-AEs (where average delay was about 340 days). Relying on the assessee’s own case in the prior assessment year, it held that the TPO was not justified in making adjustment by applying interest @ 10.68% as there was uniformity in the act of the assessee in not charging interest from both AE and Non-AE debtors for delayed realization of export proceeds.
Dania Oro Jewellery Pvt. Ltd vs. ITO – TS-27-ITAT-2018(Mum)-TP – I.T.A./7635/Mum/2014 dated 03/01/2018

358. The Tribunal in the cross appeals for AY 2007-08 and AY 2008-09 deleted TP adjustment towards notional interest on shareholder’s deposits by following the Tribunal’s decision in assessee’s own case for AY 2012-13. It was noted that the outstanding technical know-how fee receivable from the JV entity for period 1981 to 1995 was treated by the JV partners (one of them being the assessee) as shareholder deposits and RBI had permitted assessee to obtain the repayment by 2015. In AY 2012-13, the Tribunal had held that the said deposit could not be considered as international transaction as there was no inflow or outflow of funds during the subject year. In AY 2012-13, the Tribunal had also observed that the standard of arms length is inherent in the provision of the foreign exchange laws of India, under which the permission was obtained by the assessee.
The tribunal further deleted TP adjustment towards interest on outstanding AE- receivables relying on the assessee’s previous order wherein it was held that outstanding debit balances could not be considered as international transaction. Further, it also confirmed the CIT(A) order and noted that extending Corporate Guarantee solely is not an international transaction u/s 92B.
M/s Bombay Dyeing & Mfg Co Ltd vs ACIT 2(1) – TS-364-ITAT-2018(Mum)-TP- ITA No 588/Mum/12 dated 02.04.2018

359. The assessee had advanced loan in Australian dollars to its AE in Australia and benchmarked the transaction by adopting CUP method and took ALP rate of interest at 8.91% as was prevailing in Australia. The AO was of the view that 10% interest rate would be a reasonable rate and accordingly, made an adjustment.The Tribunal deleted the TP adjustment on interest on loan advanced by the assessee to its AE noting that the rate adopted by the assessee was at ALP since the assessee had adopted interest rate which an Australian company borrowing from Australian bank would have paid. It relied on the ratio laid down in the Delhi HC ruling of Cotton Natural wherein it was held that ALP on loan advanced to its AE should be computed based on market determined interest rate applicable to currency in which loan is required to be repaid.
Dy.CIT vs Russell Credit Ltd. (2018)52 CCH 0315 KolTrib ITA No.629/Kol/2013 and ITA No.674/Kol/2013 dated 11.04.2018

360. The Tribunal confirmed CIT(A)’s order upholding interest adjustment on advances given by assessee to its AE. The assessee tried to justify non-collection of interest from its AE by submitting that it did not pay commission to its AE on the sale procured by it. The Tribunal observed that assessee had neither brought any material on record to substantiate its claim that AE did some marketing efforts on behalf of the assessee nor any correspondence, to demonstrate that both the parties were waiving their right to collect interest/commission in view of cross services. Further, the Tribunal accepted Revenue’s contention that loan and agency were 2 different transactions and opined that alleged marketing efforts could not be linked to the advance given by the assessee interest free and accordingly upheld CIT(A)’s TP Adjustment.
M/s Virgo Engineering Ltd vs ACIT 10(3) Mumbai- TS-303-ITAT-2018(Mum)-TP- ITA No 685/Mum/2014 dated 20.04.2018

361. The Tribunal deleted secondary adjustment towards notional interest computed on amount of TP- adjustment on international transaction of sale of business to AE.
The Tribunal noted that such additional consideration was not received by assessee from its AE and the TPO treated the same as interest free advances to AE and charged interest at 12%. The Tribunal followed its earlier year’s order in assessee’s own case wherein similar secondary adjustment was deleted and held that, as per the requirement of law, there is nothing further provided to impute any secondary adjustment and the charging interest over and above the amount of adjustment, was not found to be in accordance with the provisions of law.
ACIT 15(2)(2) vs Prudential Process Management Services India Pvt Ltd- TS-804-ITAT-2018(Mum)-TP- ITA No 5526/Mum/2015 dated 13.04.2018

362. The Tribunal remanded the matter back to the Assessing officer and decided the matter in line with assessee’s own case before Tribunal for previous A.Y. The tribunal noted that if the loans were advanced to the Associated Enterprise on the basis of LIBOR/WIBOR + then the said transaction would be at arm’s length price, if not the TPO could recompute the arm’s length price of the transaction
KPIT Technologies Ltd vs ACIT Circle -14 Pune- TS-408-ITAT-2018(PUN)-TP- ITA no 594/PN/2015 dated 12.04.2018

363. The Tribunal accepted assessee’s plea for considering Euro PLR as benchmarking rates as against Indian PLR for interest free loan given to step down subsidiary. The Tribunal noted that since the interest free loans were given in Euro Currency, the ALP should be adopted at the rate on the basis of prime lending rate prevalent in Europe.
Synchron Research Services Pvt Ltd vs ACIT Circle 4(1)(2)- TS-363-ITAT-2018(Ahd)-TP- ITA No 899/Ahd/2014 & 418/Ahd/2015 dated 18.04.2018

364. The assessee was providing intragroup services relating to external commercial borrowings made by third parties from assessee’s AE. The AE earned interest income and commission fees in respect of the said borrowings/loans which was added by the TPO in the hands of the assessee. The Tribunal relying on its order of the earlier year, directed TPO to restrict TP-adjustment on services rendered by Indian Branch of assessee bank to AE at 20% of agency/commission fee and directed deletion of adjustment towards interest as the assessee had a limited role in sanctioning of loan to Indian customers and the loan was granted by AE who had borne risk as well as reward from such activity.
Further, the Tribunal confirmed CIT(A)’s order deleting TP-adjustment on interest received/paid on money market deposits given to AE/accepted from AE by assessee, observing that the TPO had ignored similar transactions wherein the assessee had earned excess interest from AE or paid lesser interest to AE as compared to benchmark and therefore held that all such closely linked transactions were required to be aggregated to determine TP-adjustment. Thus, relying on co-ordinate bench ruling in Audco India Ltd. and Essar steel ruling, it held that the Tribunals were consistently taking the view that arm’s length price should be determined after aggregation and there was no scope for adjustment without aggregation.
Barclays Bank PLC vs ADIT (Intl Tax)-3 -TS-360-ITAT-2018(Mum)-TP- ITA No 2242/Mum/2015 dated 13.04.2018

365. Where the TPO made an adjustment on account of interest (@ 14.45 percent) on receivables outstanding for a period of more than 2 months (the normal credit period of 30 days and a grace period of 30 days) , the Tribunal relying on the decision of the co-ordinate bench in GSS Infotech Limited held that there was no basis for adopting only two months as credit period where the RBI itself allows a year for realization of foreign receivables. It noted that whether it was AE or non-AE receivables, it would be in the interest of business that assessee receives the foreign exchange early so that it can claim deduction u/s. 10A. Accordingly, it held that imposing a limit of two months of credit period was arbitrary and therefore deleted the addition.
United States Pharmacopeia India Pvt Ltd vs DCIT – TS-536-ITAT-2018(HYD)-TP – ITA No. 1927/Hyd/2017 dated 11/05/2018

366. The Court upheld Tribunal’s rejection of TPO’s re-characterization of assessee’s notional interest transaction on delayed realization of trade debts from AE noting that the Tribunal had relied on EKL Appliances Delhi HC-ruling wherein HC had slated the only 2 possible situations where re-characterization of a transition is possible- (i) when the economic substance of a transaction differs from its form and (ii) when the form and substance of the transaction are the same but arrangements made in relation to the transaction, differ from those which would have been in uncontrolled transaction and had categorically held that none of these conditions were satisfied in the present case. Further it noted that the assessee had not charged interest on the delayed realization of debts in non-AE cases as well and therefore held that there could not be any occasion to make ALP adjustment for notional interest on delay in realization of trade debts from AEs. Accordingly it held that the finding given by the Tribunal was based on the facts of the case and therefore no question of law emerged.
Pr. CIT vs. Sharda Spuntex Pvt. Ltd – TS-436-HC-2018(RAJ)-TP – D.B. Income Tax Appeal No. 56 / 2017 dated 11/05/2018

367. The Tribunal considered the outstanding amount of travelling & accommodation expenses incurred by assessee on behalf of AE as an international transaction noting that the expenses were incurred on behalf of and for the benefit of the AEs. It held that the expenses so incurred by the assessee on behalf of its AE, if outstanding, would come within the meaning / explanation of international transaction in section 92B of the Act and rejected assessee’s plea of granting 6 months period for recovery of cost incurred from AE. It observed that a prudent businessman would always recover the outstanding amounts at the earliest point of time and therefore held that a period of 60 days (as against DRP’s 15 days) was a reasonable period within which the expenses ought to have been recovered from AE. Regarding rate of interest, it rejected assessee’s plea to adopt LIBOR since expenditure was incurred in Indian currency and not in dollars and held that SBI-PLR rates alone was to be adopted as the ALP interest rate (without any spread). Noting that the weighted average interest of SBI-PLR on FDs had been calculated at 8.15%, it held that 8.15% was to be adopted while calculating ALP interest on the amounts outstanding from the assessee’s AEs.
Allianz Cornhill Information Services Private Limited vs. DCIT – TS-433-ITAT-2018(COCH)-TP IT(TP)A No.489/Coch/2016 dated 30.05.2018

368. The Tribunal relied on the decision of coordinate bench in assessee’s own case for AY 2007-08 and restored the TP-adjustment in respect of software developer assessee’s outstanding receivables from AE for AY 2010-11. The Tribunal relied on the assessee’s own case for AY 2007-08, wherein ALP-determination of similar outstanding receivables was restored back to AO/TPO. The AO/TPO was directed to re-do the exercise of determination of ALP after considering the credit period allowed to AE on realization of sale proceeds along with the main international transaction in respect of sale to AE. It further held that working capital adjustment appropriately takes into account the outstanding receivable, and concluded that any further adjustment on the pretext of outstanding receivables was not warranted.
Information System Resource Centre Pvt Ltd. (Now amalgamated with Larsen & Toubro Infotech Ltd) vs. ACIT [TS-384-ITAT-2018(Mum)-TP] – I.T.A. No. 3712/Mum/2016 dated 22.05.2018

369. The Tribunal deleted the notional interest adjustment made on delay in collection of receivables received by assessee from its AE. The Tribunal accepted assessee’s contentions that the notional interest did not accrue or arise in the year under consideration since the invoices were raised on March 31, 2013 and credit period allowed was of 60 days. The Tribunal observed that the assessee was following mercantile system of accounting and interest accrues only when the debt falls due and the same remained unpaid. Since the debt did not fall due for the year under consideration, there was no question of interest accruing or being crystallized. The Tribunal also relied on the Motherson Sumi Infotech ruling and held that the assessee had not indulged in providing any undue credit to its AE. Further, the Delhi HC decision of B.C. Management Services(P) Ltd. was also relied on to hold that notional income on account of delayed payment made by the AO could not be treated as part of income and made subject matter of adjustments.
GVK Power & Infrastructure Ltd v ACIT [TS-385-ITAT-2018(VIZ)-TP] ITA No.530/Vizag/2017 dated 18.05.2018

370. The assessee had charged interest at 8% on loans given to some AEs and the TPO had taken a view that interest should have been charged at uniform rate of 8% to all AEs. Further, the TPO held that assessee should have charged certain fees from AE for meeting its administrative expenses and estimated the same at 0.5% of the average amount of loan given to its AE’s and thus proposed TP-adjustments on the above grounds of interest and fees. The CIT(A) upheld the adjustment made towards interest and deleted the adjustment towards administrative expense.
The Tribunal followed co-ordinate bench ruling in assessee’s own case for previous AY which had held that LIBOR+300bps should be considered as interest ALP and directed the Assessing Officer to compute TP adjustment by adopting LIBOR rate plus 300 bps as ALP rate of interest. Further, regarding TP-adjustment on administrative charges, the Tribunal, in line with Circular No. 21/2015 dated 10.12.2015 issued by CBDT stated that admittedly, tax effect involved on the above said issue was less than Rs.10 lakhs and hence the Revenue was precluded from pursuing this appeal.
ACIT CC-43 vs Roha Dyechem Ltd- TS-417-ITAT-2018(Mum)-TP- ITA No 1334/Mum/2014 dated 30.05.2018

371. The Tribunal allowed assessee’s appeal and deleted the TP adjustment towards interest on loans given to its AE for infrastructure facilities. Noting that the TPO had made an addition on the ground that one of the AE’s was charged interest at Euribor+ 3.75% from a bank, it observed that the assessee was the tested party and not the AE. The addition made by the TPO could not be sustained since the assessee was able to demonstrate that the interest charged was at market rate and the assessee was not charging interest at a higher rate than Libor+1% to any of the other parties.
Dishman Pharmaceuticals & Chemicals Ltd vs DCIT [TS-958-ITAT-2018(Ahd)-TP] ITA No.955/Ahd/2012 dated 20.06.2018

372. The Tribunal relying on the decision of the coordinate bench in Pregasystems Worldwide India Ltd (ITA Nos.1758 and 1936/Hyd/2014) held that notional interest on outstanding receivables is not chargeable to tax under the provisions of transfer pricing and accordingly no TP adjustments ought to be made and further, relied on the HC ruling of Kusum Healthcare and decision of coordinate bench in EPAM Systems India to hold that since the working capital adjustment was considered by the A.O, interest on receivables had been considered.
Hexagon Capability Center India Private Limited [TS-449-ITAT-2018(HYD)-TP] ITA No.258/ Hyd/2016 dated 08.06.2018

373. The Tribunal held that advancing interest-free loans to subsidiary companies constituted international transaction on plain reading of of sub-clause (c) of clause (i) of Explanation to section 92B relating to capital financing. It was the contention of the assessee that the interest free loan advanced to its AE later converted into equity was not an international transaction. The Tribunal rejected the recharacterization of transaction by assessee and called it a colourable device. Further, the Tribunal relied on the co-ordinate bench ruling in CIT vs Tech Mahindra Limited and held that rate of interest prevailing in the country where loans were received by the AE should be applied.
EIT Services India Pvt. Ltd v ACIT EIT Services India Pvt. Ltd. (formerly known as Hewlett Packard Global Soft Pvt. Ltd. [TS-612-ITAT-2018(Bang)-TP] IT(TP)A No.1394/Bang/2012, ITA No.1332/Bang/ 2010 and IT(TP) A No.163/Bang/2012 dated 28.06.2018

374. The Tribunal dismissed Revenue’s appeal and upheld the CIT(A)’s deletion of interest adjustment. The Tribunal noted that assessee had granted loan to its AE namely, Emami International FZE of USD 45 million and charged interest @8% p.a. However, the TPO had computed ALP of such loan at 11% p.a. [5% (cost of funds) + 600bps (risk premium)] and made an upward adjustment of Rs. 48.94 lakhs. The Tribunal opined that the risk premium of 600 bps taken by the TPO was excessive. It noted that suitable risk premium would work out to be lower than 300 bps considering the facts of the case and credit rating of the assessee. In view of the aforesaid findings, it appreciated the CIT(A)’s view that even following the methodology proposed by the TPO viz., cost of funds plus risk premium, the ALP of the loan would work out to 8%. Thus, the Tribunal held that the TPO/Assessing Officer had grossly erred in applying notional interest @11% (i.e. cost of procurement of funds by assesse @5% + 600 basis points) whereas the cost of procurement of similar funds from third part was LIBOR + 600 basis points, which worked out to 7.20%.(that is, prevailing USD LIBOR rate, which was 1.2% plus 600bps). Hence it confirmed CIT(A)’s order that the interest rate of 8% charged by the assessee from its AE was at arm’s length. Further, it also observed that the Revenue had accepted the interest of 8% charged on the same loan to be at arm’s length in the earlier as well as succeeding transfer pricing assessments and following the priniciple of consistency, the same would prevail.
DCIT/ACIT vs. Emami Limited [TS-468-ITAT-2018(Kol)-TP] ITA Nos. 1065 and 1066/Kol/2017 dated 15.06.2018

375. The Tribunal remanded the matter to the file of the AO/TPO to compute the adjustment in respect of the interest due on loans advanced by the assessee to its AE’s for AY 2011-12 following its earlier year order. AO had applied BPLR rates whereas the DRP applied the benchmark of LIBOR + 5%. The co-ordinate bench in assessee’s own case in earlier year had directed AO to verify whether the loans were advanced to associated enterprises on LIBOR+ or WIBOR+ rates, as the case may be, and if so, to consider the said transaction to be at arm’s length price. If the loan was not advanced at the said rates, the TPO was directed to re-compute the arm’s length price of the international transactions.
KPIT Technologies Ltd (earlier known as KPIT Cummins Infosytems Limited.) v DCIT [TS-522-ITAT-2018(PUN)-TP] ITA No.505/ Pun/2016 dated 04.06.2018

376. The Tribunal upheld the deletion of TP-adjustment in respect of guarantee fee received by assessee noting that the assessee applied CUP-method based on third party quotation (from HSBC India) to determine arm’s length guarantee fee commission at 0.75% but the TPO determined guarantee fee ALP at 2.0833% based on the bank guarantee rate. Relying on the decision of the Bombay High Court in Everest Kento Cylinder [TS-200-HC-2015(BOM)-TP]it held that the considerations which applied for issuance of a corporate guarantee were distinct and separate from those in a case of bank guarantee and accordingly upheld the First Appellate Authority’s deletion of the TP adjustment made.
ACIT vs. Wockhardt Ltd. – TS-39-ITAT-2018(Mum)-TP- I.T.A./4156/Mum/2012 & I.T.A./5557/Mum/2012 dated 05/01/2018

377. The Tribunal deleted the TP-adjustment in respect of corporate guarantee provided to 100% Mauritius subsidiary for which no consideration was charged accepting assessee’s contention that corporate guarantee was provided as a matter of commercial prudence to protect the interest and fulfill the shareholder obligation as any financial incapacitation of the subsidiary would jeopardize the investment of the assessee. It rejected Revenue’s contention that under Explanation to Sec 92B there was no requirement of international transaction of guarantee to have a bearing on profits, incomes, losses or assets of such enterprises and held that the explanation had to be read along with Section 92B(1) of the Act. It held that the provision of corporate guarantee neither fell under ‘purchase, sale or lease of tangible or intangible property, provision of services or lending or borrowing of money’ contained in Section 92B(1) and therefore was covered under ‘any other transaction having bearing on profits, income, losses or assets’ of an enterprise as contained in the impugned Section. Accordingly, notwithstanding that the Explanation to Section 92B did not specifically mandate such impact on profits / losses etc, it held that as per Section 92B the requirement would have to be fulfilled for the guarantee to be considered as an International transaction. Observing that no consideration was received by assessee for providing guarantee from its AE, the Tribunal concluded that when a parent company extends an assistance to the subsidiary, being associated enterprise, which does not cost anything to the parent company, and which does not have any bearing on its profits, income, losses or assets, it would be outside the ambit of international transaction under section 92B(1) of the Act. Accordingly, it deleted the TP-adjustment.
DCIT vs. EIH Ltd – TS-13-ITAT-2018(Kol)-TP – I.T.A No. 153/Kol/2016 dated 12.01.2018
378. The Tribunal rejected TPO/DRP’s treatment of corporate guarantee as an international transaction for AY 2010-11 and accepted assessee’s submission that Finance Act 2012 amendment [wherein a clarificatory amendment was inserted w.r.e.f. April 1, 2012 specifying that corporate guarantee will be included within the definition of international transaction] was applicable only prospectively from AY 2013-14 and therefore not applicable to subject AY. It relied on the decision of the co-ordinate bench in Reddy Laboratories wherein it was held that the Finance Act, 2012 amendment could not be applied retrospectively as it would amount to retrospective levy of tax and would impose an impossible obligation on assessees. Accordingly, it deleted the ALP adjustment.
DCIT vs. Cyient Ltd (Formerly Infotech Enterprises Ltd) – TS-159-ITAT-2018(HYD)-TP] – ITA No. 474/Hyd/2015 dated 28/02/2018

379. The Tribunal dismissed assessee’s appeal challenging TP-adjustments in respect of corporate guarantee, loan, outstanding receivables ex parte noting that none appeared on behalf of assessee despite notice being served on assessee. On examination of the impugned order of CIT(Appeals) and the order passed by the AO u/s. 143(3) r.w.s. 144C of the Act, it held that there was no infirmity therein.
Opto Circuits India Ltd. vs. DCIT – TS-89-ITAT-2018(Bang)-TP – IT(TP)A Nos.1315/Bang/2017 dated 31;01.2018.

380. The assessee provided corporate guarantee to its AE in Mauritius for which it did not charge any fee. The TPO determined the ALP at 2.75 percent based on rates for financial guarantee charged by various third-party banks which was reduced to 1.75% by the DRP. The Tribunal held that the benchmarking adopted by the TPO and DRP was unacceptable and relying on the decisions of the HC rulings of Everest Canto and Glenmark Pharmaceuticals, wherein it was held that corporate guarantees could not be compatred to bank guarantees, determined the ALP rate of guarantee fee on corporate guarantee provided by the assessee to its Mauritian AE at 0.5%.
Laqshya Media Pvt. Ltd v ACIT – TS-20-ITAT-2018(Bang)-TP – ITA Nos. 1774 /Mum/2016 dated January 2018

381. The Court admitted assessee’s appeal on the substantial question of law i.e. whether corporate guarantee given by the assessee with respect to the loans given by the subsidiary would come under the purview of section 92 of the Act or not.
Minacs Pvt Ltd vs DCIT 8(1)- TS-302-HC-2018(BOM)-TP- ITA No 1132 of 2015 dated 25.04.2018

382. The Tribunal held that the DRP erred in determining the ALP of guarantee commission received by the assessee at 1.5% (TPO determined the commission @ 3%) and noted that the co-ordinate bench in the assessee’s own case had sustained addition to the extent of 0.5% in the earlier and subsequent year. Accordingly, following the rule of consistency, ITAT directed the AO/TPO to restrict the addition towards guarantee commission by adopting the rate of 0.5%.
Nimbus Communications Ltd. vs. DCIT – TS-520-ITAT-2018(Mum)-TP – LT.A. No. 1988 / Mum / 2016 dated 21.05.2018

383. The Tribunal, relying on the order of the co-ordinate bench in the assessee’s own case in the earlier year, deleted the TP-adjustment in respect of corporate guarantee provided to 100% Mauritius subsidiary for which no consideration was charged accepting assessee’s contention that corporate guarantee was provided as a matter of commercial prudence to protect the interest and fulfill the shareholder obligation as any financial incapacitation of the subsidiary would jeopardize the investment of the assessee. It rejected Revenue’s contention that under Explanation to Sec 92B there was no requirement of international transaction of guarantee to have a bearing on profits, incomes, losses or assets of such enterprises and held that the explanation had to be read along with Section 92B(1) of the Act. It held that the provision of corporate guarantee neither fell under ‘purchase, sale or lease of tangible or intangible property, provision of services or lending or borrowing of money’ contained in Section 92B(1) and therefore was covered under ‘any other transaction having bearing on profits, income, losses or assets’ of an enterprise as contained in the impugned Section. Accordingly, notwithstanding that the Explanation to Section 92B did not specifically mandate such impact on profits / losses etc, it held that as per Section 92B the requirement would have to be fulfilled for the guarantee to be considered as an International transaction. Observing that no consideration was received by assessee for providing guarantee from its AE, the Tribunal concluded that when a parent company extends an assistance to the subsidiary, being associated enterprise, which does not cost anything to the parent company, and which does not have any bearing on its profits, income, losses or assets, it would be outside the ambit of international transaction under section 92B(1) of the Act. Accordingly, it deleted the TP-adjustment.
DCIT vs. EIH Ltd – TS-426-ITAT-2018(Kol)-TP – ITA No.117/Kol/2017 dated 16-05-2018

384. The Tribunal restricted guarantee commission ALP at 0.5% of average amount of loan outstanding during the year in respect of corporate guarantee on overdraft facility given by assessee by following the co-ordinate bench ruling in assessee’s own case for previous AY (wherein relying on various decision of the jurisdictional benches of the Tribunal it was held that ALP of the guarantee commission was to be considered as 0.5%) as against TPO’s computation of guarantee fees @ 1.50%.
In respect of counter guarantee given by assessee for guarantee given by IDBI Bank on behalf of Taj TV (AE), the Tribunal accepted assessee’s contention following Asian Paints ruling that non fund based facility could not be treated at par with fund based facility and directed AO to compute TP-adjustment in respect of counter guarantee at 0.2% of counter guarantee amount.
ACIT 16(1) vs Zee Entertainment Enterprises Ltd- TS-418-ITAT-2018(Mum)-TP- ITA No 1640/Mum/2016 dated 28.05.2018

385. The Tribunal restricted ALP of corporate guarantee provided by assessee to Singapore-AE at 0.5% p.a. and noted that while assessee did not benchmark the transaction on the premise that the underlying liability was contingent in nature and that the same was given for overall business consideration, TPO made an adjustment by determining ALP at 5% p.a. The Tribunal opined that corporate guarantee provided by the assessee brought certain benefits to its AE by way of credit facility and therefore, the same were required to be compensated by its AE. The Tribunal relied on Bombay HC ruling in Everest Kanto Cylinders wherein 0.5% commission rate was adopted, and thus directed addition @0.5% per annum.
Apar Industries vs DCIT CC 6(1)- TS-405-ITAT-2018(Mum)-TP- ITA No 956/Mum/2015 dated 04.05.2018

386. The Tribunal accepted assessee’s contention that the corporate guarantee commission charged at 0.9% was at arm’s length price and deleted the adjustment by holding that the corporate guarantee commission rates @ 0.25% to 0.53% have been accepted in various rulings of Courts/Tribunals such as Videocon Industries, Nimbus Communications and Glenmark Pharmaceuticals, as reasonable. Further, the Tribunal also opined that bank guarantee and corporate guarantee are at different footing due to factors such as terms,conditions and risk factors and hence the TPO was not justified in determining the ALP at commission rates charged by bank.
GVK Power & Infrastructure Ltd v ACIT [TS-385-ITAT-2018(VIZ)-TP] ITA No.530/Vizag/2017 dated 18.05.2018

387. The Tribunal deleted the TP-adjustment in respect of corporate guarantee given by assessee [engaged in the business of manufacturing yarn, marketing its products under the CLC brand name] on behalf of its AE for AYs 2008-09 to 2010-11. It relied on Bharti Airtel ruling wherein it was held that no TP-adjustment is to be made in case of there being no diversion of profits out of India. The Tribunal noted that the assessee had not incurred any cost in providing corporate guarantee and relied on various ITAT rulings in Micro Ink, Redington India and Videocon Industries wherein it was held that when an assessee extends assistance to the AE, without any cost to itself, it does not have any bearing on profits, income, losses or assets and therefore the same is outside the ambit of ‘international transaction’. The Tribunal opined that since the flagship company of the assessee had accumulated brought forward losses to the tune of Rs. 290 crores and subsidiaries were also in heavy losses, it could not be said that there was any intention of diversion of profits out of India. Further, the Tribunal also relied on Vivimed Labs and Siro Clinpharm rulings wherein it was held that amendment to Sec 92B vide Finance Act 2012 is prospective in nature and is applicable only from AY 2013-14 onwards.
DCIT vs. Spentex Industries Ltd [TS-382-ITAT-2018(DEL)-TP] ITA Nos.4959,6234 and6244/Del/2014 dated 17.05.2018

388. The Tribunal directed adoption of 0.25%, based on free quote given by Royal Bank of Scotland (RBS), as ALP for provision of corporate guarantee by assessee on behalf of its AEs for AY 2012-13 since the free quote considered the credit rating of assessee and other financial data and the said guarantee was given to RBS itself for loan given to its AE. The Tribunal noted that assessee had adopted ALP of 0.2% based on average rate of free quotes obtained from RBS (0.25%) and Indusind Bank (0.15%) while DRP had adopted ALP at 1.5% based on interbank lending rate. The Tribunal held that the average rate adopted by the assessee as ALP was not the right approach as averages do not give logical result.The Tribunal also observed that issuance of corporate guarantee is a non-fund based transaction, and hence opined that interbank lending rate adopted by DRP as a bench mark for determination the ALP of the charge for giving a corporate guarantee, is not appropriate, as these rates are for fund based transaction.
Britannia Industries Ltd vs. DCIT [TS-359-ITAT-2018(Kol)-TP] ITA No.745/Kol/2017 dated 18.05.2018

389. The Tribunal upheld the order of DRP determining the ALP of the guarantee fee at 2.28% as against guarantee fee determined by TPO at 3%. It noted that the DRP had observed as per the CRISIL data that the assessee could be rated as BBB and AE as B and its AE had a weaker financial standing. The DRP adopted the difference of 4.56% between interest rate for BBB (10.37% for 1-2 years) and B (14.93% for 1-2 years) and held that 50% benefit (2.28%) should have been received by assessee. Accordingly, it rejected the Revenue’s contention that the rate of guarantee fee determined at 3% by TPO ought to be considered.
United Breweries (Holdings) Ltd [TS-746-ITAT-2018(Bang)-TP]- IT (TP) A No.561/Bang/2016 dated 15.06.2018

390. The Tribunal following the order of the co-ordinate bench in assessee’s own case restricted the ALP of the guarantee commission at 0.5% of the average amount of the loan outstanding as against the TPO’s determination at 1.5%.
Zee Entertainment Enterprises Limited [TS-448-ITAT-2018(Mum)-TP] ITA No.1475/Mum/2017 dated 08.06.2018

391. The Tribunal upheld CIT(A)’s order and held that corporate guarantee does not fall within the ambit of international transaction by relying on the decisions of the coordinate bench and therefore no adjustment on account of guarantee commission should be made. It rejected TPO’s addition of guarantee fee at 2% of the guaranteed money.
Dishman Pharmaceuticals & Chemicals Ltd vs DCIT [TS-958-ITAT-2018(Ahd)-TP] ITA No.955/Ahd/2012 dated 20.06.2018

392. The Tribunal upheld CIT(A)’s deletion of TP-adjustment in respect of corporate guarantee given by assessee to AEs for AY 2012-13. Further, it noted that AO/TPO treated corporate guarantee as an international transaction and determined 2% per annum of the loan amount as guarantee ALP and observed that CIT(A) deleted the adjustment following co-ordinate bench ruling in assessee’s own case for earlier years wherein it was held that corporate guarantee was not an international transaction u/s 92B and accordingly, any ALP adjustment cannot survive.
Dr. Reddy’s laboratories v ACIT [TS-463-ITAT-2018 (Hyd)] ITA. No.1739/Hyd/2017 and ITA 1729/Hyd/2017 dated 13.06.2018

393. The Tribunal ruled on corporate guarantee, interest on AE-receivables and advances in respect of an assessee engaged in the business of software development & IT enabled services. The assessee had contended that since assessee as well as its AE had incurred losses, no ALP-adjustment could be made for its international transactions, and relied on Apollo Health Street ruling, APP Labs Technologies and Global Vantedge Pvt Ltd ruling. However, the Tribunal distinguished the contention and held that in the above cases there was no decision as to correctness of the order of the DRP, and therefore it could not be said to have been decided on merits of the issue.
Further, The Tribunal relying on Dr Reddy’s Laboratories ruling accepted assessee’s contentions that the corporate guarantee was not an international transaction during AY 2012-13 since amendment of Sec 92B of the IT Act came w.e.f. AY 2013-14.
Further, the Tribunal with specific direction remitted back to the file of AO/TPO the transaction of advances given to AE, as nature and purpose of advance were not clear. The Tribunal relied on GSS Infotech ruling and stated that no interest should be levied if advances were in the nature of trade advance. However, if advances were to be treated as a loan, the Tribunal directed adoption of LIBOR+2% interest as ALP.
Further, with regards to interest on outstanding receivables, the Tribunal following GSS Infotech and Bartronics rulings noted that the amount was received back within a period of 1 year from the date of advance to AE and thus no interest was chargeable on the receivables.
Cura Technologies Ltd vs DCIT Circle 1(2)- TS-412-ITAT-2018(HYD)-TP-ITA No 301/Hyd/2017 dated 11.05.2018

Royalty / Management fees / Intra Group services / Reimbursements

394. The Tribunal, following the order of the co-ordinate bench in the assessee’s own case for earlier year deleted the TP-adjustment of Rs. 9.48 Cr on royalty payments made by the assessee. The assessee who was making royalty payment since period prior to acquisition of AE status by payee, benchmarked the royalty transaction under the external CUP method where it selected the royalty payment by Maruti Suzuki. The TPO considered the ALP of the transaction at Nil by rejecting the assessee’s benchmarking and contended that since external CUP required strict standard of comparability and since Maruti was paying royalty for obtaining license for manufacturing a finished product i.e. Automobile whereas the assessee had obtained a license for manufacturing automobile lighting equipment and accessories, the two were not comparable. The TPO further alleged that the assessee had not provided any evidence to show how the rate of royalty was fixed and also did not provide a cost benefit analysis. Noting that the assessee was making royalty payment since periods prior to acquisition of AE status by payee, the Tribunal held that the benchmarking adopted by the assessee by considering the royalty paid by Maruti as comparable was rightly considered CUP. It further observed that the co-ordinate bench in assessee’s own case in AY 2008-09 accepted assessee’s royalty payment at 3-5% at ALP and jurisdictional HC had refused to admit Revenue’s appeal against the said tribunal order. Considering that the facts of the case under consideration were identifical to facts of earlier year, it deleted the adjustment.
Lumax Industries Ltd v JCIT – TS-1094-ITAT-2017(DEL)-TP – ITA No.6961/Del/2014 dated 05.12.2017

395. The Tribunal deleted TP-adjustment stemming from TPO’s reduction of arm’s length royalty rate from 3% to 2% of assessee’s net sales and held that the TPO was unjustified in reducing the royalty rate from 3% to 2% without substantiating it with an appropriate alternate TP analysis. Noting that TPO did not examine alternative comparables to justify reduction in royalty rate after rejecting assessee’s comparables on the ground that they were US based while assessee’s AE was based out of UAE, it held that the TPO’s approach was an arbitrary and unbridled exercise of power.
RAK Ceramics India Private Limited vs. DCIT – TS-1054-ITAT-2017(HYD)-TP – ITA No.193/Hyd/2017 dated 29.11.2017

396. Where the assessee benchmarked the payment of royalty to its associated enterprise under TNMM (margin of the assessee was higher than that of its comparable), the Tribunal, relying on the order of the High Court in the assessee’s own case for earlier years, upheld CIT(A)’s deletion of TP-adjustment on account payment of royalty to AE and held that the TPO erred in determining the ALP of the said payment at Nil under the CUP method when there were no changes in the facts under review vis-à-vis the facts prevalent during the earlier years.
ACIT vs. Sakata Inx (India) Ltd – TS-71-ITAT-2018(JPR)-TP – ITA. No. 828/JP/2017 – dated 29/01/2018
397. The Apex Court dismissed Revenue’s SLP challenging Delhi HC order confirming ITAT’s deletion of TP adjustment on royalty payment to AE. The High Court had rejected Revenue’s ground that ITAT erred in holding that assessee was justified in claiming royalty as expense since only the subsidiaries/enterprises in 10 countries of the 120 locations wherein AEs had presence in were required to make royalty payments and that the ITAT had erred in relying on Delhi HC’s EKL Appliances ruling to arrive at the conclusion that TPO had erred in judging commercial and business expediency of expenditure while determining ALP for royalty at Nil.
CIT vs. Frigoglass India Pvt. Ltd vs. DCIT – TS-31-SC-2018-TP – SPECIAL LEAVE PETITION (CIVIL) Diary No(s). 41702/2017 dated 19-01-2018

398. The Tribunal confirmed CIT(A)’s order holding assessee’s royalty payment (for granting license to use AE’s technology & know-how for carrying on business of manufacturing of automotive components in India) at 3.15% of net sales to be at ALP and held that the TPO had erroneously held that royalty should be taken at Nil on the allegation that no economic benefit had been provided to the assessee as the assessee had incurred loss at entity level without carrying out any analysis. It held that such an observation or reasoning could not be upheld at all once there was a valid agreement for transfer of non-exclusive right for use of license to use technology including knowhow of AE from which assessee has earned substantial revenue receipts which evidenced that such a use of technology and knowhow was directly linked with manufacturing and resultantly sales. It further held that that incurring of loss could not be the parameter to hold that the technological knowhow or license was of no benefit hence there was no requirement to pay the royalty.
DCIT vs. Bestexx MM India Pvt. Ltd. – TS-113-ITAT-2018(DEL)-TP – I.T.A. No.544/DEL/2015 dated 15.02.2018

399. The Tribunal deleted the TP adjustment on the assessee’s royalty payment to AE and rejected TPO/ DRP’s contention that the assessee had not been able to prove any real tangible benefit that had passed to it by technology received from its AE. It noted that where the AE granted the assessee exclusive nontransferable and non-divisible license to use the technical information for manufacture and for marketing activities in India for which the assessee paid royalty it was not the prerogative of the TPO to decide if any tangible benefit had been transferred to the assessee. It held that the payment of royalty was a business decision of the assessee and that the TPO could not interfere with the decision making of the assessee.
India Yamaha Motor Private Ltd vs. ACIT – TS-126-ITAT-2018(DEL)-TP – ITA No.297/Del./2015 dated 12.02.2018
400. The Tribunal dismissed Revenue’s appeal and upheld the deletion of TP adjustment on royalty payment to AE observing that the Tribunal in the earlier years had found royalty payment to be at ALP noting that it was approved by RBI/SIA.
Spicer India Private Limited (Formerly known as Spicer India Limited) vs. ACIT – TS-150-ITAT-2018(PUN)-TP – ITA No. 376/PUN/2016 dated 09.02.2018

401. The Tribunal upheld CIT(A)’s deletion of TP-adjustment on account of royalty payment by assessee (engaged in manufacturing of toughened glass, laminated glass and float glass) to AE accepting assessee’s contentions that maintenance of quality and increase in sales were possible due to AEs licensed technology and that since it was a public limited company (with only 22.21% shareholding by its AE, Indian promoters holding 33.03% and the general public holding 44.76%), the AEs were not in a position to wield significant influence over assessee’s business as its performance and commercial expediency were subject to intense scrutiny by shareholders. Further, relying on EKL Appliances ruling, it held that it was not open to the TPO to question the judgment of the assessee as to how it should conduct its business and regarding the necessity or otherwise of incurring the expenditure in the interest of its business. Thus, finding no infirmity in the CIT(A)’s order, it dismissed Revenue’s appeal.
Asahi India Glass Limited vs. DCIT – TS-123-ITAT-2018(DEL)-TP – ITA No.1637/Del/2014 dated 26-02-2018

402. The Tribunal rejected TPO’s ALP-determination for technology acquisition cost at Nil and remitted ALP-determination to AO/TPO. It observed that the assessee’s (engaged in manufacturing of auto-components) royalty payment was for designs, engineering data, manufacturing and process data, lay-outs etc. for contract products, but it was required to pay acquisition cost separately for modifications or new design which was to be customized for a particular customer in India. Since no royalty payment was required to be made in case of such new product, it held that the TPO as well as the DRP erred in concluding that the payment of application cost was in addition to royalty and therefore held that the benchmarking was incorrectly done.
Separately, in respect of intra-group service fee, it rejected TPO’s Nil ALP-determination on the ground that no services were received or there was duplication of services. On perusal of the emails submitted by assessee, it held that the assessee’s transaction were genuine and clarified that the TPO’s role was restricted to ALP-determination while allowability or otherwise of such payment was to be determined by AO. Accordingly, it remitted the issue back to AO/TPO to follow ratio of Delhi HC ruling in Cushman & Wakefield case.
Denso India Limited vs. DCIT – TS-145-ITAT-2018(DEL)-TP – ITA No.1857/Del/2014 dated 07.03.2018

403. The Tribunal rejected assessee’s aggregated approach for benchmarking royalty payment to UK based AE under TNMM and upheld external CUP as most appropriate method. Noting that royalty payment arose from a separate agreement and was payable irrespective of any services or goods received, it held that it was a separate transaction irrespective of the fact that the relevant payment was utilized for manufacture of final product. Further it held that the rates given by the RBI could not reckoned as an external CUP for the purpose of benchmarking. Accordingly, it remitted the matter to the TPO for fresh adjudication as he had incorrectly determined ALP of the Royalty at Nil contending that the assessee did not receive any benefit.
Johnson Matthey India Private Ltd vs. DCIT – TS-173-ITAT-2018(DEL)-TP] – ITA Nos.:-1817/Del 2014; 2493/Del/2014; & 3755/Del/2015 dated 16/03/2018

404. The Tribunal rejected TPO’s Nil-ALP determination in respect of assessee’s royalty payment to AEs for use of brand names ‘Vodafone’ and ‘Essar’ and remitted the ALP-determination to AO/TPO. It held that the assessee’s royalty payment was a bona fide transaction as the assessee actually used the brand names ‘Vodafone’ & ‘Essar’ and held that the TPO erred in determining ALP at Nil merely because the assessee did not pay royalty in the past. It held that simply because no royalty was paid in the past could be no reason to treat the ALP of royalty at Nil in later years. However, the Tribunal rejected assessee’s adoption of foreign comparable (royalty payment by Motorola Inc to Forward Industries Inc) for benchmarking royalty payment and held that the transaction between 2 foreign parties could not be considered for comparing international transaction with Indian assessee as tested party. Accordingly, it remitted the matter to the AO / TPO for fresh consideration.
DCIT vs. Vodafone Essar Digilink Ltd – TS-166-ITAT-2018(DEL)-TP – ITA No. 1950/Del/2014 dated 14.03.2018

405. The TPO determined the ALP of the royalty payment and management services at “Nil” on the ground that the assessee failed to explain the cost benefit analysis for such payments made to its AE. It was assessee’s contention that the receipts from the assessee were considered to be at ALP by the tax authorities during the assessment of its AEs. The Tribunal remanded the matter back to the TPO noting that TPO needed to examine whether the payment is at ALP with the benefit received by the assessee and such an exercise had not been carried out and it rejected the assessee’s contention by observing that provisions of sec 92CA(4) and sec 92(3) had to be interpreted harmoniously, in respect of the same transaction the Revenue could opt to determine total income on basis of ALP determination in accordance with s 92(1) in hands of one party of the said transaction where the tax base of the country would erode and the Revenue could desist from doing so in the hands of the other party, wherever there would be no tax base erosion.
Filtrex Technologies (P.) Ltd vs ACIT [TS-265-ITAT-2018(Bang)-TP] IT(TP)A No.469 of 2017 dated 11.04.2018

406. The Tribunal deleted the TP addition made on account of royalty by relying on the decision of the High Court in its own case TS-671-HC-2015(DEL)-TP wherein it was held that since TPO found that no adjustment was called for under the external TNMM method adopted by the assessee, no adjustment could have been made by separately benchmarking the transaction. It observed that the assessee received full technical assistance from its AE for which the royalty payment was made and therefore deleted the addition.
Lumax Industries Ltd v ACIT – TS-454-ITAT-2018(DEL)-TP – ITA No. 1441/DEL/2016 dated 04.05.2018

407. Regarding disallowance of royalty paid to AE @ 40% of the revenue from software trading, the Tribunal remitted the matter back for de-novo adjudication after considering assessee’s submission that payment was made pursuant to a revenue sharing agreement and was nomenclatured as royalty. The Tribunal distinguished co-ordinate bench ruling in assessee’s own case for previous AY wherein relief was granted on benefit test and royalty benchmarking done based on CUP-method (which was undisputed in captioned years). The Tribunal thus directed TPO to benchmark the subject mentioned payment vis a vis the comparables afresh, in order to determine the ALP of the said international transaction
M/s. Labvantage Solutions Pvt Ltd vs ACIT Circle 2(1)- TS-405-ITAT-2018(Mum)-TP- ITA No 927 & 2400/Kol/2017 dated 11.05.2018

408. The Court set aside Tribunal order and remanded the matter back to the Tribunal for fresh consideration, wherein the Tribunal had confirmed royalty adjustment in case of assessee manufacturing magnetic based electronic coils, transformers and inductors. It accepted assessee’s contention that the Tribunal had upheld royalty adjustment [although royalty payment formed part of operating cost under entity level TNMM] without discussing the applicability of Delhi HC ruling in Sony Ericsson Mobile or Tribunal ruling in Siemens VTO Automotive. In the said cases it was held that when royalty payment formed part of operating cost it need not be separately benchmarked. The Court held that the Tribunal erred in not following decisions of the co-ordinate bench of the same jurisdiction.
Kaypee Electronics vs DCIT Circle 4(1)(1)- TS-414-HC-2018(Kar)-TP-ITA No 65/2018 dated 29.05.2018

409. The Tribunal remitted the ALP determination of royalty paid back to AO/TPO. The Tribunal accepted the assessee’s request to admit additional evidence in the form of Addendum to intangible and proprietary property and licensing agreement [which set out the understanding between the parties and the actual conduct of business] and opined that the Addendum to the agreement went to the very root of the matter and that it would suitably assist the lower authorities to reach a logical conclusion on the issue.
C.R.M. Services India Pvt. Ltd vs. DCIT [TS-343-ITAT-2018(DEL)-TP] ITA No.5930/Del/2012 and 1630/Del/2014 dated 14.05.2018

410. The Tribunal deleted the TP-adjustment on royalty and technical service fee made by the TPO determining ALP at Nil for AY 2013-14 and held that that TPO/DRP could not put themselves in the shoes of assessee to decide which expense should be incurred by assessee for its business. The Tribunal observed that both TPO and DRP had gone into the need for expenses incurred by assessee vis-à-vis benefit for which disallowance can be made under separate provisions of the Act. Further, the Tribunal refused to remit the matter to the AO by relying on the Gujarat HC ruling in Rajesh Babubhai Damania as it would amount to giving second innings to the AO when sufficient material was available before him on record which was impermissible. It rejected Revenue’s contention that double deduction of royalty had been claimed and royalty was part of the cost of purchase of raw materials by observing that raw materials were purchased from one AE and royalty was paid to another AE. The Tribunal also observed that lower authorities erred in proceeding to make adjustment without discarding the benchmarking methodology followed by assessee i.e. TNMM in the instant case, by relying on Delhi HC ruling in Li & Fung case.
COIM India Pvt. Ltd v ACIT [TS-344-ITAT-2018(DEL)-TP] ITA No.7260/Del/2014 dated 07.05.2018

411. The Tribunal following the order of the coordinate bench in the assessee’s own case for earlier year deleted the TP adjustment of Rs.172.08 crores in respect of payment of model fees and Rs.3.53 crores on royalty payments made by the assessee. The assessee had benchmarked the international transaction for payment of model fees and royalty under TNMM and concluded that since the operating profit ratio was higher than the average operating profit ratio of the comparables, the transaction was at arm’s length. However, the TPO determined the ALP of the transaction to be “nil” on the ground that the assessee was partly responsible for the technology upgradation which happened in India and the assessee was paying both the model fees and royalty for same set of services. The TPO also held the ALP of the royalty transaction to be nil and further alleged that the assessee being a contract manufacturer, no royalty payment was to be made to the AEs. The aforesaid adjustment was confirmed by DRP. It noted that the co-ordinate bench in assessee’s own case for AY 2006-07, 2007-08 and 2008-09 deleted the adjustment made by the Revenue and accepted the ALP determined by the assessee in respect of the transactions. It further observed that for the year under consideration, the payment of royalty was made by the assessee in respect of sales to independent enterprises.
Hero Moto Corp Ltd. v DCIT [T-801-ITAT-2018(Del)-TP] ITA No.1616/Del/2017 dated 13.06.2018

412. The Court remitted the issue of TP adjustment with respect to royalty payment back to the Tribunal for fresh adjudication, noting that the Tribunal’s observation that benchmarking of royalty payment could not be done by using comparables with transactions entered into between two foreign parties was not premised on any reasons. The Court held that the Tribunal’s above observation was unwarranted and should not be treated as conclusive
Vodafone Mobile Services Ltd [TS-419-HC-2018(DEL)-TP] ITA 660/2018 dated 01.06.2018

413. The Tribunal set aside the DRP order and remitted the issue vis-à-vis ALP adjustment of the royalty payment to its AE. The Tribunal noted that identical issue was remitted by ITAT to AO/TPO for fresh consideration for AY 2006-07 to AY 2009-10. Thus, following the said ruling, ITAT remitted the issue to AO/TPO and directed the assessee to file a fresh TP documentation and comparable companies so as to arrive at ALP.
DCIT vs JCB India Ltd [TS-199-ITAT-2015(DEL)-TP] ITA No.1119/Del/2015 dated 25.06.2018

414. The Tribunal restored the benchmarking of royalty, fees for technical services & design/drawing fee paid by assessee to its AE. It noted that TPO determined ALP of these transactions at Nil on the basis that no tangible benefit had been derived by the assessee. The Tribunal relied on co-ordinate bench ruling in assessee’s own case for AY 2009-10 wherein the Tribunal had observed in the ruling that appeal preferred by the Revenue against the said issue for AYs 2002-03 and 2004-05 had been dismissed by the High Court. Further, it was also noted by the Tribunal that co-ordinate bench in assessee’s own case had remitted the matter for fresh decision by following earlier year’s orders since the AO did not have the benefit of the High Court order at the time when he passed the order.
Munjal Showa Ltd vs. DCIT Ltd [TS-729-ITAT-2018(DEL)-TP] ITA No.1579/Del/2015 dated 27.06.2018

415. The TPO had restricted the ALP of royalty payment by the assessee to its AE at 1% of net sales under CUP method, rejecting assessee’s approach of aggregating the said payment under the manufacturing operations and applying TNMM. The Tribunal remitted the said issue of ALP determination for the year under appeal i.e. AY 2010-11 by relying on the Tribunals’ order in assessee’s own case for AY 2007-08, AY 2008-09 and AY 2009-10 wherein the Tribunal had rejected the assessee’s aggregation approach holding that the royalty payment was a separate transaction which required to be benchmarked under CUP method and had remitted the matter back to the file of the AO/ TPO for de novo determination of ALP. Further, it was also noted that in one of the years, under the remand proceedings directed by the Tribunal, the TPO had held the royalty payment made by the assessee at 4% to be within the ALP computed at 4.10%.
Praxair India Private Limited V ACIT [TS-524-ITAT-2018(Bang)] IT(TP)A No.361/Bang/2015 and IT(TP)A No.409 /Bang/2015 dated 04.06.2018

416. The Tribunal deleted the TP adjustment towards payment of royalty on traded finished goods made by the assessee to Johnson & Johnson USA following the coordinate bench ruling in assessee’s own case wherein the Tribunal had noted RBI approval was obtained and had observed that TPO could not sit in judgment on whether the royalty had to be paid or not and also found that there was no force in the findings of the TPO that royalty was deemed to be included in the brand royalty.
Further, the Tribunal also allowed the technical know-how royalty payment @ 2% / 4% as per the agreement as against the TPO’s approach of restricting royalty @ 1% and followed the assessee’s own order for the earlier year.
The Tribunal dismissed Revenue’s appeal and relied on the co-ordinate bench ruling in assessee’s own case to allow the tax and R&D cess paid on technical know-how royalty. The Tribunal in assessee’s own case had noted that royalty payments were approved by RBI and further payments had been made in line with the agreement with Johnson and Johnson US and hence no question of disallowance of tax and R&D cess arose.
ACIT vs Johnson & Johnson Ltd [TS-537-ITAT-2018(Mum)-TP] ITA Nos.1776 & 1777/M/2017 and CO No.242/M/2017 dated 18.06.2018

417. The Tribunal, following the order of the co-ordinate bench in the assessee’s own case for the earlier AY, deleted TP-adjustment on management support services received from AE and rejected TPO’s ALP-determination at Nil observing that the assessee had actually received services and demonstrated benefit. It noted that the said services could not be categorized as stewardship services and that the Revenue had accepted similar claim of assessee for other AYs. Further, it rejected the TP-adjustment on international transaction relating to receipt of IT services made by the TPO by determining its ALP at Nil and noted that the DRP had deleted similar addition made in the earlier and subsequent years. Since the assessee had been claiming the IT expenses for the last several years and the same had not been denied, in view of the principle of consistency, it held that the TPO was unjustified in making TP addition.
DCIT vs. Philips India Ltd – TS-1088-ITAT-2017(Kol)-TP – ITA No.863 & 539/Kol/2016 dated 15-12-2017

418. The Tribunal dismissed Revenue’s appeal against CIT(A)’s deletion of TP-adjustment on account of disallowance of part of professional service fees paid by assessee to its AE. The service rendered by AE was to enable assessee’s fulfilment of management services contract with an independent third party viz. Hazira LNG for plant construction. Accordingly, accepting the contention of the assessee that the services received by the assessee from its AE was independent of the income received by it from Hazira LNG, the Tribunal held that the TPO erred in concluding that the expenditure related to professional services received by the assessee from its AE was to be allowed only in the next AY since income from Hazira LNG was recognized in that year. It upheld the CIT(A)’s view that income receivable from Hazira LNG would not have altered assessee’s liability in respect of its payment to AE and further held that the TPO exceeded his jurisdiction by taking over the role of the AO and disallowing an expenditure based on assessee’s adoption of a project completion model for accounting. It held that the TPO was neither supposed to take decision about accounting policy to be followed by the assessee nor comment upon as how to compute income if an assessee follows a particular method of accounting.
DCIT vs Hazaria Cryogenic Engineering and Construction Management Pvt. Ltd – TS-4-ITAT-2018(Mum)-TP – /I.T.A./2124/Mum/2007 dated 03/01/2018

419. The Tribunal deleted TP-adjustment on payment of fees for advisory and other services rendered by AE observing that the analysis done by TPO as to nature of services and benefit to assessee was beyond the scope of TP provisions. It observed that the assessee had filed contemporaneous and highly-technical documentary evidences to demonstrate benefits of services such as support for new product, marketing material, training material and technical support, etc and held that once such a business decision had been taken and the payment had been backed by substantial evidence of services received by it from its associated enterprises, then the TPO could not question the same by commenting upon the nature of services provided. It held that the examination of qualification of AEs to provide services and costs incurred by AE was outside the domain of TPO and further observed that the AEs had provided similar services to other group entities and relevant details as to basis of charge, calculations along with proof that similar arrangements with other related entities which were certified. Accordingly, it accepted assessee’s adoption of TNMM and consideration of AEs as tested-party and discarded the Nil ALP determination on the basis of examination of needs and benefits of services instead of benchmarking using uncontrolled transactions and held that such a metholodolgy under the garb of CUP was not permissible in law.
Emerson Climate Technologies (India) Limited. vs. DCIT – TS-1065-ITAT-2017(PUN)-TP – ITA No.2182/PUN/2013 dated 29.12.2017

420. Where the assessee incurred consultancy fee during the year (for setting up its manufacturing activity which it capitalized as well as other consultancy fee), vis-à-vis the consultancy fee capitalized, the Tribunal held that since the ALP-determination was neither directed by DRP nor carried out by AO/TPO, it could not enlarge the controversy by directing the authorities to determine the ALP of the amount to be capitalized. Vis-à-vis TP-adjustment on payment of balance consultancy fees to AE, it rejected assessee’s approach of aggregating the transaction with manufacturing activity absent close connection between two transactions, further also noted that the assessee had not undertaken any manufacturing activity during the first year under consideration and thus, there was no reason for aggregation. However, noting that TPO determined ALP at Nil holding that no benefit was received by assessee which was accordingly disallowed by AO, it held that the AO/TPO’s action was contrary to ratio of Delhi HC ruling in Cushman & Wakefield India P Ltd and accordingly remitted the matter to AO/TPO to follow directions in Cushman & Wakefield ruling after giving reasonable opportunity of being heard to assessee.
Daikin Airconditioning India Pvt. Ltd. v DCIT – TS-176-ITAT-2018(DEL)-TP – ITA Nos.2536/Del/2014

421. The Tribunal deleted the TP adjustment in respect of management support services fees paid provided by the assessee following the coordinate bench decision of assessee’s own case for earlier year wherein it was held that the TPO could not question the commercial expediency and how the assessee benefitted from such services relying on the on ratio laid down in the Delhi High Court ruling in Cushman and Wakefield. It had also observed that the DRP had treated the receipts from assessee as FTS in the hands of the AE which by itself means that services were being rendered and further, the TPO in the earlier years had made no such adjustment. Thus, it deleted the said adjustment made by the TPO on the basis that services rendered by AE to assessee amounted to shareholder activities.
Philips India Ltd. vs ACIT (2018) 52 CCH 0320 KolTrib ITA No.2498/Kol/2017 dated 04.04.2018

422. The Tribunal set aside the CIT(A)’s order upholding the TP addition of Rs 97 lakhs on payment of management fees. It upheld the TPO and CIT(A)’s segregated benchmarking of the of payment of management fees from the TNMM analysis but held that the CIT(A) erred in questioning the commercial expediency behind incurring the said expenditure as it was in excess of his powers while determining the ALP of the payment. Relying on the order of the Tribunal for the earlier years on the similar issue, it remanded the matter back to the TPO for a fresh examination in light of the substantiating evidence filed by the assessee proving the receipt of services.
DMG Mori Seiki India Machines And Services Pvt. Ltd vs DCIT – TS-535-ITAT-2018(Bang)-TP – IT(TP)A 1617/Bang/2012 dated 02-05-2018

423. The Tribunal deleted TP adjustment made on account of payment for management service cross charge made by assessee (an Indian branch office) to various group entities and laid down 4 aspects to be examined while benchmarking intra-group services – “1. Whether the assessee received intra-group services? 2. What are the economic and commercial benefits derived by the recipient of intra-group services 3. In order to identify the charges relating to services, there should be a mechanism in place which can identity (i) the cost incurred by the AE in providing the intra-group services and (ii) the basis of allocation of cost to various AEs. 4. Whether a comparable independent enterprise would have paid for the services in comparable circumstances?”. Relying on Delhi HC ruling in EKL Appliances, it held that the lower authorities were not justified in examining commercial soundness of the decision and whether any profit had actually been realized pursuant to such payment. Further, it rejected Revenue’s argument that assessee did not provide logical cost allocation basis for management support services and observed that the break-up of costs and evidence was duly submitted by the assessee and that the cost allocation of a senior personnel from the regional head office on the basis of time spent was logical and backed by email evidence.
A.T. Kearney Ltd vs A.D.I.T – TS-528-ITAT-2018(DEL)-TP – ITA No. 6249/DEL/2012 dated 21.05.2018

424. The Tribunal deleted the TP adjustment on management service fees paid by the assessee by relying on the coordinate bench decision of Siemens Aktiongessellschaft wherein it was held that benefit test could not be the basis to justify arm’s length price. It rejected TPO’s Nil determination of ALP of the said services by applying the benefit test by holding that the same was contrary to the provisions of Rule 10B where any of the methods had to be adopted for determining the ALP of the transaction.
US Technology Resources (P.) Ltd. vs Dy.CIT [2018] 97 taxmann.com 490 (Cochin-Trib) IT(TP) No.134 and 475 of 2016 dated 23.05.2018

425. The Tribunal deleted TP-adjustment in respect of management and professional consultancy services and SAP consultancy charges paid pursuant to remand back by Punjab & Haryana HC. It relied upon the co-ordinate bench ruling for AY 2008-09 wherein it was observed that assessee had achieved an increase in export turnover as well as gross margin and thus benefited from the services rendered by AE. Further it noted that in the earlier year, the Tribunal had upheld assessee’s TNMM as TPO failed to bring anything on record to substantiate ALP determination at Nil under CUP. Relying on Tribunal’s order for AY 2008-09, it held that since the facts of the present case were identical TNMM was the most appropriate method and that the Assessing Officer/ TPO/DRP were not justified in making any adjustment in the ALP of the international transactions entered into by the assessee on account of professional consultancy, management fee for support service and SAP consultancy charges.
Knorr-Bremse India Pvt. Ltd v ACIT – TS-527-ITAT-2018(DEL)-TP – ITA No.5097/Del/2011 dated 31/05/2018

426. The TPO determined the ALP of the of management/business support services to be Nil by applying CUP on ground that these services did not result in any benefit to assessee and there was no evidence of receipt of these services. The CIT(A) granted relief to the extent of 70% of disallowance but sustained 30% adjustment on the ground that services included element of shareholder services and duplicative services. The Tribunal remanded the matter back to CIT(A) noting that CIT(A) had sustained the adjustment on estimated basis without considering the cost allocation methodology report and directed the CIT(A) to quantify the adjustment after examining the said report and assessee’s explanations.
BSI Group India Pvt. Ltd. & ANR vs. ACIT (2018) 53 CCH 0091 DelTrib ITA No. 104/Del/2014 dated 31.05.2018

427. The Tribunal remitted the ALP determination of payment of management group cost back to AO/TPO for deciding afresh by applying the CUP method for AYs 2008-09,2009-10 and 2012-13. The Tribunal noted that the TPO rejected assessee’s aggregation of sub-transactions of “management group cost” and “R&D assistance cost” as one international transaction of “cost sharing expenses” using TNMM, segregated the payment of “management group cost” and applied CUP as MAM and determined ALP as nil. The Tribunal rejected the TPO’s Nil-ALP determination of management group cost on the ground of non-receipt of services/duplication of services and application of benefit test. The TPO had invoked the CUP method and conducted a “cost benefit analysis” test and eventually arrived at the conclusion that services received were duplicative in nature and in some cases, the assessee did not avail any services. The Tribunal took note of the assessee’s submission of list of services received under the management cost services and certain other details of technical materials received from the AEs, and followed Knorr-Bremse High court ruling to hold that the assessee did receive some services and the applicability of `benefit test’ could not be countenanced.
Further noting that (i) the coordinate bench in assessee’s own case for AY 2011-12 had restored the matter back to TPO to examine whether the payment of “management group cost” was a case of cost sharing arrangement or intra-group services after perusal of various agreements and (ii) since the relevant agreements were the same in that year as well as the present year, the Tribunal restored the matter for present year also to the file of the AO.
Atotech India Pvt Ltd vs. ACIT [TS-340-ITAT-2018(DEL)-TP] ITA Nos.3419&6571/Del/2016 &1112/Del/2014 dated 11.05.2018

428. The Tribunal remitted the TP-adjustment on sales support services rendered by assessee to its AE for re-adjudication noting that the main dispute was around cost allocation between trading and sales support services and assessee had made several submissions which were not considered by lower authorities. It noted that the TPO had made adjustment on reimbursement of project expenses which consisted of travel expenses of engineers, salary, insurance, logistics for importing the material related to the project, etc., for want of documentation while DRP enhanced it holding it to be shareholder activity without giving any plausible reasoning in support of its claim that project expenditure was shareholder activity and would benefit only AE. It noted that the assessee had consistently submitted that expenditure was towards setting up of its Ranjangaon Project and accordingly held that the TPO ought to have determined ALP in light of provisions of Rule 10B. Further, it held that the Revenue could not sit into the armchair of businessman to adjudge necessity of expenditure unless it was shown that the expenditure was not at all required to be incurred for the benefit of the assessee and the assessee, in normal circumstances, would not be willing to pay the same to independent third parties. It also observed that the expenditure was capitalized and disclosed under ‘work in progress’ in the Balance Sheet and not debited to profit and loss account, thus held that approach of Revenue to add back amount as income was clearly fallacious. Thus it set aside Nil ALP determination and restored the matter back to TPO for de novo consideration.
Jotun India P Ltd v ITO – TS-447-ITAT-2018(Mum)-TP – I.T.A. No.1126/Mum/2013 dated 04 /05/2018

429. The Tribunal relying on the order of the coordinate bench in assessee’s own case rejected TPO’s determination of ALP of the management fees at nil and quoted the observations of the bench wherein they had questioned the authority of the TPO to determine the necessity and expediency of the management fees. The TPO had to only ascertain the arm’s length price. Further, the Tribunal also noted that the management fees was held to be in the nature of both capital and revenue expenditure and to be allocated in 60:40 ratio because the person to whom the fees were paid was involved in the day to day activities of the assessee and also assisted in the expansion and increase in the installed capacity.
Tudor India Private Limited (formerly known as Tudor India Limited) [TS-458-ITAT-2018(Ahd)-TP] ITA No.2585/Ahd/2014 dated 06.06.2018

430. The Tribunal deleted TP-adjustment on payment made for management and professional consultancy services by following the co-ordinate bench ruling for AY 2008-09 (which had been relied upon subsequently by AY 2007-08 to decide the issue in favour of the assessee),wherein it was observed that assessee had achieved an increase in export turnover as well as gross margin from 2007-2009 and thus benefited from the services rendered by AE . Noting that the AE had charged only the cost and other related expenses for the employee and not a markup which was paid to the employees who are third parties , it observed that transfer pricing provisions can be inferred only if there is a related party payment, but the expenses incurred were paid to the third party employees although those employees were the employees of the AE.It rejected TPO’s Nil determination of ALP under CUP method as nothing was brought on record to substantiate that the AE provided similar services to independent enterprises in the assessee’s market and accepted assessee’s adoption of TNMM as the MAM . It dissented with coordinate bench decisions relied on by the Revenue namely Crane Software and Gemplus India Pvt. Ltd ( wherein the TP adjustment on management charges had been made due to difference in factuals ) as it was not the allegation of TPO that services were not rendered by the AE and Bombardier Transportation India Pvt. Ltd. as the assessee in the instant case had filed detailed evidence and explained specific services provided by the AEs
Knorr-Bremse India Pvt. Ltd v ACIT – TS-526-ITAT-2018(DEL)-TP – ITA No.5097/Del/2011 dated 28.06.2018

431. The Tribunal dismissed Revenue’s appeal and confirmed the deletion of TP-adjustment on foreign component of seconded employees’ salary disbursed by AE in Australia. The TPO had determined ALP of reimbursement to AE towards expat employees’ salary at Nil while Indian component of the salary was allowed as deduction. The Tribunal noted that the TPO had accepted business support services income and project management fees earned by assessee through the employment of such expat employeesand therefore held that the action of the TPO in denying deduction of the foreign component of the salary was not justified when it accepted the salary paid to such employees in India moreso when the same set of expats engaged in providing business support services the income from which has been offered for tax and accepted by the TPO.
ACIT V Blue Scope Steel India (P) Ltd – [TS-143-ITAT-2018(DEL)-TP] – I.T.A .No. 5535/DEL/2012 dated 01.03.2018

432. The Court upheld the Tribunal’s order deleting TPO’s disallowance of overheads allocated by JV partners to assessee (an AOP with 5 members formed for executing contract for Delhi Metro Rail Corporation). As per the JV agreement, the members were permitted to allocate their head office (HO) expenses to the extent of 8.5% of turnover of the assessee in their profit sharing ratio, however TPO disallowed the same on the ground that other direct expenses of the JV partners were debited in assessee’s books. The Court noted the Tribunal’s observation that the TPO had failed to identify comparables to justify that overhead allocation in case of assessee was in excess of comparable transactions and that both the CIT(A) and ITAT took note of certificates from JVs’ auditors confirming overhead charging rate and its apportionment to the assessee’s operations and thus, rejected TPO’s finding that assessee had not furnished details in support of its claim. Accordingly, the Court held that the issue urged by Revenue was essentially of finding of facts, which were not shown to be perverse and accordingly held that no substantial question of law arose.
Pr. CIT vs. International Metro Civil Contractors – INCOME TAX APPEAL NO. 559 OF 2015 dated 07.03.2018

433. The Tribunal deleted the TP-adjustment (TPO determined ALP as Nil) on information technology (IT) services availed by assessee (engaged in manufacture and distribution of fluid power equipment) and held that the factum of availing services as well as basis of charge was proved by assessee based on a certificate received from AE which had also certified that similar charge was made to other group entities and other documents like debit notes, JV vouchers, etc. It rejected TPO’s segregation of transaction of availing IT services from other international transactions and held that the IT services were related to the business of the assessee and therefore ought to be aggregated.
Eaton Fluid Power Limited vs. ACIT – TS-178-ITAT-2018(PUN)-TP – ITA No.45/PUN/2013 dated 12.03.2018

434. The Tribunal rejected TPO’s Nil ALP-determination under CUP-method in respect of payment of license and management fees by assessee (JV engaged in manufacture of pharmaceutical formulations) to AE and upheld assessee’s approach of benchmarking under the aggregation approach. It held that while the benefit test was a necessary part of determining ALP of any intra-group service, it cannot have qualifications such as “substantial”, “direct” and “tangible” as these qualifications were not given u/s 92(2) and also observed that there were several non-monetary terms other than profitability required to be seen while judging the benefit test. Observing that the license was required for long term manufacturing of drugs and formulation with know-how of the AE, the Tribunal held that the TPO lost sight of various non-monetary benefits which in the absence of the payment for the use of license would not flow to the assessee. Since the assessee’s comparability analysis by aggregation of transactions after adopting TNMM as MAM had not been examined by either of the authorities below who merely concentrated on the issue of aggregation/segregation of transactions, it remitted issue back to CIT(A).
DCIT vs. Adcock Ingram Ltd – TS-57-ITAT-2018(Bang)-TP – I.T(TP).A No.1039 & 1078/Bang/2015 dated 31.01.2018
435. The Tribunal remitted the TP-adjustment on payment for intra-group services to AE noting that the TPO after rejecting assessee’s combined transaction approach of adoption of TNMM and applying CUP, had determined ALP of intra-group services at Nil without appreciating i) the assessee’s arguments on appropriateness of combined benchmarking approach considering that 5 transactions benchmarked together were closely linked and inappropriate adoption of CUP ii) TPO’s failure to consider voluminous documentation submitted by assessee and iii) TPO’s incorrect approach in questioning commercial expediency of transaction. Considering the totality of the facts of the case, it held that the matter required fresh adjudication at the level of the Assessing Officer/TPO in the light of the various evidences produced before them and in the light of the decisions relied on by assessee.
Bright Point India Pvt. Ltd. v ACIT – [TS-1083-ITAT-2017(DEL)-TP – ITA No.123/Del/2017 dated 04-12-2017

436. In case of an assessee engaged in manufacturing and marketing of paints, speciality chemicals and starch, the Tribunal deleted TP Adjustment in respect of payments made for intra group services received from its AE. The Tribunal relied on assessee’s earlier year’s order which stated that services provided by AE in the arena of human resources, marketing support, and IT, were not in the nature of stewardship services and the assessee had proved the benefit received from such services. Further, the Tribunal also remitted issue of ALP determination to TPO, after noting that ALP determination activity was not carried out by TPO, as the TPO had cited assessee’s failure to provide agreement as reason for non-determination of the ALP and the DRP regarded the transaction as stewardship services. Thus, the Tribunal directed TPO to pass speaking order after hearing the assessee.
DCIT Circle 10(1) vs Akzo Nobel India Ltd.-TS-342-ITAT-2018(KOL)-TP- ITA No 229/Kol/2015 dated 14.04.2018

437. The Tribunal remitted back issue of ALP determination of international transactions for assessee acting as a sourcing support service provider for it’s group companies and relied on co-ordinate bench ruling in assessee’s own case for earlier AYs, which in turn had relied on Li & Fung HC-ruling, and had remitted the issue back to TPO considering that the assessee was not into buy and sell, but a facilitator/service provider and its compensation model would be cost plus remuneration and not a commission based remuneration. Thus, the Tribunal remitted the matter to the file of AO/TPO for a fresh examination on the lines of co-ordinate bench judgment to find out proper comparables and determine the ALP of the international transaction afresh.
GAP International Sourcing (I) Pvt Ltd vs DCIT Circle 10(1)- TS-481-ITAT-2018(Del)-TP- ITA No 6340/Del/2017 dated 11.04.2018

438. The Court upheld Tribunal’s decision of deleting TP-adjustment in case of an assessee rendering support services by following co-ordinate bench ruling in ‘Li and Fung India Pvt. Ltd. The Court rejected Revenue’s submission that there were significant differences in assessee’s international transactions as opposed to those carried out by Li and Fung India and stated that Tribunal’s findings with respect to the functional similarity and identity between Li and Fung India and assessee were clear. The Court observed that like Li and Fung India the assessee did not assume any risk and were dependent entirely for reimbursement of its expenses by the AEs and were thus entitled to the annual and identical markup of 5% over the annual expenditure.
PCIT-4 vs GAP International Sourcing India P Ltd- TS-259-HC-2018(Del)-TP- ITA No 1033/2017 dated 10.04.2018

439. The Tribunal deleted the disallowance in respect of sales commission paid by assessee to its sister concern (AE), noting that similar commission was allowed in preceding AYs 2010-11 to 2012-13 and Revenue had not been able to bring any new fact, which had led to change the present stand for the purpose of disallowing sales commission.
Bonfigioli Transmissions Private Limited vs. DCIT – TS-388-ITAT-2018(CHNY)-TP – /I.T.A.No.2977/CHNY/2017 dated 14-05-2018

440. The Tribunal rejected Revenue’s contention that rate of commission received by assessee ought to be 4% instead of 1% and deleted the TP adjustment made on commission. The Tribunal noted that Revenue had raised the issue for the first time in the AY 2013-14 and observed that the TPO has compared the rate of commission charged by the assessee with the rate of commission charged by the assessee to its other AEs which was clearly barred by the provisions of section 92F(ii) r.w.s. 92. Accordingly, it deleted the TP-adjustment on commission observing that ALP was to be determined based on price charged in uncontrolled transaction and accepted the benchmarking done by assessee as correct
COIM India Pvt. Ltd v ACIT [TS-344-ITAT-2018(DEL)-TP] ITA No.7260/Del/2014 dated 07.05.2018

441. The TPO disallowed the entire commission payment made by the assessee (engaed in manufacturing business) to its AE for AY 2008-09 by using the ‘benefit test’ and determined ALP at Nil on the basis that no services were received. The CIT(A) arbitrarily held that 75% commission should be allowed as a deduction. The Tribunal rejected TPO’s use of ‘benefit test’ to determine Nil ALP, relying on Knorr Bremse HC ruling and held that in the instant case it was established beyond doubt that three employees were specifically deployed by the AE for the business operations of the assessee, which deciphered that the international transaction entered into by the assessee with its AE was genuine and bona fide. The Tribunal thus set aside the CIT(A)’s order and remitted the matter to the file of AO/ TPO for deciding the same in accordance with ratio laid down in Cushman & Wakefield jurisdictional HC ruling wherein it was held that the authority of the TPO was limited to conducting transfer pricing analysis for determining the ALP of an international transaction and not to decide if such service or benefit accrued to the assessee.
Further, the Tribunal also rejected the TPO’s benchmarking of the payment of commission by applying the CUP method, noting that he had not brought on record even a single comparable to facilitate a comparison between the price for the services by the assessee vis-à-vis that paid by other comparable. It also rejected the assessee’s benchmarking under PSM since the assessee was not able to substantiate the ALP under the said method.
DCIT (LTU) vs. Caparo Engineering India Pvt. Ltd [TS-325-ITAT-2018(DEL)-TP] ITA No.444/Del/2015 dated 02.05.2018

442. The Tribunal deleted the adjustment/ disallowance made by the TPO in respect of payment made by the assessee for intragroup services. It relied on the coordinate bench ruling in assessee’s own case for earlier year wherein the TP adjustment in respect of intragroup services was deleted by holding that the assessee actually received the services and benefited from them. The Tribunal noted that TPO made the adjustment by observing that services rendered were of stewardship nature and were for maintenance of overall control of the group. However, in the assessee’s own case, it was held by the Tribunal that that assessee had clearly demonstrated that services resulted in effective cost savings by way of an effective purchase function, technical assistance in relation to certain products provided by AE and other ancillary functions like IT management for which the assessee did not have requisite staff to perform functions. The Tribunal noted that there were no change of facts from the earlier year and the Revenue had not been able to bring anything on record to controvert it.
Chryso India Private Limited (formerly known as ‘The structural Waterproofing Company Private Limited’) v ACIT [TS-329-ITAT-2018(Kol)-TP] ITA No.112/Kol/2017 dated 04.05.2018

443. The Tribunal remitted the benchmarking of intra-group services to TPO. It relied upon the earlier year order wherein ITAT had observed that TPO is required to assess (a) need test, (b) benefit test, (c) rendition test, (d) duplication test and (e) shareholder activity test while determining ALP of intra-group services. The Tribunal in the assessee’s earlier year had remanded the matter by holding that assessee had not produced proper evidence for substantiating actual rendering of various services and that determination of the same would be a year-specific exercise.
Avery Dennison (I) Pvt Ltd vs ACIT [TS-611-ITAT-2018(DEL)-TP] ITA No.7183/Del/2017 dated 27.06.2018

444. The Court kept open the substantial question of law raised in appeal against the order of the Tribunal i.e. whether addition u/s 40(a)(ia) can be made with respect to expenditure incurred for intragroup service, irrespective of any addition being made u/s 92CA [i.e. TP adjustment] with respect to the said expenditure. It was noted that the Tribunal had remanded back the issue to the file of the AO. The Court thus held that the issue would now depend on the AO’s findings under the remand proceedings after considering the assessee’s contention in this regard. Accordingly, the appeal was disposed of.
SKF Technologies India P Ltd v DCIT [TS-610-HC-2018(KAR)-TP] ITA No.83/2017 dated 19.06.2018

445. The Tribunal dismissed Revenue’s appeal and upheld DRP’s order deleting the TP adjustment in respect of intragroup services noting the fact that the DRP had recorded that the assessee had provided substantial evidence in form of e-mails, correspondence with the AE etc. so as reach a conclusion that the AE was rendering services which were beneficial for the assessee in conducting its business and though some benefits might have accrued to the overall group but the primary beneficiary was the assessee. It concluded that services were not in nature of stewardship activity. It observed that the Revenue could not point out any factual or legal error in the directions of the DRP and thus, upheld the DRP’s order.
ACIT vs Humboldt Wedag India Pvt. Ltd- (2018) 53 CCH 0135 Del Trib ITA No.5097/Del/2011 dated 28.06.2018

446. The Tribunal following the order of the co-ordinate bench in assessee’s own case for earlier year remitted the issue vis-à-vis charge of markup on reimbursements from AE for the limited purpose of verification whether the transactions were routed through books. The Tribunal observed that AE’s employee was transferred to assessee’s company payroll as a whole time director with responsibility for scientific business and infrastructure operations of certain sister concerns/ affiliates, accordingly, assessee recharged the apportioned salary and other direct expenses incurred to respective affiliates on a cost-to-cost basis. The Tribunal noted that TPO suggested that a markup of 10% should be charged which was upheld by CIT(A) and had also observed that the transaction was not routed through the books.
United States Pharmacopeia India Pvt Ltd [TS-451-ITAT-2018(HYD)-TP] ITA No. 1582/Hyd/2017 and CO. No.37/Hyd/2017 dated 01.06.2018

447. The Tribunal followed the order of the co-ordinate bench in assessee’s AE and held that payments made to the AE were in nature of reimbursement without any mark-up and were duly supported by third-party invoices and hence the TPO could not make TP-adjustment on reimbursements by determining ALP at Nil It rejected the stand of the DRP that that reimbursement represented intra-group services.
Spencer Staurt (India) Private Limited vs ACIT [TS-751-ITAT-2018(Mum)-TP] ITA No.1832/Mum/2016 dated 06.06.2018

Share transactions

448. The Tribunal upheld the deletion of TP-adjustment in respect of buyback of shares by wholly owned subsidiary-AE from assessee at a lower rate (0.8 pound per share) than the per share investment (1 pound per share) made by assessee during the AE’s incorporation. It held that the TPO erred in charging notional interest based on the assumption that it was a loan transaction in the garb of share investment and observed that buying back of shares at par or at higher or lower rate than the purchase price was common practice in the business world and hence it should be accepted until it was proved that such a transaction was not based on a scientific basis or was against the provisions of exchange manual/regulation. It upheld the order of the first appellate authority wherein it was observed that the TPO had not doubted the valuation of the transaction which was arrived at by professionals and accordingly held that the TPO was unjustified in imputing notional interest @ 5.07% p.a. for the 101 day-period between the date of investment and the date of buyback.
ACIT vs. Wockhardt Ltd. – TS-39-ITAT-2018(Mum)-TP – I.T.A./4156/Mum/2012 & I.T.A. 5557/Mum /2012 dated 05/01/2018

449. The Tribunal deleted TP-adjustment on assessee’s sale of shares of group company (FAPL) to another AE based in Singapore and rejected price determined by DRP/TPO at Rs. 12,285.92 per share (using perpetual growth rate (PGR) of 7% which was based on a consultancy firm’s Report predicting the long term nominal growth for Indian economy at 7.5% ) as against Rs. 8,158 as adopted by assessee. Noting that the consultancy firm’s Report relied on by Revenue was a generic report and not specific to business carried on by the assessee and that the Report did not relate to year under consideration it held that the basis adopted by the Revenue was unjustified. Further, it noted both TPO and DRP failed to address assessee’s objection that CAGR of earning/free cash flow for FAPL was (-) 16% and similar companies had shown CAGR of (-) 8%, thus held that it was not reasonable to assume that such a company would suddenly grow at the estimated growth rate of the economy in perpetuity. It also observed that the assessee had produced 4 reports in support of its valuation and relying on the Bombay HC ruling in Titan Time Products Limited held that valuation reports of experts could not be rejected by the Revenue unless the assumption considered in the report were proved to be grossly erroneous or another expert opinion contradicting the earlier report was obtained. The Tribunal further observed that the subsequent buy back of FAPL shares from the Singapore entity at the same price was accepted to be at ALP by TPO and therefore held that there was no basis for not treating the original transaction to be at ALP. Accordingly, it held that the valuation of shares of FAPL was at Arm’s length and deleted the TP adjustment.
First Advantage Quest Research Limited vs. DCIT – TS-5-ITAT-2018(Mum)-TP – I.T.A./1546/Mum/2017 dated 05/01/2018

450. The AAR upheld Revenue’s contention and held that transaction of sale of shares in an Indian company by the Applicant to its Singapore based AE was required to be benchmarked as per the transfer pricing provisions contained in Chapter X of the Act. Relying on its decision in Castleton Investments Limited it held that as opposed to the provisions of Section 195 of the Act, the applicability of Section 92 does not depend on the chargeability under the Act i.e. there is no such requirement in section 92 that the transaction should result in income chargeable to tax under the Act.
AB Mauritius – TS-1099-AAR-2017-TP – A.A.R. No 1128 of 2011 dated 08.11.2017

451. The Tribunal deleted TP-addition on account of remittances made by assessee to its wholly owned subsidiary (‘WOS’ / ‘AE’) in Ivory Coast of South Africa towards share application money to the extent of shares allotted but however it sustained addition in respect of balance amount which was refunded by the WOS adopting interest rate of 6 months LIBOR plus 150 basis points as the refunded amount represented an interest free loan.
DCIT v Taurian Iron & Steel Co.Pvt.Ltd. – TS-467-ITAT-2018(Mum)-TP I.T.A./1284/Mum/2015 dated 11/05/2018

452. The Tribunal deleted the TP-addition made on account of interest free advances granted by assessee to its AEs and subsequently converted into equity for AYs 2008-09 to 2011-12. The Tribunal noted that assessee had raised funds by way of zero coupon bonds only for investing in its subsidiaries as ultimately share were allotted. It relied on co-ordinate bench ruling in assessee’s own case for AY 2012-13 and held that the transaction was not an international transaction. It observed that Explanation(1)(c) to sec 92B(1) was introduced vide Finance Act 2012 which clarified that capital financing also qualified as an “international transaction” retrospectively. The Tribunal stated that at the point of time when the transaction was entered into and equity shares were allotted, capital financing was outside the purview of international transaction. The Tribunal further added that as assessee did not incur any interest liability, there was no need for receiving any interest and the transaction had no ‘bearing on the profits, income, losses or assets of such enterprises’. Accordingly, the said transaction was not an international transaction and hence liability could not be attached.
Bartronics India Ltd vs. DCIT [TS-322-ITAT-2018(HYD)-TP] ITA Nos.1732/Hyd/2012 and ITA Nos. 520,383 and 521/Hyd/2016

453. The Tribunal deleted the TP adjustment made in respect of payment for services under the cost contribution agreement and rejected the TPO/DRP’s determination of nil ALP. The Tribunal observed that for previous AYs 2009-10 to 2011-12, TPO had consistently accepted assessee’s TP-documentation without making any adjustments. It relied on Radhasoami Satsang SC ruling for the principle of consistency and opined that unless there was a change of facts or law, Revenue could not blow hot and cold at will. The Tribunal rejected the view of the TPO that assessee had not satisfied the benefit test and opined that the authority of the TPO would be to conduct a transfer pricing analysis to determine the arm’s length price and not to determine whether there was a service or not from which the assessee benefits.
AT & S India (P) Ltd v/s. DCIT [TS-336-ITAT-2018(Kol)-TP] ITA No.77/Kol/2017 dated 11.05.2018

Others

454. The assessee, part of the Vodafone group, pursuant to a Framework Agreement held options to purchase 100 percent of the shares an Indian company viz. SMMS (which in turn indirectly held 3.15 percent in Vodafone India) from IDFC Investors for which it had paid a cost of Rs. 2 crore plus applicable interest @ 17.5 percent (which was a small fraction of the market value of the shares of Vodafone India i.e. the investee of SMMS). During the year under review, it terminated its option for which it paid IDFC Group a sum of Rs. 21.25 crore and disallowed the expenditure in its computation of income. The TPO sought to benchmark the transaction holding it to be a deemed international transaction and contended that instead of making a payment of Rs.21.25 crore, the assessee ought to have received a sum of Rs.1588.85 crore as the assessee had terminated extremely advantageous call options. The TPO noted that during the earlier assessment year, in another transaction IDFC had charged a sum of Rs.62.23 crore on relinquishment of right to purchase 0.1234 percent of Vodafone India and considering the assessee had relinquished the right to purchase 3.15 percent, arrived at a proportionate ALP of Rs. 1588.85 crore. The Tribunal held that it would be myopic to examine the termination of the Framework agreement without considering the Framework agreement and other connected arrangements / agreements. It noted that the assessee was granted the aforesaid option pursuant to an agreement wherein another company viz. HTIL had nominated SMMS to purchase the shares of two Indian companies for which SMMS was to be funded by the ultimate parent company of the Vodafone Group i.e. CGP Cayman Island by way of purchase of shares of SMMS by IDFC. The assessee entered into this agreement to ensure that the SMMS remained in control of the entire group (as it held shares in Vodafone India) by subscribing to options to purchase the shares of SMMS. Further, the Tribunal noted that the termination of options of the assessee was done so as to enable TTI another group company to obtain the shares in SMS. Further, it noted that the overseas Group companies were signatories to all the agreements. Accordingly, it concluded that the transaction between the assessee and IDFC was in effect a deemed international transaction. The Tribunal dismissed the assessee’s contention that absent explicit legal rights of the overseas AEs in the instant transaction, it could not be considered as a deemed international transaction and held that Section 92F(v) provided that irrespective of whether an arrangement, understanding or action in concert is intended to be enforceable by legal proceedings or not, it would be includible within the definition of “international transaction”. Further, it held that the term acting in concert suggested two or more persons acting in co-ordination for a common goal and therefore held that the Foreign AEs were undisputedly acting in concert in the current transaction.
Further, it dismissed the contention of the assessee that TP would not apply considering that no income arose from the transaction as the entire expense was disallowed in the computation of income. It held that it was only when a transaction was inherently incapable of producing an income that the transfer pricing provisions would not apply and held that merely because an income is not reported or not taken into account in the computation of income of taxable income it would not get out of the ambit of international transaction. It noted that as per the option available to the assessee, the assessee was supposed to pay only 2 crore plus interest (amounting to Rs.4.13 crore) but the assessee had paid Rs. 21.25 crore which evidenced the fact that there were other commercial consideration in the transaction. Accordingly, it held that the instant transaction would lead to income from capital gains considering the amended definitions of Section 2(47) and 2(14). It held that options would clearly fall under the definition of capital asset / property and that the termination of options would fall under disposing / parting with an asset / interest in any asset as contained in Explanation 2 to Section 2(47). Upholding the ALP determination of the TPO it proceeded to determine the cost of acquisition of the shares and noted that over and above the Rs.21.25 crore paid in the instant transaction the assessee had also paid 62.24 crore towards assignment of right to purchase shares in Vodafone India in the earlier year. Further, it dismissed the contention of the assessee that the capital gains provisions would not apply as there was no consideration and held that under transfer pricing provisions, the capital gains were to be computed on the basis of the ALP consideration. Accordingly, it upheld the TP addition made.
Vodafone India Services P Ltd v DCIT – TS -37-ITAT-2018 (Ahd) – TP – ITA No 565 / Ahd / 2017 dated 23.01.2018

455. The Tribunal held that writing off of obsolete stock worth Rs. 6.48 crore by the assessee was an extraordinary event and not an international transaction whose fair market value had to be assessed under the TP-provisions. It noted that similar write-offs were made in earlier years which had not attracted TP-adjustments by TPO and that there were no new facts warranting addition in the current year. Further, examining the transaction against the distribution agreement between AE and assessee, it concluded that the AE was not involved in any manner in the writing off of the obsolete stock since the agreement was limited to replacement/guarantee for goods with manufacturing defects and not for those which were obsolete or out-of-fashion (like the written-off goods). Accordingly, it deleted the TP-adjustment.
Safilo India Private Limited vs. DCIT – TS-12-ITAT-2018(Mum)-TP – I.T.A./588/Mum/2015 dated 12.01.2018

456. The Tribunal remitted the benchmarking of assessee’s international transaction relating to Forward Foreign Exchange Contract (FFEC) for fresh adjudication after considering additional evidences filed before CIT(A). It noted that the TPO held that the international transaction relating to FFEC’s (entered into 2000 and cancelled in 2007) were not at ALP as assessee was unable to submit any data from its AE regarding CUP for the transaction. The CIT(A) did not accept the additional evidences filed by assessee (data of Bloomberg Future rate for five years) as the documents were not produced before AO/TPO and assessee had not filed any application under Rule 46A. The CIT(A) thus upheld the TP-adjustment. Further observing that the TPO accepted the five years data of Bloomberg and made no adjustment in the succeeding AY, the Tribunal held that the matter should be restored back to the file of TPO/AO for fresh adjudication to consider additional evidences filed by assessee before the CIT(A).
ACIT vs. Citibank Overseas Investment Corporation – TS-6-ITAT-2018(Mum)-TP – I.T.A./7032/Mum/2013 dated 05.01.2018

457. The Tribunal deleted TP-adjustment on account of interest paid by the assessee to its AE on Fully Compulsory Convertible Debentures (FCCDs) issued by assessee to its AEs. The TPO recharacterized the FCCDs as foreign loan and benchmarked the interest paid on such FCCDs by adopting LIBOR as the ALP and accordingly made TP adjustment. The Tribunal relying on the coordinate bench’s finding in Adama India Pvt Limited [TS-16-ITAT-2017(HYD)-TP], (wherein it was held that considering the fact that the policy of Govt. of India and the RBI indicate that the issuance of CCD was part of FDI being quasi-equity in nature), held that the TPO erred considering the same as a loan. As regards the benchmarking the interest paid on CCDs, the Tribunal noted that the CCD’s were issued in Indian Rupees and therefore relying on the decision of Adama India (supra) held that the assessee was justified in benchmarking the interest based on the SBI PLR prevalent and accordingly held that the TPO erred in adopting LIBOR as ALP.
Hyderabad Infratech Private Electronics Limited v DCIT – TS-54-ITAT-2018(HYD)-TP – ITA No.1781/Hyd/2017 dated 25.01.2018

458. The Tribunal held that the TPO was unjustified in benchmarking the commission earned by the assesse from its AE on sale of machinery (5 percent) with the commission rate earned by it from its AEs from the sale of spares (18 percent). Following the order of the co-ordinate bench for the earlier year, it held that the benchmark adopted by the TPO was invalid being a controlled transaction in itself. Accordingly, it dismissed Revenue’s appeal and deleted the adjustment.
DCIT vs. Bobst India Pvt. Ltd – TS-79-ITAT-2018(PUN)-TP – ITA No. 277/PUN/2016 dated 29.01.2018

459. The Tribunal upheld CIT(A)’s deletion of TP-adjustment on account of assessee’s purchase of old / used machines along with its accessories from UK-AE. It noted that the assessee adopted FMV as certified by a Chartered Engineer as CUP for ascertaining ALP which was rejected by TPO who adopted a unique approach for benchmarking by considering life of the machinery given by Chartered Engineer at India along with year of manufacturing given by the Chartered Engineer at UK for working out the market value of the machinery during the transaction year. It upheld assessee’s ALP determination stating that valuation by an independent qualified expert for determining the fair market price or the FMV of the machinery has to be treated as the arm’s length price for the value of such products/services, which could be reckoned as the price paid by any independent party in the open market for such product/goods. Further, it held that for used machinery, ostensibly the purchase price of a new product could not be taken as CUP since the cost of used/old machinery depends upon number of various factors like usage maintenance, obsolescence etc. Accordingly, it held that the TPO failed to take note of such factors and also failed to carry out any independent exercise for the value of the machinery by any approved valuer /Chartered Engineer. Further, considering the fact that for AY 2008-09 TPO himself had accepted the same value as per the valuation report given by the Chartered Engineer for similar transaction, the Tribunal upheld the order of the CIT(A).
ACIT vs. Caparo Engineering India Pvt Ltd – TS-109-ITAT-2018(DEL)-TP – I.T.A. No.6838/DEL/2014 dated 22.02.2018

460. The Tribunal deleted the TP-adjustment on purchase of fixed assets from AE relying upon the co-ordiante bench ruling in assessee’s own case for earlier years wherein the Tribunal held that since assessee was receiving compensation from AE on ‘cost plus mark up’ basis with depreciation as one of the cost components, transaction of fixed assets purchase was ‘closely linked’ with transaction of services to AE and no separate benchmarking was required. Further, it placed reliance on judicial precedents wherein it was held that since depreciation cost was also recovered from AE along with mark-up, the transaction was ‘tax neutral’ and therefore deleted the adjustment.
BT India P Ltd v DCIT – TS-130-ITAT-2018(DEL)-TP – I.T.A .No. 566/DEL/2015 dated 26.02.2018

461. The assessee had acquired trademark from its AE, the ALP of which was determined at Nil by the TPO on the ground that the acquisition of trademark was not expected to result in any benefit to the assessee. Noting that the assessee produced certain additional evidences before the DRP which was not admitted, and that the assessee was not given adequate opportunity of being heard, the Tribunal remitted the matter back to the AO / TPO for fresh examination after passing of a speaking order.
Magic Woods Exports Private Limited vs. DCIT – [TS-152-ITAT-2018(CHNY)-TP – .I.T.A. No. 871/Mds/2017 dated 06.02.2018

462. The Tribunal remitted issue of adjustment made in respect of sale of assessee’s BPO business division by AE to an Indian domestic party noting non-adjudication of assessee’s ground by DRP. The assessee’s AE gave a contract (global agreement) to a third party towards business process outsourcing of its various products and, as part of the deal, agreed to hive off assessee’s BPO division to the Indian AE of the said third party for certain consideration. Pursuant to the above contract, the assessee entered into an agreement with the Indian AE of the said third party, which provided that a part of the consideration for transfer of business division was to be received by the assessee’s AE and balance by the assessee. TPO [despite non-reference of the said transaction by AO] made a TP-adjustment on sale of assessee’s business division and on the same issue, AO passed an alternate order making addition of same amount u/s 50B by treating the transaction as a slump sale. DRP observed that the assessee did not have any say in the global agreement (pursuant to which the division was transfered) and thus held that practically it was a case of assessee’s AE taking over the business division from assessee at the price received by the assessee and subsequently selling the same to the third party at the value of total consideration of transfer. Thus, it held the above transaction to be an international transaction and upheld the TP adjustment made by the TPO. DRP, however, did not adjudicate the issue of taxability u/s 50B.
The Tribunal noted assessee’s acceptance that subsequent to IT Act amendment, TPO is empowered to go into the issue of the international transaction himself without the matter being referred by AO, however, observing that DRP had not adjudicated issue of Sec 50B addition despite AO making such addition in the draft order, ITAT refrained from adjudicating TP-adjustment issue relying on Madras HC ruling in Ramdas Pharmacy and directed DRP to complete its order by adjudicating upon the ground relating to the addition made by AO by treating the transaction as slump sale
Prudential Process Management Services India Pvt Ltd vs DCIT Range 10(3)- TS-285-ITAT-2018(MUM)-TP- ITA No 1274/Mum/2014 dated 13.04.2018

463. The Tribunal deleted TP-adjustment on transaction of purchase of DSP Software and IP rights from assessee’s Malaysian AE. The TPO had relied on the statement of one of assessee’s employees and held that entire software was developed in India and thus, determined ALP of the transaction at Nil. The Tribunal rejected TPO’s stand of merely relying on employee’s statement without following any of the prescribed methods of ALP-determination and further noted that Malaysian AE had compensated assessee for part of development work carried out by assessee which was found to be at ALP by TPOs in earlier years.
Further, regarding price paid for IP rights, the Tribunal relied upon Delhi HC decision in EKL Appliances and co-ordinate bench decision in IWM Constructions (P.) Ltd to hold that Revenue cannot question business decision of the assessee and decide ALP.
Separately, the Tribunal upheld DRP’s direction to exclude depreciation from PLI while determining ALP of software development services to AEs by relying upon co-ordinate bench ruling in Market Tools Research Pvt. Ltd and Schefenacker Motherson Ltd and noted that depreciation claims for partnership firms and for companies were different.
DCIT Circle 8(1) vs M/s. Value Labs LLP-TS-409-ITAT-2018 (HYD) TP-ITA Nos. 305 & 405/HYD/15- dated 27.04.2018

464. The Tribunal deleted TP-adjustment in respect of provision of manning services by assessee [engaged in the business of sourcing, screening and selecting seafarers and also providing assistance in completing their free joining formalities, etc.] to its AE. The Tribunal observed that, co-ordinate bench in assessee’s own case for previous AY had deleted similar TP-adjustment on the basis that after taking into consideration the amount of expenses reimbursed by the associated enterprise over and above the fixed rate of payment (which was not factored in the benchmarking analysis by the TPO), rate charged by assessee could be compared favourably with the rate adopted by TPO. Thus, there being no material difference in facts, it deleted the addition made on account of transfer pricing adjustment of manning services in the present year also.
Wilhemsen Ship Management India P Ltd. Vs ITO- TS-391-ITAT-2018(Mum)-TP-ITA no. 2404/Mum/2012 dated 27.04.2018

465. The Tribunal rejected TPO’s re-characterization of assessee’s distribution transaction as a service transaction requiring markup and after perusal of the agreement between assessee and its AE [for distribution of AE’s product in India], the Tribunal held that the intention of the parties was clear that the assessee was a distributor of AE’s products in India and was not required to make the payments to the AE till the assessee made profit from the transactions. The Tribunal followed the HC ruling in case of Sony Ericsson Mobile Communications and held that there was no difference between the form and substance of the transaction of distribution to recharacterize the transaction as a service agreement. And eventually remitted issue to AO/TPO to conduct fresh TP analysis by treating the assessee’s transaction as a distribution agreement.
M/s. Comm Vault Systems (India) Pvt Ltd vs DCIT Circle 1(2)- TS-245-ITAT-2018(Hyd)-TP- ITA No. 343/Hyd/2016 dated 11.04.2018

466. The Tribunal deleted the TP-adjustment made in respect of BMW India’s payments on account of market survey report to its AE, BMW AG, for AY 2007-08. BMW AG arranged for market survey report [conducted by third party] for BMW India and charged the costs incurred to BMW India without any margin/markup, however TPO proposed an adjustment holding that the said report was for the benefit of BMW group and not for the benefit of the assessee. The Tribunal referred to the OECD Guidelines, various debit notes and written confirmations from BMW AG and noted that the market survey report was a country specific report and was different from shareholders’ activity. The Tribunal held that that the expenses incurred by BMW AG were for the benefit of BMW India only.
BMW India Pvt Ltd v/s. ACIT [TS-401-ITAT-2018(DEL)-TP] ITA No.6160/Del/2014 dated 14.05.2018

467. The Tribunal deleted interest adjustment on fully and Compulsory Convertible Debentures (FCCDs) issued by assesse [engaged in the business of manufacture and sale of electrical automobile components] pursuant to search proceedings absent incriminating material relating to FCCDs found during search. It noted that the assessee had filed original return of income on September 30, 2009 which was processed u/s 143(1) on September 05, 2010 and the time period to issue the notice u/s 143(2) of the Act had already expired before the search took place on October 29, 2013. Further, it observed that during the course of search, though no incriminating material was found relating to the FCCDs which were already shown by the assessee in its regular books of accounts, AO/TPO made the TP-addition on account of differential interest on FCCDs undertaken with assessee’s AE stating that though assessment was not framed u/s 143(3), for the purpose of Sec 153A r.w.s. 153C, an intimation u/s 143(1) was also an order of assessment. The Tribunal held that no such adjustment could have been made to the income which was already assessed prior to the date of search and even on merits it held that the difference between assessee’s interest rate (16%) and TPO’s rate (12.25%) was less than 5% which was within the permissible tolerance range as per Sec 92C(2) second proviso and accordingly held that no addition on account of arm’s length price could have been made by the AO/TPO.
Granite Gate Properties Pvt. Ltd vs. ACIT – TS-450-ITAT-2018(DEL)-TP – ITA No. 7022/Del/2017 dated 29.05.2018

f. Miscellaneous

Appeal

468. Where the CIT(A) remanded the determination of ALP of the assessee’s international transactions to the AO directing him to reconsider the issue, the Tribunal accepting Revenue’s contention that CIT(A) had no jurisdiction to set aside the matter to the AO for reconsideration set aside the order of the CIT(A) and directed him to re-adjudicate the issues himself. It clarified that if the CIT(A) wanted comments from the AO he could call for a remand report but he had to adjudicate the issues himself.
ITO vs. Integral India Software Development Centre (P) Ltd – TS-52-ITAT-2018(Bang)-TP – IT(TP)A No.1350/Bang/2013 dated 19.01.2018

469. The Tribunal set aside the non-speaking CIT(A) order confirming TP-adjustment on provision of R&D services, observing that the CIT(A) order did not discuss facts of the case, arguments raised or contain any findings. It held that the CIT(A) should have discussed validity of comparables rejected or introduced by TPO and thus directed the CIT(A) to pass a speaking and reasoned order dealing with all objections of the assessee and after giving opportunity of being heard to assessee. Accordingly, it disposed off the appeal.
Perstorp Chemicals India Pvt. Ltd. v ITO – TS-49-ITAT-2018(Mum)-TP – /I.T.A./4364/Mum/2012, dated 03.01.2018

470. Where the Tribunal had held that the expenditure incurred by the assessee constituted AMP expenditure which was taxable but had also relied on the decision of the Delhi High Court in Maruti Suzuki Ltd v CIT (2016) 381 ITR 117 (Del) wherein it was held that AMP expenditure did not constitute an international transaction for which the Revenue filed an application under Section 254 of the Act pending which it also filed an appeal before the Court, the Court held that the Revenue ought to have exhausted its remedy under Section 254 prior to approaching it. Accordingly, it disposed off the Revenue’s appeal.
Pr CIT v Wrigley India Pvt Ltd – TS-25-HC-2018(DEL)-TP – ITA 21/2018, CM APPL.934/2018 dated 10.01.2018

471. The High Court dismissed the review petition filed by the assessee challenging the previous order of the Court contending that the contentions with respect to appropriateness of the TNMM rather than the CUP (Comparable Uncontrolled Price) was urged but not answered. The Court opined that the appellant/review petitioner’s submissions with respect to the nature of the transaction and also the appropriateness of the TNMM as well as the feasibility of application of the TNMM method as the “most appropriate method” were not only considered but actually adverted to and therefore there was no scope for review.
Cargill Foods India Pvt Ltd vs. ACIT – TS-47-HC-2018(DEL)-TP – REVIEW PET.523/2017 IN ITA 938/2017 dated 19.01.2018

472. Where during the hearing on merits before the Tribunal, the assessee had contested that the TPO erred in making an upward adjustment by comparing the export sales made by the assessee to its AE with the export sales to its Non-AEs (which was also submitted by way of a synopsis note) the Tribunal dismissed the assessee’s miscellaneous petition wherein the assessee contended that the Tribunal had failed to appreciate that the assessee did not have any export sales to Non-AEs and that the rest of its transactions were only with domestic parties as the submissions made during the hearing on merits clearly stated that the assessee had export sales with Non-AEs and therefore there was no mistake apparent from record. Vis-à-vis the assessee’s contention that the ground raised before Tribunal for treatment of loss on cancellation of forward contract as extraordinary cost was not considered, it pointed out the clear finding in the original Tribunal order (that the forward contracts with AE itself were not proper and no copy of forward contract was made available before it) and accordingly dismissed the assessee’s ground for rectification observing that there was no mistake apparent from record.
As regards the assessee’s contention that the Tribunal erred in not considering its claim for working capital adjustment by holding that no such claim was raised before TPO/DRP, the Tribunal observed that the assessee failed to draw attention to the copy of submission before TPO/DRP which was submitted as part of paper book and therefore held that there was no mistake apparent from record.
Separately, it also rejected assessee’s contentions that Forward Market Price should be considered as comparable (which was raised by way of an additional ground) and noted that the Tribunal in its original order had not even admitted the additional ground as the relevant records / details were not available on record and accordingly dismissed the assessee’s petition.
Dhanya Agro Industrial Pvt. Ltd v DCIT – TS-1078-ITAT-2017(Bang)-TP – MP No. 233/Bang/2017 • dated 08.12.2017

473. The Court dismissed the assessee’s review petition wherein the assessee contended that the Court’s conclusion that no substantial question of law arose for its consideration was erroneous as the Court did not answer its argument on appropriateness of the TNMM. It opined that the petitioner’s submissions with respect to the nature of the transaction and also the appropriateness of the TNMM as well as the feasibility of application of the TNMM method as the “most appropriate method” were not only considered but actually adverted to. Accordingly, it held that the main order of the Court dated 06.11.2017 did not call for review.
Cargill Foods India Pvt Ltd vs. ACIT – TS-47-HC-2018(DEL)-TP – REVIEW PET.523/2017 IN ITA 938/2017 dated 19.01.2018

474. The Apex Court dismissed Revenue’s SLP against Delhi High Court order quashing Revenue’s show cause notice issued to Li & Fung India (assessee) pursuant to remand by the Tribunal. Noting that the Tribunal had directed TPO to determine ALP afresh by considering ‘total cost’ and not FOB value of goods as cost base, the High Court held that the Revenue erred in issuing show cause notice proposing to reject 51 out of 53 comparable companies selected by assessee in the set-aside proceedings as the remand was on the basis of a specific finding and that there was no controversy about the comparables. Finding no reason to entertain Revenue’s SLP, SC dismissed the same.
ACIT vs. Li and Fung India Pvt. Ltd. – TS-1-SC-2018-TP – PECIAL LEAVE PETITION (CIVIL) Diary No(s). 25825/2017 dated 05-01-2018

475. The Court dismissed Revenue’s application for condonation of appeal filing delay and held that unavailability of staff due to demonetisation & file movement on account of transfers were not sufficient cause for a delay of 489 days in filing the appeal. It noted that the appeal was filed on September 19, 2017 while the ITAT order was passed on April 22, 2016 and demonetization occurred on November 8, 2016 and therefore termed Revenue’s explanation as ‘unconvincing’.
Pr. CIT vs. Vertex Customer Services India Pvt Ltd – TS-77-HC-2018(DEL)-TP – ITA 172/2018 dated 12.02.2018

476. The Tribunal dismissed Revenue’s appeal filed against DRP’s directions as non-maintainable and held that as per the provisions of section 253(1)(d), an order passed by the AO under subsection (3) of section 143 or section 147 or section 153A or section 153C pursuant to the directions of the DRP or an order passed under section 154 in respect of such order, was appealable before the Tribunal and not the directions of the DRP.
DCIT vs. Toyota Tsusho India Pvt Ltd – TS-86-ITAT-2018(Bang)-TP – IT(TP)A No.1201/Bang/2015 dated 31.01.2018

477. The Tribunal recalled its order in case of the assessee noting that by applying turnover filter alone, the Tribunal remitted 7 comparables in light of Chryscapital HC ruling and had ignored assessee’s contention about consideration of other aspects such as functional dissimilarity, absence of segmental results etc. Accordingly, it noted that various aspects were inadvertently missed out in the impugned Tribunal order and therefore held that there was an apparent mistake. Further, it noted that the Tribunal had remitted comparability of Acropetal Technologies for application of employee cost filter (observing that it was not shown that the other comparable companies which were not excluded satisfied the employees cost filter) even though TPO had already applied employees cost filter as one of the filter across all comparable companies. In light of the aforesaid mistakes apparent from record it recalled the impugned order in entirety for fresh decision.
Cenduit India Services Pvt. Ltd vs. ITO – TS-119-ITAT-2018(Bang)-TP – M.P. No. 226/Bang/2017 dated 19.01.2018
478. The Court allowed the assessee to withdraw its appeal challenging the applicability of TNMM as most appropriate method for benchmarking its international transactions. The Tribunal had upheld TPO’s application of TNMM over assessee’s CUP-method after opining that CUP method could be applied as MAM only when there was no dis-similarity of the goods, articles or services. Since the matter was at the initial stage and was not admitted, it permitted the assessee to withdraw its appeal and clarified that the dismissal of this appeal on withdrawal for the impugned AU would not conclude the issue if sought to be raised in other assessment year.
Mercedes-Benz Research & Development India Pvt. Ltd vs. ACIT – TS-151-HC-2018(KAR)-TP – TS-151-HC-2018(KAR)-TP dated 08.03.2018

479. Where the assessee filed additional evidence before the CIT(A) which the CIT(A) refused to admit, the Tribunal relying on the co-ordinate bench ruling in the earlier years 2009-10 & 2010-11 remitted the matter back to CIT(A) for admitting additional evidence and deciding the matter afresh. Accordingly, it remitted the matter for subject years back to CIT(A) with similar direction.
DSV Air & Sea Private Limited vs. DCIT – [TS-153-ITAT-2018(PUN)-TP – सं./I.T.A. Nos. 4829 & 4830/Mum/ dated 07.03.2018

480. With regard to the issue as to whether the AMP expenditure incurred by the assessee amounted to an international transaction, the Tribunal had set aside the matter back to the file of the TPO to consider the issue de novo after considering all the relevant documents. On assessee’s appeal to the High Court against the said Tribunal order, the Court held that it had no jurisdiction to interfere with the appeal as issue of AMP expenses had not yet culminated in a final order of the Tribunal
Johnson & Johnson (P.) Ltd. v. CIT – [2018] 93 taxmann.com 155 (Bombay) – IT Appeal No. 1453 of 2014 dated April 13, 2018

481. The Tribunal allowed Revenue’s miscellaneous petition (MP) and held that the Tribunal’s non-adjudication of ground no.7 of its appeal (regarding exclusion of E-Infochips Ltd from the list of comparables for software developer assessee) was a mistake apparent from the record. Therefore, it recalled its decision for the limited purpose of adjudicating ground 7 of the Revenue’s appeal.
DCIT vs. Applied Material India P. Ltd – TS-1063-ITAT-2017(Bang)-TP – Miscellaneous Petition No.269/Bang/2017 dated 26.12.2017

482. The Court allowing the assessee’s appeal modified the order of the Tribunal order restoring ALP-determination in respect of assessee’s international transactions of marketing and support services to TPO/AO and instead remitted matter back to CIT(A). Noting that the comparable used in the present case for ALP determination was not a controlled transaction, the Court held that rather than the matter being examined afresh by the Assessing Officer it would be more appropriate that the matter be remanded to the CIT(A), who may, if necessary, call for a remand report.
The Bank of Tokyo – Mitsubishi UFJ Ltd vs. DCIT – TS-74-HC-2018(DEL)-TP – ITA 107/2018 dated 31.01.2018

483. The Tribunal allowed assessee’s miscellaneous petition and deleted the direction given to TPO to bring in more comparables functionally similar to the assessee after applying 25% RPT filter observing that TPO had already applied 25% RPT filter. Further, it also accepted assessee’s contention that Tribunal, in the original order, had wrongly excluded Mindtree Ltd as against Persistent Systems & Solutions Ltd and accordingly rectified the earlier order of the Tribunal.
ACI Worldwide Solutions P Ltd vs. DCIT – TS-203-ITAT-2018(Bang)-TP – Miscellaneous Petition N o.220/Bang/2017 dated 09.02.2018

484. The Tribunal allowed assessee’s miscellaneous petition as the Tribunal earlier had dismissed few grounds observing that the issue was not raised before lower authorities. However, as this observation was contrary to material on records, the Tribunal recalled this observation for limited purpose of re-adjudication.
M/s. Nuance Transcription Services India P Ltd. Vs DCIT Circle 5(1)(1)- TS-393-ITAT-2018(Bang)-TP- ITA no73/BANG/2018 dated 20.04.2018

485. The Tribunal dismissed the miscellaneous application of the assessee and stated that the Tribunal had not committed any error in remitting back one issue to the AO/TPO regarding turnover filter and another issue to the DRP regarding functionality, thus the claim of the assessee for erroneous Tribunal order was dismissed.
M/s. Systat Software Asia Pacific Ltd. Vs DCIT Circle 12(3) Banglore- TS-365-ITAT-2018(Bang)-TP- MP no 72/Bang/2018 dated 11.04.2018

486. The Tribunal dismissed miscellaneous petition filed by assessee against Tribunal order as the assessee had filed an appeal before Karnataka HC against Tribunal order (which was yet to be admitted). Further, the Revenue had also filed a cross appeal before HC which was pending admission.
The Tribunal held that judicial propriety does not permit the assessee to seek efficacious remedy simultaneously before two authorities and in particular where the issues are seized by a higher judicial forum even if pending admission. It thus concluded that assessee’s miscellaneous petition was liable to be rejected.
M/s. Cable & Wireless Network India P Ltd vs DCIT Circle 11(2)- TS -272-ITAT-2018(Bang)-TP- IT(TP) No. 1549/Bang/2014 dated 06.04.2018

487. The Tribunal dismissed assessee’s miscellaneous petition against ITAT order for AY 2007-08 and 2008-09 setting aside TP-issue to AO/TPO in view of cryptic DRP order. It rejected assessee’s contention that there was a mistake apparent from the record merely because the matter was restored to AO/TPO and not DRP relying on the decision of Tribunal in IBM India Pvt Ltd. v/s. Addl CIT wherein it was held that even if it is the finding of the Tribunal that the DRP’s order is cryptic, it was not necessary that in all such cases, the matter had to be restored to DRP and not AO/TPO.
Further, the Tribunal allowed the assessee’s miscellaneous petitions for AY 2009-10 and rectified the original/ earlier order to provide that the four comparables viz. Bodhtree Consulting Ltd, Tata Elxsi Ltd, Persistent Systems Ltd Infosys Ltd should be excluded while determining ALP of IT segment. The Tribunal noted that in the earlier order, after recording a finding that the above four comparables were excluded by it in case of Infinera India P Ltd (for its IT segment) and that the Revenue was not able to point out any difference in facts vis-à-vis the said case, the Tribunal had not given a final finding in respect of IT segment and had merely stated that it declines to interfere with the DRP order (whereas the DRP had decided the issue against the assessee). Thus, the Tribunal observed that there was a mistake apparent from the records in the earlier order for AY 2009-10.
Target Corporation India P Ltd v DCIT [TS-370-ITAT-2018(Bang)-TP] MP Nos. 314,315 and 317/Bang/2017 dated 06.05.2018

488. The Tribunal allowed the Revenue’s miscellaneous petition against the its order since it had failed to render findings in respect of the (i) CIT(A)’s view which was challenged vis-à-vis size & turnover of a company being deciding factors for treating a company as comparable and thereby 8 comparables were excluded and (ii) CIT(A)’s rejection of diminishing revenue filter used by the TPO. Thus, the Tribunal’s order was recalled to the extent of returning a finding with respect to the above two grounds.
DCIT vs. Century Link Technologies Pvt. Ltd (Formerly known as Qwest Telecom Software Service Pvt. Ltd) MP No.3/Bang/2018 dated 08.06.2018

489. The Tribunal rejected assessee’s miscellaneous petition against the Tribunal’s order rejecting the first miscellaneous petition. The Tribunal noted that in the first miscellaneous petition, assessee had contended that the Tribunal had not adjudicated upon the fact that CIT(A) erred in ignoring margin computation under internal TNMM as not reliable without considering that AO/TPO himself in assessment order had computed margins earned by assessee from transactions with AEs and non-AEs. However, the Tribunal had dismissed the miscellaneous petition on the ground that the Tribunal had adjudicated upon the issue collectively and had opined that comparison of internal TNMM was not possible as comparison was not of the same period in respect of AE and non-AE business. Accordingly, the Tribunal did not find a reason to interfere with the order of the Tribunal.
e4e Business Solutions India Pvt. Ltd vs. DCIT [TS-818-ITAT-2018 (Bang)] MP No.4/Bang/2018 dated 04.06.2018

490. The Tribunal allowed assessee’s miscellaneous petition and recalled its order for the limited purpose of adjudicating the other comparables adopted by TPO/AO and the DRP since the observation of the Tribunal that the assessee only argued against the exclusion of one company was patently incorrect since the assessee had submitted a chart containing the arguments of all the comparable companies. Further, the Tribunal held that there was no apparent mistake on record in its order as regards the exclusion of Cybermate Infotek Ltd since no question arose of non consideration of decisions of High Court [PTC Software (I) (P) Ltd. and Rampgreen Solutions Pvt. Ltd.], when it had returned a finding that the assessee engaged in low end software development and the said comparable fell broadly in the same domain by relying on the aforesaid HC rulings.
Lionbridge Technologies Pvt Ltd vs ACIT [TS-619-ITAT-2018(Mum)-TP] MA No.75/Mum/2018 dated 15.06.2018

491. The Tribunal allowed assessee’s miscellaneous petition and recalled its order in the case of the assessee qua the grounds not adjudicated upon by it. It noted that the Tribunal had not decided on the grounds vis-à-vis exclusion of Motilal Oswal Private Equity Advisors as a comparable and inclusion of ICRA Online Ltd. and IDC India Ltd. as comparables. Accordingly, grounds raised had been left out for determination and therefore held that there was an apparent mistake on record.
Blackstone Advisors India Private Limited vs DCIT [TS-745-ITAT-2018(Mum)-TP] MA No.130/Mum/2016 dated 08.06.2018

492. The Tribunal dismissed assessee’s miscellaneous petition against its order as the assessee had raised general ground of cross objection with respect to exclusion of comparables and not a specific ground with respect to exclusion of 3 comparables viz. Sankya Infotech, Extensys Software Solutions and Thirdware Solutions. Thus, the question of the Tribunal returning a finding did not arise.
Netscout Systems Software India Pvt Ltd v DCIT [TS-726-ITAT-2018(Bang)-TP] MP No.132/Bang/2018 CO No.30/Bang/2012 in IT(TP)A No.1212/Bang/2011 dated 08.06.2018

493. The Tribunal allowed the assessee’s miscellaneous petition and modified the order of the Tribunal directing the AO/TPO to allocate marketing & management fees in the ratio of turnover ‘between AE and non-AE transactions’ in place of ratio of turnover ‘of other international transactions’.
Yokogawa India Ltd vs. ACIT [TS-724-ITAT-2018(Bang)-TP] Miscellaneous Petition No.329/Bang/2017 dated 08.06.2018

494. The Tribunal dismissed assessee’s miscellaneous petition against its order wherein notional interest adjustment imputed on excess credit to the AE was upheld. Based on the factual findings of the TPO that the assessee charged interest from Non-AE, the Tribunal had confirmed the TP adjustment since the credit period for AEs and Non-AEs was different. However, it was the contention of the assessee that the TPO had recorded wrong findings and no interest was charged from AEs and non-AEs. Noting that this finding of TPO was not challenged before the appellate authorities, the Tribunal observed that its power was confined to the correct any mistakes which crept into its order and not the TPO’s order. Further, it accepted the Revenue’s counter argument that the Tribunal had considered the Bombay HC ruling of Indo American Jewellery Ltd and the Mumbai bench ruling in Evonik Degussa India which was the basis of passing the decision in assessee’s own case vis-à-vis the assessee’s stand that its own case was ignored. [In the assessee’s own case for the earlier year, the Tribunal had restored the issue to the TPO to examine if there was any agreement for charging interest on late payment and in absence of such an agreement to delete the notional interest adjustment by relying on coordinate bench decision of Evonik Degussa India wherein it was held TP adjustment could not be made on notional basis unless there is real charging of income]
Ingersoll Rand (India) Ltd vs DCIT [TS-770-ITAT-2018(Bang)-TP] MP No.263 and 264/Bang/2017 dated 19.06.2018

495. The Apex Court dismissed Revenue’s SLP against the High Court’s order quashing AO’s final assessment order passed in remand proceedings without passing draft order since it violated the provisions of section 144C(1). The High Court had relied on the HC rulings in Turner International and JCB India wherein it was categorically held that mandatory requirements u/s 144C (1) of the Act had to be met even where the TPO had passed the order in the second round on remand by the Tribunal. Further, it had also relied on the ruling of Citi Financial Consumer Finance India wherein it was held that failure to pass a draft assessment order u/s 144C(1) is not a curable defect as per Sec 292B.
Addl CIT vs Nokia India Pvt. Ltd. [TS-1027-SC-2018-TP] SLP No.7302/ 2018 dated 14.05.2018
496. The Court admitted assessee’s appeal on the question a) whether if an assessment proceeding is not pending before the AO, could the AO still make a reference make a reference under Section 92CA (1) of the Income Tax Act, 1961?
Nokia Siemens Networks India Private Limited [TS-327-HC-2018(DEL)-TP] ITA 525/2018 dated 04.05.2018
497. The Tribunal set aside the non-speaking DRP order confirming the TPO’s rejection of comparables as well as inclusion of new comparable observing that the TPO and DRP had failed to consider the financial data of comparable even though it was available. It thus directed the DRP to pass a speaking and reasoned order after giving an opportunity to the assessee to furnish evidences, submission and to consider the cases relied upon by the assessee.
ExxonMobil Gas (India) Private Limited vs DCIT [TS-754-ITAT-2018(DEL)-TP] ITA No.2702/Del/2014 dated 26.06.2018

498. The Tribunal set aside the order of the AO incorporating the ex-parte directions of the DRP and directed the DRP to afford an opportunity of hearing to the assessee and consider its objections afresh. Further, it rejected the contention of the assessee that the directions of DRP to the extent they grant relief to the assessee should be sustained. The DRP had passed its ex-parte directions inter alia directing exclusion of 6 companies by applying Rs.1-200cr turnover filter. The Tribunal further clarified that DRP could re-examine applicability of all filters and was at a liberty to follow its earlier directions insofar as it related to the relief allowed to assessee in its ex parte directions
Jamcracker Software Technologies Pvt. Ltd vs. DCIT [TS-494-ITAT-2018(Bang)-TP] IT(TP)A No.257/Bang/2016 dated 01.06.2018

APA / MAP

499. The Tribunal dismissed assessee’s TP-ground for AY 2009-10 relating to adjustment on royalty and franchise fee, as withdrawn, in view of resolution under MAP. However, vis-à-vis the disallowance of foreign exchange loss and R&D Cess on royalty payment, it remanded the issue back to AO/TPO to pass a speaking order in view of MAP resolution.
McDonald’s India Pvt Ltd vs. ACIT – TS-103-ITAT-2018(DEL)-TP – ITA No.1426/Del/2014 – 30-01-2018

500. The Tribunal directed the TPO to apply profit margin adopted/agreed in MAP covering IT/ITeS with US-AE to benchmark similar transactions with non-US AE noting that under MAP margins of 15.7% and 14.68% were adopted to benchmark IT & ITeS respectively for transactions with US-AE. It held that it would be very difficult to accept either assessee’s margin of 13 percent or the TPO’s higher margin for the same nature of transactions. Accordingly, for the impugned year, it held that the margins for the Software Development Services (IT service) and ITeS segment were to be taken as per the margins accepted in MAP proceedings.
Fidelity Business Services India Pvt. Ltd. vs. DCIT – TS-107-ITAT-2018(DEL)-TP – ITA No. 5872/Del/2011 dated 13/02/2018

501. In view of resolution of TP issues by the assessee under APA and considering that the APA was concluded on February 23, 2018 and the subject AY was included in rollback period, the Tribunal allowed the assessee to withdraw grounds against TP-adjustment.
FactSet Systems India Private Limited vs. ACIT – TS-202-ITAT-2018(HYD)-TP – ITA No.213/Hyd/2015 dated 23.03.2018

502. The Tribunal dismissed the crossed appeals in light of resolution under APA after considering letter submitted by AO to CIT(DR) that relevant AY formed part of the rollback years for which APA was signed agreeing to operating margin of not less than 18% which assessee had already complied for the subject AY.
DCIT Circle 17(2) vs M/s. Wells Fargo India Solutions (P) Ltd-TS-251-ITAT-2018(Hyd)-TP- ITA No 111/Hyd/2016 dated 09.04.2018

503. Assessee company had entered into international transactions of providing Information Technology Enabled Services (ITES). 92.86 percent of the assessee’s transactions were for USA and the remaining 7.14 percent constituted of non-USA transactions in the ITES segment. Simultaneously, the assessee had filed an application for MAP (Mutual Agreement Procedure) under Article 27 of India-USA DTAA with respect to Transfer Pricing Adjustments. MAP proceedings were concluded in respect of transaction of assessee at arm’s length markup of 18.82 percent for 92.86 percent of USA transactions. The Tribunal held that since no distinction had been made between ‘USA’ transactions and ‘non-USA’ transactions, therefore, the margin adopted for US transaction in MAP proceeding were to be adopted for non-US transactions also.
Amazon Development Centre (India) (P.) Ltd. v. ITO – [2018] 93 taxamnn.com 30 (Bangalore – Trib.) – IT (TP) Appeal Nos. 76, 78 and 1387 (BANG.) of 2014 dated April 27, 2018

504. Noting that the assessee had concluded a MAP with USA vis-à-vis its ‘management charges’ payment, the Tribunal allowed withdrawal of the ground of appeal against TPO’s determination of ALP at NIL. ; On the dispute of Revenue characterizing assessee company’s ‘engineering and design’ services as ITeS, the Tribunal rejected the ITeS classification and remanded the matter to the file of the TPO for fresh adjudication as the TPO’s characterisation was not in tune with the functional analysis and there was no evidence to support the classification.
Flowserve India Controls Private Limited vs CIT – TS-476-ITAT-2018(Bang)-TP – I.T. (T.P) A. No.1277/Bang/2011 dated 02.05.2018.

505. The Tribunal dismissed assessee’s appeal on certain TP-issues in view of resolution under Indo-Japan MAP for AY 2007-08.
ACIT vs. Marubeni India Pvt. Ltd – TS-445-ITAT-2018(DEL)-TP – ITA No. 3504/DEL/2014 dated 21.05.2018

506. The Tribunal dismissed assessee’s appeal challenging TP-adjustment of Rs.3.82cr in view of resolution under APA for AY 2012-13. It considered the assessee’s request for withdrawal of appeal in light of unilateral APA entered into with CBDT on October 25, 2017 for rollback period of AYs 2012-13 to 2015-16 in respect of international transactions with AE.
Microchip Technology (India) Pvt. Ltd vs. DCIT [TS-375-ITAT-2018(Bang)-TP] IT(TP)A No.36/Bang/2017 dated 02.05.2018

507. The Court dismissed Revenue’s appeal for AY 2006-07 in view of TP-dispute settlement under MAP. The Court held that the appeal had become infructuous and dismissed it without going into merits.
Pr. CIT vs. SIEBEL SYSTEMS SOFTWARE (INDIA) P. LTD [TS-616-HC-2018(KAR)-TP] ITA No.136/2016 dated 21.06.2018

508. The Tribunal dismissed assessee’s TP ground as withdrawn in in view of resolution under MAP.
McDonald’s India Pvt Ltd v DCIT [TS-513-ITAT-2018(DEL)-TP] ITA Nos.1665 and 1769/Del/2015 692 and 296/Del/2016

509. The Tribunal allowed the assessee to withdraw grounds covered by APA since there was no change in the said AYs in nature of international transactions. It directed the Department to pass an order giving effect to APA u/s.92CD(5) for AY 2010-11 and 2011-12. Further, for AY 2008-09 and 2009-10, (years not covered by APA), it directed that the principles laid down in APA for benchmarking comparability analysis would have a guidance value.
Spencer Staurt (India) Private Limited vs ACIT [TS-751-ITAT-2018(Mum)-TP] ITA No.1832/Mum/2016 dated 06.06.2018

Assessment / Reassessment / Revision/Rectification

510. Noting that the DRP held that the assessee did not have a PE in India, the Apex Court set aside the order of the High Court dismissing assessee’s writ petition and upholding reassessment proceedings based on material found during survey proceedings at Indian subsidiary, based on which AO believed that the assessee had an Indian PE.
LG Electronics Incorporation, South Korea vs. ADIT – TS-42-SC-2018-TP – CIVIL APPEAL NO(S).781 OF 2018 dated 16.01.2018

511. The Tribunal dismissed assessee’s additional ground against AO’s failure to refer ALP determination to TPO even though the value of international transactions (Rs. 10.42 Cr) for AY 2010-11 exceeded Rs. 5 crore and confirmed AO’s jurisdiction to adjudicate on TP matters in assessee’s case. It noted that the though CBDT Instruction No. 3 of 2013 prescribed a monetary limit of Rs. 5 crore for making reference to the TPO, the said limit had been subsequently revised in the CBDT’s Central Action Plan for FY 2006-07 wherein the threshold was increased to Rs. 15 Crores. Accordingly, it held that there was no requirement for making any reference to the TPO and further noted that the assessee had not raised similar contention in appeal for AY 2009-10 where the value of international transactions was Rs. 10.52 crore.
Schlumberger India Technology Centre Pvt. Ltd. (formerly known as Schlumberger Global Support Centre Pvt. Ltd. ) vs. DCIT – TS-36-ITAT-2018(PUN)-TP – ITA No.640/PUN/2014 dated 10.01.2018
512. The Tribunal rejected assessee’s contention that assessment order for AY 2004-05, passed on the amalgamated entity, was void ab initio. It noted that in the assessee’s case, return was filed by amalgamating company and notice u/s 142(1) was also issued on amalgamating company prior to amalgamation and consequently the assessment proceedings initiation was valid. It rejected assessee’s reliance on Delhi HC ruling in Spice Infotainment and Micra India on the ground that in those cases, notice was issued after the assessee therein ceased to exist. However as the assessment order was pssed on non-existent entity it directed the AO to issue fresh notice u/s 142(1) transposing amalgamated company as assessee.
Further, for the other AYs under review, it noted that AO had passed final assessment order consequent to ITAT’s remand back and that DRP and CIT(A) dismissed assessee’s appeal/objections as not maintainable. Relying on the Delhi HC in JCB India Ltd, it held that even in the case of a remand by the Tribunal, the AO was mandated to pass a draft assessment order and not the final assessment order. The Tribunal remanded the matter to the file of AO to pass draft assessment order.
Cyient Ltd (formerly Infotech Enterprises Ltd) Successor to Tele Atlas India Ltd vs. DCIT – TS-1106-ITAT-2017(HYD)-TP – ITA Nos.1052 to 1054/Hyd/2016 dated 29.12.2017

513. The Tribunal quashed the assessment order framed on non-existent amalgamating company noting that it had amalgamated with Genpact India pursuant to HC-order dated November 19, 2010 and this fact was brought to AO’s notice vide letter dated January 24, 2011 & received on February 3, 2011. It observed that the TPO/AO/DRP passed orders in the name of the erstwhile entity (Genpact Infrastructure) without mentioning the transferee name which was not in existence when the TPO/AO/DRP passed their respective orders. Relying on the co-ordinate bench rulings in Maruti Suzuki India (subsequently upheld by jurisdictional HC) and Spice Enfotainment (SLP against which was recently dismissed by SC) wherein assessment framed on non-existent entity post amalgamation was quashed, it concluded the assessment framed was void ab initio and the same was rightly quashed by the ld. CIT(A).
Genpact Infrastructure (Bhopal) Pvt. Ltd., (now merged with Genpact India) vs. DCIT – TS-115-ITAT-2018(DEL)-TP – ITA No. 2025/Del/2014 dated 09.02.2018

514. The Tribunal quashed the assessment order making TP additions on a non-existent entity, by holding that the lower authorities had erred in completing the assessment on the pre merged entity even though the factum of merger was brought to the notice of the AO by assessee at several stages and the same was duly noted, as evident from correspondence between AO and the assessee. Thus, the Tribunal relying on the Delhi HC judgement in the case of Spice Infotainment confirmed that passing assessment order in case of non-existent entity was a jurisdictional defect and not a technical defect and accordingly quashed the said order.
IPSOS Research Pvt. Ltd Vs ACIT Circle 11(2)- TS-361-ITAT-2018(Mum)-TP- ITA No 1177/Mum/2015 dated 11.04.2018

515. The Tribunal quashed the assessment order passed in the name of erstwhile entity (Genpact Infrastructure (Bhopal) Pvt Ltd.) which was not in existence at the time of passing the order and had amalgamated with Genpact India following the coordinate bench decision of the assessee’s own case for earlier year noting that assessment after the amalgamation could only be made on the amalgamated entity as a successor pursuant to provisions of sec 170(2).
Genpact Infrastructure (Bhopal) (P.) Ltd vs Dy.CIT [2018] 93 taxmann.com 334 (Del-Trib) ITA No.199/Del/2015 dated 27.04.2018

516. The Tribunal admitted the additional ground of the assessee to quash the assessment order and quashed the order proposing TP adjustment issued in the name of the non-existent entity viz. Akzo Nobel Chemicals India Ltd. which merged with Akzo Nobel India Limited as approved by Bombay High Court order dated May 11,2012. Relying on the ITAT order in assessee’s own case for AY 2010-11, it held that where an entity merges with another entity then the assessment order passed against the non existent entity cannot stand.
Akzo Nobel India Limited (as successor of Akzo Nobel Chemicals (India) Limited) vs DCIT [TS-621-ITAT-2018(PUN)-TP] dated 05.06.2018

517. The Tribunal set aside the assessment and remitted the matter to the AO/TPO to verify whether the assessee had (i) informed the registrar of companies or similar authority in Cyprus about the applicability of the Income-tax Act, (ii) complied with the provisions of section 178 or section 176 of the Act and (iii) whether such proceedings were challenged by the assessee before AO on the ground that it was a wound up entity. It directed the AO to also check the locus standi of the party pursuing the proceedings and to decide objections regarding validity of making an assessment on non-existent entity, based on its observations. It rejected assessee’s contention that assessment order passed on the wound up entity was null and void-ab-initio. It noted that the plea of validity of proceedings was raised at a later stage before the DRP and the assessee had complied with the assessment proceedings before the AO. The Tribunal followed the findings of Gujarat HC ruling in the case of Sumantbhai C. Munshaw wherein it was held that assessment order passed on a deceased person could not be nullified on the ground that the legal representative had allowed the assessment proceedings to continue and the plea for nullity of assessment was taken at a later stage. It rejected assessee’s reliance on Delhi HC ruling in Spice Infotainment Ltd. and Skylight Hospitality LLP since it dealt with the aspect of succession of entity and not winding up.
Pesak Ventures Ltd. vs. DCIT [TS-765-ITAT-2018(Del)-TP] ITA No.1929/Del/2017 dated 19.06.2018

518. The Tribunal quashed final assessment order passed by the AO u/s 143(3) r.w.s 92CA without incorporating the DRP’s directions observing that instead of passing the final assessment order u/s 143(3) r.w.s 144C in conformity with the DRP’s directions u/s 144C(5), AO passed the final assessment order dated January 17, 2014 u/s 143(3) r.w.s 92CA of the Act by only incorporating TPO’s proposals and not considering the DRP’s mandatory directions. Considering that the AO clearly violated the binding provisions of Secs. 144C(10) and 144C(13) of the Act, the Tribunal quashed the order. Since the order had been quashed, it held that there was no requirement to adjudicate the other grounds raised by the assessee.
Software Paradigms Infotech Pvt. Ltd vs. ACIT – TS-7-ITAT-2018(Bang)-TP – IT(TP)A No.150/Bang/2014 dated 5-1-2018

519. The Tribunal admitted assessee’s additional ground and held that the draft assessment order passed along with issue of a demand notice was a complete order which was not envisaged under Sec 143(3) r.w.s. 144C and therefore the said order was invalid. It held that as per the Act proposed additions are to be made in the Draft Assessment order and the assessee is to be issued a show cause notice providing it with the option to either accept the same or file objections before the DRP but no such procedure was followed in the instant case. Relying on the decision of the co-ordinate bench in Rehau Polymers (wherein identical facts were considered) and the High Court rulings in JCB India and Turner International wherein it was held that it is mandatory for AO to pass draft assessment order prior to issuing final assessment order, it held that the draft assessment order passed in the case was invalid in law and accordingly quashed the order.
Sandvik Asia Pvt. Ltd vs. DCIT – TS-148-ITAT-2018(PUN)-TP – ITA No.467/PUN/2015 dated 25.01.2018

520. The Tribunal, in second round of proceedings, dismissed assessee’s appeal against AO’s final assessment order (passed without a draft assessment order) as non-maintainable and held that the appropriate remedy was either to file appeal before the or CIT(A) or approach the Hon’ble Court via writ. From the conjoint reading of Section 253(1)(d) and Section 246A (1)(a), the Tribunal observed that appeal before Tribunal would only lie against the assessment order passed in pursuance to DRP’s directions It clarified that even if the final assessment order was passed in contravention of any statutory provision, the only course open for the assessee to seek for remedy was, firstly, either to file appeal before the appropriate forum/authority in terms of the provisions of law, i.e. before the CIT (A) or secondly, by exercising constitutional remedy before the Hon’ble High Court under extra ordinary jurisdiction, of course with the discretion of Hon’ble Court. Accordingly, it directed the assessee to approach the correct forum.
Tevapharm India Pvt. Ltd vs. ACIT – TS-93-ITAT-2018(DEL)-TP – ITA No.:- 741/Del/2018 dated 16/02/2018

521. The Tribunal admitted assessee’s additional ground and held that draft assessment order passed along with issue of a demand notice was a complete order which was not envisaged under Sec 143(3) r.w.s. 144C and therefore invalid. It held that the requirement of the Act w.r.t draft assessment order are, that the proposed additions are to be made and show cause notice is to be issued to the assessee on which it can accept the same or file objections before the DRP. However, in the present case, Tribunal observed that the Assessing Officer in the draft assessment order assessed income in the hands of the assessee and itself crystallized the demand on income by issuing demand notice under section 156 of the Act and also initiated penalty u/s 271(1)(c).
The Tribunal relied on co-ordinate bench ruling in Rehau Polymers & Sandvik Asia (wherein identical facts were considered), HC rulings in JCB India and Turner International wherein it was held that it is mandatory for AO to pass draft assessment order prior to issuing final assessment order and thus held that the draft assessment order passed in the present case was invalid in law.
M/s. Eaton Industrial Systems P Ltd vs DCIT Circle-8 Pune- TS-274-ITAT-2018(PUN)-TP- ITA No. 536/Pun/2014 dated 12.04.2018

522. The Tribunal referring to the co-ordinate bench ruling in case of Capsugel Healthcare Ltd vs ACIT held that since the AO had failed to follow the mandate of the provisions of section 144C of the Act whereby the AO was required to pass a draft assessment order, it would result in nullification of the final assessment order passed u/s 143(3).
M/s. Jaipur Rugs Company (P) Ltd vs DCIT Circle-2 Jaipur – TS- 415- ITAT-2018(JPR)-TP- ITA no 46/JP/2017 & 1084/JP/2016 dated 24.04.2018

523. `The Court held that the final assessment order passed, without issuing draft order, and the subsequent corrigendum treating the earlier assessment order as draft order u/s 144C, was invalid. The Court observed that AO passed final assessment order along with demand notice u/s 156 and imposed penalty on assessee. Further, while issuing corrigendum, though AO changed the sections under which the order was passed, he had not withdrawn the penalty and demand notice. Thus, the Court relying upon Delhi HC ruling in JCB India Ltd, Turner International India Pvt Ltd and various other HC rulings held that the window dressing which had been attempted by the Revenue would not give life to an order passed without jurisdiction.
The Court further, differentiating irregularity from illegality, held that the Revenue’s act of passing a final assessment order, in contravention of provisions of Sec 144C, cannot be corrected, and for Revenue taking support of provisions of Sec 292B, held that if the contention of the Revenue was accepted, then it would literally render all the provisions of the Income Tax Act subservient to Section 292B and allowing such a contention would be misreading the intention of the Parliament in enacting Section 292B and Section 144-C.
ACIT Media Circle II vs Vijay Televisions -TS-469-HC-2018(Mad)-TP- ITA No 1327 to 1329 of 2014 dated 23.04.2018

524. Where the AO issued demand notice u/s. 156 and as well as issue of notice u/s.274 r.w.s 271(1) (c ) at the stage of making the draft assessment order, the Tribunal held that it was undisputed that such notices could only be issued at end of assessment proceedings and accepted the assessee’s plea that the order passed was contrary to mandatory provisions of sec 144C and thus, the assessment order passed was null and void-ab-inito not enforceable in law. It relied on the AP HC ruling of Zuari Cements Ltd. (SLP dismissed) wherein it was held that final assessment order passed contrary to provisions of s 144C was void-ab-initio.
Eaton Fluid Power Ltd. vs Dy.CIT [2018] 96 taxmann.com 512 (Pun-Trib) ITA No.535 of 2014 dated 25.04.2018

525. The AO had not passed a draft assessment order and instead passed a final assessment order. On the assessee pointing out that the said order was not a legally sustainable order since it had not complied with the mandatory provisions of sec 144C(1), the AO passed corrigendum order. The Tribunal held that the final assessment order could not be cured by any subsequent rectification proceedings or corrigendum and in such a situation all subsequent proceedings and final assessment order would be invalidated. Accordingly, the Tribunal quashed the final assessment order on the ground that mandatory procedure u/s.144C(1) was not followed.
Add CIT vs Oracle India (P.) Ltd.[ 2018] 93 taxmann.com 8(Del-Trib) ITA Nos.6288,6714 /Del/ 2013 dated 13.04.2018

526. The Tribunal, in second round of appeal, quashed the final assessment order passed by AO without passing draft assessment order.The Tribunal noted in the first round of appeal, assessee’s claim for capacity underutilization adjustment was allowed but the matter was remitted back to AO/TPO to examine nature of unallocated costs, the quantum relating to capacity underutilization and re-compute ALP after allowing the adjustments. However, in set aside proceedings, TPO repeated his original order as confirmed by DRP in the original proceedings and AO passed the final assessment order making same amount as addition. The Tribunal observed that as per the provisions of the Act, AO is bound to issue draft assessment order so that assessee can raise objections before the DRP as per the provisions of section 144C of the Act. In the instant case, AO had violated the mandatory provisions of the Act by passing the Final Assessment Order. It relied on the Delhi HC ruling in JCB India and held that assessee’s interests were prejudicially affected since AO had not passed a draft assessment order. It was further clarified that even for the remand proceedings, the AO is bound to follow the provisions of the Act and accordingly, the final assessment order passed by AO in violation of Sec 144C was bad in law.
Srini Pharmaceuticals Private Limited vs. DCIT [TS-530-ITAT-2018(HYD)-TP] ITA No.971/Hyd/2017 dated 20.06.2018

527. The Tribunal quashed assessment order proposing TP-adjustment issued in the name of the non-existent entity viz. Akzo Nobel Chemicals India Ltd which merged with AkzoNobel India Limited w.e.f. April 1,2011 as approved by Bombay HC order dated May 11, 2012. It noted that the AO and TPO were duly informed by assessee about the amalgamation and assessee had also pointed out that as per the scheme of amalgamation, the entire business had been transferred on a going concern basis to amalgamated company including income tax liabilities and obligations of assessee. It observed that the AO had raised specific query in this regard but had failed to take cognizance of the facts of present case and the submissions made during the course of assessment proceedings and TP proceedings and accordingly held that the assessment order in the name of non-existent entity was void.
Akzo Nobel Chemicals (India) Ltd. (merged with Akzo Nobel India Limited) v DCIT – TS-149-ITAT-2018(PUN)-TP – ITA No.1225/PUN/2015 dated 09.02.2018

528. The Apex Court dismissed Revenue’s SLP against Delhi High Court’s decision setting aside final assessment order passed without first issuing draft assessment order as mandated by Sec 144C. The High Court noted that in the second round of proceedings pursuant to remand by the Tribunal, the TPO undertook fresh benchmarking exercise and proposed an adjustment and subsequently, AO added TP-adjustment in the final assessment order issued along with notice of demand u/s 156 without issue of a draft assessment order and relying on the decision of Turner International India it set aside the final assessment order.
DCIT v Control Risks India P Ltd – TS-170-SC-2018-TP – SPECIAL LEAVE PETITION (CIVIL) Diary No. 7090/2018 dated 16-03-2018

529. The Tribunal allowed assessee’s additional ground and quashed AO’s reference to TPO. It held that as per CBDT Instruction 3/ 2003, the AO should have decided the issue of international transaction himself instead of referring the matter to TPO as the quantum of international transaction (Rs.2.15cr) was below monetary limit of Rs.5cr. Relying on the Andhra Pradesh High Court ruling in Nayana P Dedhia wherein after considering Circular 3/2003 it was held that the authorities responsible for administration of the Act should observe and follow any such orders, instructions and directions of the board. Holding that the Instruction 3/2003 was mandatory upon tax authorities and had binding force, the Tribunal opined that assessment had become time barred as the reference made to TPO itself was not sustainable and the Assessing Officer should have passed Assessment Order within the prescribed time provided under the statute. Accordingly, it held that the order was bad in law.
Calance Software Pvt. Ltd vs. DCIT TS-196-ITAT-2018(DEL)-TP – I.T.A .No. 4363/DEL/2010 (A.Y 2006-07) dated 23.03.2018

530. Where the assessee filed additional evidence before the DRP (which was not filed before TPO due to paucity of time) and the DRP denied to admit the evidence and simply confirmed the AO’s order, the Tribunal, following the order of the co-ordinate bench in the earlier years remitted the matter to the AO / TPO to re adjudicate the matter in light of the additional evidence.
Wipro GE Healthcare Pvt. Ltd vs. DCIT – TS-204-ITAT-2018(Bang)-TP – IT(TP)A No.2525/Bang/2017 dated 23.03.2018
531. The Tribunal upheld CIT(A)’s order admitting additional evidence filed by assessee. It noted that, during the TP proceedings, assessee could not substantiate to the satisfaction of TPO that it was carrying on manufacturing activity in respect of goods being exported to its AE and resultantly, TPO rejected assessee’s bifurcation of trading activity in domestic sales and export sales. However, before CIT(A), assessee had filed manufacturing process chart, cost sheet, sample copies of invoices and photographs of the manufacturing activity, etc. to show that it was involved in manufacturing activity for export of manufactured/finished goods which was admitted by CIT(A). The Tribunal held that the documents placed on record by the assessee as additional evidence were vital for proper adjudication of the issue as in the present case. It also noted that the additional evidence filed by assessee were referred to AO/TPO for examination and TPO, after examining the documents, agreed that manufacturing activity was being carried out by assessee. The Tribunal thus concluded that there was due compliance of principles of natural justice and dismissed Revenue’s appeal filed against CIT(A)’s admission of additional evidence.
ACIT Circle -6 vs Stauff India Pvt. Ltd-TS- 439-ITAT-2018(PUN)-TP- ITA Nos. 669 & 670/PUN/2014 dated 26.04.2018

532. The Tribunal dismissed assessee’s additional ground challenging AO’s reference to TPO without giving assessee a hearing opportunity for AYs 2012-13 & 2013-14 absent assessee’s objection regarding applicability of Chapter X provisions or that the transactions were not international transactions in the present case. The Tribunal referring to the Bombay High Court’s Vodafone India ruling held that the prima facie view of the AO would be sufficient before referring the matter to the TPO for ALP determination. It noted that the assessee’s case did not fall within the 3 situations enumerated under CBDT Instruction 15 of 2015 which mandates AO, as a jurisdictional requirement, to record his satisfaction that there was an income / potential income being affected on ALP-determination. However, it accepted assessee’s adoption of TNMM (which was accepted by Revenue for the previous 3 years) over TPO’s CUP-method for benchmarking the export of natural ingredient products to its AE absent cogent reasons given by TPO/DRP for departing from earlier years’ approach. Observing that there was neither any change in facts nor in law nor TNMM was found to be totally wrong method, it held that there was no reason to deviate from the accepted practice. It observed that even with updated comparables margins, the assessee’s PLI was higher than that of comparables and thus the transaction was at ALP.
Omni Active Health Technologies Ltd v DCIT – TS – 146- ITAT-2018 (Mum) – TP – ITA No 638 / 2017 dated 06.03.2018

533. The Court dismissed assessee’s appeal against the Tribunal’s decision to remand the matter to the TPO for fresh examination of applicability of TP Provisions to assessee’s sale of local STPI unit to its domestic group company. The Court noted that the Tribunal in the miscellaneous application had mentioned that the Global Transfer Agreement (GTA) was produced before the DRP but not considered and the same was not on record before AO/TPO. The Court opined that the Tribunal was correct in its action to restore the issue back to the DRP and concluded that the question proposed was subject matter of DRP’s consideration and thus no question of law arose.
Thomson Reuters India Pvt Ltd vs ACIT 2(3)- TS-305-HC-2018(BOM)-TP- ITA No 1157 of 2015 dated 25.04.2018

534. Where the DRP rejected the assessee’s objections on the basis that there was a one day delay in filing, the Tribunal noting that the assessee filed its objections on April 11, 2016 as the prior day viz. April 10, 2016 was a Sunday, held that it could not be said that the objections filed before DRP were late. Accordingly, it held that the objections should have been accepted and decided upon by DRP on merits and restored the matter back to DRP for deciding the case. It rejected Revenue’s contention that matter was to be remanded to the AO & not DRP and held that the ground before it was whether or not the DRP was justified in rejecting the objections filed by the assessee. In any case it noted that the directions of the DRP were binding on the AO.
Karuturi Global Ltd vs. ACIT – TS-465-ITAT-2018(Bang)-TP – IT(TP)A No.760/Bang/2018 dated 31.05.2018

535. The Tribunal set aside the assessment order stating that the directions given by DRP-II had not been followed by the TPO. Further, the Tribunal noted that it would be reasonable to remand the matter to the AO/TPO with the direction to pass an order afresh in view of the directions of the DRP-II and objections raised by the assessee in application u/s 154 of the Act.
Quattro Business Support Service (P) Ltd vs ACIT Circle 20(2)- TS-392-ITAT-2018(DEL)-TP-ITA no 1905/Del/2015 dated 16.04.2018

536. The Court upheld Tribunal’s order accepting DRP’s modification in quantum of risk adjustment and noted that the Tribunal directed that the AO had to amend the draft assessment order after the DRP’s adjustment. The Court stated that the DRP’s mechanism is an administrative and corrective process entitling the assessee to insist upon a second look in regard to the issues decided in the TPO’s report. Therefore, its decisions are binding and a part of the decision making process of the AO
Separately, considering some merits in Revenue’s submissions the Court admitted legal question in respect of the exclusion by Tribunal of Infosys BPO as a comparable (to assessee engaged in providing data management services to its AE’s customers).
Pr. CIT vs. Symphony Marketing Solutions India Pvt. Ltd (now Merged with Genpact India)- TS-268-HC-2018(DEL)-TP- ITA No 413/2018 dated 11.04.2018

537. A reference was made by the AO to the TPO u/s 92CA in regard to the international transaction of the assessee. The TPO recommended a transfer pricing adjustment of Rs. 2.57 crores and based on these recommendations, a draft assessment order was proposed by the AO on 29-12-2016. The assessee filed the objections before the DRP on 31-01-2017 which was rejected by the DRP on the ground that the assessee had made a delay of three days in filing the objections and the objections had to be filed within a period of 30 days from the passing of the draft assessment order. The Tribunal allowing the assessee’s appeal, noted that the time limit for filing objections had expired on 28-01-2017 and in accordance to the date of filing objections, the assessment order should have been passed by 28-02-2017 but the same was passed only on 22-03-2017. Accordingly, the Court held that the assessment was done beyond the statutory time limit and was liable to be set aside.
Aalaya Jewel Industry (P.) Ltd. v. ACIT – [2018] 93 taxmann.com 23 (Chennai – Trib.) – IT APPEAL NOS. 970 AND 971 (MDS.) OF 2017 dated APRIL 5, 2018

538. The Court allowed Daimler India’s writ and quashed re-assessment proceedings initiated after the expiry of 4 years from the end of the relevant AY 2009-10, observing that it was a ‘clear case of change of opinion’ as assessee made full & true disclosure at the time of the original assessment. The AO sought to reopen the assessment on the basis that assessee had not disclosed the material fact that they had not commenced business during the year. However, it observed that the assessee had made disclosure about its business activity in Form 3CEB which was duly taken into account by TPO who specifically recorded in his order that commercial production proposed to start in year 2012. Regarding Revenue’s contention that the AO would not look into Form 3CEB, it observed that there was sufficient indication to show that AO considered TPO’s order and even assuming AO did not look into Form 3ECB, he was bound to look into the order passed by the TPO. Further, it rejected Revenue’s contention that the assessee merely produced books of account before the AO and that there was no presumption that all the books were seen by the AO, and held that it was for the Assessing Officer to arrive at a conclusion based on the materials produced and it was not for the assessee to suggest as to what conclusion should be arrived as the assessee is not expected to submit a draft assessment order. It distinguished Revenue’s reliance on the decision of the Apex Court in ALA Firm noting that ALA was rendered in the context of the pre-amended Act and that the decision of the Apex Court in Kelvinator of India rendered in the context of the 1961 would apply.
Daimler India Commercial Vehicles Private Limited vs. DCIT – TS-62-HC-2018(MAD)-TP – W.P.No.43435 of 201 dated 30.01.2015

539. The Apex Court allowed the assessee’s appeal against the ruling of the Allahabad High Court and quashed the issuance of notice under Section 148 of the Act. The High Court dismissed assessee’s writ and had upheld re-assessment based on material found during survey proceedings at the premises of the assessee’s Indian subsidiary, based on which AO alleged the existence of Indian PE and had held that the examination of transactions by TPO during Indian subsidiary’s TP assessment would not be a bar to initiate re-assessment. The Apex Court held that since the impugned notice for the reassessment was based only on the allegation that the assessee had PE in India, the notice could not be sustained once arm’s length price procedure had been followed. It relied on co-ordinate bench ruling in E-Funds IT Solution Inc., wherein it was held that once arm’s length principle has been satisfied, there could not be any further profit attributable to a person even if it had a PE in India.
HONDA MOTOR CO. LTD vs. ACIT – TS-174-SC-2018-TP – CIVIL APPEAL NO.(s). 2833 OF 2018 dated 14.03.2018

540. The Tribunal quashed re-opening of assessment u/s148 as there was absence of any reason to believe that the assessee’s income had escaped assessment. The Tribunal noted that AO had reopened assessment based on material found during search operations at another party, the material found was in relation to receipt of preference share capital and premium from non-resident shareholder. The AO had contended that the non-resident shareholder qualified as AE and because Form 3CEB was not filed, it became a valid reason for reopening.
The Tribunal stated that merely issuing of shares on premium was no reason for reopening u/s 147 in the absence of any adverse material. Further, it relied on HC judgement in case of Vodafone India Services and noted that reasons recorded nowhere formed a prima facie opinion about escapement of income and thus mere suspicion of AO was no ground for reopening as per HC ruling in case of Nivi Trading
Jay Maa Durga Buildtech Pvt Ltd vs DCIT CC 7(3)- TS-308-ITAT-2018(MUM)-TP ITA No 2720/Mum/2017 dated 17.04.2018

541. The Tribunal quashed the re-assessment order passed u/s. 147 where reopening was done after four years on the basis that royalty payment should be treated as capital whereas the assessee had claimed it as revenue noting that the issue of royalty expenses had been examined in detail by the TPO in the original assessment proceeding and the assessee had explained the nature, purpose and even method of quantification of royalty expense and also submitted a copy of the agreement. Thus, the Tribunal held that material facts had been disclosed by the assessee which the Revenue had failed to take into consideration and further, observed that the reasons recorded did not indicate what material fact was not disclosed nor was there any whisper of such allegation in reasons recorded which is sine qua non for initiation of proceedings. Further, it also observed that the Tribunal had decided the treatment of royalty as revenue in favour of the assessee in the subsequent year and hence the re-assessment order could not be sustained. Thus, the Tribunal held that the re-assessment order passed u/s.147 was invalid.
Dy.CIT vs. DSM Sinochem Pharmaceuticals (P.) Ltd. [2018] 94 taxamnn.com 265 (Chandigarh- Trib) ITA No.1466(CHD) of 2017 and CO No.03 of 2018 dated 28.05.2018

542. The assessee filed return of income declaring taxable income to be nil since it had no permanent establishment in India. On the basis of the disclosure of the management service fees (received by the assessee) in Form 3CEB filed by its AE, AO opined that management fee fell within ambit of section 9(1)(vii) as well as Article 12 of India Sweden Tax Treaty and thus reopened the assessment to tax the amount as fees for technical services. The assessee pointed out that the details of receipt of fees was disclosed in the Form 3CED as well as notes to return/ computation filed by it along with the return of income. The Tribunal discussed plethora of judicial precedents including Apex Court decision in Rajesh Jhaveri Stock Broker (291 ITR 500), Jurisdictional High Court decision in Khubchandani Healthparks (384 ITR 322) and Delhi HC in Orient Craft Ltd (ITA No.555/2012) and held that for the AO to have reason to believe that income has escaped assessment, tangible material should be available with the AO to come to such a finding. Thus, the Tribunal held that reassessment proceedings were invalid in absence of such tangible material.
DY DIT v Sandvik AB [TS-460-ITAT-2018(Pun)-TP] ITA No.623/Pun/2014 dated 05.06.2018

543. The High Court quashed the issuance of notice u/s. 148 of the Act on the ground that the AO failed to mention in the reasons recorded that the income that escaped assessment exceeded Rs.1,00,000 and since the AO initiated the reassessment after expiry of period of four years and before six years. Because the requisite condition under section 149(1)(b) of the Act was not met, further proceedings would be nullified. For the subject year, the AO in the original assessment proceeding had made a reference to the TPO in respect of assessee’s international transaction and TPO passed a detailed order under Section 92CA(3) of the Act accepting the arm’s length price reported by the assessee in respect of its international transactions (i.e. purchase transactions from AEs) and concluded that no adjustment was required in respect of the same. The assessee filed a writ petition in the court challenging the re-opening of the assessment. The Revenue argued that the assessee did not report the said transaction in Form 3CEB [which according to the Revenue was a deemed international transaction as per section 92B(2)]. However, it was pointed out by the assessee that the amendment by Finance Act, 2012 in section 147 providing for deemed escapement of income on account of assessee’s failure to report international transaction or file Form 3CEB, was not applicable to the relevant AY 2006-07.Under these circumstances, the Court opined that without adverting to the other issues argued, the notice was quashed on failure of the mandatory requirement of section 149(1)(b) of the Act not being met and consequentially, the order passed under Section 152 as well as the notice issued under Section 143(2) of the Act was also quashed.
NOVO NORDISK INDIA PRIVATE LIMITED v DCIT [TS-501-HC-2018(KAR)-TP] WP No.21206/2014 (T-IT)

544. The Tribunal held that the CIT was not justified in invoking jurisdiction u/s. 263 on the ground of non-filing of Form No.3CEB before AO and in directing the AO to examine other transactions where there was no reference to non-filing of Form 3CEB in his show cause notice. It noted that the CIT had not drawn any adverse inference on perusal of Form 3CEB, but merely surmised that there could be some more international transactions with AE and the report disclosing only one international transaction may not be correct. Accordingly, it held that jurisdiction under Section 263 could not be exercised on the basis of such vague reasons.
Pricewaterhouse Coopers LLP USA vs. CIT – TS-134-ITAT-2018(Kol)-TP – I.T.A No. 540/Kol/2015 dated 14.02.2018
545. The Tribunal dismissed assessee’s appeal against CIT’s revision order u/s 263 as infructuous, noting that pursuant to the direction of the CIT (i.e. Direction to AO to make a reference to TPO in order to carry out necessary enquiry and obtain data to make examination for ALP-determination in relation to the assessee’s domestic transaction with Techni Bharati Ltd and Tantia Construction Ltd) the TPO had passed order holding that no TP adjustment was warranted. Therefore, noting that the assessee had no grievance against TPO’s order, it dismissed the appeal as infructuous.
Tantia TBL Joint Venture vs. Pr. CIT – TS-139-ITAT-2018(Kol)-TP] – I.T.A No. 78/Kol/2017 dated 14-02-2018

546. The Tribunal quashed revision order u/s 263 wherein the Pr.CIT held that AO’s order u/s 143(3) was erroneous and prejudicial to the interest of Revenue since the AO did not refer the international transactions to TPO. Relying on the decision of the Court in Delhi Airport Metro Express and in DG Housing Projects (wherein it was held that it is incumbent for the PCIT to make some minimum independent enquiry to reach the conclusion that AO’s order was erroneous and prejudicial to Revenue’s interest) it observed that the PCIT ignored submissions and contentions put forth by assessee that a reference in this case was non-mandatory as neither of the stipulated conditions laid out by Instruction No. 3 of 2016 were met. It dismissed the Revenue’s argument that the mismatch between the remittance declared in Income Tax Return and that reported in Form 15CA (detected under CASS) justified the referral of the case to TPO since it involved international transactions and held that reporting under Form 15CA was not limited / was not particularly in respect of payment made to associated enterprise. Accordingly, it held that the AO was not bound to make a reference to the TPO.
Amira Pure Foods Pvt. Ltd. vs Pr.CIT – TS-1053-ITAT-2017(DEL)-TP – ITA No. 3205/DEL/2017 dated 29.11.2017
547. Where the rectification order u/s.154 enhancing income was passed by the TPO who made final adjustment with respect to provision of management support services, provision for technical services and purchase of parts without giving assessee an opportunity of being heard, the Tribunal quashed the said order and held that the rectification order was void-ab-initio and contrary to provision of sec 153(4). It relied on the Apex Court decision in Chockalingam and Meyyapan wherein it was held that principles of natural justice had to be followed by authorities.
ACIT vs Humboldt Wedag India Pvt. Ltd- (2018) 53 CCH 0135 Del Trib ITA No.5097/Del/2011 dated 28.06.2018

Penalty

548. The Tribunal dismissed Revenue’s appeal against CIT(A)’s deletion of Sec 271(1)(c) penalty noting that the AO had levied penalty based on TP-addition of Rs.4.55cr and the Tribunal in quantum proceedings had restored the matter back to AO/TPO, pursuant to which the AO passed a fresh assessment order making part addition of Rs.1.32cr. Accordingly, it held that the original assessment order would no longer survive in the eye of Law and consequently the penalty imposed in connection therewith by the A.O would also not survive. Further, it noted that the AO had also initiated fresh penalty proceedings and accordingly dismissed the Department’s appeal as infructuous.
DCIT vs. Actis Advisers Pvt. Ltd – TS-3-ITAT-2018(DEL)-TP – ITA.No.4819/Del./2014 dated 05.01.2018

549. The Tribunal deleted penalty levied u/s 271(1)(b) for non-submission of information as required by TPO vide show cause notice dated December 4, 2012 noting that in response to letter dated December 26, 2012 giving final hearing opportunity, assessee submitted that it had not received the show cause notice dated December 4, 2012 and therefore no appearance could be marked. It accepted assessee’s submission that a new receptionist had taken delivery of the said notice but failed to understand its importance and did not pass it on a concerned person dealing with income tax matters and held that there was considerable cogency in assessee’s submissions and that the reason for non-compliance of the notice in dispute was genuine and justified.
MAHASHIAN DI HATTI (P) Ltd vs. ACIT – TS-80-ITAT-2018(DEL)-TP – I.T.A. No. 1491/DEL/2016 dated 01.02.2018

550. Where the assessee was unable to fully comply with the notice issued by the TPO (on 12.07.2011) but made a part compliance on 16.08.2011 and furnished the balance documentation on 14.10.2011, the Court dismissed Revenue’s appeal and upheld CIT(A)’s order deleting penalty u/s 271G. Considering that the lower appellate authorities rendered concurrent findings and, moreover, the assessee had partly complied with the notice, it held that no substantial question of law arose from the Revenue’s appeal.
Pr. CIT vs. MMTC Ltd – TS-76-HC-2018(DEL)-TP – ITA 164/2018 dated 12.02.2018

551. Where the AO levied penalty on the assessee on account of the TP adjustment (imputed mark-up of reimbursement of expenses), the Tribunal noted that the co-ordinate bench in the quantum hearing held that no mark-up on reimbursement of expenses incurred by assessee before incorporation of NDTV Network Plc, UK but upheld charge of mark-up on reimbursements after incorporation at the rate adopted by TPO. Accordingly, it restored the issue to the file of the AO to be decided afresh in accordance with law after considering the outcome of the order to be passed on the quantum additions in accordance with the directions given in aforesaid order.
New Delhi Television Ltd. vs. DCIT – TS-101-ITAT-2018(DEL)-TP

552. The Court dismissed Revenue’s appeal against Tribunal order deleting penalty u/s 271(1)(c) in respect of TP-adjustment noting that the issue based on which TP adjustment was made was debatable and rejected Revenue’s contention that the Tribunal ignored the mandate of Explanation 7 to section 271(1)(c) [which deems amount disallowed u/s 92C(4) to be income in respect of which particulars have been concealed or inaccurate particulars have been furnished]. Accordingly, it dismissed Revenue’s appeal observing that no question of law arose for its consideration.
Pr. CIT vs. Global Vantedge Pvt Ltd – TS-177-HC-2018(DEL)-TP – ITA 316/2018 dated 19.03.2018
Pr. CIT vs. GLOBAL VANTEDGE Pvt Ltd – TS-193-HC-2018(DEL)-TP – ITA 332/2018 dated 20.03.2018

553. The Tribunal deleted penalty u/s 271(1)(c) in respect of TP addition on international transaction relying upon co-ordinate bench judgement in case of Jeetmal Choraria vs ACIT on the ground that the show cause notice for penalty did not specify the charge against the assessee as to whether it was for concealing particulars of Income or for furnishing of inaccurate particulars of income.
DCIT Central Circle 4(4) vs M/s Electrosteel Castings Ltd- TS-372-ITAT-2018(Kol)-TP- ITA No 406-410/Kol/2016 dated 18.04.2018

554. The Tribunal deleted the penalty u/s 271(1) (c.) and noted that the assessee had voluntarily surrendered the TP-adjustment on the ground that DRP had already accepted the operating margin of assessee. It further held that conducting of TP-analysis on the basis of comparables was based on objective material before assessee/ TPO/ DRP, the selection of comparables by the assessee and its further acceptance and rejection by TPO did not amount to concealment of facts. The Tribunal referred to various precedents including SC rulings in Sir Shadilal Sugar & General Mills Ltd and Suresh Chandra Mittal to hold that concealment penalty provisions were not attracted in case of voluntary surrender made in order to buy peace and avoid litigation. Finally, relying on SC ruling in Reliance Petro Products, it held that mere rejection of assessee’s claim did not automatically attract penalty u/s 271(1) (c.)
Sequence Design (I) Pvt Ltd vs ITO Ward 8(1) – TS-282-ITAT-2018(DEL)-TP- ITA No 1756/Del/2016 dated 12.04.2018

555. The Tribunal upheld CIT(A)’s deletion of Sec 271AA penalty imposed by AO for failure to disclose international transaction pertaining to receipt of share capital from AE. The AO had imposed penalty on the basis that the transaction should have been disclosed in Form 3CEB as it was an international transaction post amendment to Sec 92B vide Finance Act 2012 with retrospective effect from April 1, 2002. The Tribunal noted that Form 3CEB was furnished on September 28, 2011 and held that issue of share capital as an international transaction as on the date of filing Form 3CEB for the above year was not required to be disclosed and the law had been amended with retrospective effect, which clearly showed that the issue had no clarity prior to amendment. Further, noting that Sec 271AA was also subject to provisions of Sec 273B, it concluded that there was a reasonable cause for not disclosing the above transaction as an international transaction in the above form and confirmed CIT(A)’s order deleting penalty.
ITO ward 18(2) vs Nihon Parkerizing (India) Pvt Ltd- TS-242-ITAT-2018(Del)-TP- ITA No 6409/Del/2015 dated 10.04.2018

556. The Tribunal upheld CIT(A)’s order confirming levy of penalty u/s 271AA and 271G for failure to maintain & furnish information/ documents u/s 92D by the assessee. It noted that on perusal of Form 3CEB, it was evident that data with respect to the comparability, whether external or internal, were not available on record nor made available by assessee to TPO contrary to the provisions of Sec 92D(1) which mandates that an assessee who has entered into international transaction necessarily has to maintain information and documents prescribed in Rule 10D. In compliance with the said section, the assessee is additionally required to keep a record of the analysis performed to evaluate comparability of uncontrolled transactions with assessee’s controlled international transactions. The assessee had also not been able to demonstrate “reasonable cause” which is an exception to the levy of the penalty under section 273B. Thus, the Tribunal concluded that levy of penalty by the lower authoritities was justified.
India Pistons Ltd vs. ACIT [TS-627-ITAT-2018(CHNY)-TP] ITA Nos.2207 and 2208/Chny/2017

557. The Tribunal set aside the order of CIT(A) and deleted the penalty levied under the provisions of section 271(1) of the Act. It held that both of the issues involved viz. use of multiple year data and assessee’s claim that benefit under proviso to Sec 92C(2) is a standard deduction were highly debatable issues at the relevant time. Regarding the use of multiple year data by the assessee, the Tribunal held that the issue when the assessee was filing the return of income was highly contentious and law was yet evolving and hence the claim made by the assessee was a bonafide one. Further, reference was made to clarification given vide the Memorandum to the Finance Bill, 2012 that claim of 5% benefit was not a standard deduction and noted that different courts had taken a different views.
Giesecke and Devrient [I] Pvt Ltd vs DCIT [TS-479-ITAT-2018(DEL)-TP] ITA No.1458/Del/2017 dated 26.06.2018

Stay

558. The Court dismissed Revenue’s appeal challenging Tribunal’s power to grant stay of demand beyond 365 days. It rejected Revenue’s contention that the extension of stay granted was beyond the statutory power of the Tribunal and held that as per the decision of the Court in Pepsi Foods Pvt. Ltd. v. Asstt. Commissioner of Income Tax (2015) 376 ITR 87 (Del.). where delay in disposing appeal was not attributable to the assessee, the Tribunal had power to grant extension of stay beyond 365 days in deserving cases. Noting that the Tribunal applied the said decision while extending stay of demand, it held that no question of law arose from the Department’s appeal.
Pr CIT v Pepsi Foods Pvt Ltd – TS-53-HC-2018(DEL)-TP – ITA No 88 / 2018 dated 29.01.2018

559. The Tribunal noting that while computing the TP adjustment in the instant case, the TPO had made an adjustment on both AE and non-AE transactions, accepted assessee’s contention that the TP adjustment was to be confined to AE transactions only and accordingly granted stay of demand arising for a period of 6 months or till the disposal of appeal, whichever is earlier, with a condition to pay Rs.10 lakhs on or before January 31, 2018. It noted that out of a total demand of 1.28 crore, the assessee had already paid 52.74 lakhs and therefore granted conditional stay to the assessee. It also directed the assessee not to take any undue adjournment without any justifiable reason and further cooperate in early disposal of the appeal.
IKA India P. Ltd vs. DCIT – TS-50-ITAT-2018(Bang)-TP – Stay petition No.1/Bang/2018 dated 19.01.2018

560. The Tribunal granted stay of outstanding demand of Rs.7cr to the assessee upto March 31, 2018, subject to payment of Rs. 1.5cr on before January 31, 2018 noting that the demand arose due to TP-adjustment made on consideration received for sale of shares in ForgePro to its AE and the consideration received by the assessee was determined to be at par with the FMV of shares which determined by experts in the field and that the valuation of the shares conducted by a field expert could not be disturbed by the TPO. It also noted that the TPO himself accepted that transaction took place in uncontrolled situation and accordingly held that there was strong prima facie case in assessee’s favour. Since the assessee was running its business operation on overdraft facility and therefore, liquid position of the assessee did not permit the payment of disputed tax liability, it held that the demand ought to be stayed. It granted the assessee an out of turn hearing and clarified that the stay order would cease to operate, in case assessee-sought adjournment from hearing of the appeal any without any just and reasonable cause.
Wevin Pvt. Ltd v ITO – TS-26-ITAT-2018(Bang)-TP – S.P.No.297/Bang/2017 dated 01/01/2018

561. The Tribunal granted stay of outstanding demand of Rs.1.16 crore for a period of 3 months or till appeal disposal, whichever was earlier, subject to payment of Rs.50 lakhs on or before November 30, 2017. Noting that assessee had opening cash in hand of Rs. 502.79 lacs in November 2017, the Tribunal directed the assessee to make a part payment of the outstanding disputed demand. The Tribunal further clarified that the assessee should not seek any adjournment without justifiable reasons and if the assessee did so, the stay granted vide this order would get vacated automatically. It also preponed the hearing date from January 16, 2018 to December 12, 2017.
CAE India Pvt. Limited vs. ITO – TS-1075-ITAT-2017(Bang)-TP – SP No 218/Bang/2017 dated 10.11:2017

562. The Court disposed of the assessee’s writ petition in respect of Tribunal’s refusal to grant interim orders for suspending the tax demand arising due to TP adjustment in respect of AMP expenses for AY 2013-14. It noted assessee’s reliance on Valvoline Cummins ruling to contend that AMP-expenses could not be characterized as an international transaction as well as Revenue’s reliance on the decision of Luxottica India to state that AMP expenses could no longer be kept from ALP fixation and opined that the Tribunal’s direction to pay 20% was entirely justified. It clarified that subject to petitioner’s compliance, the interim order till date in respect of the tax demand would continue to bind the parties.
Pepsico India Holdings Pvt. Ltd vs. ACIT – [TS-1064-HC-2017(DEL)-TP – W .P.(C )11454/2017 dated W .P.(C )11454/2017

563. The Court dismissed Revenue’s writ challenging the stay order of the Tribunal with ‘exemplary’ cost of Rs. 50,000 each, to be paid personally by 2 Principal CITs & an ACIT, for their irresponsible & unfair behaviour in filing a writ petition just for the sake of proving their ‘fictional desires’. The Court observed that a total demand of Rs. 22.17 cr was raised on assessee-company pursuant to AMP adjustments made by DRP, against which assessee secured an interim stay order from ITAT, subject to further payment of Rs. 2 cr. (in addition to Rs.3.32 cr. already paid by it). It held that the entire demand raised by the authorities was prima facie not even sustainable considering that the controversy was apparently covered in assessee’s favour by various Delhi High Court and Bengaluru ITAT rulings and that the grant of absolute stay would have been more appropriate in the circumstances. It observed that the approach of the tax department in filing Writ Petition seemed as an attempt to prove their superior wisdom over the wisdom of Tribunal and accordingly reprimanded the ‘dogged approach & ‘unholy desire’ to multiply litigations in Constitutional Courts. It observed that the approach of the Revenue showed a lack of judicial discipline and hierarchical discipline.
Epson India Pvt. Ltd vs. ACIT – TS-14-HC-2018(KAR)-TP – WRIT PETITION No.12913/2017 (T-IT) dated 09.01.2018

564. The Tribunal granted stay of demand to the extent of 50% of outstanding demand while directing payment/adjustment of refunds for balance amount in respect of AY 2013-14 noting the assessee’s argument that demand arose on account of TP-adjustment and that it had a strong prima facie case as the Revenue had wrongly rejected CUP method and considered comparables with substantial related party transactions. Observing that the assessee a refund of Rs. 18.50 lakhs and Rs 26.22 lakhs was due to the assessee for AY 2010-11 and 2015-16, adjustment of which would result in recovery of more than 50% of the demand, it directed the AO to verify the claim of the assessee of refunds and adjust the same against the outstanding demand. Further, it directed that if such adjustment was found to be less than 50% of the outstanding demand, the assessee was to deposit the amount to the extent of such shortfall by 15th January, 2018.
Atlas Healthcare Software (India) Ltd v ACIT – TS-1060-ITAT-2017(Kol)-TP – S.A. No. 134/Kol/2017 dated 22.12.2017

565. The Tribunal directed the lifting of attachment of bank account in case of assessee till the disposal of appeal noting that due to attachment of bank account assessee was not able to continue its operations and was experiencing severe cash crunch and liquidity position and was not able to make any further payment of tax. Perusing the copy of ITAT order for earler years, it observed that the issues involving T.P. adjustment, prima facie appeared to be covered in favour of the assessee and if the effect to the earlier order of the Tribunal in assessee’s own case was given, then, no demand may arise at all. Accordingly, it fixed the appeal hearing on January 15, 2018 as the case was claimed to be a covered matter.
Planet Online P Ltd v ACIT – TS-1059-ITAT-2017(HYD)-TP – S.A. No.167/Hyd/2017 dated 27.12.2017

566. The Tribunal granted stay of outstanding demand of Rs.225.92cr to Wipro GE Healthcare noting that the demand arose due to TP-adjustment in respect of royalty, distribution and trading, software and support services and other corporate tax additions. It observed that the TPO suggested TP-adjustment even on non-AE transactions and in respect of corporate tax additions which were restored back to AO for de-novo adjudication in earlier years. Clarifying that assessee should not seek adjournment from appeal hearing without just & reasonable cause, it directed the revenue authorities not to initiate coercive steps for collection of demand.
Wipro GE Healthcare Pvt. Ltd vs. DCIT – TS-1056-ITAT-2017(Bang)-TP – SP No.275/Bang/2017 dated 15/12/2017

567. The Tribunal granted stay of outstanding demand for AYs 2009-10, 2011-12 and 2013-14 to the assessee noting that the TP-adjustment arose due to TPO’s selection of comparables. It noted that the assessee had already discharged 53% of the demand for AY 2009-10 and 45% of the demand for AY 2011-12 and accordingly stayed the balance demand. For AY 2013-14 noting that only 19% of the outstanding demand had been paid, it directed the assessee to pay an additional amount of Rs.2crore. Further, it granted the assessee an early hearing on February 5, 2018 and clarified that the stay order would cease to operate, in case the assessee sought an adjournment without any just and reasonable cause.
Finastra Software Solutions (India) Pvt. Ltd (formerly Misys Software Solutions India Pvt. Ltd.) vs. DCIT – TS-55-ITAT-2018(Bang)-TP dated Sty Petn.No.12/Bang/2018, Sty Petn.No.13/Bang/2018 & Sty Petn.No.14/Bang/2018 dated 18/01/2018

568. The Tribunal granted the assessee stay of outstanding demand noting that the demand arose inter alia due to TP-adjustments (on royalty, distribution & trading, software & support services), which was proposed on both AE as well as non-AE transactions (therefore impliedly accepting assessee’s contention that it had a prima facie good case). It directed the assessee not to seek adjournment from appeal hearing without just and reasonable cause and clarified that the stay would be vacated if the assessee sought without just and reasonable cause.
Wipro GE Healthcare Pvt. Ltd vs. DCIT – TS-1104-ITAT-2017(Bang)-TP – SP No.275/Bang/2017 dated 15/12/2017

569. The Tribunal granted the assessee stay of outstanding demand of Rs.3.30cr noting that the demand arose due to TP-adjustment revolving around selection of comparables which were held to be incomparable in assessee’s own case in preceding year. Further it also noted that the assessee had already discharged more than 50% of original demand, and accordingly, it held that it was a fit case for stay of demand. It noted that the appeal was already posted for hearing on March 15, 2018 and directed the assessee not to seek adjournment from hearing without any just and reasonable cause and co-operate for expeditious disposal of the appeal.
Marvell India Pvt. Ltd. vs. ACIT – TS-81-ITAT-2018(Bang)-TP – S.P.No.9/Bang/2018 dated 19/01/2018

570. The Tribunal granted the assesssee stay of outstanding demand for a period of 6 months or till appeal disposal, whichever was earlier, noting that the demand arose due to TP-adjustment on account of distribution fee paid to AE which was incorrectly benchmarked by TPO by using comparables of royalty payments and that there was a mistake in the workings made by TPO, which, if rectified, would reduce the demand substantially. Considering that the co-ordinate bench had stayed collection of similar outstanding demand for previous AY, the Tribunal held that the balance of convenience was in favour of granting full stay to the assessee. It granted the assessee an early hearing and directed it not to seek adjournment on that date without reasonable cause, failing which, the stay would be subject to review by the Bench hearing the appeal.
MSM Discovery Private Ltd. vs. DCIT – TS-73-ITAT-2018(Mum)-TP – S.A. No. 570/Mum/2017 dated t 12.01.2018

571. The Tribunal extended the stay of outstanding demand noting that the earlier stay was granted till December 31, 2017 and appeal was fixed for hearing on February 2, 2018. Considering that the assessee had fulfilled conditions mentioned in earlier stay order and delay in disposal of appeal was not attributable to assessee, it extended stay for a further period of 180 days or till appeal disposal, whichever was earlier and directed the assessee not to seek adjournment without justifiable reasons and clarified that if the assessee did so stay granted would be automatically vacated.
The Himalaya Drug Company vs. ACIT – TS-82-ITAT-2018(Bang)-TP – S.P. No.306/Bang/2017 dated 25.01.2018.

572. The Tribunal granted extension of stay of outstanding demand of Rs.1029.21cr to the assessee observing that there was no change in the circumstances of the case and the delay in disposal of appeal was not attributable to the assessee. Accordingly, it extended stay for a further period of 180 days (commencing from January 25, 2018) or till appeal was disposed. It directed the assessee not to seek adjournment without justifiable reasons and clarified that if assessee did so stay granted would be automatically vacated.
Infosys Ltd vs. ACIT – TS-90-ITAT-2018(Bang)-TP – S.P. No.303/Bang/2017 dated 25.01.2018.

573. The Tribunal granted stay of outstanding demand of Rs.1.23 crore subject to payment of Rs.40 lakhs. It noted that the demand arose inter alia due to TP-adjustment and out of total demand of Rs.1.64cr, assessee had already discharged Rs.41.02 lakhs and accordingly it opined that the ends of justice would be met, if the assessee was directed to further pay Rs.40 lakhs covering 50% of the disputed tax. It fixed the appeal hearing for March 6, 2018 and clarified that the stay was subject to condition that the assessee would not seek adjournment of the case from hearing without any reasonable and just cause.
Fiberlink Software Pvt. Ltd. vs. DCIT – TS-96-ITAT-2018(Bang)-TP – SP No.11/Bang/2018 dated 07/02/2018

574. The Tribunal granted extension of stay of demand for a period of 180 days or till appeal disposal, whichever is earlier, acknowledging that the delay in appeal disposal was not attributable to assessee and there was no change in circumstances from day of earlier stay. It directed the assessee not to seek adjournment from appeal hearing (fixed for February 27, 2018) without just and reasonable cause.
Epson India Pvt. Ltd. vs. DCIT – TS-94-ITAT-2018(Bang)-TP – Stay Petn. No.34/Bang/2018 dated 9/2/2018

575. The Tribunal granted stay of demand to the assessee till March 31, 2018 or till appeal disposal, whichever was earlier noting that the demand arose due to TP-adjustment made in respect of assessee’s international transactions. Considering that the assessee had already discharged 50% of disputed tax, the Tribunal granted stay and clarified that the stay was subject to condition that the assessee shall not seek adjournment of the case from hearing without any just and reasonable cause.
Citrix R&D India Pvt. Ltd. vs. ACIT – TS-91-ITAT-2018(Bang)-TP – SP No.15/Bang/2018 dated 07/02/2018

576. The Tribunal relying on the decisions of the Delhi HC ruling in Pepsi Foods, Bombay HC ruling in Narang Overseas, co-ordinate bench ruling in SAP Labs extended stay of demand to the assessee noting that existence of all conditions for grant of stay has already been considered by the Tribunal at the time of granting original stay and no new condition could be imposed while extending the stay. It held that when the delay in disposal of appeal was not attributable to the assessee, stay had to be extended.
Manipal Global Education Services P. Ltd. vs. DCIT – TS-100-ITAT-2018(Bang)-TP – SP No.24/Bang/2018 dated 05/02/2018

577. The Tribunal granted stay of outstanding demand up to March 31, 2018, subject to payment of Rs.15 lakhs noting that the demand arose due to transfer pricing adjustment involving selection of comparables. Considering assessee’s submission that it has a prima facie case on merits and Revenue could not controvert the submissions, it opined that the ends of justice would be met if the assessee is directed to pay Rs.15 lakhs on or before 01/03/2018 and the balance was to be stayed.
Enchanting Travels Pvt. Ltd vs. ITO – TS-98-ITAT-2018(Bang)-TP – SP No.16/Bang/2018 dated 05/02/2018
578. The Tribunal granted extension of stay to the assessee considering that the appeals were already heard and orders were awaited.
Mercedes Benz Research & Development India Pvt. Ltd. vs. ACIT – TS-108-ITAT-2018(Bang)-TP – SP No.26, 27 & 28/Bang/2018 dated 05/02/2018

579. The Tribunal granted extension of stay of outstanding demand to the assessee noting that the stay was earlier granted till January 31, 2018 and there was no change in circumstances. Relying on HC rulings in Pepsi Foods and Narang Overseas wherein it was held that when the delay in disposal of appeal is not attributable to the assessee, stay had to be extended.
Vodafone Mobile Services Ltd. vs. DCIT – TS-114-ITAT-2018(Bang)-TP Stay Petn.Nos.18 & 19/Bang/2018 dated 05/02/2018

580. The Tribunal granted the assessee stay of outstanding demand for a period of 90 days subject to part payment of Rs.25 lakhs observing that the assessee had not been able to prove its financial difficulty.
Cook India Medical Devices Pvt Ltd vs. DCIT – TS-141-ITAT-2018(CHNY)-TP – Stay Petition No.30/Mds/2018 dated 02.02.2018

581. The Tribunal extended stay of outstanding demand till March 31, 2018 or appeal disposal whichever was earlier relying upon Bombay HC ruling in Narang Overseas Private Limited and Bengaluru ITAT ruling in SAP Labs India Pvt. Ltd wherein it was held that when the delay in appeal disposal was not attributable to assessee, stay was to be extended. It directed the assessee not to seek adjournment of the case from hearing without any reasonable and just cause.
The Himalaya Drug Company v DCIT – TS-142-ITAT-2018(Bang)-TP – Stay Petn.No.35/B/2018 dated 09/02/2018

582. The Tribunal granted stay of outstanding demand for a period of 6 months or till the date of passing of the order, whichever was earlier, subject to payment of 10% of outstanding demand noting that out of a total demand of Rs.1.96 crores (which arose due to TPO’s treatment of AMP-expenditure as a separate international transaction), assessee had already paid a sum of Rs.1.36 crores.
Edwards Lifesciences (India) Private Limited – TS-165-ITAT-2018(Mum)-TP – SA No.82/Mum/2018 dated 20/02/2018
583. The Tribunal granted stay of demand to the assessee for a period of 6 months or till appeal disposal, whichever was earlier, noting that in the earlier round of proceedings, stay was granted by Tribunal subject to deposit of a certain amount and thereafter order on merits was passed by Tribunal remanding major issue of AMP-expenses back to TPO. Subsequently, the assessee approached High Court which sent the matter back to Tribunal for consideration and decision. Accordingly, the Tribunal observed that the assesse had come back to square one, being, the position when the stay was granted by the Tribunal in the first round subject to certain payments. Considering that the assessee had complied with the direction given by the Tribunal in the first round of proceedings for grant of stay, it granted stay to the assessee.
MSD Pharmaceuticals (P) Ltd. vs. DCIT – TS-198-ITAT-2018(DEL)-TP – S.A. No.135/Del/2018 – 06.03.2018

584. The Tribunal granted stay of recovery of demand for180 days to the assessee against the demand raised due to TP adjustment, taking into consideration the fact that prima facie the matter appeared to be in favour of assessee and the refunds due to the assessee for subsequent previous assessment years were pending with the department.
M/s eBizNET Solution Pvt. Ltd vs ACIT Circle 17(1) Hyerabad- TS-403-ITAT-2018(HYD)-TP- SA no 38/HYD/2018 dated 23.04.2018

585. The Tribunal granted extension of stay of demand relying on Pepsi Foods (P) Ltd vs ACIT Delhi HC, Narang Overseas Pvt Ltd vs ITAT and co-ordinate bench ruling in case of M/s. SAP Labs India Pvt Ltd and stated that when the delay in disposal of appeal was not attributable to the assessee, the stay had to be extended.
Finastra Software Solutions (India) P Ltd. Vs ACIT Circle 4(1)(2) Banglore- TS-368-ITAT-2018(Bang)-TP- SP Nos. 128&129/Bang/2018 dated 18.04.2018

586. The Tribunal granted further extension of stay of demand relying on Delhi HC ruling in case of Pepsi Foods, Bombay HC ruling of Narang Overseas and co-ordinate bench ruling in case of SAP Labs India and stated that stay should be extended when delay in disposing the appeal was not attributable to the assessee.
M/s. Epson India Pvt Ltd vs ACIT Circle 2(1)(2)-TS-314-ITAT-2018(Bang)-TP- SP no 115/Bang/2018 dated 18.04.2018

587. The Tribunal granted stay of outstanding demand to the assessee till 31.05.18 or disposal of matter, whichever being earlier, Tribunal noted that the appeal was heard before by the bench, thus granting of stay is considerable.
M/s. Manipal Global Education Services P Ltd vs DCIT CC 2(2) Bengaluru- TS-291-ITAT-2018(Bang)-TP- SP No. 120/Bang/2018

588. The Tribunal granted partial stay to assessee in respect of demand raised on account of adjustment made vis-a vis advertisement, marketing and promotion (AMP) expenses. The Tribunal noted that 10% of the substantive demand raised for one of the AY was already paid and, opined that assessee had made a prima facie case by stating that if directions in Tribunal’s Special Bench ruling in LG Electronics case were followed, no further collection of tax would arise. Further, for other AY’s concerned Tribunal granted stay of demand for a period of 180 days or till the disposal of the appeal whichever is earlier, subject to payment of 5% of demand within 30 days of receipt of the order.
Further, the Tribunal condemned Revenue’s action of stalling hearing on main appeal by seeking adjournments and further, expressed displeasure over AO’s act of requesting refund adjustment permission while keeping DR completely in the dark, and resulting in waste of precious time of the Court. The Tribunal directed Registry to send a copy of the order to the concerned Pr. CCIT, to take necessary action against the contradicting conduct of its Revenue Officers.
M/s. GlaxoSmithKline Consumer Healthcare Ltd vs ACIT Circle 4(1)- TS-235-ITAT-2018(Chandi)-TP- SA No 4/Chd/2017, 2 & 3/Chd/2018 dated 02.04.2018

589. The Court dismissed Revenue’s appeal against Tribunal’s order after following co-ordinate bench judgement in assessee’s own case for previous AY, wherein the Court had upheld Tribunal’s power to grant stay beyond 365 days after relying on SC ruling in Kumar Cotton Mills Pvt. Ltd. and coordinate bench ruling in Voice Telesystem Ltd. rendered in the context of similar Sec. 35C(2A) under the Central Excise Act, which had ruled that wherever the appeal could not be decided by the Tribunal due to pressure of pendency of cases and the delay in disposal of the appeal is not attributable to the assessee in any manner, the interim protection can continue beyond 365 days in deserving cases.
PCIT vs Carrier Air Conditioning & Refrigeration Ltd- TS-227-HC-2018(P&H)-TP- ITA No 4/2018 dated 04.04.2018
PCIT vs BMW India Pvt Ltd- TS-226-HC-2018(P&H)-TP ITA 11/2018 dated 04.04.2018

590. The Court dismissed Revenue’s writ petition against the Single Bench’s order (imposed costs of Rs.50,000 on Revenue) dismissing its writ petition filed against Tribunal’s order granting stay to assessee in respect of demand raised on account of TP adjustment made on advertisement, marketing and promotion (AMP) expenses noting that the ITAT-order appeared to be fair, reasonable and not prejudicial to Revenue, particularly when the appeal filed by assessee was set down for final hearing. The Tribunal had observed that the said issue was a debatable issue and had directed the assessee to make a payment of 2 crores over and above the 15% of the demand already paid for the stay to be granted. The Court waived the costs imposed by the single bench but observed that the Department had been filing such petitions without any reason.
CIT vs. Epson India Pvt Ltd [TS-296-HC-2018(KAR)-TP] Writ Appeal No.770 of 2018 dated 24.04.2018

591. The Tribunal granted stay on recovery of outstanding demand for a period of 6 months or till disposal of appeal whichever is earlier subject to payment of Rs.8 crores noting that demand arose due to TP adjustment and corporate tax issues. In respect of TP adjustment, it observed that assessee had invoked MAP mechanism, application of which was pending disposal, and assessee had submitted bank guarantee pursuant to CBDT Circular in respect of demand attributable to TP-additions. It fixed the hearing of the appeal and directed the assessee not to seek an adjournment without just and reasonable causes.
Novozymes South Asia Pvt. Ltd. vs. Jt.CIT [TS-289-ITAT-2018(Bang)-TP] SP Nos.116 to 118/Bang/2018 dated 13.04.2018

592. The Tribunal granted stay of outstanding demand of Rs.2.10cr to Mobily Infotech India for a period of six months or till appeal disposal, whichever is earlier, subject to payment of Rs.15 lakhs on or before May 31, 2018 for AY 2012-13. The Tribunal noted that demand inter alia arose due to TP-adjustment on account of assessee’s international transactions with AE and assessee challenged determination of ALP on the ground that comparables chosen by the TPO were not proper and that turnover filter was not properly applied.
Mobily Infotech India Pvt. Ltd vs. DCIT [TS-380-ITAT-2018(Bang)-TP] SP No. 145/Bang/2018 dated 18.05.2018

593. The Tribunal granted extension of the stay of outstanding demand to the assessee till 31.08.2018 or appeal disposal whichever was earlier. The extension of stay was granted relying on the HC Rulings in Pepsi Foods and Narang Overseas wherein it was held that if delay in disposal of appeal was not attributable to the assessee and there was no changed circumstances from the day of earlier stay, the stay should be extended. Further, it directed the assessee not to seek adjournment without just and reasonable cause and its failure to adhere to the aforesaid condition would result in automatic vacation of stay extension granted.
NXP Semiconductors India Pvt. Ltd. vs. DCIT [TS-529-ITAT-2018(Bang)-TP] S.P. Nos. 167&168/Bang/2018 (In IT (TP) A Nos.306/Bang/2016 and 692/Bang/2017 dated 18.06.2018

594. The Tribunal granted further extension of stay of outstanding demand from 31.05.2018 for a period of six months or disposal of appeal whichever was earlier since the delay in appeal disposal was not attributable to assessee.
Manipal Global Education Services P Ltd vs. DCIT [TS-725-ITAT-2018(Bang)-TP] SA No. 181/Bang/2018 in IT(TP) A No.236/Bang/2015 dated 26.06.2018

595. The Tribunal granted extension of stay of demand to the assessee subject to further payment of Rs. 50 lakhs on or before July 15, 2018 relying on Delhi HC ruling in Pepsi Foods P Ltd. and Bombay HC ruling in Narang Overseas Private Ltd wherein it was held that extension of stay should be granted if delay in disposal of appeal was not attributed to the assessee and there was no changed circumstance from earlier stay order. It directed that the assessee should not seek adjournment without just and reasonable cause, otherwise stay would stand vacated.
Inteva Product India Automotive Pvt Ltd [TS-869-ITAT-2018(Bang)-TP] SP No.180/Bang/2018 dated 22.06.2018

596. The Tribunal granted extension of stay on recovery of outstanding demand of Rs.5.91cr to the assessee till September 30, 2018 or appeal disposal, whichever is earlier, subject to payment of Rs.50 lakhs on or before July 15, 2018. The Tribunal clarified that the assessee should not seek any adjournment without justifiable reasons and if the assessee did so, the stay granted vide the order would get vacated automatically.
M/s Adamas Buiders Pvt Ltd vs ACIT [TS-952-ITAT-2018(Bang)-TP] SP No.184/Bang/2018 dated 22.06.2018

Others

597. Relying on the decision of the co-ordinate bench in the assessee’s own case (TS-822-ITAT-2017(DEL)-TP) for the earlier year, the Tribunal rejected the assessee’s contention that provisions of Sec 92 should not have been invoked for making TP-addition as assessee’s income had to be computed under section 44 of the Act as it was engaged in general insurance business and held that the provisions in Section 44 of the Act do not substitute the provisions contained under Section 92 which deal with the determination of ALP arising out of an international transaction. Regarding Revenue’s appeal against CIT(A) order deleting transfer pricing addition, following the earlier year’s decision it remitted the ALP computation to the AO/TPO noting that the co-ordinate bench had set aside the CIT(A)’s order observing that the CIT(A) failed to appreciate that the impugned international transaction was more in the nature of a short-term assignment of employees and not receipt of consultancy services as claimed by assessee. It further noted that the Tribunal in the earlier year had observed that the CIT(A)’s deletion of TP-addition was in complete disregard of TPO’s elaborate findings for rejecting assessee’s adoption of CUP-method as the consulting firms whose rates were cited in the TP study report were only quotations and not actual rates. However, it also rejected TPO’s approach of computing ALP under TNMM by considering cost of seconding an employee to assessee in another year to compute daily charge-out rates. Accordingly, it held that the matter required fresh consideration.
ACIT vs. Max New York Life Insurance Company Ltd – TS-822-ITAT-2017(DEL)-TP – ITA No.1768/Del/2011 dated 17.10.2017
598. The Tribunal held that assessee was entitled to deduction under Section 10A of the Act on additional income offered on account of suo-moto TP-adjustment. The TPO/ CIT(A) disallowed the deduction u/s 10A as assessee failed to bring into country the export proceeds in foreign exchange as contemplated in Explanation 2 to Sec 10A in respect of such additional income offered. The Tribunal held that the additional income was artificial/ notional income computed u/s 92(1) and it was neither export turnover nor total turnover but in fact profits of business u/s 10A(4), and therefore held that in the absence of it being offered as export turnover or total turnover, there could not be any condition for getting foreign exchange to India. Further noting that additional income was offered to tax as business profits, it held that the suo moto adjustment would form part of profits of business and thus would have to be taken into consideration while computing the deduction under section 10A(4) of the Act. The Tribunal relied on the on Bangalore Tribunal ruling in iGate Global Solutions allowing Sec 10A deduction in respect of suo-moto TP-adjustment (subsequently confirmed by Karnataka HC) and held that the Mumbai Tribunal ruling in Deloitte Consulting India taking a contrary view would not stand in view of ratio laid down by Karnataka High Court. It clarified that in the absence of any contrary decision of the jurisdictional High Court, the decision of the non-jurisdictional high court would prevail. Further, it held that the proviso to Sec 92C(4) [which inter alia provides that no deduction u/s 10A shall be allowed in respect of such amount of income, by which the total income of assessee had been enhanced after computation of ALP of international transactions] would not apply to suo moto adjustments.
Approva Systems Pvt. Ltd – TS-167-ITAT-2018(PUN)-TP – ITA No.1051/PUN/2015 dated 12.03.2018

599. The point of dispute before the Tribunal was on the issue of Profits attributable to PE. The Tribunal ruled that no further income could be attributable to assessee’s Permanent Establishment in India as it was proved that transactions between assessee and its AE were at Arm’s length price. The Tribunal relied on co-ordinate bench decision in assessee’s own case which had in turn relied on SC decision in case of CIT vs E-funds I.T Solutions Inc, where the assessee’s contention that income was not chargeable in India as they had paid arm’s length remuneration/ commission to its agent in India had been accepted.
ADIT (IT) 2(2) vs M/s Zee TV USA Inc- TS-311-ITAT-2018(Mum)-TP-ITA No 5608/MUM/2008 dated 23.04.2018

600. The Tribunal laid down law on applicability of TP-provisions to admitted bogus/sham transaction revolving around assessee’s purchase of drilling Rig from AE on hire purchase basis and its further sale back to the AE. The Tribunal noted that, u/s 92 if an international transaction is proved to be not genuine, the transfer pricing provisions are not triggered and held that only a declared and accepted genuine international transaction can be subjected to the TP regulations.
Further, regarding TP-adjustment under Payment of instalments of principal under hire purchase agreement, the Tribunal considered assessee’s claim that since no deduction was claimed by assessee in the tax computation in respect of the principal amount, no addition could have been made by taking Nil-ALP of the transaction.
Further, the Tribunal deleted TP-adjustment on repossession of Rig by its AE (i.e. sale back by assessee, represented by the amount covered under ‘Deletion’ column in the Schedule of Fixed Assets of the assessee]. It stated that Revenue’s Nil-ALP determination on this transaction would have the effect of the assessee claiming higher depreciation and putting the assessee in a more advantageous position as against the non-application of the transfer pricing provisions. Consequently, it held that that the transfer pricing provisions need not be given effect to as per the mandate of sub-section (3) of section 92.
M/s. Mitchell Drilling India Pvt Ltd vs DCIT Circle 6(1)- TS-252-ITAT-2018(Del)-TP- ITA No 5921/Del/2010 dated 11.04.2018

601. The Tribunal dismissed the Department’s appeal and upheld CIT(A)’s order allowing Sec 10A deduction on voluntary TP-adjustment made by assessee. It noted that the assessee did not have any business other than the unit which was eligible for Sec 10A. The voluntary TP adjustment was made through Form 3CEB in respect of international transaction involving export of engineering design services and assessee excluded the voluntary TP-adjustment from export turnover in line with computation mechanism prescribed in Sec 10A.
Tribunal relied on coordinate bench ruling in the case of iGate Global Solutions wherein it was held that assessee was eligible for Sec 10A deduction in respect of income declared in the return of income on the basis of computation of ALP. In the present case, noting that assessee had disclosed income based on computed ALP, the Tribunal opined that, there was no enhancement of income due to determination of arm’s length price, by the TPO. Hence, it held, that assessee was entitled to deduction under section 10A in respect of income based on computation of arm’s length price.
ACIT Circle 12(1) vs M/s. GS Engineering & Construction P Ltd- TS-278-ITAT-2018 (Del)-TP- ITA No. 3956/Del/2014 dated 05.04.2018

602. The Tribunal upheld CIT(A)’s deletion of Rs.2.88cr addition made by AO by invoking Sec 10A(7) r.w.s. 80IA(10) in case of assessee (engaged in the business of design engineering services) noting that though TPO accepted the margin shown by assessee at 29.14% to be at ALP, the AO held that ordinary profit earned by assessee was actually 12.55% (as against 29.14% declared in TP-report) pursuant to which he disallowed alleged excess profit on the surmise that assessee had earned higher margins than the mean margins earned by comparables selected by assessee. Relying on the decision of the co-ordinate bench in Honeywell Automation India ruling [TS-82-ITAT-2015(PUN)] wherein in an identical situation it was held that that fact that assessee had higher operating margins as compared to the comparables chosen in its TP study was not a valid ground to invoke Sec 10A(7) r.w.s. 80IA(10), it dismissed Revenue’s appeal.
ACIT vs. Faurecia Interior Systems India Pvt. Ltd – TS-386-ITAT-2018(PUN)-TP – ITA No.1722 /PUN/2015 dated 24.05.2018

603. The Tribunal remitted the matter back to DRP since it rejected the admission of additional evidences filed by assessee to support its contention that its foreign AE could be selected as tested party for benchmarking raw material import transaction for AY 2008-09. The DRP had declined to admit the additional evidence filed on August 22,2012 and cited non-availability of adequate time to verify the additional evidence as the case would be time-barred on September 30, 2012. However, DRP had called for remand report from AO which was received on September 17, 2012. Upon perusal of the provisions of Sec 144C and DRP Rules, the Tribunal held that the proceedings before DRP are continuation of the proceedings before AO and further held that DRP had powers to admit, consider and adjudicate on the additional evidence. Thus, the Tribunal set aside the DRP order and remitted issue of determination of ALP of import transactions to DRP after considering the additional evidence.
Bekaert Industries Pvt Ltd vs. ACIT [TS-349-ITAT-2018(PUN)-TP] ITA No.2376/Pun/2012 dated 14.05.2018

604. The Tribunal upheld CIT(A)’s order deleting the disallowance of depreciation since the disallowance related to the adjustment made by the TPO which had been deleted by the Tribunal in the prior year. In the previous year, the AO had referred the issue relating to the valuation of Intellectual Property Rights to the TPO who lowered its value on account of difference between book value and revised value which reduced the claim of depreciation. It was pointed out by the assessee that the Tribunal confirmed the CIT(A)’s order setting aside the IPR adjustment and deleted the disallowance of depreciation.
ACIT vs Gharda Chemicals Ltd [TS-771-ITAT-2018(Mum)-TP] ITA No.1181/Mum/2017 dated 21.06.2018

605. The Court dismissed Revenue’s appeal and upheld Tribunal’s order wherein TPO’s enhancement to ALP on account of location advantage was rejected since assessee and the comparables were situated in India.
CIT vs Watson Pharma Pvt Ltd [TS-480-HC-2018(BOM)-TP] ITA 124 of 2014 dated 25.06.2018

II. International Tax

a. Permanent Establishment

606. The Applicant was providing 4C-3D seismic data acquisition and processing services to ONCG and other customers in India in relation to the exploration of oil and gas. The AAR, relying on the decision of Oil & Natural Gas Corporation Ltd. vs CIT [2015] 376 ITR 306 (SC) held that the income received could not be taxed as Fees for technical services. Further, since ONGC did not use or obtain the right to use the vessels/equipment of the Applicant, it held that the income could not be taxed as Royalty either. However, relying on the decision of the Apex Court in Formula One World Championships Limited (2017) 80 taxman.com 347, it held that the vessels used by the Applicant constituted a Fixed Place PE under Article 5 of the India-UAE DTAA as it satisfied the conditions as laid down by the Apex Court i.e. i) permanence of duration to the extent that was required by the business, and not meaning forever ii) there was a fixed place which were the vessels in the High Seas in a definite and composite geographical area, and from which its business of survey in connection with exploration was carried out; and iii) this place was at the disposal of the Applicant. It rejected the contention of the Applicant that no PE would be constituted as it would be governed under Article 5(2)(i) which required a presence in India of more than 9 months whereas it was in India for only 113 days and held that the services envisaged under Article 5(2)(i) included services such as of supervision, managerial, consultancy, or general nature which were not the services being provided by the Applicant.
SEABIRD EXPLORATION FZ LLC IN RE – (2018) 101 CCH 0119 IAAR – A.A.R. No 1295 of 2012 dated Mar 28, 2018

607. The assessee, a Korean company, had received consideration under an agreement with an Indian company to supply power equipment from outside India and claimed that since it did not undertake any activity in India and, no part of sales consideration was taxable in India. The AO, however, held that the assessee company had a business connection as well as a PE in India under Article 5 of India-Korea DTAA in form of the liaison office and attributed 50% of the amount received to the assessee’s PE in India. It was noted that for the preceding year, on the basis of order passed by the High Court, the AO had attributed 25% of the receipts to PE in India, whereas for the subsequent years he had attributed 15% of the receipts to PE in India. The Tribunal thus restored the issue to the file of the AO with a direction to pass a speaking order in the light of the decisions for preceding as well as subsequent years.
Hyosung Corporation v ACIT – [2018] 94 taxmann.com 363 (Delhi – Trib.) – IT APPEAL NO. 6960 (DELHI) OF 2014 dated April 24, 2018

608. The Applicant was an International Association and did not have a motive to earn profits (as per Articles of Association). The AAR held that if the activities of the Liaison Office (‘LO’) proposed to be established in India are based on the principle of mutuality, then any incidental surplus arising to the LO should not be liable to tax in India under the provisions of the Income-tax Act, 1961 (‘Act’) or the India-Belgium DTAA. As regards the Revenues contention that, such LO constitutes a Permanent Establishment (PE) in India, AAR held that once the principles of mutuality are satisfied by an entity, it cannot be said that such an entity is carrying on any ‘business’ and where there is no ‘business’, a PE cannot be constituted.
International Zinc Association in Re – [2018] 102 CCH 0018 (Advance Rulings) – AAR No 1319 of 2012 dated May 24, 2018

609. The Applicant, a resident of Luxemburg, entered into a Centralized Services Agreement (CSA) with an Indian company owning a hotel, for providing certain Global Reservation Services (GRS) and other services. The Applicant filed an application before the AAR to ascertain as to whether the payment received by it from the Indian company under the aforesaid agreement was to taxed as FTS or royalty u/s 9(1)(vi) / 9(1)(vii) r.w. Article 12 of India-Luxembourg DTAA. AAR noted that in addition to the CSA, the Applicant had also entered into other agreements with the Indian company to provide further services in relation to hotel management and held that as per the terms of all the agreements, it could be said that the Hotel was at complete disposal of the Applicant, right from the stage of its construction to all the important functions in relation to its operation and management. Thus, AAR held that the Indian hotel constituted fixed place PE of the Applicant with respect to various income sources. Therefore, the AAR held that payments received by the Applicant for provision of global reservation services would be chargeable to tax in India as business income u/s 9(1)(i) r.w. Articles 5 and 7 of the India-Luxembourg DTAA and such income was attributable to the Applicant’s fixed place PE in India, i.e. the Indian hotel.
FRS Hotel Group (LUX) S.A.R.L. in Re – [2018] 102 CCH 0017 (AAR) – AAR No 1010 of 2010 dated May 24, 2018

610. The assessee company, a tax resident of South Korea, was engaged in the business of heavy engineering. The assessee was awarded a project by the ONGC for the purpose of surveys, engineering, commissioning, etc. of entire facilities and as per the terms of the contract, the assessee had to perform certain activities within India and outside India. At the instance of ONGC, the assessee opened a project office in Mumbai which the AO treated as a fixed place PE and attributed an adhoc 25 percent of gross Revenues received by assessee under project to alleged PE. On appeal, the Tribunal held that since Revenue could not bring any evidence on record to show that the alleged PE of assessee had any role to play in respect of offshore supplies made, no income from such offshore supplies could be attributed to the alleged PE. Accordingly, the Tribunal deleted the addition.
Samsung Heavy Industries Co. Ltd. v. DCIT (International Taxation) – [2018] 93 taxmann.com 224 (Delhi – Trib.) – IT Appeal No. 872 (Delhi) of 2017 dated April 25, 2018

611. The assessee, a Spanish company engaged in providing services of consultancy in project, engineering and electrical contract and supplies, carried out its projects in India through its PE, a Project Office (PO). The AO disallowed the deduction claimed by the assessee’s PE with respect to ‘Exchange Fluctuation Loss’ suffered on account of advance received from Head Office in foreign currency for carrying out projects in India on the alleged ground that the amount received by the PO was not a loan but a capital contribution. CIT(A) upheld the AO’s order. The Tribunal allowed the assessee’s claim, noting that the amount received by the PE was loan and not capital remittance. It held that since loan was utilized in day-to-day operations, for project execution and to obtain material as per terms of contract, said remittance did not bring any capital asset into existence and thus the foreign exchange fluctuation loss on account of differential value in INR was allowable as deduction u/s 37(1).
Cobra Instalaciones Y Servicios SA v DCIT – [2018] 96 taxmann.com 80 (Delhi – Trib.) – ITA No. 2391 (DELHI) of 2018 dated June 28, 2018

612. The assessee, a company incorporated in Japan, was engaged in business of chemicals, dyestuffs, plastics, electronic materials, cosmetics, etc. and had made sales to Indian customers directly as well as through independent agents appointed in India. It had also set-up a Liaison Office (LO) in India after obtaining a specific approval of RBI, as per which the LO’s activities were confined to liaison and representative activities and it was not permitted to carry out any business/commercial activities in India. The AO opined that activities of LO involved identifying, negotiating and concluding business contracts in India for and on behalf of its parent office and, therefore, LO was to be considered as the assessee’s PE in India as per Article 5 of India-Japan DTAA and consequently estimated the profit at 10% of the total turnover from India by invoking Rule 10. CIT(A) upheld the AO’s order. It was noted that the co-ordinate bench in assessee’s own case relating to succeeding assessment year had held that there was no evidence that could lead to the conclusion that LO was executing agreements independently with customers. The co-ordinate bench had held that the LO was providing auxiliary or support services and proverbial mind and management was located in Japan and, accordingly, neither there was a business connection in India nor LO constituted assessee’s PE in India. The Tribunal followed the co-ordinate bench decision, noting that there was no change in circumstances and allowed the assessee’s appeal.
Nagase & Company Ltd. v DDIT(IT) – [2018] 96 taxmann.com 504 (Mumbai – Trib.) – ITA Nos. 134 & 412 of 2009 & Others dated April 27, 2018

613. The Tribunal allowed assessee’s appeal and rejected the AO’s attribution of 50% profits made by Corning SAS in France (Head Office), from direct sales made in India, to its Indian Branch office (BO). It was noted that the BO was remunerated with 3% commission on direct sales made by it to customers in India and in all other AYs (preceding as well as succeeding), the AO had accepted 3% commission without attributing any additional profits to BO. Further, noting that no substantial functions were performed and no risks was undertaken or assets were employed by BO in India in relation to the direct sales made by Corning SAS France in India, the Tribunal held that no profit in addition to the 3% commission income earned could be attributed.
Corning SAS- India Branch Office v. DIT(IT) – [TS-286-ITAT-2018(DEL)] – ITA Nos. 4678 & 4795/Del/2010 dated May 30, 2018

614. The Applicant, a Singapore based company and a leading global payment solution provider, used to charge banks [with whom it entered into Master License Agreements] processing fees relating to authorization, clearing and settlement of transactions. The Applicant provided the banks with a MasterCard Interface Processor (MIPs) that connected to the Mastercard Network and other processing centres. The MIPs were owned by the Indian subsidiary of the Applicant. The Applicant sought a ruling from AAR on the following issues i) Whether the digital equipment (MIP) created a PE (ii) Whether the MasterCard Network created a fixed place PE in India (iii) Whether agency relationship is created through Bank of India and its premises would constitute a fixed place PE (iv) Whether Applicant’s subsidiary (MISPL) created a fixed place PE (v) Whether there was creation of a PE through the Applicant’s visiting employees (vi) Whether there was a dependent agent PE created through MISPL
On the first issue, the AAR accepted Revenue’s stand that even an automatic equipment can create a PE and did not have to be fixed to the ground to constitute a fixed place PE. It held that since significant functions were performed by MIPs in facilitating authorization process and the MIPs were at the disposal of the Applicant, the MIPs constituted PE on account of the test of disposal and permanence being satisfied.
In case of the second issue, it noted that apart from MIP, transmission towers, leased lines, fiber optic cable, nodes and internet (owned by third party service provider) and application software which constituted the Mastercard Network were located in India as well as outside India. It also noted that the task performed by the MasterCard Network were significant activities in the context of overall functions of transaction processing rendered to third party and not preparatory or auxiliary. Further, noting that the Applicant owned part of the Network, the AAR held that the Network also constituted PE.
With respect to issue (iii), noting that the settlement activities happened through Bank of India who carried out the functions under the instructions of the Applicant, it accepted revenue’s contention that the Bank of India premises where settlement activities happened through employees created a fixed place PE.
The AAR noted that MCI (of which Applicant was a wholly owned indirect subsidiary) had a liaison office (‘LO’) in India and for which the Applicant had disclosed income from transaction processing service rendered in India at full 100% attribution of global net profit rate. The Applicant had shut down LO and transferred the work and employees to MISPL. AAR held that once the Applicant in the case of LO had legally accepted a PE on account of 100% attribution of profit to India, now MISPL also created a PE of the Applicant.
The AAR, while examining whether the work carried out by the Applicant’s employees visiting India was a part of transaction processing services, concluded that the work was an integral part of the Applicant’s profession to provide new avenues of services to clients. Thus, it held that the employees visting India were providing services to clients, and if they exceeded the threshold of 90 days in a year, a service PE could be created.
The AAR noted that the agreement concluded by the Applicant were routed through MISPL who brought the proposal though it was finalized by the Applicant. The above action of MISPL satisfied the requirement of securing order under Article 5(8) of DTAA and thus, MISPL constituted a dependent PE agent.
MasterCard Asia Pacific Pte. Ltd. In.re [TS-452-AAR-2018-TP] AAR No.1573 of 2014 dated 06.07.2018

615. The Assessee, a Korean company engaged in manufacturing and sales of various categories of televisions, home appliances, telecommunication terminals, semi-conductors as well as other state of art IT products for global markets, had a wholly owned subsidiary in India i.e. SIEL to whom it seconded its employees. The Tribunal observed that the expatriate employees were only discharging duties of subsidiary company towards holding company (and did not carry out any activities on behalf of its subsidiary) and whatever benefits that were derived by Indian subsidiary by such communication were offered to tax in India. Absent any provision for Service PE under the India-South Korea DTAA, the Tribunal held that the employees of the assessee did not constitute a fixed place PE in India as no business was carried on by the assessee through the expatriated employees nor did the assessee derive any income by them though activities of these employees. Accordingly, it held that no income was taxable in India.
Samsung Electronics Co. Ltd v DCIT – [2018] 92 taxmann.com 171 (Delhi – Trib.) – IT APPEAL NOS. 65 TO 70 (DELHI) OF 2013 dated MARCH 22, 2018

616. The AO had brought to tax in India the income earned by the assessee, a Singapore based company, from supply of hardware, by considering the Indian company forming part of the same group and the Indian liaison office of the group parent company (based in Canada) to be the assessee’s PE in India as per Article 5 of the India-Singapore DTAA. The Indian company provided market support and licensing services to the assessee. However, the AO opined that the Indian company and the liaison office were actually involved in negotiation and conclusion of contracts on behalf of the assessee in India. Noting that there was no material on record which even remotely suggested that the liaison office had acted on behalf of the assessee or was negotiating and concluding agreements on its behalf, the Tribunal held that the liaison office could not be considered as a fixed place of business of assessee. With respect to the Indian company (being the subsidiary of the Canada based group parent company), it held that a subsidiary company was an independent tax entity and its income is chargeable to tax in the state where it is resident. The Tribunal thus held that since the Indian company performed the tasks contracted to it, on its own behalf, the income from such activities as well as any function performed by the expatriate employees of group companies seconded to the Indian company would be subject to tax in hands of the Indian company and the same could not be considered as income of the assessee.
ADIT v Nortel Networks Singapore (P.) Ltd. – [2018] 93 taxmann.com 401 (Delhi – Trib.) – IT APPEAL NOS. 2757 AND 2760 (DELHI) OF 2009 & 2172 TO 2176 (DELHI) OF 2011 dated April 24, 2018
NORTEL NETWORKS SINGAPORE PTE. LTD. vs. DDIT (IT) (DELHI TRIBUNAL) (ITA Nos. 5482, 3240, 3241/Del/2012 & 553/Del/2015, 5505/Del/2012) dated May 28, 2018 (53 CCH 0083)

617. The assessee, a Japanese company, was engaged in development, manufacture, assembly and supply of air-conditioning and refrigeration equipments. It sold the equipments to its Indian Subsidiary (DAIPL) and further DAIPL sold to customers in India. In addition, assessee also claimed to have made direct sales to third parties in India. AO stated that DAIPL was simultaneously undertaking marketing activities for assessee. Also, the communication in form of email demonstrated that DAIPL negotiated and finalized deals with Indian customers and conveyed it to the assessee. Further, assessee failed to provide any evidence as to how customers in India were directly approaching assessee in Japan to discuss & finalize the prices and requirements and therefore AO held that DAIPL carried out marketing activities for the assessee and was a Dependent Agent Permanent Establishment of assessee in terms of paragraph 7(a) and 7(c) of Article 5 of DTAA between India and Japan (which provides for instances of deemed PE) The Tribunal upheld AO’s order and further held that since DAIPL was a PE in India, 30% of the net profit relatable to sales in India would be attributable to the marketing activities carried out in India by DAIPL.
Daikin Industries Ltd. vs ACIT [2018] 94 taxmann.com 299 (Delhi- Trib.) – ITA NO 1623 OF 2015 dated 28.05.2018

618. The assessee, a US based company, had entered into a Master Franchise Agreement (MFA) with a company in India which in turn had entered into a Sub-Franchise Agreement (SFA). It offered income from franchise fee and consultancy services provided to M/s J for store opening to tax at the rate of 10% being royalty as per India-USA DTAA. The AO held that M/s J constituted the assessee’s dependent agency / Permanent Establishment in India as per Article 5 of India-USA DTAA and thus taxed the total income of the assessee as business income @ 40% (after allowing a deduction of 5% from total income). The DRP held that M/s J did not constitute a PE or DAPE or agency PE of the assessee. On perusal of the Master Franchise Agreement (MFA) between the assessee and M/s J and Sub-Franchise Agreement (SFA) between M/s J and the sub-franchisees, the Tribunal observed that the profit/ loss from the business belonged to M/s J or sub-franchise and that the assessee was only entitled royalty and store opening fees. It further observed that M/s J did not carry on any activity on behalf of the assessee and the restrictions provided in MFA and SFA were only to safeguard the brand value and to ensure the correct receipt of royalty income. Thus, the Tribunal held that since the assessee did not have any physical control on business of franchise and sub-franchise and none of conditions prescribed under Article 5 of India-USA DTAA were attracted, the DRP’s order was to be upheld. Accordingly, the Revenue’s appeal was dismissed.
DCIT (IT) vs. DOMINOS PIZZA INTERNATIONLA FRANCHISING INC. (BOMBAY TRIBUNAL) (ITA No. 1447/Mum/2016) dated May 18, 2018 (53 CCH 0054)

619. Where the assessee, a Singapore based company, had licensed its wholly owned subsidiary viz. ADSIL as its national marketing company in India (ADSIL marketed the assessee’s Computerized Reservation System in India) and ADSIL was an agency PE of the assessee, the Tribunal relying on the decision of the co-ordinate bench (wherein the Tribunal relying on the decision of the Delhi High Court in Galileo International Inc and CBDT Circular No. 23, dated July 23, 1969) held that only 15 percent of the gross receipts of ADSIL was taxable and that the AO was unjustified in attributing the entire gross receipts as the income attributable to the PE. Noting that the assessee was paying a commission of 25 percent of gross receipts as commission to ADSIL, it held that after deduction of the said commission, there would be no income attributable to the PE and therefore observed that the assessee would not be liable to tax.
Further, refusing the assessee’s request to furnish additional evidence with respect to reimbursement received, it dismissed the contention of the assessee that the CIT(A) had erred in treating the reimbursement received by it from ADSIL as business profits and held that the assessee was granted abundant opportunity to substantiate the nature of reimbursements before the AO which it failed to comply with. Accordingly, it held that the said reimbursements would be taxable as business income. However, it allowed the assessee to set off the commission payment to ADSIL against this income as well.
Sabre Asia Pacific Pte Ltd (Earlier Known as Abacus International Pte Ltd.) vs. DCIT – TS-112-ITAT-2018(Mum)-TP – I.T.A. No. 486/Mum/2016 dated 16.02.2018

620. Though the agent of the assessee provided similar services to principals other than the assessee and the income from assessee constituted only 7.87% of its total income, the AO held that the assessee had a DAPE (Dependent Agent Permanent Establishment) and accordingly taxed income of the assessee earned from transportation of containerised cargo in terms of Article 5 r.w. Article 7 of the India-Netherland DTAA. Following the Tribunal’s order for earlier year in the assessee’s own case wherein it had held that the said agent was an independent agent, and hence, did not constitute assessee’s DAPE, the Tribunal dismissed Revenue’s appeal filed against the CIT(A)’s order deleting the addition made by the AO who had considered the assessee’s agent to be DAPE.
DCIT v Hoyer Global Transport B.V. – ITA No. 1543 /Mum/ 2016 dated 24.01.2018

621. The Tribunal dismissed Revenue’s appeal against the CIT(A)’s order holding that the assessee did not have PE in India and allowed the assessee’s cross objection wherein the assessee had contended that even if it was held that it had a PE in India, since it had paid remuneration/ commission to its agents in India at ALP, no adjustment was to be made in the hands of the assessee. It noted that similar issue had been decided in favour of the assessee in earlier year by the Tribunal in the assessee’s own case following the decision in the case of CIT v E-funds I.T. Solutions Inc [Civil Appeal No. 6082 of 2015 (SC)] wherein it was held that where transactions between the AEs were at ALP, no further profits could be attributed even if there existed a PE in India. It further noted that for the year under consideration also, the TPO had in the case of assessee’s AE-agent, accepted that the transactions between the said AE-agent and the assessee were at ALP and, accordingly, made no adjustment.
ADIT (IT) v Zee TV USA Inc – ITA No. 5603/Mum./2008 & CO. No. 47/Mum/2010 dated 25.01.2018

622. The Revenue had brought to tax the income earned by the assessee, a Finland based company, from offshore supply of telecom equipment manufactured in Finland in pursuance of supply contract with Indian customers, by considering the Indian subsidiary of the assessee, which took marketing and installation activities with the assessee’s customers on principal to principal basis, to be the assessee’s PE in India. The Tribunal held that since there was no physical space made available which can be said to be at the disposal of the assessee for the assessee’s own business of supply and sale of equipments, the Indian subsidiary could not be considered to be the assessee’s PE in India in view of Article 5 of the India-Finland DTAA. It was further held that the Indian subsidiary also did not provide any business connection to the assessee as required by the provisions of section 9(l)(i) since the title of the goods supplied by the assessee were transferred outside India and the payments were also received by the assessee outside India. It concluded thus that the said income could not be brought to tax in India.
Nokia Networks OY v JCIT – [2018] 94 taxmann.com 111 (Delhi – Trib.) (SB) – IT APPEAL NOS. 1963 & 1964 (DELHI) OF 2001 dated June 5, 2018

623. The assessee (Saudi Arabian Oil Co.),a largest crude oil exporter, established a subsidiary in India (Aramco India-separate legal entity established under Companies Act) to carry out Business/Marketing Support Activities. However, the Revenue contended that Aramco India was a PE of the assessee applicant who was liable to tax in India in respect of its business profits. The AAR decided in favour of the assessee and held that Aramco India could not be said to be a PE of the Applicant as Aramco was carrying its own business in India providing assistance to the applicant and was accordingly duly remunerated. Also, the functions carried out in the premises by Aramco India was not to do business for the Applicant and it merely provided support services to the Applicant.
Saudi Arabian Oil Company, In re vs. [2018] 94 taxmann.com 194 (AAR – NewDelhi) / [2018]405 ITR 83 (AAR – NewDelhi) / [2018] 303 CTR 225 (AAR – NewDelhi) – AAR NO. 25 OF 2016 dated 31.05.2018

624. The Tribunal allowed assessee’s cross objection and dismissed Revenue’s appeal against CIT(A)’s order wherein CIT(A) had held that the assessee did not have PE in India and accordingly its business activities were not taxable in India. In cross objection, assessee contended that that even if it was held that assessee had PE in India, its income was not taxable in India as it had paid arm’s length remuneration/ commission to its agent (also its AE) in India which was taxed in India and, therefore, no further adjustment was to be made in hands of assessee. The Tribunal noted that in TP assessment of assessee’s AE, the TPO had accepted the transaction between the assessee and its AE to be at arms’ length and no adjustment was made. Further, it relied on CIT v. E-funds I.T. Solutions Inc. [2017] 399 ITR 34 (SC) wherein it was held that since the transactions between non-resident assessee and its Indian AE were at ALP, no further profits could be attributed even if there existed a PE in India.
ADIT(IT) v Zee TV USA Inc. – [2018] 96 taxmann.com 509 (Mumbai – Trib.) – ITA No. 5608 (MUM.) OF 2008 dated April 23, 2018

625. The assessee was awarded contract by ONGC for supply, installation, testing and commissioning of Vessel and Air Traffic Management System (VATMS) along with provision of maintenance services. During the year, the assessee only provided Annual Maintenance Contract (AMC) services in relation to VATMS to ONGC. The AO brought to tax AMC fee received as business profits attributable to Installation PE in terms of Article 5(3) of India-Netherlands DTAA. The Tribunal held that since the VATMS equipment was already handed over to customer in year 2007 and no installation activity was carried out in India during subject year i.e. AY 2011-12, it could not be held that the assessee had ‘Installation PE’ in India in subject year. It held that AMC services provided post completion of installation activities at site of customer, could not lead to carrying out installation activities for purpose of constitution of ‘Installation PE’ in India. The Tribunal also held that the presence of Indian contractor to which assessee had sub-contracted whole AMC work on principal-to-principal basis, could not create any virtual presence of assessee in India, since the entire onshore maintenance contract was performed by the independent local contractor in India and the existence of PE needs to be determined based on the activities of the foreign enterprise. It thus held that the AMC fees received could not be brought to tax in India as business income in the absence of a PE.
HITT HOLLAND INSITUTE OF TRAFFIC TECHNOLOGY B.V. vs. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONA TAXATION) – (2018) 52 CCH 0280 KolTrib – ITA No. 390/Kol/2015 dated Apr 4, 2018

626. The AAR ruled that the non-compete fees received by the applicant foreign company from an Indian Company, as a part of consideration for transfer of shares held in another Indian Company was income from “Profits and gains of business or profession” u/s 28(va). However, it further ruled that in absence of any Permanent Establishment (PE) of the applicant-company in India, by virtue of Article 7 of India-UK DTAA, the said fees was not chargeable to tax in India.
HM Publishers Holdings Ltd., In re – [2018] 94 taxmann.com 193 (AAR – New Delhi) – A.A.R. NO. 1238 OF 2012 dated Jun 6, 2018

627. Assessee, a foreign company having Liaison Office in India, was a wholly-owned subsidiary of one Company-Metro AG, Germany and was engaged in business of procuring various goods and materials from various countries including India and selling to its Distribution Companies who further sold goods to retail customers. A survey was carried out in the premises of assessee’s LO and on the basis of documents seized, AO opined that assessee had business connection in India and therefore income arising through such connection (directly/indirectly) was taxable in India. The assessee, on filing the appeal, contended that operations of assessee in India were confined to purchase of goods in India for the purpose of export and thus no income would arise in India as per Exp.1(b) to S.9(1)(i) (which provides the instances of having business connection in India).However,as the AO made addition to assessee’s income without carrying out any factual analysis, the addition was set aside by the Tribunal and the matter was remanded back to decide whether or not the assessee would fall under Exp.1(b) to S.9(1)(i).
Parpool Ltd v Asst DCIT [2018] 94 taxmann.com 353 (Delhi – Trib.) – ITA NO 4911 OF 2010; 1472 & 1473 OF 2015 dated 31.05.2018

628. Where the transactions between the assessee and its Indian subsidiary were at ALP under TP proceedings, the Apex Court held that even if the subsidiary constituted a PE, no further profits could be attributed. Accordingly, it reversed the order of the High Court and held that the reassessment proceedings initiated by the AO was therefore invalid.
HONDA MOTOR CO.LTD, JAPAN vs. ASSTT.DIRECTOR OF INCOME-TAX, NOIDA & ORS. – (2018) 101 CCH 0169 ISCC – Special Leave to Appeal (C) No(s). 25363/2014 dated Mar 14, 2018

629. The Tribunal upheld the order of the CIT(A) wherein the CIT(A) deleted disallowance u/s 40(a)(i) and held that TDS u/s. 195 was not applicable on payments made by assessee-company to a US based concern for provision of support services, rendered from outside India under a service agreement as the said services were not attributable to the US entity’s PE in India (which was constituted vis-à-vis different set of services). It noted that the service agreement between the assessee and US co. envisaged providing of various services to assessee in the form of information support system, marketing and new business development, new product development, actuarial services, accounting support services, internal audit services, etc which were rendered in the US and relying on the decision of the Bombay High Court in WNS North America (ITA No. 1269 of 2013) held that activities carried on in the US could not be attributed to the US entity’s PE in India. Accordingly, it dismissed Revenue’s appeal.
DCIT vs Transamerica Direct Marketing Consultants Pvt. Ltd – TS-190-ITAT-2018(Mum) – ITA NO. 1978/MUM/2015 dated 19/03/2018
630. Where, as per MAP settlement arrived at for earlier years, the income derived from borrowed service charges was held not to be taxable as Fees for technical services / royalty, the Tribunal held that the AO erred in taxing the same as FTS for the year under review. Further, considering that the assessee did not have a PE in India, it held that the said income would not be taxable in India.
MCKINSEY & COMPANY INC. & ORS. vs. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONL TAXATION) & ORS – (2018) 52 CCH 0182 MumTrib – ITA Nos. 1748/Mum/2016 dated Mar 14, 2018

b. Royalty

631. The Court dismissed Revenue’s appeal against the Tribunal’s order for AY 2007-08 wherein the Tribunal had held that reimbursement of lease line charges did not qualify as ‘royalty’ under Article 12(3)(b) of the India-UK DTAA and India-US DTAA and such amount received as reimbursement was not also not liable to be taxed as business profit under Article 7 r.w. Article 5 of the India-UK DTAA and India-US DTAA, noting that the issue stood concluded in favour of the assessee in view of the Court’s dismissal of revenue’s appeal for AY 2004-05 on similar issue.
CIT (IT) v WNS Global Services (Uk) Ltd & ANR.– ITA No. 890 & 891 of 2015 (Bom) dated 07.02.2018

632. The Tribunal allowed assessee’s appeal filed against DRP’s order confirming AO’s action in taxing the revenue received by the assessee, a US company, on account of sale of off the shelf software as ‘royalty’ u/s 9(1)(vi) as well as under Article 12 of the India-US DTAA. It noted that on identical facts the Tribunal had decided in favour of the assessee in earlier years following the decision in the case of DIT v Infrasoft Ltd (2014) 220 Taxman 273 (Del HC) wherein it was held that right to use a copyrighted article or product with the owner retaining his copyright was not the same thing as transferring or assigning rights in relation to the copyright and that the enjoyment of some or all the rights which the copyright owner had, was necessary to invoke the royalty definition under Article 12 of the India-US DTAA. It also noted that the authorities below had not been able to establish that the sale of software was merely a right to use copyright article or product with the owner retaining its copyright and that the DRP had held that the assessee did not have a PE in India.
Landmark Graphics Corporation v ADIT – ITA No. 5285 /Del/ 2010 dated 18.01.2018

633. Where assessee, a non-resident company, supplied ‘Off the shelf’/Shrink Wrapped’ software to an Indian company for purpose of billing its customers, in view of fact that assessee exclusively owned all Intellectual Property Right (IPR) in software and it had merely granted a copyrighted article to Reliance (Indian customer) and not ‘copyright’ in article and that the software was a standard product already developed and made available to other customers, Tribunal held that the payment received by assessee was not liable to tax in India as royalty u/s 9(1)(vi) and article 12 of India-Ireland DTAA and since the assessee does not have PE in India, the said amounts are not liable to tax in India.
Intec Billing Ireland v ADIT (IT) – (2018) 90 taxmann.com 94 (Mum) – ITA No. 1535 (Mum) of 2014 dated 08.01.2018

634. Where the assessee, a US based company, entered into an agreement with another US company in terms of which it acquired patent and technical information which was used by the Indian holding company for the purpose of manufacture of two products, the Tribunal held that in view of fact that assessee company got said products manufactured from its holding company in India which were subsequently sold in USA, it was a case where there was clear business connection with India and, thus, royalty paid by assessee to said US based company was taxable in India under section 9(1)(vi).
Dorf Ketal Chemicals LLC v DCIT – [2018] 92 taxmann.com 222 (Mumbai – Trib.) – IT APPEAL NO. 4819 (MUM.) OF 2013 dated MARCH 22, 2018

635. The Tribunal held that where the assessee obtained license only for the usage of software for a limited period and did not have right to change or modify software, payment made for obtaining license to use software could not be held to be royalty coming within ambit of DTAA or fees for technical services under section 9(1)(vii).
Nissan Motor India (P.) Ltd v DCIT – [2018] 92 taxmann.com 127 (Chennai – Trib.) – IT APPEAL NO. 1854 (CHNY) OF 2017 dated MARCH 21, 2018

636. The Tribunal held that the payment made by the assessee to a UK based non-resident on account of transponder charges would not fall in nature of ‘royalty’ under the India-UK DTAA as the payment was made only for use of facility and it was not an equipment and did not amount to use of any copyright effecting work, secret formula, process etc or any other term described. It held that the payment of transponder charges could not be treated as a consideration for ‘use’ or ‘right to use’ any copyright of various terms used in in the DTAA viz. like copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting or in any manner related to any patent or trademark, design, secret formula or process. It was also not use or right to use any industrial, commercial, or scientific equipment and therefore held that the assessee was not liable to deduct tax under Section 195 of the Act.
UNITED HOME ENTERTAINMENT PRIVATE LIMITED & ANR. vs. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) & ANR. – (2018) 52 CCH 0098 MumTrib – ITA No. 1289/MUM/2016 dated Feb 9, 2018

637. The Tribunal held that the payment of lease line charges made by the assessee to its US parent was not royalty under the India-USA DTAA and accordingly deleted Section 40(a)(i) disallowance for non-deduction of TDS u/s. 195 on the said payment. The US parent had entered into an agreement with third party service provider for providing of bandwidth services, and the parent company in turn, provided bandwidth services to its subsidiaries against reimbursement of lease line charges. Considering the extensive evidence filed by assessee which substantiated the privity of contract was between third party service provider and US parent, who in turn had received bandwidth and passed on the services to various entities of group on cost to cost basis, the Tribunal dismissed Revenue’s contention that the assessee routed payments to third party service provider through its AE to avoid TDS obligations. Moreover, it held that the ‘royalty’ definition under the DTAA did not cover any such services, and relying on the decision of the Delhi High Court in New Skies Satellite BV & Ors it held that the amended royalty definition under the Act could not be extended to DTAA. Furthermore, it noted that the TPO had accepted assessee’s international transaction of reimbursement of leaseline expenses to be at arm’s length and did not propose any adjustment and therefore held that once the nature of expenses had been so accepted by the TPO, the Assessing Officer could not sit in judgment of the TPO order since under the provisions of the Act, the order passed by the TPO is binding upon the AO.
T-3 Energy Services – TS-97-ITAT-2018(PUN)-TP – ITA No.826/PUN/2015 dated 02.02.2018

638. Where assessee, engaged in business of providing telecommunication services, entered into various agreements with non-resident-vendors for supply of software and made payments for same, the Tribunal held that consideration paid by assessee to suppliers for acquiring copy of software was actually made for ‘copyrighted article’ and not for ‘use of copyright or transfer of right to use of copyright and hence, payments made by assessee to vendors of software could not be taxed as royalty. In this regard, it noted that (i) the said agreements stipulated that assessee would be using software for ‘operation of its wireless network only’ and it was prevented from utilizing software for commercial use (ii) the copyrights in software was not transferred to customers, (iii) the access to ‘source codes’ in software was not granted to assessee and (iv) there was restriction on copying software.
DDIT v Reliance Communication Ltd – (2018) 90 taxmann.com 358 (Mum) – ITA Nos. 837 of 2007, 3431 to 3437 & 3440 to 3444 (Mum.) of 2008 & others dated 02.02.2018

639. The Tribunal remanded the matter to AO for requisite verification in a case where assessee-company had made remittances to companies in USA/UK for purchase of software for resale without deducting TDS and as per AO the said payments were in nature of Royalty within meaning of section 9(1)(vi) but it was not clear whether the remittances were relatable to mere receiving software products from suppliers and passing it on to customers, or whether there was exploitation of software products obtained for commercial benefits of assessee.
India Soft Technologies (P.) Ltd v DDIT(IT) – (2018) 90 taxmann.com 188 (Pune) – ITA Nos. 1709 to 1712 (Pun.) of 2013 dated 24.01.2018

640. The Tribunal held that the amount remitted by assessee, carrying on business of broadcasting of news channel, to a US company as per a contract with the US company, for using latter’s satellite (transponder capacity) was not royalty and it was not taxable in India under provisions of article 12 of India-USA DTAA but the said amount would constitute business profits of the US company. It was noted that the activities and services were carried out through transponder located in space and these were not carried out or performed in Indian territories, and assessee was not having any control over transponders, it only had a right to use a certain capacity which was available within overall capacity of transponder. Further, since the US company didn’t have a PE in India, the said sum was not chargeable to tax in India and consequently, not liable for TDS u/s 195.
Independent News Service (P.) Ltd. v ITO – (2018) 90 taxmann.com 163 (Del Trib) – ITA Nos. 1868, 1870 to 1882 of 2016 & ORS dated 25.01.2018

641. Noting that the Tribunal in assessee’s own case relating to earlier assessment years held that the assessee was not liable to deduct tax at source while making payment for transfer of usage rights of software and availing other services such as maintenance of software training etc., the Tribunal deleted the disallowance made u/s 40(a)(i) in respect of overseas payment for purchase of software without deducting tax at source.
Capgemini Technology Services India Ltd. v DCIT – (2018) 90 taxmann.com 191 (Pune Trib) – ITA Nos. 216 and 360 (Pune) of 2015 dated 25.01.2018

642. The Assessee, a Singapore based company, supplied software and hardware to a resident company and the hardware and software which were sold by the assessee were interdependent in the sense that the hardware was useless without this particular software and the software could not be used in any hardware other than the one for which it was permitted to be used. Following the decision in the case of the assessee’s group company i.e., Nortel Networks India International Inc v. ADIT [ITA Nos. 3313 to 3315/Del/2012] decided in favour of assessee on identical issue, the Tribunal held that the embedded software was not royalty and the receipts on account of sale of embedded software could not be separately brought to tax. In the case of assessee’s group company, the Court had relied on the decision in the case of CIT v ZTE Corpn. [2017] 392 ITR 80 (Del HC) wherein it was held that since the supply of software embedded in equipment enabled use of hardware sold, it resulted in a case of sale of copyrighted article and, thus, payment made towards supply of sothware was not taxable in India as royalty.
ADIT v Nortel Networks Singapore (P.) Ltd. – [2018] 93 taxmann.com 401 (Delhi – Trib.) – IT APPEAL NOS. 2757 AND 2760 (DELHI) OF 2009 & 2172 TO 2176 (DELHI) OF 2011 dated April 24, 2018
NORTEL NETWORKS SINGAPORE PTE. LTD. vs. DDIT (IT) (DELHI TRIBUNAL) (ITA Nos. 5482, 3240, 3241/Del/2012 & 553/Del/2015, 5505/Del/2012) dated May 28, 2018 (53 CCH 0083)

643. The Tribunal allowed the assessee’s appeal against the CIT(A)’s order wherein the CIT(A) had confirmed the taxation of royalty income earned by the assessee, a US based company, by giving license to its key patents to non-resident original equipment manufacturers (OEMs), where the OEMs sold products to wireless carriers worldwide including India and the Indian carriers sold such products in India. The AO taxed said royalty income u/s 9(1)(vi)(c) and Article 12 of the India-USA DTAA on the ground that the OEMs carried on business in India and used assessee’s patents for making or earning income from a source in India. Section 9(1)(vi)(c) provides that royalty paid by a non-resident (OEMS, in the present case) to another non-resident (the assessee) will be taxable, it the same is paid in respect of any right, property or information used or services utilized for earning any income from any source in India. The Tribunal held that since the agreement with OEM was for use of ‘intellectual property’ for purpose of manufacture of equipments outside India, which were not India specific, it could not be said that OEMs used the assessee’s patent for carrying on business in India. Further, it held that the sale of handsets to Indian carriers, without any operations being carried out in India, would amount to business with India and not “business in India”. Accordingly, it held that the said royalty income could not be brought to tax u/s 9(1)(vi)(c) and as the income was not chargeable to tax in India as per the Act, there was no need to consider the provision of Article 12(7) of India-USA DTAA.
The AO had also taxed the amount received by the assessee on account of certain license to an Indian company to use copyrighted software for licencee’s own business (including permission to make one copy for backup purposes) as royalty u/s 9(1)(vi)(c). Noting that there was no transfer of any right in respect of copyright by the assessee and it was a case of mere transfer of a copyrighted article, the Tribunal held that the said payment was for copyrighted article and represented purchase price of an article and could not be considered as royalty either under the Act or under the DTAA.
Qualcomm Incorporated v DDIT – [2018] 93 taxmann.com 80 (Delhi – Trib.) – IT APPEAL NOS. 5353 (DELHI) OF 2012, 1241 & 7064 (DELHI) OF 2014 6132 (DELHI) OF 2015 & 189 (DELHI) OF 2016 dated April 16, 2018

644. The assessee made payment to GIL, a resident of Ireland, in respect of the purchase of advertisement space for resale to the advertisers in India under the AdWords program without withholding TDS as it was a mere non-exclusive distributor/ reseller of advertisement space to the advertisers in India and such payment to GIL on distribution of ad space in India was not in relation to any ‘transfer of any right’ or ‘right to use’ any Intangible Property (IP). The AO held that such payment made by the assessee to GIL was royalty u/s 9(1)(vi) and since no taxes were withheld, the assessee was held to be assessee in default u/s 201(1). CIT(A) upheld the AO’s order. The Tribunal observed that though ownership of these IPs were with GIL, the assessee was provided licence to use confidential information, technical know-how, trade mark, brand features, derivative works, etc. It held that the payment to GIL for use of IPs to provide better service was certainly in the nature of payment of royalty and was chargeable to tax u/s 9(1)(vi) and under Article 12 of the India-Ireland treaty. Thus, the Tribunal held that the assessee was rightly in default u/s 201(1).
However, the CIT(A) had held that since GIL was beneficial owner of the royalty receipts, the royalty would be taxed at 10% only as per India-Ireland DTAA., whereas in this regard, the AO had held that the royalty revenue collected was to be shared amongst various parent holdings of GIL and the assessee had not filed the relevant agreement between the different layers of holdings involved under the AdWord Program. Thus, was regard the rate of taxation, the Tribunal restored the matter to the file of the AO as it was not clear whether GIL had full control over receipt received under AdWord Program or GIL was merely acting as a conduit of its parent holdings.
Google India Private Limited & Ors. vs. JDIT (IT). – [2018] 53 CCH 0027 (Bangalore ITAT) – IT(TP)A No.374/Bang/2013, 881/Bang/2016, IT(IT)A No.2845/Bang/2017, 949/Bang/2017, 950/Bang/2017, 68/Bang/2015, 387/Bang/2017, 559/Bang/2016, 69/Bang/2014, 1295/Bang/2014, 466/Bang/2013, 191/Bang/2014, 205/Bang/2015, 1299/Bang/2015, 1190/Bang/2014 dated May 11, 2018

645. The Assessee, engaged in business of development and distribution of software products in UK, sold software products in India, either through its distributors or directly to customers. The Tribunal held that receipts from offshore sale of software would not be taxable as business income under Article 7 of the tax treaty in absence of a PE in India. Further, the Tribunal held that such receipts could not be construed as royalty under Article 12 of the India-UK tax treaty as the Assessee was only selling copy righted article and there was no payment for use of copy right or acquiring the right to use the copy right. While doing so, the Tribunal relied on the judgement of the Delhi High Court in Infra Soft Pvt. Ltd (96 DTR 0113) and M Tech India P Ltd (132 DTR 0057). Relying on the ruling of Delhi High Court in New Skies Satellite (133 DTR 0185) Tribunal also noted that any amendment in the Act could not be read into the treaty.
DCIT (IT) & Ors. vs. Micro Focus Ltd. & Anr. – [2018] 53 CCH 0062 (Delhi ITAT) – ITAs No 3312, 3313, 2376 & 2377 of 2016 and 177 of 2017 dated May 17, 2018

646. The assessee company was engaged as accredited domain name registrar. The assessee’s income was mainly from the domain registration fees which was claimed to be not taxable in India. However, the AO assesseed the same as royalty u/s 9(1)(vi) which was confirmed by the DRP. On further appeal, the Tribunal held that the rendering of services for domain registration is rendering of services in connection with the use of an intangible property which is similar to trademark and, therefore, charges received by the assessee for said services is royalty within the meaning of section 9(1)(vi).
Godaddy.com LLC v. ACIT – [2018] 92 taxmann.com 241 (Delhi – Trib.) – IT Appeal No. 1878 (Delhi) of 2017 dated April 3, 2018

647. The assessee, a Thailand based company, was engaged in business of providing digital broadcast services through its transponders (through satellite) to its customers both in India as well as non-residents. The AO held that the income received by assessee was chargeable to tax in India as royalty u/s 9(1)(vi) as well as under article 12 of DTAA between India and Thailand. It was noted that the co-ordinate bench in assessee’s own case in earlier assessment year had held that amendment made by Finance Act, 2012 [i.e. retrospective insertion of Explanation 5 & 6 under section 9(1)(vi) to bring within the purview of royalty income from data transmission services], would not affect Article 12 of DTAA and, therefore, income earned by assessee could not be held as ‘royalty’ chargeable to tax in India. The Tribunal followed the co-ordinate bench decision, noting that there was no change in circumstances, and allowed the assessee’s appeal holding that income received by the assessee was not a royalty as per Article 12 of India-Thailand DTAA and therefore, the same was not chargeable to tax
Thaicom Public Co. Ltd. v DCIT(IT) – [2018] 96 taxmann.com 577 (Delhi – Trib.) – ITA Nos. 1062 AND 1063 (DELHI) OF 2015 dated April 26, 2018

648. The Applicant, a U.S. Entity, provided content delivery solutions through Akamai EdgePlatform to its customers through sophisticated technology which operated on an automatic and continuous basis. AAR held that since the solutions provided by the Applicant were neither specialized, nor exclusive to individual customer requirements, the payment received for such solutions should not fall within the scope of ‘FTS’ under Explanation 2 to Section 9(1)(vii) or Article 12 of the India-US tax treaty as it was a standard facility and did not make available any technological knowledge, skill, etc. to the customers.
In respect of sale of solutions to Akamai India and onward sale of the same to Indian customers, AAR held that the receipt of payment for such sale would not constitute ‘royalty’ under Explanation 2 to Section 9(1)(vii) or Article 12(3) of the India-US tax treaty as it did not involve right to use the Akamai EdgePlatform or transfer of any rights in relation to the same. Further, AAR held that the Applicant did not have a PE in India.
Akamai Technologies Inc. In Re – [2018] 102 CCH 0010 (AAR) – AAR No 1107 of 2011 dated May 21, 2018

c. Fees for technical services

649. The Tribunal held that the payment made by the assessee to foreign companies situated in Netherlands and Sri Lanka for audit, knowledge about tax law applicable (VAT Laws) in that country etc was not taxable as i) it could not be considered as royalty or FTS under the India-Netherlands DTAA as the non-resident entity merely provided the assessee with information and also had not made available technical knowledge/experience/skill etc. to the assessee ii) it was not taxable under Article 14 of the India-Sri Lanka DTAA (there being no FTS clause) since the Article provided that the profits on account of professional services would only be taxable in the country of receipt.
ACIT v Deloitte Haskins & Sells – [2018] 92 taxmann.com 279 (Mumbai – Trib.) – IT APPEAL NOS. 4844, 5095 & 6786 (MUM.) 2011 dated MARCH 23, 2018

650. The assessee, a foreign company incorporated in USA and also tax resident of USA, received corporate IT charges under the agreement entered into with Indian group entity CPIL for providing IT related services. It claimed that such charges were mere reimbursement of cost, thus, not taxable either under domestic law or under DTAA. The AO held the said charges received to be income in nature of Royalty/Fee for Included Services under relevant articles of India-USA DTAA. Noting that the CIT(A) in the subsequent AYs i.e. AY 2009-10 to AY 2014-15 had decided the identical issue in favour of assessee and the revenue’s had not filed an appeal against the said decision of CIT(A), the Tribunal rejected the revenue’s appeal against the DRP’s direction accepting the assessee’s contention, relying on the Apex Court decision in the case of Radhasoami Satsang v CIT (1992) 193 ITR 321 (SC) wherein it was held that once the parties have allowed the position to sustain by not challenging the order, it was not appropriate to allow the position to be changed in subsequent years.
CARGILL INCORPORATED v ADD.CIT (IT) – (2018) 52 CCH 49 (Del Trib) – ITA Nos. 491/Del/2012, 492/Del/2012, 5647/Del/2011, 446/Del/2012, 447/Del/2012, 5503/Del/2010, 5648/Del/2011 dated 19.01.2018

651. The Applicant [a leading global payment solution provider] used to charge banks [with whom it entered into Master License Agreements] processing fees relating to authorization, clearing and settlement of transactions. The Applicant also received assessment fees for building and maintaining a processing network. Additionally it received miscellaneous revenue for the provision of services which were ancillary to the transaction processing activities. The Applicant provided the banks with a MasterCard Interface Processor (MIPs) that connected to the Mastercard Network and other processing centres. The applicant sought a ruling on the issues (i) Whether transaction processing fee, assessment fees and transaction related miscellaneous fees amounted to royalty (ii) Whether use of MIP equipment amounted to royalty (iii) Whether the use of software amounted to royalty (iv) Whether the fees paid by the final consumer who was using the card amounted to FTS.
The AAR noted that bank issued their own card and used the logo owned by MasterCard. It examined the agreement between the Applicant and banks and concluded that the dominant purpose was to license the trademark/mark. It also observed that the Applicant made the payment of royalty to MCI US (who was the owner of the IPs) for further sublicensing the IPs. Thus, the AAR held that the payment received by the Applicant represented consideration for use of IPs in India, and hence to be classified as Royalty.
The AAR also held that MIPs are equipments whose use constituted royalty. Further, noting that the use of software inside MIP and cards in the application software were essential parts of the transaction without which transaction would not be completed, it held that the use of software was subject to royalty.
However, the AAR held that the relation between the final consumer and the Applicant was of use of a standard facility and hence transaction processing service rendered by the Applicant could not be taxed under the article of FTS in India-Singapore DTAA.
MasterCard Asia Pacific Pte. Ltd. In.re [TS-452-AAR-2018-TP] AAR No.1573 of 2014 dated 06.07.2018

652. The Assessee-company, a tax resident of Netherland, was engaged in conducting training programs and providing access to various computer systems, viz. Centralized Reservation System (‘CRS’), Property Management Systems and Other Systems to Marriott chain of hotels over the world. AO observed that assessee was in receipt of consideration for services rendered to their Hotels in India (Indian Hotels) as per Training and Computer Systems Agreements for conducting training programs of their employees and also other services. AO characterized aforesaid receipts as royalty and FTS, brought same to tax in hands of assesse. CIT(A) concluded that the consideration received by assessee were taxable as FTS. Assessee contented that consideration received for services rendered by it to Indian Hotels were in nature of reimbursement of expenses incurred by it and as there was no mark up or profit made by rendering the said services, there was no income liable to taxed in India. The Tribunal rejected assessee’s claim since the assessee had failed to substantiate the same on the basis of any clinching evidence. It held that neither the training services rendered by the assessee to the Indian Hotels could be held to be technical services, nor the same could have been characterised as “ancillary and subsidiary” services as per Article 12(5)(a) and, hence, the consideration received by the assessee for rendering the training services could not be held as FTS. It further held that the access to CRS, Property Management System and Other Systems provided to Indian Hotels were common facilities and were not tailor made services to suit the specific requirements, hence, could not be construed as technical services to be taxed as FTS.
RENAISSANCE SERVICES BV vs. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) – (2018) 53 CCH 0149 (Mum Trib) – ITA No. 7159/Mum/2012 dated Jun 8, 2018

653. Where assessee, a Singapore based company, claimed to have provided administrative support services to an Indian entity but the nature of services rendered was not clear from the documents and evidence submitted by it before the lower authorities, the Tribunal remanded the matter back to AO to decide whether the services involved in the agreement satisfied the ‘make Available’ criteria or not and, consequently whether the said services constitutes FTS under the India-Singapore DTAA.
CEVA Asia Pacific Holdings Company Pte Ltd. v DDIT – (2018) 89 taxmann.com 410 (Del Trib) – ITA No. 1503 (Delhi) of 2014 dated 08.01.2018

654. Where the assessee made a payment for acquisition of Designs and Drawings for purpose of completing operating and maintaining the plant imported from the non-resident, the Tribunal held that the said payment could not be considered as FTS as the payments were not merely inextricably linked with the plant but without such payments the plant would not have been installed and commissioned. It held that the payments towards Designs and Drawings would in fact constitute part of the cost of acquisition of the plant.
TATA STEEL LIMITED vs. INCOME TAX OFFICER (INTERNATIONAL TAXATON) – (2018) 52 CCH 0174 MumTrib – ITA No. 1086/Mum/2017 dated Mar 1, 2018

655. The Tribunal held that testing fees paid by assessee (an Indian company) to Netherlands company was not taxable as FTS under India-Netherlands DTAA since the knowledge of testing was not made available to the assessee and therefore held that the assessee was not required to deduct TDS u/s. 195. Accordingly, it deleted the disallowance made by the AO under Section 40(a)(i) of the Act.
Areva T & D India Limited (Now Alstom India T & D India Ltd) [TS-149-ITAT-2018(CHNY)] – /ITA No.2079/Chny/2014 dated 23.03.2018

656. The assessee, a manufacturer of motor cars in India exported the motor cars to other countries through its sister concerns who acted as the dealer of the assessee-company. It also provided warranty to the end customers who purchased the car. The assessee’s sister companies maintained the cars sold by the assessee according to the terms of the warranty promised by the assessee-company, towards which it incurred expenditure. As per the contractual obligation, the assessee company reimbursed such expenses to its dealer – sister companies. The Tribunal observed that the reimbursements received by the sister concerns from the assessee were for the purpose of earning income from source outside India (export sales) and therefore held that by virtue of section 9(1)(vii)(b), the reimbursement payment by the assessee company to its sister concerns was to be excluded from the deeming provision of section 9(1) viz. income accruing or arising in India. Hence, it held that the assessee company would not be liable to deduct tax under section.195.
Nissan Motor India (P.) Ltd v DCIT – [2018] 92 taxmann.com 127 (Chennai – Trib.) – IT APPEAL NO. 1854 (CHNY) OF 2017 dated MARCH 21, 2018

657. The Tribunal held that the business development fees paid by assessee-company to its wholly owned subsidiary in Singapore for marketing, business development services and customer co-ordination support services was not taxable as FTS under the Act and India-Singapore DTAA. Referring to the agreement entered into by the assessee with its subsidiary , it observed that the services rendered did not follow a common set of methods but were rendered using various tactics and negotiation strategies which were personal in nature, did not involve any use of technical skills and also did not involve rendering advice and therefore it held that the services could not be categorized as ‘managerial’, ‘technical’ or ‘consultancy’ in nature. Further, it held that the services did not constitute FTS under the DTAA as the requirement of Article 12 of India-Singapore DTAA -i.e. making available of services in the nature of managerial, technical or consultancy was not satisfied. It held that for a service to be made available, the service recipient should be able to make use of the knowledge, by itself in its business for its benefit and without the recourse to the service provider in future, which was not so in the instant case.
Fractal Analytics Pvt.Ltd. v DCIT – TS-107-ITAT-2018(Mum) – ITA No. 3511/Mum/2015 dated 01.3.2018
658. Where the assessee, Indian branch of a non-resident company, had made payment to its HO towards allocation of expenses incurred by HO and there was nothing on record to prove that HO had made available technical knowledge to the assessee by performing activities specifically for assessee, Tribunal held it was pure and simple allocation of expenses among various group entities and the said expenditure could not be treated as FTS as per article 13(4) of the India-France DTAA.
Credit Agricole Corporate & Investment Bank v DDIT – (2018) 168 ITD 553 (Mum) – ITA Nos. 6682 & 6706 of 2012 dated 05.01.2018

659. The Tribunal held the FTS received by assesse, a UAE based company, from its Indian AE for providing management and technical consultancy services were in nature of business receipts but not taxable in the present cases as (i) assesse had submitted that the India-UAE DTAA does not have any specific clause on taxability of fees for technical services and, hence, the said receipt was business income; (ii) the employees of assessee had worked for less than 9 months, the assessee had no PE in India and consequently the said business income was not taxable in India.
Booz & Company (ME) FZ-LLC v DDIT – (2018] 90 taxmann.com 49 (Mum) – ITA No. 4063 (Mum.) of 2015 dated 19.01.2018

660. The assessee-company had paid sales commission to two non-residents agent for booking export order from foreign buyers and the process of procurement of order included display or demonstration of goods of assessee to foreign buyers who would place the order for purchase of those goods, and non-resident agents would forward those purchase orders to assessee. The Tribunal held that above process could not be termed as managerial service so as to qualify as ‘fee for technical services’ (FTS) as defined in Explanation 2 below section 9(1)(vii). However, with respect to assessee’s contention that that no part of services was rendered in India and thus the said payment was not taxable in India, it held that in view of Explanation inserted below section 9(2) by Finance Act, 2010, even if services are rendered outside India, same may fall under FTS so as to be deemed to accrue or arise in India. The Tribunal also accepted assessee’s contention that as per DTAA with the relevant countries (Canada & UK), which override the Act, the service provided by the non-resident agents did not fall within the term FTS as defined in the DTAAs since the AO had not been able to establish that the services of procuring orders had made available any technical knowledge, experience, skill know-how etc. to the assessee.
Further, it held that since the AO had neither established that the non-resident had business connection in India as per section 9(1)(i) nor that it had any PE in India in terms of DTAA with relevant countries, the income of the non-residents were not taxable as business income in India.
ACIT v Evergreen International Ltd. – (2018) 91 taxmann.com 111 (Del Trib) – ITA No. 177 (delhi) of 2015 dated 07.02.2018

661. The Tribunal deleted the disallowance made by the AO u/s 40(a)(i) on account of payment of global support service fees to a company in Singapore without deducting TDS thereon, where the AO opined that the said payment was in nature of FTS as defined in Explanation 2 to section 9(1)(vii), holding that the payment made by the assessee could not be considered as FTS as defined under article 12(4)(b) of the India-Singapore DTAA and for this reason there was no need to examine taxability of the same u/s 9(1)(vii). While holding that the said payment doesn’t fall within the definition of FTS under the DTAA, the Tribunal noted that as per terms of agreement, the Singapore company had to provide management consulting, functional advice, administrative, technical, professional and other support services to assessee and there was nothing in agreement to conclude that in course of such provision of service, the said company had made available any technical knowledge, experience, skill, know-how, or process which enabled assessee to apply technology contained therein on its own.
ExxonMobil Company India (P.) Ltd. v ACIT – (2018) 92 taxmann.com 5 (Mum) – ITA No. 6708 (mum.) of 2011 dated 21.02.2018

662. Replying on the AAR ruling in the case of Cushman & Wakefield (S) Pte. Ltd., In re. (2008) 305 ITR 208 (AAR) and the decision in the case of CLSA Ltd. v. ITO(IT) (2013) 56 SOT 254 (Mum), the Tribunal held that the referral fee received by the Dubai branch of the assessee-swiss company from an Indian company for referring an Indian resident client was in nature of ‘commission’ to be taxed as ‘business income’ and not as ‘fees for technical services’. In the above referred ruling, the AAR considered the provisions of the Act as well as the Indo-Singapore DTAA whereas in the above referred Tribunal decision, referral fees was held not to be in the nature of ‘fees for technical services’ within the meaning of section 9(1)(vii). The Tribunal, in the present case, further held since the assessee’s branch did not have a PE in India and the assessee’s PE in India had no role to play in the performance of the referral activity in question, the impugned fee could not be considered to be attributable to assessee’s PE in India and, thus, the same would not be liable to tax in India as per article 7 of the Indo-Swiss DTAA.
DCIT v Credit Suisse AG – (2018) 90 taxmann.com 181 (Mum) – ITA Nos. 1247 (Mum) of 2016 and 7357 (Mum) of 2017 Cross objection no. 278 (Mum) of 2017 dated 09.02.2018

663. Where assessee had purchased certain plant and machinery from a foreign company located in Saudi Arabia and had entered into a contract with another foreign company in UAE for installation and commissioning of said machinery outside India, the Tribunal held that it could not be construed to be a technical service within meaning of section 9(1)(vii) and, thus, payment made in respect of same was not liable to tax in India. Consequently, it did not require any deduction of tax u/s 195.
Shivsu Canadian Clear Waters Ltd. v DCIT – (2018) 90 taxmann.com 352 (Chen Trib) – ITA No. 2347 (Mds.) of 2017 dated 25.01.2018

664. The Tribunal held that the amount received by the assessee-company, a UK based company, for inspection and testing services rendered to Indian customers in respect of imported/exported cargo and certification in relation to quality and price could not be taxed in India in accordance with Article 13(4)(c) of the India-UK DTAA dealing with Fees for Technical Services (FTS) since it was not making available any technical knowledge, experience, skill, know-how or processes to recipient of service. It was noted that there was no dispute between the parties that the sum so received was chargeable to tax according to the provisions of domestic tax laws. However, it was held that though all the services provided by the assessee were in the nature of technical analysis, unless the service recipient was able to perform those services independently without the help of the service provider, it could not be said that services had been made available by the service provider to the service recipient, as per article 13(4)(c) of the said DTAA. Accordingly, noting that the Revenue had not brought on any material to show that subsequently the recipient of those services had performed these services on their own without the help of the assessee or any other similar service provider, the said amount received by the assessee was not chargeable to tax in India.
Inspectorate International Ltd. v ACIT – [2018] 95 taxmann.com 229 (Delhi – Trib.) – IT APPEAL NOS. 4938 (DELHI) OF 2016 & 6365 (DELHI) OF 2017 dated June 18, 2018

665. The assessee, a Netherland based company, engaged in business of executive search service as well as providing technology, software and related support services to its group companies, had entered into a Licence agreement (LA) with its Indian subsidiary whereby it granted license to the Indian subsidiary to use trade-name, trademark, and rights to use software owned by it against license fee which was offered to tax as royalty. It had also entered into a service agreement (SA) whereby, both the Indian subsidiary and the assessee had agreed to provide, on a principal-to-principal basis, support and services to each other in relation to executive search assignments against executive search service fee (ESF). The AO held that terms and conditions in SA were part and parcel of LA and that same were ancillary and subsidiary to application or enjoyment of right/property/information for which royalty was received by the assessee and thus, ESF was taxable as FTS under Article 12 of the India-Netherland DTAA. Noting that the license fees and search fees were governed by separate and distinct agreements entered into by the assessee and the Indian subsidiary, the Tribunal held that they would constitute different sources of the assessee’s income and thus the ESF were independent services, not provided for purpose of enjoyment/application of right, property, etc. It, thus, held that ESF was not taxable as FTS under Article 12(5)(a) of the India-Netherland DTAA. Further, in relation to SA, the assessee had also received payments from the Indian subsidiary towards reimbursement of expenses towards travel and stay, video conferencing charges, insurance, and other miscellaneous expenses, which was also taxes as FTS by the AO. Noting that the reimbursement of expenses were supported by third-party invoices and services provided by assessee were purely passed on as reimbursement of actual cost without any markup, the Tribunal held that the reimbursement of expenses did not constitute FTS as per Article 12 of the said DTAA.
Spencer Stuart International BV v ACIT – [2018] 94 taxmann.com 380 (Mumbai – Trib.) – IT APPEAL NO. 1696 (MUM.) OF 2015 dated June 1, 2018

666. The Tribunal had allowed the assessee’s claim for Nil withholding/ non-taxability in respect of payment made by it to a German company for services rendered by the personnel of the German company solely relying on an AAR ruling in the case of Tekniskil (Sendirian) Berhard v. CIT [(1996) 222 ITR 551 (AAR)] wherein it was held that the FTS arising out of supply of skilled labour were not liable to tax in India in terms of Article 7 as ‘business profits’ on the ground that the assessee did not have a Permanent Establishment (PE) in India in terms of Article 5 of the India-Malaysia DTAA. However, noting that the relevant India-Malaysia DTAA as applicable for the aforesaid ruling did not have the FTS clause, the Court remanded the matter back to the Tribunal to examine whether the aforesaid payments amounted to FTS under Article VIIIA of India-Germany DTAA.
DIT (IT) v Modiluft Ltd – (2018) 93 taxmann.com 180 (Del) – ITA Nos. 772 of 2004 & 15 of 2005 and others dated May 8, 2018

667. The Tribunal allowed the assessee’s appeal against the AO’s order wherein the AO had held the amount received by the assessee from Airport Authority of India (AAI) towards installation, commissioning and testing charges was towards training and taxable as FTS as per Article 12(5) of the India – Netherlands DTAA. It was noted that the said amount was received by the assessee in furtherance of the contract entered with the AAI earlier for supply of equipments (as additional resources for urgent requirement) and the main contract value received from such contract was examined in past and accepted to be towards installation. It was also noted that the assessee had entered into a separate contract for training service in past and the bifurcation of consideration received towards installation and training was accepted by the Revenue. The Tribunal thus held that it would be inappropriate to question the contract in this year after the completion of the contract, especially in view of the fact that the AO had not adduced any reasoning to construe the said receipt as attributed towards training. It thus held that the additional amount received from AAI towards installation, commissioning and testing charges was not taxable as FTS within the meaning of Article 12(5) of the India – Netherlands DTAA as the same was not received towards training as assumed by the AO. Further, the Tribunal held that income in respect of such services could not be taxed even as business income, in the absence of a Permanent Establishment (PE) of the assessee in India as per Article 7 of the India-Netherlands DTAA.
HITT HOLLAND INSITUTE OF TRAFFIC TECHNOLOGY B.V. vs. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONA TAXATION) – (2018) 52 CCH 0280 KolTrib – ITA No. 390/Kol/2015 dated Apr 4, 2018

668. The Tribunal held that where assessee engaged in business of export of special pipes, made payments to foreign party towards supervision of installation of pipes and fittings, since same was in respect of assembly of project, said payments would squarely fall within sweep of exceptions carved out in Explanation 2 to section 9(1)(vii) and thus could not be taxed as FTS.
Chemical Process Piping (P.) Ltd.v R.M. Madhavi – [2018] 94 taxmann.com 116 (Mumbai – Trib.) – IT APPEAL NOS. 1036 & 1037 (MUM.) OF 2016dated 02.05.2018

669. The Applicant, a French limited liability company, would be earning front-end fee, commitment fee, cancellation fee, amendment fee and monitoring fee from Indian customers under a financing arrangement. As regards the ‘front-end fee’ payable for appraisal of loan, AAR held that since the debt claim would not be in existence when such fees are payable, it cannot be construed as interest under Article 12 or FTS under Article 13 of the India-France tax treaty. AAR also held that ‘front-end fee’ other than appraisal fee was taxable as interest under Article 12 as it was in relation to a debt claim. Further, AAR held that commitment fee, cancellation fee, amendment fee and monitoring fee are directly related to a debt claim as they were charged after disbursement of loan and hence were chargeable as interest under Article 12 of the India-France tax treaty.
Societe De Promotion Et De Participation Pour La Cooperation Economique In Re – [2018] 102 CCH 0011 (AAR) – AAR No 1105 of 2011 dated May 21, 2018

670. Following the ruling of the co-ordinate bench in the assessee’s own case for other years (i.e. AY 2007-08 in ITA No 222/Coch/2013 and AY 2008-09 to AY 2013-14 in ITA No 99-104 of 2017), the Tribunal held that payment made by the Assessee for management service in AY 2011-12 and AY 2012-13 could be considered as FTS as per Article 12(4)(b) of the India-US tax treaty as in addition to providing the input, service and advice, the US company also provided training to the employees of the Assessee, thereby making available expertise and technical knowledge.
US Technology Resources Private Limited vs. DCIT – [2018] 53 CCH 0071 (Coch ITAT) – IT(TP) Appeal No. 475/Coch/2016, 134/Coch/2016 (SA No. 08/Coch/2018) dated May 23, 2018

671. The Assessee had entered into a contract with a USA based non-resident company for carrying out certification work with respect to certain oil fields and the consideration received by the non-resident company was claimed to be not taxable in India in view of provisions of India-USA DTAA. The AO, however, brought the said consideration to tax as fees for technical services u/s 9(1)(vii) r.w.s 115A. the Tribunal allowed the assessee’s appeal following the co-ordinate bench decision in assessee’s own case wherein it was held that the said consideration could not be construed as fees for included services under India-USA DTAA as no technical knowledge, skill, know how etc. was made available to the assessee. Further, the co-ordinate bench had held that since the non-resident company did not have any PE in India the same could not be taxed as business profits in India as per Article 7 of the India-USA DTAA.
ONGC LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) – (2018) 53 CCH 0272 DelTrib – ITA No. 1330/DEL/2016 & 1332/DEL/2016 dated June 29, 2018

672. The Tribunal upheld the CIT(A)’s order holding that the professional fees received by the assessee, an NRI residing in UK, from Indian companies was taxable as FTS under Explanation 2 to section 9(1)(vii), noting that though the assessee had offered to tax the said income on net basis (i.e. after reducing expenses) in his return of income, the recitals in the TDS certificate had categorized the receipts as fee for professional and technical services and the assessee had not brought any evidence to prove the nature of services or actual rendering of services. It also rejected the assessee’s claim that he had mistakenly offered the receipts to tax and that these were commercial receipts for services rendered outside India, not taxable in India absent PE, noting that amounts were credited to assessee’s NRO savings account in India.
Shri Sanjiv Ghai v Dy.DIT – [TS-338-ITAT-2018(DEL)] – I.T.A. Nos.5681 to 5686 & 5864 to 5868/Del/2014 dated 27.06.2018

673. The assessee’s group company (Granite USA) had seconded employees to assessee in India who were rendering services in the nature of erection, installation, commissioning, warranty administration, operation maintenance, inspection, renovation and modernization of power plant. The salaries and other allowances were paid overseas by the group company Granite USA for sake of administrative convenience which were reimbursed by the assessee. The assessee had deducted tax at source u/s.192. The assessee had also reimbursed travel and conveyance expenses to its group company and its various branch office. The AO was of the view that services rendered by the seconded employees satisfied the make available clause as provided under the DTAA between India and USA and held that it was in the nature of “FTS” and disallowed the amount under the provisions of s 40(a)(i) on account of non-deduction of TDS u/s.195. The AO also disallowed the travel and conveyance expenses under the provisions of s 40(a)(i) on account of non-deduction of TDS u/s.195. The DRP concurred with the view of the AO. It was assessee’s contention that the salaries were being reimbursed on cost to cost basis and further, the services were provided by seconded employees on regular basis and there was no imparting of technical knowledge hence it did not fall within the purview of fees for technical services under the DTAA. The assessee also contended vis-a-vis travel and conveyance expenses that payments were in nature of reimbursement on cost to cost basis and the amounts were not chargeable to tax in India and hence did not warrant disallowance u/s.195. The Tribunal remanded the issue following the coordinate bench decision of the assessee for its earlier year wherein the AO was directed to verify the factuals after affording the assessee an opportunity to furnish requisite details that would have a bearing on disallowance u/s.40(a)(i) of the Act.
Granite Services International India Private Limited vs DCIT [TS-628-ITAT-2018(DEL)-TP] ITA No.740/Del/2014 dated 19.06.2018

d. Capital Gains

674. AAR ruled that the benefit of proviso to section 112 (1) of taxation at lower rate of 10% cannot be denied to foreign companies with respect to long-term capital gains arising on sale of listed equity shares of an Indian company following the decision in the case of Cairn UK Holdings Ltd. v. DIT (2014) 220 Taxman 230 (Del HC)
Finnish Fund for Industrial Cooperation Ltd., In re vs. – (2018) 91 taxmann.com 133 (AAR) – AAR no. 1375 of 2012 dated 28.02.2018

675. AAR ruled that the benefit of proviso to section 112 (1) of taxation at lower rate of 10% could not be denied to foreign companies with respect to long-term capital gains arising on sale of listed equity shares of an Indian company following the decision in the case of Cairn UK Holdings Ltd. v. DIT (2014) 220 Taxman 230 (Del HC) and several other AAR rulings. Further, it allowed assessee’s claim for deduction of expenses incurred towards fees for computerization of share certificates in order to transfer them to escrow account considering them to be incurred in connection with transfer of shares as per provisions of section 48.
Honda Motor Co. Ltd., In Re – (2018) 253 Taxman 402 (AAR) – A.A.R. No 1200 of 2011 dated 07.02.2018

676. The assessee-individual had purchased a residential flat from two non-residents (vendors) under a sale deed which had been executed in favour of the assessee by the GPA holder of the vendors (who was an Indian resident) and since, the assessee had made the payment of sales consideration to the said GPA holder, he had not deducted TDS u/s 195 on such payment. The AO treated the assessee as “assesssee in default” u/s 201(1) and levied interest u/s 201(1A) on the TDS amount determined by considering provisions of section 50C while computing LTCG. The Tribunal held that at best, the GPA holder could be considered as only a conduit between the assessee and the owners of the property and therefore, in the true sense, the assessee had made the payment to the non-residents only. However, in the present case, since the assessee had subsequently paid tax u/s 195 on LTCG arising in the hands of the vendors on transfer of the said flat, it was held that the assessee could not be treated as an “assessee in default” u/s 201(1), but was only liable for interest u/s 201(1A) till the date of payment of taxes by him. Further, the Tribunal rejected AO’s action in invoking provision of section 50C to compute the LTCG, holding that it was not dealing with the liability of the vendors to pay the taxes, but with the liability of the assessee to deduct taxes at sources and as far as the liability of the assessee was concerned, TDS would only be on the actual consideration credited or paid by the assessee, whichever is earlier.
BHAGWANDAS NAGLA v ITO(IT) – (2018) 52 CCH 61 (Hyd Trib) – ITA No. 143/Hyd/2017 dated 25.01.2018

e. Foreign Tax Credit

677. The Tribunal, relying on its order in the assessee’s own case for the prior year held that foreign tax credit (‘FTC’) claimed by assessee (an Indian company engaged in software development) in respect of taxes withheld in Singapore and Indonesia on receipt from software license sale and annual maintenance contract (AMC) was to be granted to the extent of corresponding ‘income’ that had suffered tax in India and not by taking into consideration gross receipts. The Tribunal, noting the language in the DTAAs and the UN and OECD Conventions, held that the expression used in the FTC Articles was ‘income’, which essentially implied ‘income’ embedded in the gross receipt, and not the ‘gross receipt’ itself. It held that, in principle the assessee’s argument that ‘gross receipts’ were to be considered for computing FTC could not be accepted. However, since the facts of the case of the assessee were unique i.e. vis-à-vis software license sale / income (i.e.its main business was carried on in India and only some isolated transactions leading to the impugned income had taken place in Singapore and Indonesia which did not require any activity on the part of the assessee and therefore had no associated costs i.e. in the nature of passive earnings) it held that no part of the costs incurred in India was to be allocated to earnings from Singapore and Indonesia. Further, as regards the income from AMC, the Tribunal held that the assessee had allocated the costs corresponding to this income on a proportionate basis and since no defects were pointed out by the Revenue it rejected the AO’s approach of allocating costs in proportion of turnover. It also held that the actual tax attributable to such income was to be determined by apportioning the actual tax paid under MAT provisions in the same ratio that the doubly taxed profit bore to the overall profits. Accordingly, the appeal of the assessee was partly allowed.
ELITECORE TECHNOLOGIES PRIVATE LIMITED vs. DEPUTY COMMISSIONER OF INCOME TAX – (2018) 52 CCH 0275 AhdTrib – ITA No. 3546/Ahd/2015 dated Mar 20, 2018

678. The Apex Court granted SLP against the decision of Delhi High Court wherein it was held that where assessee-society received dividend income from an Omani company on which it was not liable to pay any tax in Oman by virtue of exemption granted as per Omani tax laws, purpose of exemption being to promote economic development, assessee-society was entitled for getting credit for deemed dividend tax payable in Oman by virtue of provisions of DTAA read with section 90 together with clarifications issued by Sultanate of Oman.
Pr.CIT v Krishak Bharti Cooperative Ltd.-10 – (2018) 253 Taxman 242 (SC) – SLP (Civil) Diary No. 41708 of 2017 dated 19.01.2018

f. Withholding tax

679. The assessee entered into a contractual relationship with the Federation of International Hockey (‘FIH’) for organising the Men’s Hockey World Cup as per which FIH was to act as the facilitator. The assessee made a reimbursement to FIH on account of pay-outs made by FIH on the assessee’s behalf on which no TDS was deducted. The AO was of the opinion that the reimbursements included commission paid by the assessee and therefore the assessee ought to have deducted TDS and accordingly disallowed the payments invoking Section 40a(ia) of the Act. The Court upheld the findings of the Tribunal and CIT(A) that the payments were mere reimbursements having no income element and accordingly no tax was to be deducted and further noting that the lower authorities had observed that the assessee had no privity of contract with the service provider, dismissed the Revenue’s appeal observing that no substantial question of law arose therefrom.
PR CIT v Organizing Committee Hero Honda FIH World Cup – TS-165-HC-2018 (Del) – ITA No 353 / 2018

680. Tribunal remanded the matter back to AO where he had made a disallowance u/s 40(a)(i) for non-deduction of TDS u/s 195 on various payments made by asssessee without appreciating in proper perspective various documents with detailed factual and legal submissions field before AO along with supporting evidences including unit wise details of various expenditure incurred in foreign currency with detailed write up about each expenditure, submission with regard to non-applicability of TDS under domestic law as well as DTAA of respective countries for each of aforesaid expenditure, certificate of tax residency of parties to whom payments were made and declaration from them that no PE existed for them in India and copies of agreements entered into with those parties, copy of advertisements, copy of invoice, subscription renewal forms
DCIT v EIH Ltd. – (2018) 89 taxmann.com 417 (Kol) – ITA Nos. 110 and 153 (kol.) of 2016 dated 12.01.2018

681. Where the the AO had made disallowance u/s 40(a)(ia) on account of non-deduction of TDS u/s 195 while making payment for commission to non-reisdent receipts in four countries and the CIT(A) had deleted the said disallowance holding that the it was not necessary to deduct TDS since the said receipt were exempt in the hands of the recipients, noting that neither the AO nor the CIT(A) had examined the nature of services against which the commission had been paid and the assesse was not able to explain the nature of services before the Tribunal, the Tribunal remanded the matter to the file of AO to examine the nature of services rendered by the overseas parties and the relevant provisions of DTAA with respective countries.
ITO v Shamnrock Pharmachemi Pvt. Ltd – ITA No. 2279/Mum/2016 dated 16.03.2018

682. Where the assessee had made payments on account of reimbursement of expenses as well as fess for technical services to non-residents and did not deduct tax on the reimbursements (while it deducted tax on the FTS paid), the Tribunal noting that the assessee had produced supporting back to back evidence to substantiate that the payments were pure reimbursements, held that no tax was to be deducted at source as there was no income element in the said payment. Accordingly, it held that the assessee could not be classified as an assessee in default under Section 201 of the Act.
Hospira Healthcare India P Ltd v DCIT – (2018) 92 taxmann.com 225 (Chennai – Trib) – ITA NO 1916 / Chny / 2017 dated March 15, 2018

683. The Court partly allowed assessee’s (a non-resident company) writ challenging constitutional validity of Sec. 206AA (as it existed prior to the amendment in 2016 and which prescribed higher withholding rate of 20% if payee failed to furnish PAN). The assessee challenged applicability of higher TDS rate of 20% u/s 206AA in respect of payments in the nature of ‘fees for technical services’ which attracted lower TDS rate of 10% under the India-Singapore treaty. The Court acknowledged that the law before 2016 amendment, went beyond the provisions of DTAA which in most cases mandated a 10% cap on the rate of tax applicable to the state parties but held that the issue urged was largely academic on account of corrective amendment made by the Parliament. However, it held that Section 206AA (as it existed) was to be read down to mean that where the deductee i.e. the overseas resident business concern conducts its operation from a territory, whose Government has entered into a DTAA with India, the rate of taxation would be as dictated by the provisions of the treaty.
Danisco India Pvt Ltd [TS-63-HC-2018(DEL)] – W.P.(C) 5908/2015 dated 05.02.2018

684. Where assessee made payments to non-residents for technical services after deducting tax @ 20%, whereas AO contended that TDS should be deducted @25% u/s 115A; observing that the non-resident did not have PAN and the rate provided under India-France DTAA for FTS was lower than rates provided u/s 115A, Tribunal held that TDS was to be deducted at a lower rate as provided under DTAA and not as provided u/s 115A and it remanded the matter to AO to verify whether the non-residents were entitled for benefits under DTAA.
ITO v Atos Worldwide India (P.) Ltd. – (2018) 90 taxmann.com 306 (Mum) – ITA No. 6424 (mum.) of 2016 dated 29.01.2018

685. Where the assessee had not deducted TDS u/s 195 @ 20% in view of provisions of section 206AA on amount remitted to non-residents not having PAN and it claimed before the Tribunal that it deducted TDA @ 10% in accordance with the respective DTAA provision, the Tribunal followed the decision in the case of Nagarjuna Fertilisers & Chemicals Ltd. v ITO (2001) 119 Taxman 37 (Hyd Trib) wherein it was held that the treaty provisions which are beneficial to the non-residents would prevail over the provisions of section 206AA. However, since the AO had not examined the nature of payments as to whether they were covered by the respective DTAA provisions or not, it remanded the matter to the AO for verifying the same and further directed the AO to not treat the assessee as an “assessee in default” u/s 201(1) and not to charge interest u/s 201(1A) if the payments are covered by the DTAA provisions.
Dr. Reddy’s Laboratories Ltd. v ADIT – ITA No. 827 & 828/ Hyd/ 2015 dated 28.02.2018

686. The assessee company had made payment for consultancy services to a non-resident company (Chinese) and deducted TDS @10% as per the India-China DTAA. However, the CPC-TDS computed TDS @ 20% as per S.206AA (applicable in a case when PAN is not furnished by the deductee) and raised a tax demand on the assessee alongwith interest on account of TDS deducted short by 10%, while passing order u/s 201(1). The CIT(A) deleted the said tax demand and interest thereon. The Tribunal upheld the CIT(A)’s order and followed GE India Technology Centre Pvt. Ltd. vs. CIT wherein it was held that section 90(2) provides that DTAAs shall override domestic law in cases where the provisions of DTAAs are more beneficial to the assessee. Thus, the Tribunal held that the demand raised by the AO on the differential tax rate was to be deleted on the ground that since the assessee had taken benefit of DTAA, the provision of domestic law (S.206AA in the instant case) could not be invoked by the AO and accordingly dismissed the Revenue’s appeal.
ITO v Sichuan Fortune Projects Management Ltd. (2018) 52 CCH 0289 AhdTrib – ITA Nos. 3554, 3555 & 3556/Ahd/2016 dated 09.04.2018

687. The Tribunal held that Section 206AA does not override the provisions of section 90(2) and in cases of payments made to non-residents, the assessee had correctly applied the rate of tax prescribed under DTAAs and not as per section 206AA because provisions of DTAAs were more beneficial.
Emmsons International Ltd. v. DCIT – [2018] 93 taxmann.com 487 (Delhi – Trib.) – IT Appeal Nos. 5124 to 5127 (DELHI) of 2015 dated April 2, 2018

688. The Tribunal deleted the disallowance made by the AO u/s 40(a)(ia) on account of non-deduction of TDS u/s 195 while making payment to a Singapore based company for purchase of drawings for a project being undertaken by the assessee (engaged in development of residential housing project), rejecting the Revenue’s contention that the said payment qualified as “fees for technical services” as defined under Article 12 of India-Singapore DTAA. It noted that as per the agreement entered into with the Singapore company, it appeared to be a case of outright purchase of drawings and designs by the assessee and that no facts were brought on record by the Revenue to show that as a consequence of supply of project specific designs, there was transfer of any technology so as to qualify as “fees for technical services” under the said Article. With respect to another payment for purchase of drawing from an individual who was a UAE resident, the Tribunal held that as per Article 14 of India-UAE DTAA, right to tax the income from professional activities by the resident of Dubai (UAE) vested only with UAE and not India and thus, there was no occasion to deduct TDS u/s 195 on such payment.
ITO v Bengal NRI Complex Ltd – ITA No. 1290 & 1088/Kol/ 2014 dated 16.03.2018

689. The Tribunal dismissed the assessee’s appeal filed against CIT(A)’s order confirming AO’s action in treating the assessee to be “assessee in default” u/s 201(1) on account of non-deduction of TDS u/s 195 while making payment to non-resident for purchase of shrink wrap cassettes/CDs. It followed the Tribunal’s order in assessee’s own case for earlier years on identical facts wherein the Tribunal had, in turn, followed the High Court’s order (subject to the outcome of the SLP pending before the Apex Court) in assessee’s own case holding that the said payment made were in nature of royalty.
IBM India Private Limited v DCIT – ITA Nos. 47 & 48/Bang/ 2017 dated 19.01.2018

690. Assessee-company had paid interest on foreign currency loan called External Commercial Borrowings (ECB) lent by a group of financial institutions arranged by the arranger, i.e., ICICI Bank Ltd., offshore branch, Singapore (Singapore branch) without deducting TDS u/s 195. It contented that the said payment was covered by section 194A(3)(iii) of the Act since the payment was made to Singapore branch (being a resident) which is part of ICICI Bank to which Banking Regulation Act, 1949 applies. AO, however, considered the Singapore branch to be an arranger cum facility agent which arranged ECB and the group of financier based in Singapore or UK (i.e. non-residents) to be the main lenders. He accordingly, invoked section 195 of the Act and held assesse to be in default for short deduction of tax and interest u/s. 201(1)/201(1A). Noting that the agreement between the assessee and the bank stated that ICICI Bank Ltd was acting as an arranger cum facility agent and the Singapore branch was original lender whereas the letter written by the Singapore branch stated that the Singapore branch was an arranger and facility agent and the group of financial institutions assembled by the arranger was the lender of the loan, Tribunal held that the facts were contradictory to each other as per the assessee’s own record. It, thus, remanded the matter to the file of AO for re-examination in light of the assessee’s claim that the Singapore branch was the main lender.
BAJAJ ECO TEC PRODUCTS LIMITED vs. INCOME TAX OFFICER (INTERNATIONAL TAXATION) – (2018) 53 CCH 129 (MumTrib) – ITA Nos. 4609, 4610 & 4611/Mum/2016 dated Jun 8, 2018

691. The Tribunal dismissed Revenue’s appeal against the CIT(A)’s order deleting the disallowance made u/s 40(a)(i) with respect to interest payment made by the assesse, branch of a foreign bank, to its Head Office in Singapore without deducting TDS u/s 195, following the assessee’s own case in earlier year wherein relying on the decision in the case of Sumitomo Mitsui Banking Corporation v/s DCIT [(2012) 19 taxmann.com 364 (SB) (Mum.)] it was held that since under the domestic law the interest paid by the Indian branch to the head office was not allowable as deduction as this was payment to self, the same also could not taxed in the hands of the bank in the domestic law and there was no express provisions in the relevant tax treaty which was contrary to the domestic law. Therefore, interest payment was not taxable in the hands of the bank and thus there was no question of deducting any tax at source.
ASSISTANT COMMISSIONER OF INCOME TAX & ORS. vs. DBS BANK LIMITED & ORS – (2018) 53 CCH 0167 (Mum Trib) – ITA No. 6865/Mum./2012, 6037/Mum./2014, 4949/Mum./2014, 6038/Mum./2014, 4948/Mum./2014 (C.O. no.8/Mum./2014) dated June 15, 2018

692. The Tribunal allowed the assessee’s appeal against the CIT(A)’s order wherein the CIT(A) had upheld the order passed u/s 201(1)/ 201(1A) to hold assessee to be assesse-in-default for non-deduction of TDS u/s 195 on payment made to a Netherland based company for acquisition of computer hardware, software and related support services for installation and maintenance. It noted that software had been sold to the assessee as shrink-wrapped software, which was commercially off the shelf software sold in retail. It thus held that in view of the binding precedent of the Jurisdictional High Court in the case of DIT v. Infrasoft Ltd. [2014] 220 Taxman 273 (Del), the sale of the hardware along with the software embedded therein was not taxable in the hands of the non-resident recipient in absence of any Permanent Establishment of the said non-resident in India. With respect to the services of installation and other support services, the Tribunal accepted assessee’s contention that since the said services had not made available any technology or know-how to the assesse, the payment made for such services did not qualify for FTS under the relevant DTAA.
Ciena India (P.) Ltd. v ITO – [2018] 96 taxmann.com 17 (Delhi – Trib.) – IT APPEAL NOS. 959 & 984 (DELHI) OF 2011 dated June 29, 2018

693. The assessee had made payment to a US entity for services rendered by the personnels of the US entity for installation and commissioning of certain equipment purchased by the assessee, without deducting TDS u/s 195 and claiming benefit of India-US tax treaty. Noting that the assessee had furnished only Form W9 (which is given under US Internal Revenue Code for providing the correct TIN to the person who is required to file an information return with the IRS) for establishing treaty entitlements, the Tribunal held that Form W9 was wholly irrelevant in respect of tax withholdings outside the United States and that the same was merely a declaration by the US based entity, and it could not be treated as a certification by any authority. However, noting that the assessee was not given sufficient time to furnish the relevant evidence for establishing the treaty entitlements of the US entity, the Tribunal remanded the matter to the file of the CIT(A) for fresh adjudication inter alia for giving the assessee a fresh opportunity of furnishing the said evidences not limited to, but including, the tax residency certificate.
Skaps Industries India (P.) Ltd. v ITO – [2018] 94 taxmann.com 448 (Ahmedabad – Trib.) – IT APPEAL NOS. 478 AND 479 (AHD.) OF 2018 dated June 21, 2018

694. The Tribunal upheld the CIT(A)’s order deleting the disallowance made u/s 40(a)(i) for non-deduction of TDS u/s 195 on payment made to a UK based foreign company for consultancy services rendered by the said company, rejecting the AO’s contention that the said payment was taxable as FTS under article 13 of the Indo UK DTAA. It noted that the services were simply in nature of consultancy services which did not make available any technical, skill or know how and from perusal of the consultancy agreement also no provision for transfer of technology could be found. The Tribunal thus held that unless there is a transfer of technology in sense that recipient of service is enabled to provide same service on his own, without recourse to original service provider, ‘make available’ clause was not satisfied and, accordingly, the consideration for such services could not be taxed under Article 13 (4) of Indo UK DTAA. Further, with respect to payments made to two persons in Egypt and Philippines which were on account of salaries, it was held that since, in terms of the provisions of the respective tax treaty, these payments did not have any tax liability in India, there was no question of any tax withholdings.
DCIT v Bio Tech Vision Care (P.) Ltd. – [2018] 93 taxmann.com 20 (Ahmedabad – Trib.) – IT APPEAL NOS. 1388, 2766 & 3154 (AHD.) OF 2014 dated April 18, 2018

695. The Tribunal cancelled the order passed by the AO u/s 201(1)/ 201(1A) wherein the AO had treated the assessee to be in default for non-deduction of TDS on payment of license fees for use of computer software in view of the insertion of Explanation 4 to section 9(1)(vi) vide the Finance Act, 2012 with retrospective effect from 01.06.1976 (which clarifies that right to use of computer software including license is ‘royalty’). The Tribunal held that since the assessee had not explained the terms of agreement with different entities from whom the software was purchased, it could not be found that whether the same was for the right to use of copyrighted article or the right to use copyright. However, it held that liability could not be fastened on the assessee to deduct tax at source on the basis of subsequent amendments made in the Act in relation to payments made to Non-resident, on a date prior to the date of amendment, though retrospectively applied. The Tribunal further held that in any case the asssessee could not be held liable for deduction of tax in view of the definition of ‘royalty’ under the DTAA with the respective countries, since the same was not amended and the DTAA provisions being beneficial would override the Act.
TATA TECHNOLOGIES LIMITED vs. DEPUTY DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) – (2018) 193 TTJ 0833 (Pune) – ITA NO. 1433/PUN/2014 dated Apr 5, 2018

696. The AO treated the assessee as an assessee-in-default u/s 201(1) on account of non-deduction of TDS u/s 195 while making payment to (i) non-resident on account of marketing support charges (ii) to non-resident law firm towards legal charges for representing assessee-company in suit filed by another company and (iii) non-resident company based in USA which was claimed by the assessee to be reimbursement of expenses being salary cost and overhead of employee seconded by the USA company to the assessee. With respect to payment of marketing support charges, the Tribunal accepted assessee’s contention that the assessee could not be called upon to comply with provisions not in force at relevant time when payment was made [i.e. Expl to section 9(1)(vii) (on the basis of which it was held by the AO that the said payment was chargeable to tax in India and thus liable for TDS)] but introduced later by retrospective amendment. However, with respect to payment of marketing support charges and legal charges, the Tribunal noted that there was no finding in order of lower authorities as to whether the service was rendered in India or utilized in India and thus it restored the matter to file of AO to examine the same. With respect to the payment to USA company, the assessee claimed that that same did not include any element of profit so as to create a liability deduct TDS u/s 195 and the same was only a reimbursement. But since assessee had not substantiated the veracity of such claim by producing agreement entered into with the USA company, the Tribunal remitted this issue also to the file of AO for fresh consideration.
IBS Software Services Private Ltd. & Anr v DCIT (International Taxation) &Anr. (2018) 52 CCH 0317 CochinTrib – (2018) 52 CCH 0317 CochinTrib dated 12.04.2018

697. The AO made disallowance u/s 40(a)(i) for the assessee’s failure to deduct tax at source while making payment of FTS to a foreign company. The assessee relied on the CBDT Circular No. 3/2015, dated 12.02.2015 which provides that in cases where TDS is not deducted u/s 195, the AO shall determine the appropriate portion of the sum chargeable to tax, as mentioned in section 195(1), in order to ascertain the tax liability on which the deductor shall be deemed to be an assessee in default u/s 201, to contend that for the purpose of section 40(a)(i) also, only appropriate portion of such sum which is chargeable to tax under the Act shall be disallowed. The Tribunal, however, did not accept assessee’s said contention holding that since disallowance u/s 40(a)(i) in case of the assessee was in context of amount paid by it towards FTS and not towards ‘other sum’ chargeable under Act, the said CBDT circular was not of any assistance to it.
Chemical Process Piping (P.) Ltd.vR.M. Madhavi – [2018] 94 taxmann.com 116 (Mumbai – Trib.) – IT APPEAL NOS. 1036 & 1037 (MUM.) OF 2016dated 02.05.2018

698. The wholly owned US subsidiary of Indian Assessee and other companies incorporated in USA provided marketing and sales support services to the Indian Assessee, Tribunal held that payments made for such services would not fall under the ambit of FTS under Article 12 of the India-US tax treaty and hence the same would not be taxable in India as the services were rendered outside India. Thus, the Tribunal held that the Assessee was not liable to deduct TDS u/s. 195 on payment of fees for such services to US entities (including Assessee’s wholly owned US subsidiary) for securing orders and soliciting business from foreign customers. Rejecting Revenue’s contention that the US entities could not claim treaty benefits as the assessee had not proved that conditions prescribed in Article 24(1) were satisfied, Tribunal noted that 70% of the payment was made to Assessee’s wholly owned US subsidiary, wherein Assessee (Indian tax resident) itself directly owned 100% of its issued equity capital, the conditions prescribed in Article 24(1) were duly fulfilled [Article 24(1) provides that in order to avail the benefit of tax treaty, more than 50% of the number of shares of a company (US entities, in the present case) should be owned directly or indirectly by one or more individuals who are resident either in India or USA.]
Onprocess Technology India Pvt. Ltd. & Anr. vs. DCIT – [2018] 53 CCH 0074 (Kolkata ITAT) – ITA No. 1047/Kol/2016, 1241/Kol/2016 dated May 24, 2018

699. Following the ruling of the co-ordinate bench in the assessee’s own case for earlier year (i.e. AY 2007-08 in ITA No 6708/Mum/2011), Tribunal held that payment of global support service fees made by the Assessee in AY 2008-09 could not be considered as Fees for Technical Services (‘FTS’) as per Article 12(4)(b) of the India- Singapore tax treaty as the twin test of rendering services and making technical knowledge available at the same time was not satisfied. Accordingly, Tribunal held that disallowance under section 40(a)(i) could not be made in the hands of the assessee while making such payment.
Exxon Mobil Company India Pvt. Ltd. vs. ACIT – [2018] 53 CCH 0072 (Mum ITAT) – ITA No 3601/Mum/2014 dated May 23, 2018

700. The assessee was engaged in the business of dredging and marine engineering services and had made payments to foreign companies without deducting tax. The DCIT contended that the assessee should have deducted tax @ 40% and held the assessee liable u/s 201(1). The assessee filed a writ petition before the High Court against the order of the DCIT. The Court directed the assessee to treat the order as show cause notice and submit the preliminary objections to the impugned order. The Court further laid down that the principles of Natural Justice was not followed by the Revenue and the assessee was to be given sufficient time to file their objections. Accordingly, the matter was remanded to the DCIT to pass fresh orders.
International Seaport Dredging (P.) Ltd. v. DCIT – [2018] 93 taxmann.com 488 (Madras) – W.P. Nos. 10319 & 10320 of 2018 dated April 25, 2018

701. The assessee filed its return and declared total income at nil and book profit of Rs. 2,94,58,68,507/- for taxability u/s 115JB of the Act. During scrutiny assessment, the AO noted that the assessee had made payments to Flour Transworld Services Inc. and Furgo Survey Ltd. and treated the said payments as fee for technical services (FTS) and disallowed the deduction u/s 40(a)(i). The CIT (A) deleted the disallowance in respect of payment made to Flour Transworld Services Inc. but upheld the disallowance in respect of Furgo Survey Ltd. The Department appealed before the Tribunal and challenged the deletion by the CIT (A) in respect of Flour Transworld Services Inc. The Tribunal laid down that the India-US treaty provided for a restrictive meaning of FTS in as much as only those technical services which were ancillary to the application of right or which ‘make available’ technical knowledge or skill were taxable. The Tribunal further noted that the assessee had made payments to the company for rendering services in connection with review of alternative vaporization process for LNG terminal and to recommend a suitable process to assessee and subsequently held that the services involved deployment of personnel having requisite experience and skill to perform the services and it would not be possible that the assessee would carry out such services in future on its own without the resources of the service provider. Accordingly, the Tribunal dismissed the appeal of the Department on the ground that the nature of services rendered did not indicate making available of technical knowledge or skill and the payment made did not qualify for FTS as per the provisions of India-US DTAA.
ACIT v. Petronet LNG Ltd. – [2018] 92 taxmann.com 407 (Delhi – Trib.) – IT APPEAL NO. 865 (DELHI) OF 2011 dated APRIL 6, 2018

702. The Court set aside the Tribunal’s order wherein the Tribunal had held that order u/s 195(2) determining amount of TDS to be deducted by an assessee is not an appealable order before CIT (A) since the same does not fall in the category of appealable orders under section 246 & 246A. The Court held that the Tribunal’s order suffered from infirmity and was per incuriam as the Tribunal did not consider the provisions of section 248 which allow a payer who denies his liability to deduct tax u/s 195 to file an appeal before the CIT(A). Thus, it remanded the matter back to the Tribunal for deciding the appeal afresh in accordance with law, considering the provisions of section 248.
Bangalore International Airport Ltd. v ITO (IT) – [2018] 96 taxmann.com 86 (Karnataka) – ITA No. 401 & 429-431 of 2016 dated June 21, 2018

703. The assessee-company had a branch in UK and was doing business abroad under brand name of ‘Cyber Jimmies’ in UK. During relevant year, assessee paid advertisement expenditure to foreign magazines and publishing houses for advertisements of its brand and certain amount to foreign consultant for rendering services in UK in connection with registration of trade mark of ‘Cyber Jimmies’ in UK. Since assessee did not deduct tax at source while making said payments, AO disallowed same u/s 40(a)(i). The Tribunal noted that the recepients were foreign residents having no PE in India and services were also rendered by them outside India to the UK branch of the assessee, thus amount paid to them was not liable to tax in India. It held that there was no requirement of deducting tax at source from aforesaid payments and that impugned disallowance was to be deleted.
Cebon Apparel (P.) Ltd. v DCIT – [2018] 98 taxmann.com 253 (Mumbai – Trib.) – ITA No. 1651 (MUM.) OF 2016 dated May 29, 2018

704. The Tribunal upheld the CIT(A)’s order deleting the disallowance made by the AO u/s 40(a)(i) on account of non-deduction of tax while making payment of consultancy and legal service charges to non-resident payee, noting that the assessee had not claimed deduction with respect to the said expenditure since the entire expenditure was capitalised as it pertained to power plants which were in pre-commencement stage. It relied on the decision in the case of Sonic Biochem Extractions P.Ltd. Vs. ITO [35 taxmann.com 463] wherein it was held that section 40(a) is applicable only if the assessee claims deduction of expenditure mentioned in the section.
DCIT & Anr. v ADANI POWER LTD. & ANR. – (2018) 53 CCH 0259 HydTrib – ITA No. 1663/Ahd/2014, 1686/Ahd/2014 With CO No.252/Ahd/2014 dated June 28, 2018

705. The Tribunal dismissed Revenue’s appeal against the CIT(A)’s order deleting the disallowance made by the AO u/s 40(a)(i) on payment made to a Swedish entity without deducting tax at source, holding that though the said payment was in nature of fees for technical services, in view of the Most Favoured Nation (MFN) clause in the India-Sweden DTAA, the said payment was taxable in India only if it fell within the narrower definition of fees for technical / included services provided in the India-Portugal DTAA. CIT(A) had held that the impugned payment did not fall within the definition of fees for included services as per the India-Portugal DTAA and further the same could not be taxed as business income also in absence of PE in India. The Revenue contended that the benefit of India-Portugal DTAA could not be extended to the assessee in absence of any separate notification issued by Government of India. The Tribunal held that the protocol to the India-Sweden DTAA makes it clear that the MFN clause “shall apply” in India-Sweden DTAA and the issuance of a notification has nowhere been stipulated as a condition precedent therein. Further, it held that section 90(1) is very clear that only a DTAA would be notified and not the application of such a ‘MFN’ clause.
INCOME TAX OFFICER vs. M.S.K. TRAVESL & TOURS LTD. – (2018) 53 CCH 0214 KolTrib – ITA No. 284/Kol//2015 dated June 22, 2018

706. The Tribunal deleted the disallowance made by the AO u/s 40(a)(i) on account of payment of professional charges and towards reimbursement of administrative charges and reimbursement of insurance and foreign travel expenses to a person who was responsible for procurement, chemical development and technological upgradation etc. With respect to professional charges, the Tribunal held that the same was not taxable since the non-resident payee did not have any PE or any business connection in India and the revenue had failed to bring any evidence to prove it was not so. With respect to the reimbursements, it held that these were simply reimbursement of administrative expenses incurred by the concerned person outside India and did not involve any element of income and thus TDS was not required to be deducted.
DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & ORS. v DCIT(OSD) & ORS. – (2018) 53 CCH 0065 AhdTrib – ITA No. 692/Ahd/2011, 2447/Ahd/2011, 2957/Ahd/2013, 3086/Ahd/2013, 817/Ahd/2011, 773/Ahd/2011 (CO No.89/Ahd/2011) dated May 23, 2018

707. The Tribunal deleted the disallowed made u/s 40(a)(i) with respect to commission paid to non-residents for services of mobilizing deposits, etc. without deducting TDS u/s 195, holding that commission earned by the non-residents for rendering services abroad could not be construed as income accrued or arisen in India since they non-residents did not have any business operations in India
State Bank Of India v ACIT – (2018) 91 taxmann.com 312 (Mum) – ITA Nos. 4598 and 4736 (Mum.) of 2010 dated 31.01.2018

708. The Tribunal set aside the CIT(A)’s order confirming the disallowance made u/s 40(a)(ia) on account of non-deduction of TDS on commission payments made to foreign agents in Hong Kong (with which India doesn’t have a DTAA) with respect to export made to parties referred by them, noting that the payment was not received by the foreign agents in India and services rendered by them in their respective countries and thus, the income could not be said to have accrued or arisen in India as per section 5(2). Further, it held that neither the income could be deemed to have accrued or arisen in India in view of provision of section 9(1)(i) nor it is not the case of revenue that payment was made by assessee on account of technical services rendered by the foreign agents and, thus, assessee was not liable to deduct TDS u/s 195.
Bengal Tea & Fabrics Ltd. v DCIT – (2018) 91 taxmann.com 38 (Kol Trib) – ITA No. 1667 (kol.) of 2016 dated 28.02.2018

709. The assessee company, engaged in exporting cotton yarn, paid commission to foreign agents for booking the export orders abroad without deducting TDS u/s 195. On claiming deduction on the said payment, the AO disallowed the same u/s 40(a)(i)by stating that the commission fell within the purview of S.9(1)(i) and S.9(1)(vii) r w S.195.The CIT(A) deleted the disallowance after taking note of the fact that the Tribunal in the assessee’s own case for earlier assessment year had deleted similar disallowance made by the AO under section 40(a)(i).On appeal by Revenue, the Tribunal upheld the CIT(A)’s order noting that neither the foreign agent had business connection in India and nor the brokerage/commission paid by assessee could be treated as fees for technical services.
ITO v Indo Industries Ltd. [2018] 94 taxmann.com 117 (Calcutta) ITA NO 4642 OF 2016 dated 11.05.2018

710. The assessee was engaged in the business of trading fabrics and manufacturing and trading ready made garments and had paid commission on export sales to its two agents appointed in UAE during the relevant year. The AO rejecting the assessee’s explanation that the provisions of section 195 were not applicable in the instant case. On appeal, it was noted by the Tribunal that all the activities of the agents were performed overseas and in addition to that the Revenue had failed to establish that the foreign agents had any office or any business operation in India. In view of these facts, the appeal of the Revenue was dismissed and it was held that the commission income could not be said to accrue or arise in India in terms of Section 9(1)(i).
ACIT v. Vipin Kumar Gupta – [2018] 93 taxmann.com 399 (Delhi- Trib.) – IT Appeal No. 4923 (DELHI) of 2014 dated April 25, 2018

711. The assessee made commission payment to various agents based in foreign countries on account of export made to parties referred by them, which were disallowed by the AO on the ground that no TDS was deducted u/s 195 on such payment. The Tribunal held that since the payment for commission was not received by foreign agents in India, the same was not taxable u/s 5(2)(a) and further since the same was on account of services rendered by them in their respective countries, it did not accrue or arise in India. It observed that it was not the case of Revenue that payment was made by assessee on account of technical services rendered by the foreign agents. The Tribunal thus held that since none of the conditions mentioned in section 9, viz. business connection in India, property in India, asset or source in India or transfer of capital asset situated in India, were fulfilled in the present case, no income could be deemed to have accrued or arisen in India. Therefore, it held that since the income was not chargeable to tax in India, there could be no liability to deduct TDS u/s 195.
DCIT v Gujarat Microwax (P.) Ltd – [2018] 96 taxmann.com 644 (Ahmedabad – Trib.) – ITA No. 2503 (AHD.) of 2016 dated May 24, 2018

712. The Tribunal dismissed Revenue’s appeal filed against the CIT(A)’s order deleting the disallowance made u/s 40(a)(i) by the AO on account of export commission and other related charges paid to non-resident/ foreign agents, relying on various judicial precedents wherein it has been held that commission payment made to non-resident agent for services rendered by them outside India are not chargeable to tax in India and thus not liable to TDS u/s 195.
DEPUTY COMMISSIONER OF INCOME TAX vs. STERLING ORNAMENT (P) LTD. – (2018) 53 CCH 0252 (Del Trib) – I.T.A. No. 4395/DEL/2014 dated June 27, 2018

713. The Court deleted the disallowance made u/s 40(a)(i) for non-deduction of TDS u/s 195 on payment made to a non-resident agent under Agency Agreement for services rendered by him as the broker of the assessee, an Indian company, wherein such services also included procuring orders upon market survey with regard to demand for the products of the assessee in the foreign country. The AO had held the said payment to be in nature of Fees for Technical Services (FTS) as per section 9(1)(vii) attracting TDS provisions u/s 195. The Court held that the service of market survey only to ascertain demand for product in market was incidental to function of commission agent of procuring orders and was, in any case, not managerial, technical or consultancy service so as to be charged to tax in India as FTS. Further, there was no finding that the agent had any place of business in India. It thus held that since TDS was not required to be deducted u/s 195, there could not be any disallowance u/s 40(a)(i).
Evolv Clothing Co. (P.) Ltd. v ACIT – [2018] 94 taxmann.com 449 (Madras) – TAX CASE (APPEAL) NO. 572 OF 2013 dated June 14, 2018

714. The Tribunal had deleted the disallowance made u/s 40(a)(i) for non-deduction of TDS u/s 195 on payment made by the assessee to its foreign agents for rendering sales and marketing services abroad. It noted that since the foreign agents had rendered their services abroad and they did not have a fixed base in India, the said payment was not taxable in India and thus, there was no requirement to deduct TDS u/s 195. The Revenue filed appeal against the Tribunal’s order placing reliance on Explanation 2 to section 195(1) which provides that obligation to comply with section 195(1) would extend to any person, irrespective of the fact if the non-resident person has a residence or place of business or business connection in India or any other presence in any manner whatsoever in India. The Court held that once the conclusion is arrived that such payment did not entail tax liability of the payee under the Act, as held by the Supreme Court in the case of GE India Technology Centre (P.) Ltd. v. CIT [2010] 327 ITR 456 (SC), section 195(1) would not apply. Thus, noting that the Revenue did not seriously contend that the said payment was taxable in India, it dismissed the Revenue’s appeal.
Pr.CIT v Nova Technocast (P.) Ltd – [2018] 94 taxmann.com 322 (Gujarat) – R/TAX APPEAL NO. 290 OF 2018 dated April 9, 2018

715. The assessee paid commission to a non-resident for procuring export sale order without deducting tax at source u/s 195 and thus, the AO disallowed the expenditure u/s 40(a)(i) holding that the commission payable was deemed to accrue or arise in India and accordingly taxable u/s 5(2)(b) r.w.s 9(1)(i) [being income accruing or arising through business connection in India]. The CIT(A) upheld AO’s order. The Tribunal held that deeming fiction u/s 9(1)(i) could not be invoked in the present case since no part of the operations of the recipient’s business, as commission agent, was carried out in India and thus the said commission was not taxable under the Act. Hence, following the Apex Court ruling in the case of GE India Technology Centre Pvt Ltd Vs CIT wherein it was held that payer was bound to withhold tax from the foreign remittance only if the sum paid was assessable to tax in India, it held that the assessee was not required to deduct TDS from the aforesaid payment towards commission, since the same was not taxable under the Act as well as the relevant tax treaty.
Ferromatic Milacron India Pvt. Ltd. v DCIT (2018) 52 CCH 0553 AhdTrib – ITA Nos. 2451 & 2616/Ahd/2015 dated 19.04.2018

716. The Tribunal upheld the CIT(A)’s order deleting disallowance made by the AO u/s 40(a)(i) on account of payment of commission to non-resident / foreign commission agent for rendering service outside India without deducting TDS u/s 195, holding that in absence of PE or business connection in India, the said payment could not be deemed to accrue or arise in India.
ASSISTANT COMMISSIONER OF INCOME TAX vs. MANUFAX INDIA S.B. – (2018) 52 CCH 0348 AgraTrib – ITA Nos. 434 & 446/Agra/2015 dated Apr 11, 2018

717. The assessee paid Foreign commission (to Agents rendering services outside India for promotion of sales) and did not deduct tax at source u/s 195 as no part of income arose in India. The AO disallowed the commission paid u/s 40(a)(i) holding that the TDS was supposed to deducted u/s 195. The CIT(A) deleted the disallowance made by the AO. The Tribunal followed (1) GE India Technology Centre (P) Ltd vs. CIT wherein it was held that TDS was to be deducted only if income was chargeable to tax in India in the hands of non-resident recipient, (2) CIT vs. R.D. Aggarwal & Co. & Anr. wherein it was held that where assessee’s non-resident Agent did not have PE in India, the Commission to agents could not arise in India and (3) CIT v. Toshuku Ltd wherein it was held that commission earned by non-residents for services rendered outside India could not be deemed to be income, which had accrued or arisen in India in terms of section 9(1 )(i). It thus held that the Commission Agent had no ‘business connection’ in India and upheld the CIT(A)’s order of deleting the disallowance.
Punjab Stainless Steel Industries & Anr v ACIT & Anr (2018) 52 CCH 0296 DelTrib – ITA No. 6043/Del/2014, 5997/Del/2014 dated 09.04.2018

718. The assessee had made payments for marketing activities carried out in Bangladesh to a non-resident without deducting tax at source. The AO disallowed the amount under provisions of s 40(a)(i) on the ground that payments made to non-resident who have their business in India for rendering management, consulting and technical services is taxable in India as per sec 5(2) r.w.s 9(1)(vii) (c ) of the Act. The AO also noted that a copy of the agreement between the assessee and the non-resident was not furnished by the assessee. It was the assessee’s contention that such disallowance could not sustain in view of the services being rendered in Bangladesh and in absence of business connection of payee in India, no income accrued or arose in India. Noting that the assessee had furnished a copy of the agreement with the non-resident to the DRP as additional evidence, the Tribunal restored the issue of disallowance u/s.40(a)(i) following the coordinate bench decision of the assessee for its earlier year wherein the issue was restored on account of no supportings before the AO (whether services were rendered in Bangladesh and not in India) and it was observed that a disallowance could not be made on mere presumption that payments made were in nature of Royalty/FTS and accordingly, claim had to be verified by the AO.
Philip Morris Services India S.A v DDIT [TS-488-ITAT-2018(DEL)-TP] ITA No.827/Del/2014 dated 21.06.2018

g. Shipping business

719. The AO taxed the amounts received by the assessee (a Danish company, resident of Denmark) on account of reimbursement of cost of IT system support services incurred by it for effective conduct of its day-to-day shipping operations business (and charged to the group entities / agents based on their usage) as fees for technical services under the India-Denmark DTAA and the receipts on account of inland haulage charges as profits of shipping business u/s 44B, rejecting the assessee’s contention that both these receipts formed part of the shipping business of the assessee which were not taxable in India in view of the provisions of Article 9 of the India-Denmark DTAA (which provides that profits derived from the operation of ships in international traffic shall be taxable only in the country in which the place of effective management of the entity is situated). The DRP directed the AO to accept assessee’s above contentions, following the Tribunal’s order in the assessee’s own case for earlier year. The Tribunal also dismissed Revenue’s appeal against the said directions of DRP, following the High Court as well as the Tribunal’s order in the assessee’s own case for earlier year wherein it was held that the said receipts were part of assessee’s shipping business and could not be captured under any other provisions of the Act except under the DTAA and as per Article 9 of the India-Denmark DTAA, the said receipts were not taxable in India.
DCIT v A.P.Moller Maersk A/S – ITA No. 1743/Mum./2016 dated 23.01.2018

720. The AO taxed the amounts received by the assesse-company, resident of France, on account of inland haulage charges and service tax on the same as profits of shipping business u/s 44B, rejecting the assessee’s contention that both these receipts formed part of the shipping business of the assessee which were not taxable in India in view of the provisions of Article 9 of the India-France DTAA (which provides that profits derived from the operation of ships in international traffic shall be taxable only in the country in which the place of effective management of the entity is situated). Noting that on identical issue, the it had decided in favour of assesse in assessee’s own case for earlier year, the Tribunal held that Inland Haulage charges and service tax thereon being part of the income derived from the operation of shipping in international traffic was exempt under Article 9 of the India-France DTAA and hence, not taxable in India. Accordingly, it allowed assessee’s appeal and deleted the addition.
DELMAS S.A.S. vs. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) – (2018) 53 CCH 0142 MumTrib – ITA No. 2187/Pn./2017 dated Jun 13, 2018

721. Assessee, a shipping company incorporated at Mauritius, had claimed its entire income not to be taxable in India in view of provisions of Article 8 of the India-Mauritius DTAA inter alia dealing with profits from the operation of ships in international traffic, supporting its claim by furnishing TRC issued by the Mauritian tax authorities. AO denied the said relief to the assessee holding that the effective management of the assessee was situated at a place which was other than India and Mauritius and further held that the assessee’s income was chargeable to tax in India opining that the assessee had a PE in India in form of an exclusive agent (FCIPL). The Tribunal rejected the view taken by the AO noting that the activities of assessee’s sole agent in India (FCIPL) were not devoted exclusively on behalf of assessee as it also did work on behalf of other principals and earned a substantial part of its income from them and, thus, held that FCIPL was not an exclusive agent of assessee so as to come under purview of definition of dependent agent as defined in Article 5(5) of India-Mauritius DTAA. Accordingly, it was held that the assessee did not have any PE in India and was not taxable as per article 7 of India-Mauritius DTAA. However, with respect to the assessee’s contention with regards to effective place of management being in Mauritius, the Tribunal held that it was not necessary that effective management had to be only between two contracting states and, based on facts in the present case, the same was neither in Mauritius nor in India. Further, relying on the views of Klaus Vogel, it held that if the effective management of an enterprise was not in one of the contracting state, but was situated in the third state, the benefit of Article 8 of DTAA, could not be extended.
ADIT v Bay Lines (Mauritius) – (2018) 91 taxmann.com 110 (Mum) – ITA No. 1181 (Mum) of 2002 & others CO No. 32 (Mum) of 2010 & others dated 20.02.2018

722. The Tribunal upheld the CIT(A)’s order deleting the disallowance made by AO u/s 40(a)(ia) on account of payments made to foreign shipping lines without deduction of tax at source, in view of the provisions of section 172 applicable in case of Foreign Shipping Companies notwithstanding anything contained in other provisions and therefore, held that the provisions of section 194C and 195 relating to tax deduction at source were not applicable in such cases. It held that the issue was was squarely covered by CBDT Circular No. 723 dated 19.09.1995 stating that where payments were made to shipping agents of non-resident shipping owners shipped at port in India, agents step into shoes of principal and accordingly provision of section 172 should apply and not provisions of Section 194 and 195.
DCIT v ASSOCIATED PIGMENTS LTD. – (2018) 52 CCH 4 (Kol Trib) – ITA No. 2042/Kol/2014 dated 03.01.2018

h. Section 44BB

723. Assessee, a non-resident company, was taxed u/s 44BB(1) @ 10% with respect to its revenue earned on account of charter hire of Deepwater Drilling Unit considering reimbursement receipts (on account of material recharge and fuel reimbursement as well as service tax reimbursement) as part of revenues taxable u/s 44BB. With respect to reimbursements other than service tax reimbursement, the Tribunal held that section 44BB refers to total payment to assessee or payable to assessee or deemed to be received by assessee and, thus, noting that it was not in dispute that amount was received by the assessee, it held that the AO was justified in including the said amount which was received while determining revenue under provisions of section 44BB. However, with respect to inclusion of receipts on account of reimbursements of service tax, the Tribunal held that the service tax was not an amount paid or payable, or received or deemed to be received by the assessee for services rendered by it and the assessee was only collecting service tax for passing it on to the Govt. Thus, it held that the service tax collected by the assessee does not have any element of income and therefore cannot form part of the gross receipts for the purposes of computing the ‘presumptive income’ of the assessee u/s 44BB.
TRANSOCEAN OFFSHORE DEEPWATER DRILLING INC. v ADD.CIT (IT) – (2018) 52 CCH 69 (Del Trib) – ITA No. 2072/DEL/2016 dated 30.01.2018

724. The Tribunal held that sections 44BB, 44DA and 115A rw Section 9(1)(vii) relating to royalty/FTS operate in different fields and accordingly held that where the assessee was imparting geophysical and geological services for prospecting for mineral oils, the same being services in relation to exploration of mineral oil then, the royalties/FTS would be taxable under section 44BB as section 44BB was a specific provision in relation to specific services and therefore would prevail over the other provisions dealing with royalties/FTS services. Accordingly, it held that the AO was not justified in taxing the receipts as a simple royalty or FTS under section 9(1)(vi)/(vii) read with section 115A.
DDIT v RPS Energy Pty Ltd.* – [2018] 92 taxmann.com 77 (Delhi – Trib.) – IT APPEAL NO. 45 (DELHI) OF 2015 dated MARCH 16, 2018

725. The Assessee had entered into a contract with a UAE based non-resident company for executing certain work in connection with oil fields located in Bay of Bengal and the consideration received under the said contract was not offered to tax since the entire work was executed outside India. The AO, however, brought the aforesaid receipts to tax in India u/s (9)(1)(i) holding the same to be income accruing or arising in India on the ground that the situs of the contract was in India. CIT(A) accepted the assessee’s contention that the non-resident company did not carry out any business operation in India and did not have any PE in India as per India-UAE DTAA, however, he brought to tax the impugned receipts u/s 44BB on the ground that the assessee itself (as an alternative plea) had opted to be governed by the said provision. The Tribunal held that merely because the assessee had taken an alternative plea without prejudice to the main contention, the same cannot be held against the assessee as there is no estoppel in law. It followed the decision of CIT v Enron Espat Services Inv. [327 ITR 626] wherein it was held that if the receipt by a non-resident was exempt from tax under the relevant DTAA, the said amount could not be brought to tax u/s 44BB and thus allowed the assessee’s appeal.
ONGC LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) – (2018) 53 CCH 0272 DelTrib – ITA No. 1330/DEL/2016 & 1332/DEL/2016 dated June 29, 2018

726. Where assessee, foreign company, had entered into contracts with (ONGC) for giving on hire their rigs for carrying out oil exploration activities in India, mobilisation fee received by assessee was to be included for computation of deemed profits and gains of business, chargeable to tax under section 44BB; Review petition against said decision was dismissed by the Apex Court.
Sedco Forex International INC v CIT [2018] 94 taxmann.com 119 (SC) – CIVIL APPEAL NO. 4906 OF 2010 dated 10.05.2018

727. The Assessee-company, incorporated in France, was engaged in executing contracts with an Indian company for offshore drilling operations relating to mineral oil in India and computed its income as per the provision of section 44BB(1), thereby applying a deemed net profit rate of 10% of gross revenues. The assessee claimed that reimbursement of communication immersat charges and reimbursement of cost of equipment lost in oil wells as well as reimbursement of service tax should not be included in the gross receipts as they were in nature of reimbursement. The Tribunal dismissed assessee’s appeal with regards to reimbursement of communication immersat charges and reimbursement of cost of equipment lost in oil wells, following the co-ordinate bench decision in the assessee’s own case for an earlier year, wherein it was held that the said reimbursement receipts formed part of gross receipts for the purpose of section 44BB. However, it accepted the assessee’s claim with respect to reimbursement of service tax, following Jurisdictional High Court decision of DIT v. Mitchell Drilling International (P.) Ltd. [2016] 380 ITR 130 (Del) and held that service tax being a statutory liability could not form part of the gross receipt for the purpose of deemed profit u/s 44BB.
The Tribunal also dismissed assessee’s claim that the interest received on income tax refund was covered by Article 12 of India-France DTAA which provides that interest will be taxable in resident State, following the High Court decision in the assessee’s own case wherein it was held that since assessee had PE in India and was subjected to tax in India, the interest on refund of income tax was not covered by Article 12 of the said DTAA.
Pride Foramer SAS v JCIT – [2018] 97 taxmann.com 648 (Delhi – Trib.) – ITA No. 702 (DELHI) OF 2015 dated April 23, 2018

728. The assessee company was engaged in providing services and facilities in connection with exploration and production of mineral oils and received revenue against work executed for different companies. The assessee offered to tax entire revenue u/s 44BB, thereby applying a deemed net profit rate of 10% of gross revenues. The AO however taxed the income received from Production Sharing Contract (PSC) partners engaged in oil exploration u/s 44BB but the receipts from the non-PSC partners (such receipt were on account of equipment rental) as FTS /royalty taxable @25% of the profit u/s 44DA. The Tribunal held that receipt from non-PSC partners was also taxable u/s 44BB in view of the Apex Court ruling in ONGC vs. CIT [376 ITR 306 (SC)] wherein it was held that where the pith and substance of each of the contracts/agreements is inextricably connected with prospecting, extraction or production of mineral oil and where the dominant purpose of each of such agreement is for prospecting, extraction or production of mineral oils, though there may be certain ancillary works contemplated there under, the payments received under the said contracts would be more appropriately assessable under the provisions of section 44BB and not section 44D. Further, the Tribunal held that reimbursements received on account of sertive tax/ VAT were not to be included in gross receipt while computing tax payable u/s 44BB, relying on the decision of DIT v. Mitchell Drilling International (P.) Ltd. [2016] 380 ITR 130 (Del).
DEPUTY DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) vs. B.J. SERVICES COMPANY MIDDLE EAST LTD. – (2018) 52 CCH 0371 DelTrib – ITA No. 6167/Del/2014 dated April 20, 2018

i. Others

729. The Tribunal deleted addition with respect to consultancy income received by assessee (RNOR) for services rendered outside India to a company (in Dubai in which assessee was a Director) and held that the income accrued to the assessee at a point of time (i.e. AY 2009-10) when he was a non-resident & since assessee already recognized the income at the point of accrual in an earlier year, it could not once again be considered as income at the point of receipt. Further it held that though assessee was paid by the company during the relevant AY i.e. after April 1, 2009 the confirmation from the company clearly indicated that services rendered were for the period November 2008 to March 2009 and accordingly held that as per Section 5(1) and 5(2) receipt in a later year, of an income which accrued or arose in an earlier year, would not render such amount taxable in the year of receipt.
Mr. J. Muthukumar [TS-93-ITAT-2018(CHNY)] – I.T.A.No.2203/CHNY/201 dated 13-02-2018

730. Where the applicant-employer, engaged in business of software development and IT Enabled Services, had sent two of its employees-assignees on deputation to US and Germany and the applicant had filed the application with AAR seeking ruling on issue of taxability in India of salary of its employees sent abroad for rendering services to foreign company and the applicant-employer’s liability to deduct TDS on thereon, the AAR ruled that the income earned by assignees/employees from services rendered in USA / Germany respectively would be chargeable to tax in USA / Germany only and not in India for period of their deputation and since there was no obligation on employee to pay tax on income from salaries, there would not be any liability to deduct tax u/s 192 by applicant- employer. Further, with respect to the applicant-employer’s query as to whether the applicant could give the said employees credit of taxes paid in US/ Germany on their return to India, it was ruled that the employees were covered by provisions contained in Articles 25 of India-USA DTAA and Article 23 of India-Germany DTAA and, thus, were entitled to credit for foreign taxes deducted. Accordingly, while deducting TDS u/s 192, the employer could give credit for taxes deducted during their deputation outside India in view of provisions of section 192(2).
HEWLETT PACKARD INDIA SOFTWARE OPERAN PRIVATE LIMITED IN RE – (2018) 401 ITR 0339 (AAR) – A.A.R. No 1217 of 2011 dated 29.01.2018

731. The assesee, a foreign company incorporated in Cyprus, was wound up on 24-5-2013, whereas assessment had been completed on 30-1-2017. The assessee claimed before the DRP for the first time that assessment was illegal and void since it was completed on a non-existent entity, the Tribunal held that as per section 176, in case of discontinuance of the business, the assessee was required to inform the AO and also in case of the liquidation, the liquidator of the company was required to give notice to the AO, informing him about such discontinuance/ liquidation. It was noted that though the assessee had submitted that the AO was informed about the dissolution of the company but the assessee could establish that it had provided the information as per the requirements of the Act. The Tribunal, thus, set aside the assessment order passed and restored the matter to the file of the AO/ TPO to verify whether the assessee complied with various provisions of the Act relating to responsibility of company- in-liquidation or discontinuity of business.
Pesak Ventures Ltd. v DCIT(IT) – [2018] 95 taxmann.com 113 (Delhi – Trib.) – IT APPEAL NO. 1929 (DELHI) OF 2017 dated June 19, 2018

732. Relying on the decision in the case of DIT vs GE Packaged Power Inc. (2015) 56 taxmann.com 190 (Del HC) and CIT vs ZTE Corporation (2017) 392 ITR 80 (Del HC), the Tribunal held that interest u/s 234B could not be levied for non-payment of advance tax in the case of the assessee, a foreign company, since the income of foreign company was to be governed by provisions of section 195 wherein any payment made to foreign enterprise would be subjected to full deduction of tax at source. However, it upheld levy of interest u/s 234D holding that charging of interest u/s 234D was consequential in nature and remanded the matter to the file of the AO for verifying the actual refund figure granted to assessee earlier for computing the interest u/s 234D.
HITT HOLLAND INSITUTE OF TRAFFIC TECHNOLOGY B.V. vs. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONA TAXATION) – (2018) 52 CCH 0280 KolTrib – ITA No. 390/Kol/2015 dated Apr 4, 2018

733. The Tribunal held that where assessee, a non-resident, earned interest income on FCCBs issued by an Indian company abroad, in view of fact that entire proceeds of FCCBs had been utilised by Indian company in said country for repayment of an acquisition facility, interest income in question was not liable to tax in India as per exception carved out in section 9(1)(v)(b).
The Tribunal held that where assessee, a non-resident, received interest on fully convertible debentures issued by an Indian company, said interest income would be liable to tax at rate of 10 per cent in terms of Article 11 of India-Cyprus DTAA.
The Tribunal held that where assessee, a non-resident, received consultancy fee from an Indian company, same was liable to be taxed at rate of 10 per cent in terms of article 12 of India-Cyprus DTAA as against 42.23% as per the provisions of the act.
Clearwater Capital Partners (Cyprus) Ltd. v DCIT (Internation Taxation) [2018] 94 taxmann.com 118 (Mumbai – Trib.) – ITA NOS. 843 AND 1025 OF 2016 dated 02.05.2018

734. Where the assessee, a UK based company having its Branch Office in India, claimed deduction u/s 44C on a/c of “Head Office Expenditure” which the AO had disallowed as the same was not debited in the Profit and Loss A/c of the assesse, the Court allowed the said claim holding that it was irrelevant if the same was not debited in P&L A/C if the transaction was genuine, undisputed and not questioned.
Ernst & Young c ACIT [2018] 94 taxmann.com 227 (Delhi-Trib.) – ITA NOS. 6561-6562 OF 2016 dated 31.05.2018

735. The Assessee, a tax resident of Singapore, claimed that the short-term capital gain derived by it from Indian securities was as not taxable in India under Article 13(4) of the India-Singapore DTAA. The AO, however, rejected such claim referring to Article 24 of the said DTAA which provides that the exemption available under the said DTAA with respect to income from any source in a Contracting State (India) will be limited only to the extent such income is repatriated to the Other Contracting State (Singapore), if such income is taxable in the Other Contracting State (Singapore) by reference to the amount which is remitted to or received in that Other Contracting State (Singapore) and not the full amount. The DRP held that the entire income received by the assessee from all sources was taxable in Singapore irrespective of the fact whether it was received in Singapore or not and allowed the assessee’s claim. The Tribunal held that Article 13(4) is not an exemption provision but it speaks of taxability of particular income in a particular State by virtue of residence of assessee and provisions of Article 24 (which is applicable to exempt income) does not have much relevance insofar as it relates to applicability of article 13(4) to income derived from capital gain. Thus, it dismissed the Revenue’s appeal.
DCIT v D. B. International (Asia) Ltd – [2018] 96 taxmann.com 75 (Mumbai – Trib.) – ITA No. 992 (MUM.) OF 2015 dated June 20, 2018

III. Domestic Tax

a. Income

736. Where the assessee bank considered income by way of interest pertaining to doubtful loans as income only when it was realized, the Tribunal relying on the decision of the co-ordinate bench in DCIT vs The Washim Urban Co.Op. Bank Ltd. in ITA No.233/NAG/2013 and CBDT Circular No. F. 201/21/84 ITA-II, dt. 9th Oct., 1984 held that the AO was not justified in assessing the said interest as the income of the assessee. It held that the assessee’s treatment was in accordance with the aforesaid CBDT Circular which was binding on the AO and therefore held that the addition made by the AO was without any basis.
THE CHIKHALI URBAN CO.OP. BANK LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX – (2018) 52 CCH 0238 NagTrib – ITA No. 251/NAG/2015 dated Mar 6, 2018

737. The Court ruled that interest income from bank deposits accrued but not due and credited to assessee’s account by bank but accrued by the assessee in its balance sheet was taxable and could not be termed as hypothetical income. It further held that the period of deposit being the option of the depositor, the receipt stood deferred at the behest of the assessee. Assessee’s contention that u/s 194A, it was the obligation of the banker to pay tax on the interest due was rejected by HC holding that the Bank’s liability to deduct tax at source arose only when it paid the interest.
Pr.CIT v Plantation Corporation of Kerala Ltd – TS-611-HC-2017(KER) – ITA.No. 121 of 2016 dated 20.12.2017

738. The assessee-company having set up manufacturing units in specified backward area was entitled to incentive in form of exemption from payment of excise duty and it claimed such incentive to have been granted for promotion of industries in backward areas and thus, not chargeable to tax being capital in nature, relying on the decision in the case of CIT v. Shree Balaji Alloys (2017) 80 taxmann.com 239 (SC). The AO did not accept with the contentions of the assessee and taxed the same as revenue receipt. Noting that the authorities below had not analysed terms and conditions of excise incentive scheme, the Tribunal remanded the matter to the AO with the direction to examine this issue afresh by duly considering the terms and conditions of the Excise incentive scheme and information and explanations that may be furnished by the assessee in this regard.
Everest Industries Ltd. v JCIT – (2018) 90 taxmann.com 330 (Mum) – ITA Nos. 3804 & 3849 (Mum.) of 2015 dated 31.01.2018

739. Based on various decisions in favour of the assessee and also in view of settled law that there is need for upholding the favourable view if there exists divergent views on the issue, the Tribunal held that the corpus specific voluntary contributions being in nature of ‘capital receipt’, are outside scope of income u/s 2(24)(iia) and, thus, the same cannot be brought to tax even in case of trust not registered u/s 12A/12AA.
ITO(Exempt.) v Serum Institute of India Research Foundation – (2018) 90 taxmann.com 229 (Pune Trib) – ITA No. 621 (Pune) of 2016 dated 29.01.2018

740. The Tribunal held that the foreign exchange gain arising on account of holding of Global Depository Receipt (GDR) proceeds which were utilised in India for business was capital in nature since money raised by GDR was against capital equity and, thus, not liable to tax, rejecting AO’s contention that since the proceeds were utilised as circulating capital in normal course of banking business, the exchange gain thereon was revenue in nature.
State Bank Of India v ACIT – (2018) 91 taxmann.com 312 (Mum) – ITA Nos. 4598 and 4736 (Mum.) of 2010 dated 31.01.2018

741. The Tribunal dismissed the Revenue’s appeal against the CIT(A)’s order deleting the addition made by the AO towards interest accrued on FDRs credited to Infrastructure Development Fund Account maintained by the assessee-authority, established under provisions of the Uttar Pradesh Planning and Development Act, 1973, relying on the Tribunal’s order in the assessee’s own case for earlier year wherein it was observed that the interest receipts are at the disposal only in accordance with Government directions on disposal of the funds relating to infrastructure development and these earnings only add up to the corpus. It was also noted that Saharanpur Development Authority and assessee were statutory authorities which were established under provisions of the Uttar Pradesh Planning Development Act, 1973, governed by same rules of Government of U.P. and the Delhi High Court in the case of Saharanpur Development Authority vs. CIT [ITA No. 132/Del/2009] had observed that interest earned by investing the surplus fund in banks belonged to state administration and not to the assessee and the same could not be included in the income of the assessee.
ACIT & ANR. vs. FIROZABAD SHIKOHABAD DEVELOPMENT AUTHORITY & ANR. – (2018) 52 CCH 84 (Agra Trib) – ITA Nos. 270/Agra/2016, 170/Agra/2015 dated 25.01.2018

742. The Tribunal upheld the CIT(A)’s order deleting the addition made by the AO to assessee’s income on account of Staff welfare fund being 9% of service charges earned by assessee, following the Tribunal’s order for earlier year in assessee’s on case wherein it was held that the contribution towards staff welfare fund was based on resolution of board of directors of assessee held on 05.12.1979 and by virtue of that resolution there was diversion of income by over riding title at source on service charges received by assessee.
ITO v WEST BENGAL TOURISM DEVELOPMENT CORPORATION LTD. – (2018) 61 ITR (Trib) 0728 (Kol Trib) – ITA Nos.1538 to 1540/Kol/2014 dated 03.01.2018

743. Where the AO had made addition u/s 41(1) in case of old creditors i.e., where there was no transaction between the assessee and the creditors during the last three years or more opining that there had to be some time limit for the credit recorded to be carried forward, the Court upheld the Tribunal’s order deleting the said addition and held that the assessee being a company whose accounts were audited as per the mandate of the Companies Act, had accepted and acknowledged its liability, in the accounts, on which the creditors could rely for their claim and even otherwise many of the creditors were paid, adjusted or eased in the subsequent years as accepted by the CIT(A) and the Tribunal.
CIT v BANARAS HOUSE LTD. – (2018) 402 ITR 88 (Del HC) – ITA 583/2005 dated 17.01.2018

744. The Tribunal held that the interest awarded u/s 23(1A) and 23(2) r.w.s. 28 of Land Acquisition Act was in nature of solatium and an integral part of compensation and receipt of the same was a capital receipt whereas, interest awarded u/s 34 of the said Act was on account of delayed payment of compensation and was revenue receipt exigible to tax.
Dnyanoba Shajirao Jadhav v ITO – (2018) 90 taxmann.com 285 (Pune) – ITA No. 168 (Pune) of 2016 dated 29.01.2018

745. Where assessee’s father died intestate leaving behind certain ancestral properties which assessee inherited u/s 8 of the Hindu Succession Act and the assessee contended that the property actually belonged to the HUF and was held by him as Karta of the HUF, the Tribunal held that the said properties devolved on assessee in his individual capacity and not as Karta of HUF and accordingly income from these properties would be assessable in assessee’s hands in his individual capacity.
Mahaveer Yadav v ITO – (2018) 91 taxmann.com 476 (Jaipur Trib) – ITA No. 209 (JP.) of 2017 dated 27.02.2018

746. The assessee, a company owned by the State Government was handed over the land (which was in the ownership of the state government) for development, management and maintenance. It alloted the land to industrialists in consideration of land premium, advance rent and security deposit etc and the land premium was treated as a capital receipt by the assessee. The AO taxed the same as a revenue receipt. The Tribunal noting that i) the assessee had treated the amount as revenue in nature in the earlier years ii) the assessee was engaged in the business of industrial and infrastructure development upheld the order of the CIT(A) confirming the AOs treatment of land premium as a revenue receipt.
MADHYA PRADESH AUDYOGIK KENDRA VIKAS NIGAM (INDORE) LIMITED & ORS. vs. ASSISTANT COMMISSIONER OF INCOME TAX & ORS. – ITA No. 347 to 351/Ind/2013, – 2018) 52 CCH 0212 IndoreTrib dated Mar 21, 2018

747. Where as per law the assessee was expected to collect sales tax at rate of 2% but the assessee, due to confusion, collected 4% and surcharge at 5% thereon, which it deposited with the Sales tax department, the Tribunal held that the AO was unjustified in taxing the excess collection as the assessee’s trading receipt and held that if the assessee collected sales tax and failed to deposit same, then the same was to be treated as part of trading receipt but since what was collected by assessee was already deposited with Sales Tax Department and there was confusion regarding sales tax rate, the amount was not taxable.
ASSISTANT COMMISSIONER OF INCOME TAX & ANR. vs. TAJ MADRAS FLIGHT KITCHEN PVT. LTD. & ANR. – (2018) 52 CCH 0226 ChenTrib – ITA Nos. 1568 & 1569/Chny/2014, 1705/Chny/2014 dated Mar 22, 2018

748. Where the assessee received refund of interest on excess tax and interest paid in earlier years, the Tribunal held that the said receipts could not be considered as the income of the assessee more so when the assessee had not claimed any deduction on account of the same.
AIRPORTS AUTHORITY OF INDIA LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX – ITA No. 4821/DEL/2014 – (2018) 52 CCH 0128 DelTrib dated Feb 23, 2018

749. The Court held the non-compete fees received by assessee-individual (Chairman & MD of a pharma company) from other pharma companies during AYs 1998-99 and 1999-00 to be a non-taxable capital receipt, holding that the knowledge and technical know-how are intellectual properties and when an individual is deprived of using such property in future, the same amounts to capital loss and the income derived would, thus, constitute capital receipt and also noting that the Tribunal had held the non-compete fees received by the pharma company in which the assessee was the Chairman to be capital receipt. It rejected the Tribunal’s view that the assessee had transferred all the technical know-how to the said company and thus had not suffered any capital loss as he had no capital available when non-compete agreements were entered into, in absence of any specific material showing the same and thus, held that it would be highly presumptuous for the Tribunal to hold that the appellant had no right to use the technology.
V.C. Nannapaneni v CIT [TS-88-HC-2018(AP)] – I.T.T.A. Nos.159 and 160 of 2005 dated 05.01.2018

750. The AO taxed the interest accrued on the security deposit made by the assessee-landlord on behalf of its tenant with Mangalore Electric Supply Co. (MESCOM) in the hands of the assessee since the TDS deducted u/s 194A respect to the same was appearing in Form 26AS of the assessee, despite the fact that the interest accrued on the deposit was adjusted against the electricity dues paid by the tenant. The Tribunal dismissed the assessee’s appeal noting that the assessee could not produce any evidence to show that the amount deposited by the assessee was recovered by the assessee from the tenant, in turn to prove that the interest also belonged to the tenant. It held that the person who had made the security deposit would only be entitled to not only the interest accrued on the security deposit but also refund of the security deposit and it was the inter se arrangement between the tenant and the owner as to how the benefit had been passed to the tenant by the assessee.
Tanglin Developments Ltd v DCIT [TS-78-ITAT-2018(Bang)] – I.T.A No.1701/Bang/2016 dated 25.01.2018

751. The Tribunal accepted assessee’s contention of treating the capital gains on sale of non-agricultural land as long-term capital gains where the assesssee had entered into an agreement to sale (for purchasing the land) on 11.04.2007 but due to provisions of section 42 of the Rajasthan Tenancy Act, 1955 prohibiting sale of agricultural land by a member of scheduled caste in favour of non-member (the assessee), the sale deed could be executed in favour of the assessee only on 13.04.2010, after conversion of the said agricultural land into non-agricultural land during FY 2009-10. The AO had treated the said gains as short-term capital gains considering the date of sale deed as the date of acquisition instead of date of agreement to sale. The Tribunal noted that the assessee had paid part consideration at the time of entering into the agreement of sale and the possession of the land was also handed over at the same time, thus making the land available for enjoyment of the assessee and the sale deed only ratifed the transaction of transfer entered into vide the agreement.
Rajasthan Agencies Pvt. Ltd v ITO [TS-59-ITAT-2018(JPR)]– 680& 681/JP/2017 dated 25.01.2018

752. The Apex Court held that non-occupancy charges received by assessee-cooperative society from its members utilised for mutual benefits towards maintenance of premises, repairs, infrastructure and provision of common amenities, would be governed by doctrine of mutuality and, thus, same were not exigible to tax.
ITO v Venkatesh Premises Co-operative Society Ltd – [2018] 91 taxmann.com 137 (SC) – CIVIL APPEAL NOS. 2706 OF 2018 dated MARCH 12, 2018

753. The Tribunal deleted the addition made by the AO considering the reimbursement of cost received by the assessee, an American Co., from an Indian Co. with which the assesse had entered into a training and technical service agreement to the assessee’s income, following its decision given in the assessee’s own case for an earlier year wherein it was held that the said agreement entered into by assessee envisaged that fee for technical services was different from expenses incurred on third party cost and since there was clear bifurcation in agreement between internal cost incurred by assessee and external cost borne or paid by assessee on behalf of the Indian company, the amount received towards reimbursement of cost could not be taxed at hands of the assesse. The Tribunal in the earlier year had followed the Apex Court decision in the case of DIT v/s A.P. Moller Maersk, 392 ITR 186 (SC) wherein it was held that once the character of the payment is found to be in the nature of reimbursement of the expenses, it cannot be income chargeable to tax
GEMOLOGICAL INSTITUTE INTERNATIONAL INC. vs. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) – (2018) 53 CCH 0183 (Mum Trib) – ITA No. 6556/Mum./2017 dated June 20, 2018

754. The Tribunal dismissed revenue’s appeal against the CIT(A)’s order deleting the addition on account of retention money, being 10% of total contract value, withheld by one of the customer in lieu of satisfactory execution of contract by the assessee. It relied on the decision in the case of CIT v. Associated Cables (P.) Ltd. (2006) 286 ITR 596 (Bom) wherein it was held that the amount retained by the buyers, as per contract, and paid to the assessee on satisfactory completion of contract did not accrue / could not be considered as income in the year in which the amount was retained. With respect to Revenue’s contention that the assessee had accounted for the retention money in its books of account, it was held that a mere book keeping entry could not be income unless income had actually resulted and if income did not result at all, there could not be a tax, even though in book keeping an entry was made about a hypothetical income.
DCIT v Commtel Networks (P.) Ltd. – [2018] 95 taxmann.com 50 (Mumbai – Trib.) – IT APPEAL NOS. 4340, 4872 AND 4873 (MUM.) OF 2015 dated June 19, 2018

755. The Court dismissed revenue’s appeal against Tribunal’s order treating the power subsidy received by the assessee-company from State Government under Power Intensive Industries Scheme, 2005, for setting up a new industrial unit in backward area to be capital receipt, following the decision in the case of Pr. CIT v. Shyam Steel Industries Ltd. [2018] 93 taxmann.com 495 (Cal.) wherein it was held that it is the purpose of the grant under a scheme which is of paramount importance while assessing whether the money received thereunder ought to be treated as a revenue receipt or a capital receipt.
CIT v Keventer Agro Ltd – [2018] 95 taxmann.com 154 (Calcutta) – ITAT NOS. 175 & 176 OF 2014, GA NOS. 3609 & 3610 OF 2014 dated June 19, 2018

756. The Assessee-airport became entitled to custom duty credit scrip under ‘Served From India Scheme’ (SFIS) of Foreign Trade Policy issued by Government of India, which were to be used for import of any capital goods. The AO held that duty credit should be recognized as other income and offered to tax in the assessment year in which the assessee became entitled to them. Noting that these scrips were valid for 2 years from date of issue and that the assessee had utilised duty credit scrips in different assessment years but complete SFIS scrips were not utilised due to expiry of the said scrips, the Tribunal held that it was not proper to tax accrual of duty credit scrips on mercantile basis as life of the scrips was only for 2 years. However, further noting that the CIT(A) had not properly adjudicated character of said receipts and year of taxability, it resorted the matter to the file of CIT(A) with a direction to readjudicate the issue afresh
Delhi International Airport (P.) Ltd. – DCIT – [2018] 93 taxmann.com 228 (Bangalore – Trib.) – IT APPEAL NOS. 581, 596, 622 & 636 (BANG.) OF 2017 dated April 19, 2018

757. The Apex Court allowed the assessee’s appeal and held that once the assessee had paid income tax at source on winning from lotteries in State of Sikkim as per Sikkim State Income Tax Rules, 1948 applicable at relevant time in Sikkim, same income could not be taxable under the Act as two types of income-tax could not be applied on the same income. It also referred to the decision in the case of Laxmipat Singhania v. CIT [1969] 72 ITR 291 (SC) and Jain Brothers v. UOI [1970] 77 ITR 107 (SC) where it was held that there is no prohibition as such on double taxation provided that the legislature contains a special provision in this regard. However, noting that there was no specific provision in the Act for including the income earned from the Sikkim lottery ticket prior to 1-4-1990 and after 1975, the Apex Court held that the assessee could not be subjected to double taxation.
Mahaveer Kumar Jain v CIT – [2018] 92 taxmann.com 340 (SC) – CIVIL APPEAL NO. 4166 OF 2006 dated April 19, 2018

758. The Tribunal upheld the CIT(A)’s order accepting the assessee’s claim that the entertainment tax subsidy granted by the U.P. State Govt. by way of exemption for 5 years was in nature of capital receipt not chargeable to tax. It relied on the decision of the Apex Court in the case of CIT vs. M/s. Chaphalkar Brothers [Civil Appeal Nos.6513 – 6514 of 2012 (SC)] wherein it was held that though the subsidy was in the form of an entertainment duty via sale of tickets for a limited period but since its utilization was predetermined and granted with an assurance to cover up the cost of construction, the subsidy was an incentive to supplement the construction expenditure of new set up of multiplexes and thus in the nature of a capital receipt. It was noted that in the present case also, the scheme was for promotion of construction of multiplexes for a period of 5 years and the overall quantum of subsidy was limited to the cost of construction. The scheme in the present case also provided that if the cost was recovered prior to 5 years, for rest of the period, the entertainment tax would be leviable.
DEPUTY COMMISSIONER OF INCOME TAX vs. SHIPRA HOTELS LTD. – (2018) 52 CCH 0288 DelTrib – ITA No. 3095, 3096 & 3094/Del./2014 dated April 2, 2018

759. The Court dismissed Revenue’s appeal against the Tribunal’s order remanding the matter to the file of the AO for fresh consideration on the issue of receipt of commission, where the revenue contended that the amount of personal expenses paid to the assessee by its HUF should be taxed in the hands of the assessee u/s 2(24)(iv) as the said amount was paid out of franchisee commission received by the said HUF from the company in which the assessee was a director. It was noted that in case of another related assessee involving identical issue, the Tribunal had remanded the matter to the file of the AO to determine the entity to which the payment of commission was made, holding that the franchise commission paid by a company to the franchiser owned by HUF of the assessee, who were director of the said company, could not be brought to tax u/s 2(24)(iv) merely because such franchises met personal expenses of the assessee-directors. The Revenue’s appeal against the said Tribunal order was dismissed by the Court [CIT v. C.S. Srivatsan (2013) 30 taxmann.com 423 (Mad)].
COMMISSIONER OF INCOME TAX vs. C.S. SESHADRI – (2018) 404 ITR 0191 (Mad) – T.C. (Appeal).No.884 of 2008 dated April 4, 2018

760. Assessee-company,engaged in business of manufacture of cement and chemicals ,filed return of income offering incomes under normal computation as well as u/s 115JB(book profit provision). AO completed assessment taxing sales tax incentive received as revenue receipt. The assessee contended that sales tax incentive/remission received by company was capital in nature as sales tax incentive was given by Government of Gujarat under new incentive policy for setting up industries to generate employment. CIT(A) accepted the assessee’s contention that the incentive received was capital in nature, however he directed the AO to reduce sales tax subsidy from the cost of assets for purpose of depreciation. The assessee as well as the Revenue challenged the order of CIT(A) to exclude sales tax subsidy. The Tribunal held that subsidy granted by government for purpose of setting up/expansion of mills was capital receipt and such receipt was not to be added to book profit u/s 115JB as well as income computed under normal provisions. Further, following the Coordinate Bench decisions in the case of Bajaj Customer Care Ltd c ACIT [ITA No. 365/Hyd/2009] and ACIT v Shree Cement [ITA No. 614,615 & 635/JP/2010], it held that the subsidy amount could mot be adjusted/restricted from the cost of the depreciable assets.
Sanghi Industries Ltd & Anr v ACIT & Anr (2018) 52 CCH 0351 HydTrib – ITA No. 979/Hyd/17 dated 20.04.2018

761. The assessee availed sales tax incentives under Package Scheme of Incentives, 1993 of Government of Maharashtra for setting up of industrial unit. Assessee was continuously claiming this incentive as capital and AO in earlier years treated same as revenue. For the relevant AY under consideration as well, the AO treated the incentive to be revenue in nature. However, the CIT(A) held it to be a capital receipt not chargeable to tax at the hands of assessee. The Tribunal on following the decision of High Court in Reliance Industries Ltd. held that incentive received under Package Scheme of Incentives of Govt. of Maharashtra was capital receipt and not chargeable to tax thereby dismissing revenue’s ground of appeal.
ACIT & Anr v Ballarpur Industries Ltd & Anr (2018) 52 CCH 0340 NagTrib – ITA No. 91/Nag/2011, 92/Nag/2011 dated 16.04.2018

762. The Apex Court dismissed Department’s SLP against the Court order holding that interest on non-performing assets is not taxable on accrual basis looking to guidelines of Reserve Bank of India.
CIT v Jamnagar District Co-Operative Bank Ltd. [2018] 94 taxmann.com 300 (SC) – SLP (CIVIL) DIARY NO. 12840 OF 2018 dated 07.05.2018

763. The Court upheld that Tribunal’s order wherein it was held subsidy allowed by State Government on account of power consumption which was available only to new units and units which had undergone an expansion, was to be regarded as capital subsidy not liable to tax.
PCIT v Shyam Steel Industries Ltd. [2018] 93 taxmann.com 495 (Calcutta) – ITA NO. 37 OF 2018 dated 07.05.2018

764. The assessee, a company wholly-owned by State Govt received an amount as grant-in-aid from the State Govt for payment of salary to its employees, Provident Fund dues and for the purpose of flood relief. The assessee claimed the said receipt to be a capital receipt. The AO disallowed the assessee’s claim stating that the funds were applied to items which were revenue in nature & in past, such receipts were treated as revenue receipt. The CIT(A) upheld AO’s order. However, the Tribunal observed that though the item heads beared the label of revenue receipt, it was apparent that the intention of the State was to keep the company, facing acute cash crunch, floating and to protect employment in public sector organization. It held that there was no separate business consideration on record of the State Govt & the assessee. Further, relying on the decision in the case of Siemens Public Communication Network (P.) Ltd.[2017] 390 ITR 1 (SC) wherein it was held that the voluntary payments made by the parent company to its loss making subsidiary could also be understood to be payments made in order to protect the capital investment of the assessee-company, the Tribunal in the present case held that the State Govt being 100% shareholder, its position was similar to that of a parent company making voluntary payments to its loss making undertaking. Thus, the Tribunal allowed assessee’s claim by holding that the fund received by the assessee-company was to be treated at capital receipt.
PCIT v State Fisheries Development Corporation Ltd [2018] 94 taxmann.com 466 (Calcutta) – ITAT NO. 19 OF 2017 dated 14.05.2018

765. The common rationale that is followed is that if any surplus money that is lying idle and has been deposited in the bank for the purpose of earning interest then it is liable to be taxed as income from other sources but if the income earned is merely incidental and not the prime purpose of the act which has resulted in the accrual of the additional income then the same is not liable to be assesseed and can be claimed as deduction. The Apex Court applying the above mentioned rationale held that the interest income from the share application money was not taxable income and was inextricably linked with requirement of company to raise share capital and was therefore liable to be set off against public issue expenses.
CIT v. Shree Rama Muti Tech Ltd. – [2018] 92 taxmann.com 363 (SC) – Civil Appeal Nos. 6391 & 8336 of 2013 dated April 24, 2018

766. The assessee, a stock broker registered with the Madras Stock Exchange, acted as a broker to the Indian Bank in purchase of securities from different financial institutions. The assessee purchased securities of different PSUs at a rate quoted by the Indian Bank (12.75% interest as against 8% interest quoted by RBI) and sold the same to the Indian Railways Financial Corporation for which the assessee was paid a commission. The assessee declared his income at Rs. 4.85 crores which was denied by the AO who demanded a sum of Rs. 14.74 crores holding that the assessee had not acted as a broker in the transaction rather as an independent dealer and that there was no overriding title in favour of the PSUs with regard to the additional amount earned out of the securities and the case was of application of income after accrual. Criminal proceedings were also initiated against the assessee but the CBI Court acquitted the assessee and held that the relationship between the assessee and the Indian Bank was that of principal-agent and the assessee had acted in the capacity of a broker. The Tribunal denied the evidence produced in the criminal proceeding and held that the assessment and criminal proceeding were different in nature. However, the High Court relied on the evidence given in the criminal case and set aside the order of the Tribunal. The Apex Court held that the CBI Court’s findings were based on material and evidence placed on record and there was no reason to reject the same. The Court further held that although the assessee’s conduct was not as per the normal course of conduct but the findings of the CBI Court and the material and evidence placed on record suggested that the assessee had acted as a broker and not as an independent dealer. Accordingly, the appeal of the Revenue was dismissed.
DCIT v. T. Jayachandran – [2018] 92 taxmann.com 385 (SC) – Civil Appeal Nos. 4341 to 4345 & 4346 to 4357 of 2018 dated April 24, 2018

b. Income from Salary

767. The Tribunal deleted the addition made to assessee’s income as perquisite u/s 17(2)(iii) on the reasoning that the assessee and his wife had purchased certain immovable properties from the company in which the assessee was a director at a value lower than the market value determined for stamp duty purposes, without making any enquiry or bringing material on record to demonstrate that stamp duty value was actual fair market value of property. It held that the deeming provision providing for adoption of stamp duty value as the deemed sale consideration is applicable under specific circumstances and cannot be applied to other provisions of the Act. Further, Tribunal held that to treat any sum as a perquisite, it was incumbent on part of AO to establish that a benefit in nature of salary was given by an employer to an employee, including the existence of employer-employee relationship.
Keshavji Bhuralal Gala v ACIT – (2015) 169 ITD 23 (Mum) – ITA Nos. 4938 of 2016 & 6023 of 2014 dated 08.01.2018

768. The Court dismissed assessee’s appeal against the Tribunal’s order rejecting assessee’s contention that the salary received by him, as Managing Director (MD) of a company, being in excess and contrary to the provisions of Companies Act, was subsequently revised downwards by the said company to comply with the said provisions and thus the excess amount received could not be taxed as his income. Noting that the salary already paid to the assessee was not recovered by the said company and it was allowed to remain with the assessee, it was held that even if amount was paid contrary to provisions of Companies Act, it had to be construed as income of the assessee.
Nate Nandha v ACIT – [2018] 95 taxmann.com 49 (Chennai – Trib.) – IT APPEAL NO. 278 (CHNY.) OF 2017 dated June 8, 2018

769. The Apex Court held that the amount received by the assessee-employee from his employer on account of redemption of Stock Appreciation Rights (SARs) prior to 1-4-2000 could not be brought to tax as perquisite u/s 17, holding that clause (iiia) inserted u/s 17(2) vide the Finance Act, 1999 to provide that the value of any specified security allotted or transferred, directly or indirectly, free of cost or at concessional rate, by the employer to his employee will be taxed as perquisite u/s 17 came into force only on 1-4-2000 and had no retrospective application. It also rejected Revenue’s argument that the said amount was taxable u/s 28(iv) holding that the said section was applicable only to a case where there was any business or profession related transaction involved, which was not so in the instant case. The Apex Court thus dismissed Revenue’s appeal against the High Court’s order wherein the High Court had held that the amount received on redemption of SARs was capital gain but the same was not taxable in absence of any cost of acquisition.
ACIT vs. Bharat V. Patel – [2018] 92 taxmann.com 386 (SC) – CIVIL APPEAL NOS. 4380 & 4381 OF 2018 dated April 24, 2018

770. The assessee’s case was that the second respondent namely Management of Chemplast Sanmar Limited had started deducting tax on perquisites from salary of the employees in terms of amended Rule 3 of IT Rules, 1962 framed u/s 17(2) of the IT Act against which a writ petition was filed before the Court. The Court dismissed the writ with liberty to the petitioners to plead that there was no concession in the matter of accommodation provided by the employer and the case was not covered by section 17(2) for the period 2001-02 to 2008-09 and accordingly remanded the matter to held that the leave sought by the assessee, that there was no concession in terms of accommodation provided to employees and that the matter was not covered by section 17(2)(ii), was granted and accordingly the matter was remanded.
Mettur Chemicals & Plastics Workers Union v. UOI – [2018] 93 taxmann.com 459 (Madras) – W.P. NOS. 382 AND 383 OF 2006 dated APRIL 12, 2018

c. Income from House Property

771. The Tribunal held that the benefit provided in Section 23(1)(c) [i.e. where a property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof was less than the ALV under Section 23(1)(a) then the assessee was to be taxed only on the rent received / receivable], would apply to properties which are ready to let notwithstanding the fact that the properties have not been actually let out in the past. Noting that the property of the assessee was vacant during the entire year but were in the ready to let condition, it held that the AO was incorrect in denying the benefit under Section 23(1)(c) and in taxing the income as per ALV under Section 23(1)(a) of the Act.
ITO v Metaoxide (P.) Ltd – [2018] 92 taxmann.com 302 (Mumbai – Trib.) – IT APPEAL NOS. 4428 & 5771 TO 5775 (MUM.) OF 2016 dated MARCH 28, 2018

772. In the case of assessee, engaged in business of buying of properties and leasing out same, and offering income from such leasing to under the head ‘Income from House Property’, the Tribunal held that –
– contributions received by it from tenants towards sinking fund could not be assessed as rental income of assessee
– interest paid on loan borrowed from its holding company for acquiring of property was to be allowed as deduction u/s 24(b)
– in view of fact that actual rent received or receivable by assessee in respect of let out property was in excess of sum for which property might reasonably be expected to have been let out from year to year and the ALV had been determined u/s 23(1)(b), no addition in respect of notional interest on interest free refundable deposits received from its tenants was called for
ITO v Altitus Management Advisors (P.) Ltd. – (2018) 91 taxmann.com 472 (Mum) – ITA No. 4259 (Mum.) of 2015 dated 28.02.2018

773. The Tribunal confirmed AO’s addition of notional interest on security deposit received under ‘Leave and License Agreement’ by the assessee observing that the security deposit in the instant case was to circumvent real rent. It noted that the Assessee (tenant, who had further sublicensed the property to third party) had offered leave and license fees of Rs. 4,80,000 to tax and that he also received interest free security deposit of Rs. 2.75 Crs from the licensee. It held that the security deposit of Rs.2.75 cr. was hugely disproportionate to the leave and license fees of Rs.4,80,000/- shown by the assessee, and therefore on viewing the transaction as a whole, it held that the transaction in the instant case was a device to reduce the tax burden. Accordingly, it concluded that the ‘Leave and License Fee’ and ‘Security Deposit’ were interconnected and part of the same transaction. Accordingly, it held that the held that the notional interest @ 9% was appropriate (based on interest rate on term deposits offered by Public Sector Banks) and taxable.
Deena Asit Mehta [TS-60-ITAT-2018(Mum)] – ITA No. 3549/MUM/2016 dated 09/02/2018

774. The Tribunal dismissed Revenue’s appeal against the CIT(A)’s order deleting the addition made by the AO u/s 23 by computing notional annual letting value on unsold shops which were held as stock in trade by the assesse, relying on the decision in the case of M/s. Runwal Constructions v. ACIT [ITA.No. 5408 & 5409/Mum/2016] wherein it was held that since the unsold flats were treated as stock in trade in the books of account of the assessee and the flats sold by it were assessed under the head ‘income from business’, the AO was not correct in bringing to tax notional annual letting value in respect of those unsold flats u/s 23 as income from house property .
INCOME TAX OFFICER vs. ARIHANT ESTATES PVT. LTD. – (2018) 53 CCH 0321 MumTrib – ITA NO. 6037/MUM/2016 dated June 27, 2018

775. The Tribunal allowed assessee’s claim for deduction u/s 24(b) of the entire interest paid on amounts borrowed and utilized for construction of land and building, which was disallowed by the AO to the extent of 50% on the ground that there was no bifurcation of funds used for land and building and other assets used for business activities. It was noted that the land and buildings were constructed as the assets of school and the amount invested in the school land and building was far higher than the amounts borrowed. Further, the assessee had given complete details before the CIT(A) to show how much own funds were available to the assessee and how much amounts had been borrowed from the Bank and other institutions.
VIDYA EDUCATION INVESTMENT PVT. LTD. vs. INCOME TAX OFFICER – (2018) 53 CCH 0211 (Del Trib) – ITA.No.6177/Del./2014 dated June 22, 2018

776. For AY 2003-04 to AY 2008-09, the AO had rejected assessee’s claim that the rent received on sub-letting the property and service charges for rendering certain services relating to such letting out should be assessed as income from business. He instead assessed the same as income from house property, thereby not allowing deduction for business expenditure. The CIT(A) confirmed the AO’s order. Tribunal upheld the decision of the authorities below to assess the rental income as income from house property. As regards the service charges, the Tribunal directed that the same should be assessed as income from other sources and the expenditure incurred by the assessee should be allowed as per the provisions of section 57. Subsequently, under the order passed by the AO, giving effect to the above order of the Tribunal, he held that the assessee’s claim for depreciation and other expenses like corporate expenses, etc. were inadmissible as per section 57 as the said expenses had no direct nexus with earning of service charges. The CIT(A) upheld the said order passed by the AO to give effect to the Tribunal’s directions. Further, before the CIT(A), the assessee had also submitted that the Tribunal in the assessee’s own case for AY 2009-10 had reversed its order for AY 2003-04 to AY 2008-09 (referred above), allowing the assessee’s appeal. However, the CIT(A) refused to follow the Tribunal’s order for AY 2009-10 in view of the Tribunal’s binding order for AY 2003-04 to AY 2008-09. On further appeal, the Tribunal held the CIT(A) was correct in following the said binding order. Further, with respect to the assessee’s contention that the AO had not followed the Tribunal’s directions correctly, it held that the AO and the CIT(A) had correctly followed the Tribunal’s earlier order, giving detailed findings. [It is to be noted that in the present case, the Tribunal had rejected the assessee’s adjournment petition and decided the matter ex-parte.]
PROLIFIC VENTURES PRIVATE LIMITED vs. INCOME TAX OFFICER – (2018) 52 CCH 0267 MumTrib – ITA Nos. 38 to 43/Mum/2018 dated April 2, 2018

777. The Tribunal allowed assessee’s appeal and deleted the addition made by the AO on account of income from house property owned by the assessee, with respect to which the assessee had admitted certain amount as its annual rental income and the said rental income was considered by the AO to be grossly low. The AO had adopted market rent to determine the annual let out value and assessed the same to tax. The Tribunal observed that the house property was part occupied by the assessee for his personal propose when he visited India and as per the Act, annual value of property under self-occupation was Nil. Further, it accepted the assessee’s argument that since he accessed pooja room and internal stairs when he was in self-occupation, there was violation of privacy to the tenants residing in other 50% of the house and thus no other tenant would come forward to take house at high rent. The Tribunal thus held that that fetching of Market Value was not justified and the rent admitted by the assessee was reasonable.
Vegesna Ananthakoti Raju v DCIT (International Transactions) (2018) 52 CCH 0279 VishakapatnamTrib – ITA No. 528/Vizag/2017 dated 04.04.2018

778. SLP was granted by the Apex Court against High Court ruling that where flats constructed by assessee were held as stock-in-trade and same were not at all let out for any previous years, there would be no question of availing vacancy allowance under section 23(1)(c); and assessee would be liable to pay tax on ALV of said flats under section 23(1)(a).
Ansal Housing & Construction Ltd. v ACIT [2018] 95 taxmann.com 17 (SC) – SLP (C) NOS. 11016 AND 11017 OF 2018 dated 04.05.2018

779. The Tribunal held that Municipal rateable value is an approved method for determination of ALV of property but if AO is convinced that municipal rateable value did not represent fair market value of rent, then he may resort to prevailing market rental value in locality
ACIT v Cyrus Investments (P.) Ltd [2018] 93 taxmann.com 493 (Mumbai – Trib.) – ITA NO. 5414 OF 2016 dated 09.05.2018

780. The assessee let out amenities like flooring, Generator, Electrical Cabling, Plumbing, Sprinklers, Hydrants, Signage, Anchor space etc. along with its properties and treated income from the same, i.e. rent as ‘Income from House Property’. The AO held that income from letting out amenities was taxable as ‘Income from Business or Profession’. While allowing the assessee’s appeal, Tribunal relied on the co-ordinate bench ruling in the assessee’s own case for earlier years wherein it was held that amenities were part and parcel of the rent agreement and that the amount received was rent and should be taxable as ‘Income from House Property’. While doing so, Tribunal also relied on the ruling of the jurisdictional High Court in the case of J.K. Investors (Bombay Ltd.) ITA No. 1089 to 2011 and Bhaktavar Construction Pvt. Ltd. (162 ITR 452) wherein it was held that amenities agreement cannot operate in isolation of the rent agreement.
ITO vs. Zears Developers P. Ltd. & Anr. – [2018] 53 CCH 0012 (Mum ITAT) – ITA No 6375/Mum/2016, 6274/Mum/2016 dated May 7, 2018

d. Business Income

781. The assessee earned a total sum of Rs. 4.30 crore including Rs. 2.36 crore from rental income / fee for craft stalls installed in a tourism festival called ‘Dilli Haat’ which it offered to tax under the head Profits and Gains from Business. The Assessing Officer held that the entire rental income constituted ‘income from house property’ observing that the assessee constructed certain permanent structures as well as temporary constructions which it rented to several organizations. The Tribunal noted that out of the total sum of Rs. 2.36 crore the assessee only disputed the amount of Rs. 1.82 crore earned on account of license fee for use of craft stalls for a period of 15 days and conceded to the balance. Vis-à-vis the receipt of Rs. 1.82 crore, the Tribunal observed that the stalls were set up with main object to promote tourism and to attract tourists and the rent was charged for each craft stall for use of designated area in Dilli Haat. Considering that the stalls were set up in light of overall object of promoting tourism the income from such craft stalls could not be considered as anything other than business income.
DELHI TOURISM AND TRANSPORT DEVELOPMENT CORPORATION LTD. & ORS. vs. DEPUTY COMMISSIONER OF INCOME TAX & ORS. – (2018) 52 CCH 0258 DelTrib – ITA No. 3457/Del/2007, 1505/Del/2009

782. The Tribunal held that non-compete fees received by the assessee as the then senior partner of a CA firm from PwC for foregoing his partnership interest in the said firm and relinquishing his right to practice as a Chartered Accountant and Financial Consultant in India for a period of 5 year was non-taxable capital receipt as section 28(va) clearly provides that the same would be applicable in a case where any sum was received or receivable under an agreement for not carrying out any activity in relation to any ‘business’ and not ‘profession’ and such intentional absence of the term ‘profession’ reveals the clear legislative intention. It further held that the insertion of the term ‘or profession’ in the said section vide the Finance Act, 2016 is prospective in nature and was not applicable to year under consideration.
Shri Ashok M. Wadhwa v. ACIT – TS-610-ITAT-2017(Mum) – ITA No. 1871 & 2576/Mum/2012 dated 20.12.2017

783. Where assessee was following Percentage Completion Method, the Tribunal accepted AO’s stand of recognizing revenues in respect of advance received by assessee (engaged in residential township development) from the customers to the extent of stage of completion, noting that in terms of the plot buyer agreement, significant risk relating to the real estate was transferred by assessee to the buyer. It held that revenue accrued when plot buyer agreement was entered into and not only when the sale deed was registered. However, referring to ICAI Guidance on recognizing revenues from real estate transactions, it rejected AO’s action of recognizing entire sale consideration in case of sale deeds executed instead of proportionate revenues.
Vastukar Township Pvt Ltd v DCIT – TS-617-ITAT-2017(JPR) – ITA No. 105,106, 119, 120 & 172/JP/2017 dated 22.12.2017

784. The Apex Court dismissed revenue’s appeal against the High Court decision wherein the High Court, noting that the assessee-NBFC did not receive any interest on Inter Corporate Deposits categorized as NPA since many years and even the recovery of principal amount was doubtful, had held that interest income thereupon did not accrue in terms of the RBI Prudential Norms. Addressing revenue’s argument that the Supreme Court in the case of Southern Technology had held that RBI Act does not override the provisions of Income-tax Act, The Court had clarified that the Supreme Court’s observation was in context of allowability of deduction for NPA provision u/s 36(1)(vii), however in respect of income recognition, Supreme Court had held that income is to be recognized in terms of RBI Prudential Norms even though the same deviated from mercantile system of accounting and/or section 145.
Vasisth Chay Vyapar Ltd – TS-619-SC-2017 – Civil Appeal No. 5811 of 2012 (SC) dated 13.12.2017

785. The Tribunal approved assessee’s action of aggregating both the policyholders’ and shareholders ‘ account while determining the income from life insurance business for applying the provisions of section 44 r.w. First Schedule after noting that a life insurer is not permitted to carry on any business other than that of life insurance and that investments made out of shareholder funds is an integral and inextricable part of the life insurance business and not an independent business. In this regard, Tribunal followed Mumbai Tribunal ruling in ICICI Prudential Insurance Co. Ltd. which is approved by Bombay HC. Tribunal deleted additions made in respect of the amount declared and allocated as bonus for participating policy holders and amounts appropriated as Funds for Future Appropriation observing that both the amounts were with respect to ascertained liabilities as against Revenue’s stand of including the same in actuarial surplus.
Max New York Life Insurance Company Limited v DCIT – TS-3-ITAT-2018(DEL) – ITA No.142/Del/2017 & CO No. 123/Del/2017 dated 05.01.2018

786. Where assessee, who was director of a company, alongwith his wife, purchased certain immovable properties from the company at a value lower than the market value determined for stamp duty purposes, Tribunal rejected the Revenue’s contention that benefit derived from above activity was an adventure in nature of trade/business taxable under the head profit and gain of business or profession as per section 28(iv), since the assessee had shown the properties as investments in his books and the revenue itself had accepted it to be investment activity.
Keshavji Bhuralal Gala v ACIT – (2015) 169 ITD 23 (Mum) – ITA Nos. 4938 of 2016 & 6023 of 2014 dated 08.01.2018

787. Tribunal held that authorities below were justified in making addition to assessee’s income as perquisite u/s 28(iv) on account of a watch worth Rs. 40 lakhs received as gift from company for which she had undertaken advertisements and promotional activities on remuneration basis.
Ms. Priyanka Chopra v DCIT – [2018] 169 ITD 144 (Mum) – ITA Nos. 2524 and 2769 (Mum) of 2015 dated 16.01.2018

788. Where assessee, a film actress, had done promotional activity on being brand ambassador of NDTV Toyota Greenathon campaign and, accordingly, had promoted brand Toyota, Tribunal held that the receipt of Toyota car as gift in this connection had rightly been added in her hands as perquisites u/s 28(iv)
Ms. Priyanka Chopra v DCIT – [2018] 169 ITD 1 (Mum) – ITA Nos. 2771 (Mum) of 2015 dated 16.01.2018

789. Where the assessee company, engaged in deriving rental income from letting out of warehouse, treated rental income received as business receipts but the AO completed assessment u/s 143(3) treating rental income received from letting out of warehouse as Income from House Property, the Tribunal relying on its earlier years order in the case of the assessee held that warehouses constructed by assessee were commercial assets and income that arose from leasing out commercial property constituted business income. It noted that the warehouses constructed were as per international standards and therefore held that the services offered by the assessee could not be regarded as routine services to be rendered by any ordinary property owner as part of lease and therefore held that the rentals constituted business income of the assessee.
INCOME TAX OFFICER vs. ANJANEYA INFRASTRUCTURE PROJECT PVT. LTD. – (2018) 52 CCH 0220 BangTrib – ITA No. 2509/Bang/2017 dated Mar 23, 2018

790. The Tribunal upheld the action of AO in rejecting the books of accounts of the assessee-firm and estimating net profit at rate higher than the rate of net profit declared by assessee in her return of income on the ground that the assessee had declared net profit at rate which was far less in comparison to profit rates achieved in earlier years and there were various discrepancies found and also noting that the assessee had failed to show any justification for payment of additional rent during relevant year. It further held that since the assessee had also failed to demonstrate as to what services had been rendered by her husband or daughter to whom salaries had been paid, the said salaries claimed by assessee towards husband and daughter were disallowed.
Smt. Kantaben Ramjibhai Chaudhari v ITO – (2018) 91 taxmann.com 179 (Ahmedabad Trib) – ITA No. 1 (Ahd.) of 2016 dated 16.02.2018

791. The assessee- firm, engaged primarily in construction and development of properties, had claimed deduction of interest paid on borrowings for a project completed during the year and given on lease while computing Income from house property and also claimed / added the said interest expense to the WIP of the said project. Noting the accounting treatment laid down under AS 10 and AS 16 providing that companies must capitalize interest costs associated with acquiring or constructing an asset that requires a long period of time to get ready for its intended use and that borrowing costs that are directly attributable to acquisition, construction or production of a qualifying asset should be capitalized as part of cost of that asset, the Tribunal remanded the matter to AO to make a de novo order considering AS 10 and AS 16.
HGP Community (P.) Ltd. v ITO – (2018) 91 taxmann.com 464 (Mum) – ITA No. 5081 (mum.) of 2017 dated 26.02.2018

792. Where AO made addition to the assessee’s income valuing the closing stock of packing materials representing scrap based on the scrap sales made in subsequent years, the Tribunal deleted the addition observing that while valuing the scrap as above, the AO had ignored the principles of valuation of stock as enumerated in AS 2 issued by ICAI which is also mandated to be followed u/s. 145A i.e. valuing the stock at cost or net realizable value, whichever is lower.
Citadel Fine Pharmaceuticals (P.) Ltd. v ACIT – (2018) 92 taxmann.com 79 (Chen) – ITA Nos. 2027 & 2028 (CHNY) of 2017 dated 08.02.2018

793. Where AO added amount due to a group concern to the assessee’s income as per section 41(1), taking a view that since the group concern had ceased its business operations, the assessee would not pay the dues, the Tribunal deleted that addition in view of fact that entire balance outstanding was reflected as receivable in books of the group concern, which was also assessed by very same AO and, thus, there could not be any cessation of liability on part of the assessee.
Citadel Fine Pharmaceuticals (P.) Ltd. v ACIT – (2018) 92 taxmann.com 79 (Chen) – ITA Nos. 2027 & 2028 (CHNY) of 2017 dated 08.02.2018

794. The Court deleted the addition made u/s 41(1) of excess provision of bad and doubtful debts written back in books of account of the assessee, noting that the revenue had not established that the said excess provision for bad and doubtful debts allowable u/s 36(1)(viia) was allowed as deduction in previous years. It held that the burden lay on revenue to prove that provision for bad and doubtful debts written back was allowed as deduction in earlier years.
CIT v Pragathi Gramina Bank – (2018) 91 taxmann.com 343 (Kar) – ITA No. 100028 of 2014 dated 09.02.2018

795. Where assessee billed the license fees receivable for the calendar year in January but accounted its income to the extent it was attributable for period January to March in year and offered the balance to tax in subsequent assessment year, the Court held that since obligation in respect of license fees billed for entire calendar year was yet to be discharged at end of previous year, the same would be due only in the next previous year related to the next assessment year. Accordingly, it rejected AO’s contention that as assessee was following mercantile system of accounting, it should have accounted entire income billed for tax in relevant assessment year.
Pr.CIT v C.U. Inspections India (P.) Ltd. – (2018) 91 taxmann.com 344 (Bom) – ITA No. 620,622 & 711 of 2015 dated 22.01.2018

796. The Tribunal allowed appeal of assessee, working as contractor of electrical maintenance on board of different companies vessels, for treating the receipts from such companies as income from business or profession, where AO treated receipts as taxable income under head ‘Salary’ on the ground that the assessee had not maintained books of accounts as per provisions of section 44AA. It held that from entire agreement executed between contracting company and assessee, it was clearly evident that nature of work executed by assessee for Marine Companies was in nature of contract and there was no employer-employee or master-servant relationship and no permanent contract. The Tribunal held that the professional contracts carried on by assessee were ‘contract for service’ and not ‘contract of service’, accordingly the said receipts were business receipts and appropriate expenditure were to be allowed.
SURESH KUMAR HOODA v ITO – (2018) 52 CCH 26 (Del Trib) – ITA No. 3897/Del/2009 dated 08.01.2018

797. The Court upheld the Tribunal’s order holding the non-compete fees received by assessee from a company wherein the assessee was the Managing Director and an erstwhile JV partner as capital receipt stating that the view of the Tribunal was a plausible one. It rejected Revenue’s contention that even before the amendment in section 28 vide the Finance Act 2017, non-compete fees received for not carrying out any activity in relation to profession was taxable as income. It referred to the decision of CIT v. Anjum G. Balakhia (2017) 393 ITR 320 (Guj) wherein the Court had noted the Apex Court ruling in the case of CIT v. Sapthagiri Distilleries Ltd. (2015) 53 taxmann.com 218 (SC) had held that compensation received towards loss of source of income and non-competition fee could be treated only as capital receipts and not liable to tax.
Pr.CIT v SATYA SHEEL KHOSLA – (2018) 101 CCH 22 (Del HC) – ITA 289/2016 dated 29.01.2018

798. The Tribunal deleted the addition made u/s 41(1) with respect to outstanding payment of commission payable to an agent with whom the assesse had entered into MOU for procuring business from overseas, where according to the AO the said liability ceased to exist as assessee could not submit any proof of creditor agent making any request to assessee for clearance of outstanding payment. It noted that MOU entered into between assessee and its agent was before the Revenue and it had not brought on record any evidence to prove that said MOU was not genuine or no commission was payable to the said agent for business generated by him in favour of assessee in earlier years and that the Revenue had also allowed this commission payable in earlier years as an expense.
Pyramid Consulting Engineers (P.) Ltd. v DCIT – (2018) 90 taxmann.com 411 (Mum) – ITA No. 1972/Mum of 2016 dated 23.01.2018

799. The assessee purchased and sold shares of Rs. 22.03 crores and Rs. 24.12 crores respectively and declared the income arising from sale of shares as short-term capital gain. The Tribunal upheld the AO’s finding that since the assessee had regularly dealt in purchase and sale of share which indicated period of holding to be very short (assessee had made purchase of shares 57 times and sale of shares 59 times and there were several instances when assessee had purchased shares and sold them either same day or after a few days), the income arising therefrom was to be considered as business income. Observing that the Tribunal had duly considered volume of holding, duration of holding, and income derived as dividend to investment made. The Court upheld the order of the Tribunal and held that it had rightly held that income arising from sales of shares was assessable as business income.
Rakesh Kumar Gupta v CIT – [2018] 92 taxmann.com 101 (Delhi) – IT APPEAL NO. 86 OF 2018 dated MARCH 15, 2018

800. Where the assessee was providing warehousing services along with other facilities such as security service and other services to keep goods safe and under hygienic conditions, the Tribunal held that the said activity systematically undertaken by assessee was in nature of business and the AO was not justified in taxing the income as rental income under the head income from house property merely because the payer deducted tax under Section 194-I of the Act.
DCIT v Tewari Warehousing Co – [2018] 92 taxmann.com 168 (Kolkata – Trib.) – IT APPEAL NO. 1316 (KOL.) OF 2016 dated MARCH 16, 2018

801. Where the assessee claimed carry forward of business loss in respect of expenditure on school fares of director’s children, rent paid for director’s residence and commission paid to broker for rental premises, which was disallowed on ground that no business was set up in previous year relevant to subject assessment year, the Court upheld the order of the Tribunal wherein it was held that since the assessee failed to produce necessary evidence in support of its claim that business was set up and it was ready to commence, expenditure incurred by assessee prior to setting up of business could not be allowed.
ALD Automotive (P.) Ltd. v DCIT – [2018] 91 taxmann.com 475 (Bombay) – [2018] 91 taxmann.com 475 (Bombay) – IT APPEAL NO. 1149 OF 2015 dated MARCH 5, 2018

802. The Tribunal deleted notional income addition made u/s. 23 towards annual letting value of unsold flats of Runwal builders observing that the flats sold by assessee were assessed under the head ‘income from business’ and the unsold flats were treated as its stock-in-trade. Accordingly, it held that the AO was incorrect in taxing notional value of unsold flats under the head ‘income from house property’.
Runwal Constructions – TS-124-ITAT-2018(Mum) – ITA No. 5408/Mum/2016 dated 22.02.2018

803. The Court upheld the Tribunal’s order wherein, following the decision of the Hon’ble Supreme Court in the case of CIT v. Bokaro Steel Ltd. [1999] 102 Taxman 94 (SC), the Tribunal had held that the interest income earned by assessee-company, engaged in construction activities, on bank deposits made out of share capital could not be taxed as ‘Income from other sources’ as the said interest income was earned prior to commencement of operations of company during construction period and thus was on capital account. It was held that the interest income would go to reduce capital cost of project and was eligible for deduction against public issue expenses incurred by company.
Pr.CIT v Bank Note Paper Mill India (P.) Ltd. – [2018] 95 taxmann.com 158 (Karnataka) – IT APPEAL NO. 690 OF 2017 dated June 21, 2018

804. Assessee an individual was an interior decorator / contractor and also received remuneration from partnership firm during year under consideration. On perusal of balance sheet, AO treated the sundry creditors as deemed income under Section 41(1), being alleged cessation of liabilities as there was no movement in account of the said parties’ account for more than two years. CIT(A) upheld the order of the AO. Tribunal observed that since assessee had shown same balances as outstanding sundry creditors even as on 31.3.2013 (i.e next assessment year), it was undisputed that assessee had not written back these creditors as liabilities no longer payable and hence the liabilities did not cease to exist. Accordingly, the Tribunal held that since there was no clear finding to prove that liabilities had ceased to exist during the relevant AY by the AO or the CIT(A), the provisions of section 41(1) could not be invoked as assessee did not obtain any benefit in respect of these trading liabilities. Accordingly, assessee’s ground was allowed.
JASHOJIT MUKERJEE vs. ACIT (KOLKATA TRIBUNAL) (ITA No. 403/Kol/2017) dated May 4, 2018 (53 CCH 0014)

805. The Apex Court held that the waiver of loan taken for acquiring capital assets could neither be taxed as perquisite u/s 28(iv) nor as remission of liability u/s 41(1) by holding that –
– for invoking provisions of section 28(iv), benefit received has to be in some form other than in shape of money and since the waiver amount represented cash/money, the said section was not applicable
– for application of section 41(1), it is sine qua non that there should be an allowance or deduction claimed by assessee in respect of loss, expenditure or trading liability incurred, however, assessee had not claimed deduction u/s 36(1)(iii) for interest on loan and loan was obtained for acquiring capital assets, hence, the waiver was on account of liability other than trading liability and, thus, provisions of section 41(1) were also not applicable
CIT v Mahindra And Mahindra Ltd – [2018] 93 taxmann.com 32 (SC) – CIVIL APPEAL NOS. 6949-6950 OF 2004 & OTHERS dated April 24, 2018

806. Assessee was awarded a contract with HPCL for transportation of HPCL’s petroleum product. On execution of contract, HPCL made payment to assessee firm after deducting Tax at Source. The assessee firm failed to show receipts out of contract in its account contending that the owner of the truck was one Mr. Lal and the entire income was transferred to Mr. Lal. However, the AO made addition under undisclosed profits and the CIT (A) and the Tribunal upheld AO’s order. The Court, concurring with the lower authorities, held that as per s.198 all sums deducted in accordance with Chapter XVII for purpose of computing income of assessee shall be deemed to be income received and TDS by HPCL would be treated as payment of tax on behalf of assessee from whose income deduction was made. Also, as assessee had availed the benefit of deduction, the contract was between HPCL and the assessee and the entire payments were made in favour of the assessee, the addition was justified.
Lal Prasad & Sons v CIT (2018) 101 CCH 0262 Pat HC – Miscellaneous Appeal No. 678 of 2010 dated 23.04.18

807. The assessee was engaged in the business of real estate and entered into a consortium agreement with one JMA company to purchase a land and would resell it to other buyer. The JMA company defaulted in its commitment within prescribed and extended time limit thereby leading to the arbitration proceeding and as settlement of dispute, the assessee was awarded huge compensation/damage. The AO as well as CIT(A) regarded this amount as revenue in nature holding that the land for which the compensation/damage was received was a part of stock-in-trade. The Tribunal dissented with AO and CIT(A) and followed CIT v Bombay Burmah Trading Corpn (SC) wherein it was held that ‘if there was any capital asset, and if there was any payment made for the acquisition of that capital asset, such payment would amount to a capital payment in the hands of the payee. Secondly, if any payment was made for sterilization of the very source of profit-making apparatus of the assessee, or a capital asset, then that would also amount to a capital receipt in the hands of the recipient.’ Therefore, the Court held that the amount received as compensation for immobilisation, sterilization, destruction or loss, total or partial of a capital asset would be capital receipt and dismissed revenue’s appeal.
PCIT v Aeren R Infrstructure Ltd. (2018) 101 CCH 0189 DelHC(2018) 404 ITR 0318 (Delhi) – ITA 235/2017, ITA 236/2017 dated 25.04.18

808. The Tribunal dismissed Revenue’s appeal against the CIT(A)’s order deleting the addition made by the AO on account of overdue interest with respect to non-performing asset (NPA) which was not receivable, noting that the assessee-bank had followed the RBI’s directions to first debit the said interest to individual debtor (correspondingly crediting P&L A/c) and then derecognize income (by debiting the P&L A/c). It followed the decision in the case of District Co-operative Central Bank, Eluru Vs. ITO wherein the addition on account of interest on NPA was deleted holding that such interest was to be recognized on actual receipt basis but not on accrual basis.
ACIT v Guntur Co-operative Central Bank (2018) 52 CCH 0551 VishakapatnamTrib – I.T.A.No.75/Vizag/2016 & C.O. No.36/Vizag/2016 dated 06.04.2018

809. The Tribunal held that where assessee, carrying on trading activities in stock and commodities, held derivatives as stock-in-trade, its claim for loss at end of year on mark to market basis could not be disallowed on the ground that same was contingent in nature.
Edel Commodities Ltd. v DCIT [2018] 92 taxmann.com 133 (Mumbai – Trib.) – ITA NOS 3426 AND 3576 (MUM.)OF 2016 dated 06.04.2018

810. Where a loan taken for expansion of business was to be repaid only upon receipt of approval from RBI, the AO made an addition under Section 28(iv) in AY 2010-11 as the same was not paid considering the RBI approval was pending. Relying on the ruling of the Supreme Court in Mahindra and Mahindra Ltd (Civil Appeal Nos 6949 – 6950/ 2004) dated 24/4/2018, the Tribunal held that since the AO could not show that the assessee had obtained any benefit arising out of business, by obtaining loan on interest, no addition could be made under Section 28(iv) of the Act.
Skylark Hospitality India Pvt. Ltd. vs. DCIT – [2018] 53 CCH 0019 (Delhi ITAT) – ITA No 6431/Del/2014 dated May 3, 2018

811. The assessee, engaged in the business of development and leasing of commercial properties including I.T. Parks, offices etc., received income from leasing such properties. The AO treated the same as Income from ‘House Property’ as against ‘business income’ offered by the assessee. Relying on the CBDT Circular No.16/2017 dated 25.04.2017 and the AO’s orders in the assessee’s case for preceding four assessment years, the Tribunal upheld the order of the CIT(A) and held that income from letting out of premises / developed space along with other amenities in industrial park / SEZ was to be charged under head profits and gains of business. As regards the deduction claimed on account of payment of salaries and Directors’ remuneration, Tribunal held that such remuneration was paid for the services rendered by the Directors and if the AO wanted to disallow such remuneration considering that the same was unreasonable, he should have brought the facts and materials on record to establish the actual fair market value of the services rendered.
ACIT vs. Grew Industries Pvt. Ltd. – [2018] 53 CCH 0015 (Mumbai ITAT) – ITA No 5427 of 2016 dated May 9, 2018

812. The assessee was engaged in the execution of civil / electrical and air conditioning contracts for defense establishments. During the course of search proceedings on the assessee’s premises, certain evidences were found indicating inflation of expenditure, suppression of income and bogus sub-contract payments. The assessee had accepted the same for completion of assessment by reasonable estimation of income. Accordingly, the AO completed assessment by estimating income at 12% of gross contract receipts as net income, clear of depreciation and all other expenses. The CIT(A) directed the AO to estimate income at 12.5% of gross contract receipts and to grant deduction in respect of depreciation out of gross income so arrived at. Tribunal observed that jurisdictional Tribunal as well as Coordinate Benches held that estimation of income in case of civil contracts @ 8% to 12.5% was reasonable and thereby upheld the order of the CIT(A). Accordingly, the Assessee’s appeal was dismissed.
SVC PROJECTS PVT. LTD. & ANR. vs. ACIT & ANR. (VISHAKAPATNAM TRIBUNAL) (ITA No. 169-175/Viz/2013, 183-189/Viz/2013) dated May 23, 2018 (53 CCH 0075)

813. Where the Assessee was engaged in the business of Rice Shelling, the AO rejected the books of accounts and made an addition by adopting GP ratio of 15% for manufacturing goods and 3% for trading goods. While doing so, the AO did not categorically state the basis for arriving at the GP ratios. The CIT(A) upheld the order of the AO. The Tribunal relied on the ruling of the Apex Court in Kachwala Gems Vs. JCIT (288 ITR 10) wherein it was held that estimation of GP should be honest and fair and should not be arbitrary, though it contained certain degree of guess work. Thus, keeping in view the profits declared by the Assessee and estimation done by the AO and keeping in view the history and earlier profits declared by the Assessee, the Tribunal estimated the GP at 2% for trading goods and 12% for manufacturing goods. Thus, the Assessee’s appeals were allowed.
KRISHNA GRAM UDYOG SAMITI & ANR. vs. DCIT & ANR. (CHANDIGARH TRIBUNAL) (ITA Nos. 287, 288, 1438 to 1442/Chd/2017, 1327 TO 1333/Chd/2017) dated May 25, 2018 (53 CCH 0134)

814. AO made addition in respect of cash found at residence and hospital chamber of assessee during course of search proceedings as the assessee could not prove genuineness of source of cash. CIT(A) deleted the addition and held that cash found during search and seizure operations was part of amount of professional receipt and the same was accounted by the assessee. Tribunal held since the CIT(A) gave categorical finding that cash found during course of search was already disclosed in return of income, no separate addition could be made. Thus, Revenue’s appeal was dismissed.
ACIT vs. K. RADHA KRISHNA (VISHAKAPATNAM TRIBUNAL) (ITA No. 65/Vizag/2014) dated May 18, 2018 (53 CCH 0058)

815. The AO disallowed prior period expenses holding that since assessee was following mercantile system of accounting, it should not be allowed to claim prior period expenses on actual basis. The CIT(A) upheld the order of the AO observing that the assessee did not file any explanations or evidence to substantiate that the prior period expenditure claimed was crystallized during the current year. The Tribunal relied on the assessee’s own case for earlier years wherein it was held that the concept of claiming expenses as prior period expenses on basis that they have been actually incurred in impugned Assessment Year and was in accordance with concept of mercantile system of accounting. Thus, Assessee’s ground was allowed.
ORISSA MINING CORPORATION LTD. & ANR. vs. JCIT & ANR. (CUTTACK TRIBUNAL) (ITA Nos. 69 & 183/CTK/2014, 70 & 257/CTK/2014) dated May 17, 2018 (53 CCH 0188)

e. Deductions/ Disallowance

Section 32

816. The Tribunal held that cutting of the coil to the required size as per the specification of the customer did not amount to manufacturing activity and therefore held that the assessee was not entitled additional depreciation u/s 32(1)(iia) on new machinery purchases for this purpose.
DEPUTY COMMISSIONER OF INCOME TAX & ANR. vs. JSW STEEL PROCESSING CENTRES LTD. & ANR – (2018) 52 CCH 0167 BangTrib – ITA No. 1978/Bang/2017, 2001/Bang/2017 dated Mar 7, 2018

817. Noting that vide the Finance Act, 2001, section 32(2) was amended to remove the restriction against set off and carry forward that was limited to 8 years beyond which benefit could not be claimed, the Court held that once the unabsorbed depreciation from the assessment year 2001-02 and before got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the amended provisions of section 32(2) and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever.
Pr.CIT v British Motor Car Co. (1934) Ltd. – (2018) 400 ITR 569 (Del HC) – ITA No. 1031 of 2017 dated 09.01.2018

818. Court allowed assessee’s claim for depreciation u/s 32 on amount paid to Tamil Nadu Electricity Board towards infrastructure development charges for establishing windmill since the said amount was spent on developing infrastructure of Wind Turbine Generators which is eligible for depreciation, rejecting AO’s treatment of the said amount as cost of developing land. The Court held that the excavation of land to install wind turbine generators did not amount to improving or developing land, rather it amounted to a preparatory step for erecting wind turbines and, therefore, land excavation must be taken as part of infrastructure development for establishing windmills eligible for depreciation u/s 32
Muthoot Finance Ltd. v JCIT – (2018) 90 taxmann.com 69 (Ker) – ITA No. 27 of 2015 (Ker) dated 11.01.2018

819. The Tribunal dismissed Revenue’s appeal against the CIT(A)’s order allowing assessee’s claim for carry forward and set-off of unabsorbed depreciation pertaining to AY 1996-97 to AY 2001-02 against the income for the current year i.e. AY 2011-12, where the assessee had contended that vide the Finance Act, 2001, section 32(2) was amended to remove the restriction against set off and carry forward that was limited to 8 years beyond which the benefit could not be claimed. It held that the issue stood covered by the Tribunal’s order in assessee’s own case for AY 2009-10 decided in assessee’s favour placing reliance on the decision in the case of General Motors India P. Ltd. Vs. DCIT [354 ITR 244 (Guj)] wherein it was held that any unabsorbed depreciation available to an assessee on 01.04.2002 (A.Y.2002-03) would be dealt with in accordance with the provisions of section 32(2) as amended by the Finance Act, 2001, which was further fortified by CBDT circular No.14 of 2001, noting that the revenue could not place on record any contrary judgment to controvert the same.
ACIT & ORS v INDUSIND MEDIA & COMMUNICATION LTD. & ANR. – (2018) 52 CCH 46 (Mum) – ITA No. 772/Mum/2016, 1167/Mum/2016 dated 17.01.2018

820. The Court disallowed assessee’s claim for depreciation u/s 32 for plant and machinery for AY 1992-93, noting that the actual business of assessee commenced only in April, 1992 and therefore, its plant and machinery was not put to use during assessment year under consideration.
CIT v Malayala Manorama Co. Ltd. – (2018) 91 taxmann.com 14 (Ker) – ITA No. 1596 of 2009 dated 01.02.2018

821. Where the assessee, engaged in the business of providing film projection services to the theatres, claimed depreciation on film projector at a higher rate treating it as ‘computer’, the Tribunal held that though some elements of computer functions were necessarily involved, the projector could not be said to be a machine whose principal output/object/function was achieved only through computer function and, accordingly, upheld the order of CIT(A) considering the film projector as plant & machinery entitled for depreciation @15% and not a computer entitled for depreciation @60%.
Cinetech Entertainment India (P.) Ltd. v ITO – (2018) 169 ITD 218 (Mum) – ITA No. 4971 (Mum.) of 2017 dated 05.02.2018

822. The Tribunal held that the deduction with respect to motor car expenses and depreciation on motor car was allowable where the the assessee has used motor car for the purpose of business even though the car was in the name of director. However, since the assessee failed to furnish log book to prove the use of vehicle for the purpose of business, the matter was remanded to AO for verification
Bharat Tiles & Marble (P.) Ltd. v DCIT – (2018) 92 taxmann.com 7 (Mum) – ITA No. 438 (Mum.) of 2015 dated 14.02.2018

823. The AO disallowed assessee’s claim for deduction of depreciation on windmills (pertaining to business eligible for deduction u/s 80-IA) against the gross total income (which included income from construction business) on the ground that the profit and gains of each business would be computed separately and deductions provided u/s 30 to 43D would be allowed before consolidating profit or loss of intra-sources of income. The Tribunal upheld the CIT(A)’s order allowing assessee’s claim for deduction, holding that even though income from each source of business had to be computed separately after allowing all expenses including depreciation, yet for purpose of determination of total income from business or profession, unabsorbed depreciation of one source of business could be set off against income of another source of business within same financial year.
Punit Construction Co. v JCIT – (2018) 92 taxmann.com 28 (Mum) – ITA Nos. 6337 and 6980 (Mum) of 2014 dated 21.02.2018

824. The Court dismissed Revenue’s appeal against the Tribunal’s order allowing the assessee-charitable trust, running a hospital, deduction claimed (under the nomenclature ‘additional depreciation’) with respect to write-off of the written down value of hospital equipments in the books of accounts which the assessee could neither sell as scrap nor it could use them, relying on the ratio laid down in the case of Institute of Banking Personnel Selection (IBPS) v. CIT (2003) 264 ITR 110 (Bom) wherein it was held that the income of Trust has to be computed on commercial principles, rejecting the revenue’s argument that there is no provision in the Act to allow such additional depreciation. It held that the CIT(A) as well as the Tribunal had after placing reliance upon Institute of Personnel Banking Selection (IBPS) (supra) had implicitly upheld the application of the principle laid down in section 32(1)(iii) which provides that where a plant and machinery is discarded/destroyed in previous year, the amount of money received on sale as such or as scrap or any insurance amount received to extent it falls short of written down value is allowable as depreciation, provided same is written off in books of account. With respect to Revenue’s objection against the nomenclature ‘additional depreciation’, the Court held that nomenclature cannot decide a claim. Further, it held that in any case, the impugned amount could also be allowed as an expenses u/s 37 as it was an expenditure incurred wholly and exclusively for carrying out its activity as a hospital (on application of commercial principles).
CIT(E) v Bhatia General Hospital – (2018) 91 taxmann.com 361 (Bom) – ITA No. 846 of 2015 dated 26.02.2018

825. The Tribunal dismissed Revenue’s appeal against the CIT(A)’s order allowing assessee’s claim for carry forward and set-off of unabsorbed depreciation pertaining to prior to 01.04.1997 against the income for AY 2004-05 to 2007-08, relying on the Tribunal’s order in assessee’s own case for AY 2008-09 decided in assessee’s favour placing reliance on the decision in the case of General Motors India P. Ltd. Vs. DCIT [354 ITR 244 (Guj)] wherein it was held that any unabsorbed depreciation available to an assessee on 01.04.2002 (A.Y.2002-03) would be dealt with in accordance with the provisions of section 32(2) as amended by the Finance Act, 2001, which was further fortified by CBDT circular No.14 of 2001.
DCIT v PEERLESS HOSPITEX HOSPITAL & RESEARCH CENTRE LTD. – (2018) 52 CCH 33 (Kol Trib) – ITA Nos. 1263 to 1266/Kol/2015 dated 12.01.2018

826. The Tribunal dismissed Revenue’s appeal against the CIT(A)’s order allowing depreciation on unused machinery, noting that it was not case of the Revenue that the assessee ceased to carry on its business permanently but it was only case of temporary lull in business against which machineries were not put to use and the law laid down by several decisions clearly permited the allowance of depreciation when the machineries were kept for ready to use. It held that on introduction of concept of block assets the provisions of section 32 by the Tax Laws (Amendment) Act, 1986, which came into force w.e.f. 1-4-1980, the concept of usage of asset(s) for the purpose of claiming of depreciation had become redundant.
DCIT v PRS METALIKS LTD – (2018) 52 CCH 24 (Kol Trib) – ITA No. 450/Kol/2016 dated 10.01.2018

827. The Tribunal held that the assessee was eligible to claim depreciation @ 60 percent on ATMs and other related accessories as it was a computer telecommunication device. Vis-à-vis UPS, the Tribunal noted that though UPS could independently function without assistance or integration with computer and was alternate mode of supply of power and did not depend on any assistance from computer, the computers could only work on power supply and when there was no power supply, it was connected to UPS so that it could work uninterruptedly and without losing unsaved data when power goes off. Accordingly, it held that UPS could be considered as computer if it was connected to ATM Machine or Computer and depreciation thereon was allowable at 60%. Accordingly, it directed the AO to verify if UPS were used for functioning of ATM and allow depreciation accordingly.
ADARSH COOPERATIVE URBAN BANK LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX – ITA No. 1336/Hyd/2015 – (2018) 52 CCH 0246 HydTrib dated ITA No. 1336/Hyd/2015

828. The Tribunal dismissed the assessee’s claim of depreciation on leasehold rights and relying on the co-ordinate bench decision in Dabur India ltd. vs ACIT, 159 TTJ 563 (Mumbai) held that tenancy rights could not be construed as intangible assets falling within meaning Explanation to section 32(1) and, therefore, there was no question of allowing depreciation on said rights.
MAHANADI COALFIELDS LTD. & ANR. vs. DEPUTY COMMISSIONER OF INCOME TAX & ANR. – (2018) 52 CCH 0204 CuttackTrib – ITA No.421/CTK/2013 dated Mar 20, 2018

829. Where the assessee had claimed additional depreciation u/s 32(1)(iia) with respect to assets purchased and put to use in earlier years, Tribunal held that the said additional depreciation on cost of new plant and machinery was allowable only once in the year in which machinery or plant was acquired and installed and this view was also clear by the insertion of third proviso in section 32. As regards, the sales tax incentive under ‘New Package Scheme of Incentive 1992’ received by assessee which was considered as capital receipt by AO, Tribunal held that the same was not required to be reduced from cost of asset as per Explanation 10 to section 43(1) for purpose of computing depreciation.
Everest Industries Ltd. v JCIT – (2018) 90 taxmann.com 330 (Mum) – ITA Nos. 3804 & 3849 (Mum.) of 2015 dated 31.01.2018

830. The Tribunal allowed depreciation u/s 32 with respect to assets of a sick company which was amalgamated with assessee-company by order of BIFR, irrespective of the fact that in pre-amalgamation assessment, depreciation had been denied to erstwhile sick company on account of non-user of assets. It held that the assets of sick-company after amalgamation became assets of assessee-company by operation of law and it fell into ‘Block of assets’ of assessee-company and, therefore though such assets, were non-functional, yet they could not be segregated and depreciation had to be allowed in respect of same
Hindustan Engineering & Industries Ltd. v DCIT – (2018) 90 taxmann.com 230 (Kol Trib) – ITA Nos. 146 to 152 (Kol) of 2017 dated 24.01.2018

831. The Tribunal upheld the order of the CIT(A) passed in the second round of proceedings wherein the CIT(A) held that the payment of fee for acquiring management rights of a drill ship made by the assessee to its Singapore based group concern was a capital payment eligible for depreciation. It dismissed the Departments contention that the payment was not a genuine transaction and observed that in the first round of proceedings the Tribunal had considered the same allegation and accepted the transaction to be genuine and had remitted the matter to the CIT(A) to determine whether the transaction was a revenue or capital expenditure. Accordingly, it held that there was no merit in raising the same allegation once again.
ADDITIONAL DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) vs. DOLPHIN DRILLING LTD. – (2018) 52 CCH 0193 DelTrib – ITA No. 197/Del/2013 dated Mar 20, 2018

832. The assessee made payment to P of non-compete fees as per the non-competition agreement and claimed depreciation by treating the same as intangible asset. The AO disallowed the claim on the ground that though non-compete fee was a capital expenditure, it neither facilitated conduct of business nor fell within the ambit of any of intangible assets or business. The CIT(A) deleted the disallowance relying on various decisions including CIT v. Ingersoll Rand International Ind. Ltd. [227 Taxman 176 (Kar)] wherein it was held that non-compete fee was an intangible asset entitled for depreciation. The Tribunal held the non-compete fee paid by the assessee to be a capital expenditure in nature of an intangible right with respect to which depreciable is allowable u/s 32(1)(ii). Accordingly, it dismissed Revenue’s appeal.
Ferromatic Milacron India Pvt. Ltd. v DCIT (2018) 52 CCH 0553 AhdTrib – ITA Nos. 2451 & 2616/Ahd/2015 dated 19.04.2018

833. The Tribunal allowed assessee’s claim for depreciation on helicopter @ 40% which was restricted by the AO to 15%. The AO held that even though helicopter is an aircraft, it is not specifically mentioned in Appendix I of the IT Rules, 1962 under the head III ‘Plant and Machinery’ at clause 3(i) providing for depreciation @ 40% for ‘Aeroplane – Aero engine’ and was thus eligible for depreciation @ 15% as allowable to Plant in general as defined in section 43(3). The Tribunal relied to the decision of CIT Vs. Kirloskar Oil Engines (230 ITR 88) (Bom) wherein it was held that “aircraft” inter alia includes helicopters and thus held that the assessee was entitled for depreciation @ 40% on the written down value of its helicopters.
RANJITPURA INFRASTRUCTURE PVT. LTD. & ANR. vs. DEPUTY COMMISSIONER OF INCOME TAX & ANR. – (2018) 52 CCH 0309 BangTrib – ITA No. 1104 & 1105/Bang/2015, 1110 & 1111/Bang/2015 dated Apr 10, 2018

834. The Tribunal dismissed Revenue’s appeal against the CIT(A)’s order allowing the assessee’s claim for additional depreciation on electrical installation consisting of electrical wires, switches, plugs, cables, MCB box and electrical items, holding that they cannot function independently and rather are part of ‘Plant & Machinery’, relying on the coordinate bench decision in the assessee’s own case wherein the said issue was decided in favour of the assessee.
ASSISTANT COMMISSIONER OF INCOME TAX & ANR. vs. 20 MICRONS LTD. & ANR. – (2018) 52 CCH 0443 AhdTrib – ITA No. 1046/Ahd/2014, 1216/Ahd/2014 dated Apr 11, 2018

835. The Tribunal dismissed Revenue’s appeal against the CIT(A)’s order allowing the assessee’s claim for depreciation on certain additional amount paid under Asset Purchase Agreement which inter alia contained clause that stated that the sellers would not engage in any activity which was in competition with the assessee’s business. The said amount paid was claimed by the assesse to be goodwill whereas the AO considered the same to be towards non-compete fees. The Tribunal relied on the decision in the case of CIT Vs. M/s. Ingersoll Rand International Ind. Ltd. [227 taxmann.com 176 (Kar)] wherein it was held that on payment of non-compete fees, payer acquired a bundle of rights and these rights are business rights, eligible for depreciation u/s 32.
DEPUTY COMMISSIONER OF INCOME TAX vs. SANGEETHA MOBILES PVT. LTD. – (2018) 53 CCH 0176 (Bang Trib) – ITA No. 715/Bang/2017 dated June 15, 2018

836. The Court dismissed Revenue’s appeal against the Tribunal’s order upholding CIT(A)’s order allowing the assessee’s claim for additional depreciation with respect to machineries used by the assessee in the activity of crimping of yarn. The Revenue contended that the said activity was an intermediate process of treating yarn and did not fall within the purview of manufacturing activity. The Court followed the decision in the case of CIT v. Emptee Poly Yarn (P.) Ltd. [2008] 305 ITR 309 (Bom.) wherein in the context of deduction u/s 80IA, it was held that the activity of texturizing and twisting of yarn amounted to manufacturing of article or thing distinct from the original and thus the said activity was a manufacturing activity.
CIT v Shri Mahavir Crimpers – [2018] 95 taxmann.com 323 (Gujarat) – R/TAX APPEAL NO. 547 OF 2018 dated June 13, 2018

837. The assessee claimed depreciation on ‘Electrical fittings’ @ 15% applicable to ‘Plant & Machinery’. The AO rejected the said claim and observed that the correct rate of depreciation was 10% as it fell under classification of “furniture & fittings”. CIT(A) upheld AO’s order. The Tribunal upheld the orders of CIT(A) and AO noting that the assessee had not shown before the lower authorities how the rate of 15% could be applied and how electrical fittings would fall in the classification of ‘Plant and Machineries’ to qualify as deduction at the higher rate of depreciation. Accordingly, it dismissed the assessee’s ground of appeal.
Punjab Stainless Steel Industries & Anr v ACIT & Anr (2018) 52 CCH 0296 DelTrib – ITA No. 6043/Del/2014, 5997/Del/2014 dated 09.04.2018

838. The Court upheld the Tribunal’s order holding that where assessee was awarded contract for providing specialised equipments for mining and transportation of excavated minerals on hire, its claim for higher rate of depreciation in respect of those equipments was to be allowed.
PCIT v Durga Construction Co. [2018] 93 taxmann.com 436 (Gujarat) – TAX APPEAL NOS 414 AND 425 OF 2018 dated 01.05.2018

839. Where the assessee withheld TDS in respect of management and license fees @ 20% instead of 20.6% (TDS 20% plus Surcharge 3% on TDS) and the CIT(A) confirmed the action of the AO in making disallowance under Section 40(a)(ia) of a proportionate sum to the extent of such short deduction, Tribunal relied on the decision of the Kolkata Tribunal in SK Tekriwal (48 SOT 515) (affirmed by Kolkata High Court) and held that disallowance under Section 40(a)(ia) cannot be made for short deduction of taxes.
Skylark Hospitality India Pvt. Ltd. vs. DCIT – [2018] 53 CCH 0019 (Delhi ITAT) – ITA No 6431/Del/2014 dated May 3, 2018

840. Where the CIT(A) directed the AO to estimate income at the rate of 12.5% and allow depreciation thereon, the Revenue argued that having estimated income, no expenditure was required to be allowed, relying on the ruling of the Andhra Pradesh High Court in the case of Ramachandra Reddy, [2014] 50 taxmann.com 129, the Tribunal held that depreciation and interest, which were otherwise deductible in the ordinary course of assessment, retain same legal character, even where profit of assessee was determined on percentage basis. Accordingly, Tribunal confirmed the ruling of the CIT(A) wherein the AO was directed to grant deduction for depreciation out of gross income estimated.
SVC PROJECTS PVT. LTD. & ANR. vs. ACIT & ANR. (VISHAKAPATNAM TRIBUNAL) (ITA No. 169-175/Viz/2013, 183-189/Viz/2013) dated May 23, 2018 (53 CCH 0075)

841. The assessee purchased two wind turbines in the current year but paid only part of the consideration during the year. The AO disallowed the claim of depreciation on the same by holding that no power was generated during the year and that the assessee was not the owner of such turbines as full value of consideration was not paid. Setting aside the order of the AO and CIT(A), the Tribunal observed that the assessee had possession of the asset and the same was put to use in the year under consideration. Thus, Tribunal held that there was no such requirement under Section 32 that full consideration should have been paid for purpose of claiming depreciation and hence the assessee’s claim was allowed.
Paradise Merchants Pvt. Ltd. vs. ITO – [2018] 53 CCH 0010 (Delhi Tribunal) – ITA No 4992/Del/2014 dated May 3, 2018

842. The Assessee was proprietor of several businesses and in case of one of its business concerns business activity was temporarily suspended. However opening and closing stock as well as debtors and creditors continued to be in business. The AO disallowed administrative expenditure and depreciation. The CIT(A) allowed administrative expenditure but disallowed depreciation expenses. On appeal filed against the CIT(A)’s order sustaining disallowance w.r.t. depreciation, the Tribunal held that when particular asset was added into particular block of assets irrespective of fact that individual item in said block remains, the unutilized depreciation in block of asset had to be granted. Thus, Tribunal set aside order passed by CIT(A) and allowed the assessee’s appeal.
SANJAY SHANKARRAO JADHAO vs. JCIT (NAGPUR TRIBUNAL) (ITA No.66/Nag./2017) dated May 8, 2018 (53 CCH 0153)

843. The claim of the assessee in regard to the depreciation on air pollution control equipment u/s 32 was remanded by the Court to the AO on the ground that the transaction done by assessee lacked bona fide as dates and events were not clear and the user of machinery between period 22-7-1994 and 22-9-1995 had not been verified by Assessing Officer.
Sterling Holiday Financial Services Ltd. v. ACIT – [2018] 93 taxmann.com 60 (Madras) – TAX CASE (APPEAL) NO. 564 OF 2008 dated APRIL 3, 2018

844. The assessee filed its return claiming depreciation @ of 60 percent on printers which was denied by the AO on the ground that these printers were not normal printers but were high value printers used for printing banners and advertisements and could not perform any other function performed by a normal computer. The AO held that the depreciation rate for the same would be 25 percent. The CIT (A) allowed the appeal of the assessee based on the finding that the printer could not be used without the computer and was a part of the computer system which was further upheld by the Tribunal. The Court on appeal by the Revenue stated that the machines could be referred to as computer-printers as a lot of independent functions performed by the computers was done by these printers and could be regarded as an integral part of the computer system and thereby dismissed the appeal of the Revenue.
CIT v. Cactus Imaging India (P.) Ltd. – [2018] 93 taxmann.com 396 (Madras) – T.C. (APPEAL) NOS. 921 & 922 OF 2008 dated APRIL 16, 2018

Section 32A

845. The AO had disallowed the assessee’s claim for investment allowance u/s 32A in respect of weighing machines, electrical appliances and computers on the grounds that these items were not directly engaged in production and that blending of tea or coffee did not amount to manufacture or production of an article or thing. The Court allowed the assessee’s said claim holding that blending of tea and coffee amounts to manufacture or production of an article or thing. It also held that as per provisions of section 32A weighing machines, electrical equipments and other machineries, though not directly used in the production/manufacture of the finished goods, were accessories which were integral to the business and without which it could not be possible to achieve effective production/manufacture of the final products.
Brooke Bond India Ltd. v CIT – [2018] 95 taxmann.com 189 (Calcutta) – IT REFERENCE NO. 8 OF 2000 dated June 18, 2018

Section 33AB

846. The Tribunal deleted deemed income addition under Sec.33AB(7) in the case of the assessee-company engaged in tea business and held that since the assessee had actually utilized the withdrawn amounts for intended purposes with a slight delay which got spread over next accounting year, the entire spirit of the requirements of the section 33AB(7) of the Act had been fulfilled by the assessee and accordingly the AO was not justified in making the addition. It noted that the unutilized portion was duly utilized before filing return u/s 139(1) and therefore held that the unutilized portion had been duly utilized within a reasonable period after the end of the previous year.
Stewart Holl (India) Limited [TS-77-ITAT-2018(Kol)] – I.T.A No. 2331/Kol/2016 dated 19.02.2018

Section 35

847. The Tribunal held that the AO was not justified in denying the assessee weighted deduction under Section 35(1)(ii) for scientific research donation made by it on the grounds that the registration of the payee to whom donation was made was withdrawn. It held that the withdrawal of recognition u/s 35(1)(ii) in hands of payee organizations would not affect rights and interests of assessee for claim of weighted deduction u/s 35(1)(ii).
DEPUTY COMMISSIONER OF INCOME TAX vs. MACO CORPORATION (INDIA) PVT. LTD – (2018) 52 CCH 0227 KolTrib – ITA No. 16/Kol/2017 dated Mar 14, 2018

848. The AO had restricted the assessee’s claim for weighted deduction u/s 35(2AB) towards R & D expenditure incurred with respect to R&D facility approved by the Department of Scientific and Industrial Research (DSIR) to the amount mentioned in the report of DSIR. The assessee contended that there was no mention in section 35(2AB), as there was in section 35(2B), that the deduction to be allowed thereunder was to be restricted to the amount prescribed by the prescribed authority for exemption and, thus, for allowing exemption u/s 35(2AB), the AO could not depend or follow blindly the amount mentioned by the prescribed authority which was only in respect of approved facilities but had to apply his mind and come to a conclusion on the question of expenditure incurred on scientific research. Relying on the decision in the case of CIT v Biocon Limited (2015) 375 ITR 306 (Kar) wherein it was held that the assessee should develop facility by incurring expenditure for scientific research and would be entitled for weighted deduction u/s 35(2AB) in respect of all expenditure so incurred, the Tribunal remanded the matter to the AO since he had not rendered any finding with regard to expenses incurred and claimed by assessee for deduction u/s 35(2A) which were not allowed by him.
METAHELIX LIFE SCIENCES LIMITED v DCIT – (2018) 52 CCH 47 (Bang) – ITA Nos. 1260 & 1261/Bang/2017 dated 17.01.2018

849. The Tribunal held that the assessee was entitled to deduction u/s. 35(2AB) on the R&D expenses incurred by it even though registration/recognition was accorded by DSIR in subsequent assessment year.
DEPUTY COMMISSIONER OF INCOME TAX vs. DEVARSONS INDUSTRIES PVT. LTD. – (2018) 52 CCH 0269 AhdTrib – ITA No. 1130/Ahd/2015 dated Mar 28, 2018

850. The Petitioner trust had taken approval from National Committee in order to get maximum donations for purpose of constructing a new hospital, whereby donors would be qualified to claim deduction under section 35AC. In the meantime, sub-section (7) was inserted in section 35AC with effect from 1-4-2017 providing that no deduction under said section would be allowed in respect of any assessment year commencing on or after 1-4-2018. As a result of the amendment, no donors were coming forward to donate amount which was required for construction of specified hospital and therefore the Petitioner filed a petition challenging vires of section 35AC(7) contending that said amendment would have an adverse effect on projects pending as on 1-4-2017. Before the Apex Court, the Petitioner undertook to pay the amount of tax which the donors would be entitled for exemption along with applicable interest, if the petition filed by it failed. In light of the undertaking, the Apex Court observed that the donors who wanted to donate some money to the petitioner for construction of the specified hospital by the petitioner may claim exemption under Section 35AC of the Income Tax Act. It listed the matter for final disposal in April.
Prashanti Medical Services & Research Foundation v UOI – [2018] 92 taxmann.com 71 (SC) – SPECIAL LEAVE TO APPEAL (C) NOS. 34287/2017† dated MARCH 9, 2018

851. The Tribunal allowed assessee’s claim for weighted deduction u/s 35(1)(ii) on account of donation made to a research society approved under the said section. The AO had denied the said deduction holding that donations were bogus in nature. The Tribunal held that though the survey proceedings conducted in the hands of certain donors had revealed that the donations were bogus in nature, no such finding was given in the hands of the assesse and thus the genuineness of payment of donations could not be doubted in the instant case, particularly in the absence of any material to support the view taken by the AO. Further, the Tribunal held that the reliance placed by the CIT(A) (to uphold the AO’s order) on the fact that the registration granted to the said research society u/s 12AA was cancelled was unjustified since the registration granted u/s 12AA and the approval granted u/s 35(1)(ii) operate in different fields. Moreover, it held that even if the approval was cancelled subsequently with retrospective effect, various case laws lay down the ratio that the weighted deduction claimed by the assessee u/s 35(1)(ii) could not be denied, if there was valid and subsisting approval when the donation was given.
VORA FINANCIAL SERVICES P. LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX – (2018) 53 CCH 0289 (Mum) – ITA No. 532/Mum/2018 dated June 29, 2018

852. The Court upheld the Tribunal’s order allowing the assessee’s claim for deduction u/s 35 with respect expenditure incurred of capital nature on scientific research, which was disallowed by the AO without obtaining report of the prescribed authority (which was a pre-requisite for such disallowance), though the AO had kept the actual demand in abeyance. It was noted from record that though over 10 years had passed since completion of assessment and filing of return, the said report of prescribed authority was not yet available and it was not even clear as to whether Revenue had sought any such report. It thus upheld the Tribunal deleting the demand raised on account of the said disallowance holding that uncertainty arising out of non-availability of report could not continue forever.
Pr.CIT v Investment & Precision Casting Ltd. – [2018] 94 taxmann.com 395 (Gujarat) – R/TAX APPEAL NOS. 168 & 169 OF 2018 dated April 23, 2018

853. The Tribunal held that if recognition to facility given by prescribed authority which is mandate of section 35(2AB) is maintained, assesse has to be accorded deduction under section 35(2AB) and non-receipt of Form No. 3CM is at best a procedural lapse and is not fatal for denial of claim of deduction under section 35(2AB).
Minilec India (P.) Ltd. ACIT [2018] 93 taxmann.com 213 (Pune – Trib.) – IT APPEAL NO. 690 (PUN.) OF 2015 dated 09.04.2018

Section 35AB

854. The assessee had entered into an agreement with Oldham Batteries Ltd., UK to receive outside India a license to transfer and import information, know-how and drawings as required for the manufacture of miners caplamp batteries and stationery batteries for which a lump sum consideration was paid in three equal instalments and the permission was only to use the know-how and information without the transfer of ownership. The claim of the assessee for deduction u/s 37(1) was denied by the AO on the ground that the assessee’s case was covered by Section 35AB and consequently he allowed deduction at the rate of 1/6th of the amount and the balance amount was to be deducted in equal instalments for each of the five immediately succeeding previous years in terms of section 35AB. The appeal of the assessee was dismissed by the Tribunal on the ground that the assessee had acquired ownership rights in the technical know-how included in the agreement and was entitled to deduction u/s 35AB as against 37(1). The Court dismissed the appeal and stated that the payments made in instalments for using technical know-how does not cease to be a lump sum payment. The court further held that the obtaining of technical know-how under license amounted to acquiring the know-how as the words ‘on ownership basis’ was completely absent u/s 35AB(1) and accordingly decided in favour of the Revenue.
Standard Batteries Ltd. v. CIT – [2018] 93 taxmann.com 293 (Bombay) – IT REFERENCE NO. 13 OF 2001 dated APRIL 27, 2018

Section 35AD

855. The Tribunal dismissed Revenue’s appeal against the CIT(A)’s order allowing deduction claimed u/s 35AD by the assessee for AY 2012-13, notwithstanding the fact that the assessee had applied for categorization as three star hotel before the Ministry of Tourism under the aegis of Government of India on 7-6-2013 and such classification as a three star hotel, was awarded by a letter dated 24-9-2013 for the period of 11-9-2013 to 10-9-2018. It held that there no time limit of obtaining star certificate is prescribed in section 35AD and the only requirement was to build an operation of two or more star hotel classified by the Central Government.
ACIT v River View Hotels – [2018] 94 taxmann.com 433 (Ahmedabad – Trib.) – IT APPEAL NO. 1799 (AHD.) OF 2016 dated June 26, 2018

Section 35B

856. The Court held thatexpenditure incurred towards payment of commission for procuring orders cannot be equated to expenditure incurred for maintaining an agency outside India for promotion of sales and thus appointment of an agent and paying him commission only for procuring orders for the assessee to supply goods did not by itself fulfil requirements of section 35B(1)(b)(iv) which provides for weighted deduction of expenditure incurred wholly and exclusively on the maintenance outside India of a branch, office or agency for the promotion of the sale outside India of goods, services or facilities. It is to be noted that section 35B has ceased to apply with respect to the expenditure incurred after 1-3-1983
CIT v KCP Ltd. – [2018] 94 taxmann.com 46 (Andhra Pradesh) – REFERRED CASE NO. 71 OF 1993 dated 01.05.2018

Section 36

857. Where the assessee claimed deduction on account of reversal of NPA interest credited to its P&L account (as the amount it was supposed to receive from the Government was no longer receivable), the Tribunal held that the AO was not justified in denying the assessee deduction of the same on the basis that the same amount had been claimed as deduction in the subsequent year without appreciating that though the assessee had claimed the deduction in the subsequent year, it reversed its claim by making an addition in its computation of income as it realized that it had claimed the impugned deduction during the year under review.
BULDHANA DISTRICT CENTRAL COOP. BANK LTD. & ANR. vs. DEPUTY COMMISSIONER OF INCOME TAX & ANR. – (2018) 52 CCH 0237 NagTrib – ITA No. 127 & 128/NAG/2015 dated Mar 6, 2018

858. The Court dismissed Revenue’s appeal against the Tribunal’s order allowing assessee’s claim for deduction of interest paid on advances received from 2 entities which was disallowed by the AO on the ground that the said advances were not received for the purpose of business. The Tribunal had held that the said advances were received for the purpose of business noting that the assessee was engaged in the business of acquiring satellite and overseas rights of films and CDs and the advances were received for acquiring satellite and overseas business. The Court held that the finding of the Tribunal was essentially a find of fact and the same had not been shown to be perverse and/ or arbitrary in any manner.
CIT v Lotus Investments Ltd. – ITA No. 1554 of 2007 (Bom) dated 22.01.2018

859. Court declined to give relief to assessee with respect to disallowance made by AO towards interest on investment expenditure u/s 36(1)(iii) where assessee forayed into a new business and it was found by AO that assessee-company’s balance sheet as on 31-3-2006 showed borrowed funds at much higher amount as compared to the assessee’s own funds, excluding statutory reserves and thus concluded that assessee had borrowed funds for starting new line of business. Court held that since, assessee could not demonstrate to AO’s satisfaction that it actually invested its own funds to start new business impugned disallowance made by AO was justified.
Muthoot Finance Ltd. v JCIT – (2018) 90 taxmann.com 69 (Ker) – ITA No. 27 of 2015 (Ker) dated 11.01.2018

860. The Tribunal upheld the proportionate disallowance made by the AO with respect to assesse’s claim for deduction u/s 36(1)(iii) where the assessee had given advances to unrelated parties during course of business and contended that it had not charged interest on advance given to seven parties as they were not traceable or in financial difficulties but could not furnish a single evidence in support of its contention / claim.
Rajmal Lakhichand v JCIT – (2018) 92 taxmann.com 94 (Pune) – ITA Nos. 670 & 832 (PUN.) of 2015 dated 28.02.2018

861. The Tribunal disallowed the deduction claimed by the assessee u/s 36(1)(iii) with respect to expenditure incurred under the head finance charges which represented interest payment made on borrowed funds, noting that the assessee was engaged in activity of investment in shares of a group of companies for holding controlling interest which could not be considered as main business activity of the assessee in the nature of trade or commerce since such investment had been treated as long-term investment in its financial statements, the statutory auditors of the company had reported that the company was not engaged in carrying on any business or as part of its business activity of acquisition of shares except making long-term investments and the objects clause in Memorandum of Association did not encompass the activity of the acquisition of shares for controlling interest.
Asia Investments (P.) Ltd. v ACIT – (2018) 91 taxmann.com 431 (Mum) – ITA Nos. 7539 (Mum.) of 2013 and 62 & 4779 (Mum.) of 2014 dated 23.02.2018

862. The Tribunal dismissed Revenue’s appeal against the CIT(A)’s order deleting the disallowance made by the AO u/s 36(1)(iii) on the ground that huge amounts were given as interest free advance to others for which no business prudence could be figured out and thus, the interest paid on cash credits was not wholly and exclusively for purpose of business, noting that the Tribunal had itself held the interest to be paid for business purposes in the appeal pertaining to subsequent year and in present year also, same advances were held to be for business purposes. As regards new advances, it held that these were small amounts and their aggregate amount was quite insignificant when compared with non-interest bearing funds available with assessee. Further, it relied on the decision of the Apex Court in the case of Hero Cycles (P) Ltd. v CIT wherein it was held that if non-interest bearing funds were more than non-interest bearing loans, no disallowance u/s 36(1)(iii) could be made.
ITO v COUNT TRADE LINK PVT. LTD. – (2018) 52 CCH 15 (Del Trib) – ITA No. 5830/Del./2010 dated 04.01.2018

863. The Court upheld the Tribunal’s deletion of disallowance of interest expense claimed by the assessee on account of loans taken from banking and other institutions, which the AO had disallowed observing that the assessee had given interest free advances to certain parties without accepting assessee’s explanation that the said interest free advances were made during the course of business from the surplus funds in the form of share capital / reserve surplus. In this regard, it was noted that the assessee had considerable surplus funds in proportion to the secured loans and, thus, held that since the assessee had advanced interest-free loans out of its surplus funds, the question of disallowing the expenditure in respect of interest incurred on the borrowed funds did not arise, inasmuch as, no part of the borrowed funds had been advanced by the assessee to the concerned parties.
Pr.CIT v SAHJANAND LASER TECHNOLOGY LTD. – (2018) 401 ITR 0487 (Guj) – TAX APPEAL NO. 1025 of 2017 dated 29.01.2018

864. Where the AO had disallowed the assessee’s claim for bad debt u/s 36(1)(vii) on the ground that the assessee had not established that amount had gone bad inspite of all efforts taken by him, the Tribunal held that after the amendment in the said section and as per the CBDT Circular No.12/2016 dated 30.05.2016 it was not necessary for assessee to establish that debt had become irrecoverable and if the bad debt was shown irrecoverable in accounts of assessee, it fulfilled condition stipulated in section 36(2). Thus, noting that nothing was established by the Revenue that condition stipulated u/s 36(2) was not fulfilled, it directed the AO to allow claim of bad debt raised by the assessee.
VASCULAR CONCEPTS LTD. v DCIT – (2018) 52 CCH 65 (Bang Trib) – ITA Nos. 1921 to 1927/Bang/2016 dated 29.01.2018

865. The Tribunal dismissed Revenue’s appeal against the CIT(A)’s order deleting the disallowance made by the AO with respect to partial interest expenses claimed on borrowings noticing that the assessee had given certain short term loan & advance on which no interest was charged. It held that the assessee had demonstrated that is had used only interest bearing loan for the purpose of business i.e term loan used for acquiring plant & machinery and working capital loan used for working capital, and the existence of own fund of the assessee was far better than the advances given by the assessee.
DCIT v PRS METALIKS LTD – (2018) 52 CCH 24 (Kol Trib) – ITA No. 450/Kol/2016 dated 10.01.2018

866. Where the assessee had created provision for bad and doubtful debts in the books of account and claimed deduction u/s 36(1)(viia) based on Aggregate Rural Advances (AAA) computed as per Rule 6ABA and the AO was of view that it was only incremental advances that had to be considered for computing AAA, the Tribunal held that Rule 6ABA did not provide for only fresh advances made by each rural branch during each month alone had to be considered and it only prescribed that amount of advances made by rural branch and was outstanding at end of last day of each month should be aggregated. Thus, it directed the AO to rework the deduction u/s 36(1)(viia) accordingly.
VIJAYA BANK HEAD OFFICE & ORS. v JCIT – (2018) 52 CCH 19 (Bang) – ITA Nos. 915/Bang/2017, 845/Bang/2017, 1647/Bang/2016, 1651/Bang/2016, 1284/Bang/2016, 1252/Bang/2016 dated 05.01.2018

867. The Tribunal held that where the assessee had paid interest on loan taken from SBI for which it had hypothecated its debtors and there was no other loan in its financial statements, considering there was a one to one correlation between the loan taken and the hypothecation of its debtors it was reasonable to accept the assessee’s claim that the interest free loans given to its sister concerns were not out of any loan funds. It therefore held that the CIT(A) erred in remitting the issue of disallowance under Section 36(1)(iii) to the AO to conduct further enquiry and should have deleted the said disallowance.
SURYAJYOTI INFOTECH LIMITED & ANR. vs. INCOME TAX OFFICER & ANR. – (2018) 52 CCH 0191 HydTrib – ITA No. 1241/Hyd/2015, 1278/Hyd/2015 dated Mar 16, 2018

868. The Tribunal deleted the proportionate interest disallowance made by the AO u/s 36(1)(iii) on account of investment made by the assessee in a company (i.e. engaged in power generation) during the year, noting that the assesse-company, engaged in production of various steel items, was in continuous need of uninterrupted power supply and in view of the said investment it was entitled to obtain 35KWH power supply. The Tribunal held that the said investment was beneficial for the business interest of the assessee and thus did not warrant disallowance u/s 36(1)(iii).
DEPUTY COMMISSIONER OF INCOME TAX & ANR. vs. MAHINDRA CIE AOTOMOTIVE LIMITED & ANR. – (2018) 52 CCH 0300 MumTrib – ITA No. 6659/Mum/2014 (Cross Objection No. 96/Mum/2016) dated Apr 11, 2018

869. The Tribunal allowed the assessee’s claim for deduction u/s 36(1)(iii) w.r.t. interest paid on amount borrowed for investment in two 100% subsidiary company which were in same line of business, noting that it was not shown that investment was made only for the purpose of earning dividend. It relied on the decision in the case of CIT Vs. Phil Creation [(2011) 202 Taxman 368 (Bom)] wherein it was held that as the investment was made by the assesse-company out of bank overdraft in the shares of its subsidiary company to have control over that company being an integral part of its business, interest paid by the assessee attributable to said borrowings was allowable as deduction u/s 36(1)(iii)
DEPUTY COMMISSIONER OF INCOME TAX vs. T.G. LEISURE & RESORTS PVT. LTD. – (2018) 53 CCH 0239 (Del Trib) – I. T. A. Nos. 3844 & 6138 & 3863 & 5777 (Del) of 2014 dated June 25, 2018

870. The Tribunal dismissed Revenue’s appeal against the CIT(A)’s order allowing assessee’s claim for deduction u/s 36(1)(viia) with respect to provision of bad and doubtful debts on the basis of advances given by the rural branches, which was disallowed by the AO without giving any concrete reason but only stating that the definition of rural branches is not to be restricted to a village only where the branch is situated rather, it is “region” for which the branch has been set up by the parental Bank. For the purpose of section 36(1)(viia), “rural branch” means a branch of a scheduled bank or a non-scheduled bank situated in a place which has a population of not more than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year. The Tribunal followed the decision in the assessee’s own case for another year wherein it was noted that the relevant figures of last preceding census obtained from Website of Census of India and produced by the assessee were rejected by the AO, holding the assessee to be negligent for not providing letter from Tehsildar, or from other Government Agencies or the copy of Census Report, whereas even before the Tribunal, the figures produced by the assessee were not shown to be wrong or false. In that case, noting that the CIT(A) had verified the chart of aggregate average advances by the assessee’s rural branches, on a test-check basis with the primary records of the assessee bank, the Tribunal had upheld the CIT(A)’s order allowing the assessee’ claim in full.
DEPUTY COMMISSIONER OF INCOME TAX vs. KSHETRIYA KISAN GRAMIN BANK – (2018) 53 CCH 0278 AgraTrib – ITA No. 382/Agra/2017 dated June 01, 2018

871. The Tribunal dismissed Revenue’s appeal against the CIT(A)’s order allowing assessee’s claim for deduction u/s 36(1)(iii) with respect to interest on borrowings made for installation of captive power plant. The assessee, which was engaged in the business of manufacturing and selling of pharmaceuticals products, had installed new captive power plant for generation of electricity for purpose of its on-going and existing pharmaceutical business. The AO had disallowed the claim for deduction u/s 36(1)(iii) stating that the assessee had wrongly claimed deduction of interest concerning power project which was different from its main stream of business of pharmaceutical products and that the expenditure was pre-operative in nature pertaining to assets before it being put to use. Noting that the power plant was installed for captive power consumption in the larger context of the business necessity to cut down the costs of power consumption of its existing and on-going pharmaceutical business, the Tribunal held that the interest incurred on power plant incidental to pharma unit was allowable deduction on revenue account.
DCIT v Core Health Care Ltd – [2018] 95 taxmann.com 172 (Ahmedabad – Trib.) – IT APPEAL NOS. 1733 TO 1737 (AHD.) OF 2014 dated June 20, 2018

872. The Court dismissed Revenue’s appeal against the orders of Tribunal upholding the order of CIT(A) allowing the assessee’s claim for deduction u/s 36(1)(iii) with respect to interest paid on funds borrowed for setting up a joint venture company for production of milk, where the assessee was engaged in business of manufacture and sale of fruit juice and like products. It was held that since concurrent findings was rendered by the CIT(A) and the Tribunal and the nature of the investment made by the assessee with the borrowed funds appeared to be in the line of its business, the issue did not call for any reconsideration.
CIT v Keventer Agro Ltd – [2018] 95 taxmann.com 154 (Calcutta) – ITAT NOS. 175 & 176 OF 2014, GA NOS. 3609 & 3610 OF 2014 dated June 19, 2018

873. The Tribunal upheld the CIT(A)’s order allowing assessee’s claim for deduction u/s 36(1)(ii) with respect to commission paid by the assessee-company to its Managing Director (MD) who also held majority shareholding of 75% of the total shares. The commission was disallowed by the AO pointing out the exception carved in the said section i.e. any sum paid to an employee as bonus or commission for services rendered is allowable deduction, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission. It held that the said rider or the exception carved out in section 36(1)(ii) would apply only to an employee who was also a shareholder in the company. Though the MD was a major shareholder of the assessee-company, but was not its employee and thus the allowability of the commission paid to him as sales agent would not be hit by the provisions of section 36(1)(ii).
Nat Steel Equipment (P.) Ltd. v DCIT – [2018] 95 taxmann.com 159 (Mumbai – Trib.) – IT APPEAL NOS. 4011, 4681, 5070 & 5270 (MUM.) OF 2013 dated June 13, 2018

874. The Court dismissed Revenue’s appeal against the Tribunal’s order holding that for the purpose of section 36(1)(viia) r.w. Rule 6ABA of the Income Tax Rules, 1962, the aggregate monthly average advances made by the rural branch of the assessee, a Schedule Bank, is to be computed by taking the amount of advances by each rural branch of such Bank as outstanding at the end of the last day of each month comprised in the previous year and aggregating the same separately, unlike the CIT(A)’s interpretation of considering the loans and advances made during the year only.
Pr.CIT v Uttarbanga Kshetriya Gramin Bank – [2018] 94 taxmann.com 90 (Calcutta) – ITAT NO. 76 OF 2016 dated May 7, 2018

875. During the course of assessment proceedings, AO observed that assessee had claimed bad debt and debited same in profit & loss account and had claimed write-off on the ground that the same were in relation to trade debtors which had been claimed as bad. The AO held that assessee must prove that the debt had actually became bad and disallowed the claim on failure of assessee to prove. However, the CIT(A) deleted the disallowance holding that write-off of bad debts in books of account was sufficient for claiming deduction under amended provisions of Section 36(1)(vii) and assessee was not further required to prove that debt had become bad. The Tribunal concurred with the CIT(A) and dismissed revenue’s ground of appeal.
ACIT & Anr v Ballarpur Industries Ltd & Anr (2018) 52 CCH 0340 NagTrib – ITA No. 91/Nag/2011, 92/Nag/2011 dated 16.04.2018

876. The AO had noted that assessee had given interest free loan to 7 different parties and could not justify business expediency of the same. The AO computed interest at the rate of 12% and disallowed the interest paid by the assessee to that extent. The CIT(A) upheld AO’s order. The Tribunal noted that in assessee’s own case for another year in 324 ITR 396, Delhi High Court had upheld interest disallowance for reason that assessee could not establish that there was any commercial expediency. However, in the present case, assessee had submitted copy of balance sheet showing that the partners current account balances (on which no interest had been paid) exceeded the amount of advance given interest free. Thus following the decision of Reliance Utilities Ltd. 313 ITR 340 (Bom) wherein it was held that if assessee had more interest free funds then advances given free of interest for that case presumption was available to assessee that amount was advanced out of non-interest bearing funds, the Tribunal held that disallowance out of interest expenditure was not sustainable. However, noting that there was also a statement that assessee had paid interest on Fixed capital of partners and this fact required to be verified, the Tribunal set aside the issue to the file of the AO for verification.
Punjab Stainless Steel Industries & Anr v ACIT & Anr (2018) 52 CCH 0296 DelTrib – ITA No. 6043/Del/2014, 5997/Del/2014 dated 09.04.2018

877. The assessee company had given advance for purchase of business premise in Bharat Diamond Bourse and other immovable properties. The AO held that these advances were for fixed assets and they had not been put to use during year, and thus worked out average investment on all these projects and disallowed interest u/s 36(1)(iii) attributable to these advances. The CIT(A) held that the loan funds were for specific purpose and there had been no dilution of same and thus deleted the disallowance made by the AO. The Tribunal observed that the investment was done out of mixed funds and assessee had own funds which covered more than investment made and followed Reliance Utilities & Power Ltd (313 ITR 340) wherein it was held that that if there were funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investments and thus upheld CIT(A)’s order thereby dismissing Revenue’s appeal.
ACIT v Kiran Gems Pvt. Ltd. (2018) 52 CCH 0586 MumTrib – I.T.A. No.1108/Mum/2016 dated 09.04.2018

878. During the course of assessment proceedings, the AO noticed that the assessee had collected Rs 9,03,378 on account of provident fund but same was deposited only to extent of Rs. 2,18,064 and thus the balance amount not deposited was disallowed. The CIT(A) confirmed the disallowance. The Tribunal observed that the amounts of provident fund advance given, provident fund realised and amounts settled had not been taken into consideration by the lower authorities. Further, taking note of the assessee’s claim that the entire provident fund collected upto February, 2002 was fully paid by assessee and only provident fund collected during March was outstanding at the year end which was also paid in time, it restored the said issue to file of AO for deciding afresh after verifying the aforesaid claim of the assessee.
Manipur Tea Co. Pvt. Ltd. v ACIT (2018) 52 CCH 0285 KolTrib – ITA No. 1749/Kol/2017 dated 06.04.2018

879. The Tribunal allowed the assessee’s claim for deduction of entire interest paid on loan availed from bank, which was disallowed by the AO u/s 36(1)(iii) in view of the fact that the assessee-company had given interest free loan to its director (also a major shareholder) and a sister concern. With respect to the loan given to the director, it was noted that while dealing with the issue of deemed dividend u/s 2(22)(e) in the case of the director on account the said loan, the Tribunal had deleted the addition made holding that the funds were given to the director only to facilitate the company’s business since the director had permitted his properties to be mortgaged to the bank for enabling the bank to grant credit facilities to the assessee company. Thus, in the present case also, the Tribunal held that the amount lent to the director was for the purpose of business and hence no proportionate disallowance of interest paid on borrowed capital could be made in respect of amounts advanced to him. With respect to the loan given to the sister concern, it was noted that in the preceding year interest was charged on the said loan and the same was offered to tax. However, during the current year, the sister concern was facing financial crunch and was in a bad position, thus the assessee-company had waived its right to charge interest. Further, it was noted that during the relevant year the assessee had recovered substantial portion of the loan amount and, as evident form the balance sheet, the assessee had sufficient own funds to given loan to the sister concern
Rawalwasia & Sons Exim Ltd. v ITO (2018) 52 CCH 0297 KolTrib – ITA No. 273/Kol/2016 dated 06.04.2018

880. The Tribunal allowed Department appeal and held that Provision for standard assets is purely contingent and could not be included in provision for bad and doubtful debts, thus, same could not be allowed as deduction under section 36(1)(viia).
ACIT v Chaitanya Godavari Grameena Bank [2018] 93 taxmann.com 400 (Vishakhapatnam – Trib.) – ITA NOS 326-327 OF 2016 dated 04.05.2018

881. The Tribunal held that interest on loan taken for renovation and modernisation of assessee’s factory premises qualified to be allowed under section 36(1)(iii).
DCIT v Laboratories Griffon (P.) Ltd. [2018] 93 taxmann.com 29 (Kolkata – Trib.) – ITA NO 133 OF 2016 dated 11.04.2018

882. The assessee(banking company) had added back the amout of amortization and depreciation in the SLR investments debited to the P&L A/c while computing the profit from which deduction at the rate of 20% u/s 36(1)(viii), was allowable inter alia to a banking company. The AO, however, computed the said deduction of 20% of profit after reducing the amount of amortization and depreciation added by the assessee to the profit. The Court held that the AO was correct in reducing the said amounts from the profit since section 36(1)(viii) does not envisage any such artificial raising of the ‘profits’, and the profits and gains of business, as simply computed as per the accounting practices followed by the assessee in normal course of business u/s 28 had to be the basis for computing the said 20% deduction. Accordingly, the assessee’s appeal was dismissed.
Pragathi Krishna Gramin Bank v JCIT [2018] 95 taxmann.com 41– ITA No. 100001 & 100002 OF 2018 dated 28.05.2018

883. The assessee incurred huge expenses for repair and maintenance of leased property in which cement bags, sand, labour charges, etc were consumed for construction of building structure. The AO disallowed such expenses as the assessee was only required to keep the leased premises clean and water proof and maintain it in good condition. CIT(A) allowed the claim of the assessee on the basis of additional evidences in the form of social audit report and considering that the property leased was more than 30 years old which required huge maintenance to keep it in working condition. However, since the CIT(A) neither conducted any independent enquiry, nor called for remand report from AO, the Tribunal remanded the matter to the CIT(A) for fresh determination of case as the appellate order lacked quasi-judicial investigation and analysis.
DCIT vs. Amar Brother Global Pvt. Ltd. – [2018] 53 CCH 0088 (Lucknow ITAT) – ITA No. 236/LKW/2017 dated May 2, 2018

884. The assessee, engaged in business of real estate development, had paid interest on loans taken from banks for business purposes and had also given loans / advances to various parties for purchase of plots as well as share application money. Since the total advances given by assessee exceeded total amount outstanding against loan from various banks, CIT(A) confirmed the disallowance of interest expenditure made by the AO. The Tribunal held that interest expenditure incurred by assessee was an allowable deduction under Section 36(1)(iii) as the same was paid in respect of capital borrowed for purposes of business or profession. It further held that since the advances was far less than the interest free funds available, no disallowance of interest could be made.
Gaursons Realty Pvt. Ltd. & ANR. vs. ACIT – [2018] 53 CCH 0023 (Delhi ITAT) – ITA No. 753/Del/2018 (SA No. 107/Del/2018) dated May 7, 2018

Section 37

885. Where the assessee, a reseller of software developed by its overseas AE, paid its AE 45 percent of the value of sales of the software sold to independent domestic parties as a license fee, the Tribunal relying on its earlier years order in the case of the assessee, held that the AO was unjustified in charaterising the payment as a capital payment for acquisition of intangible asset and denying the assessee a deduction under Section 37. It held that the payment could be considered as cost of goods transferred by the AE to the assessee and therefore would necessarily be a revenue expenditure.
AIRCOM INTERNATIONAL (INDIA) PVT. LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX – (2018) 52 CCH 0311 DelTrib – ITA No. 6617/Del/2013 dated Mar 28, 2018

886. The Court dismissed the appeal filed by the Revenue against the Tribunal’s order allowing expenditure incurred by the assessee (following completed contract method of accounting) in earlier years during the progress of contract with respect to the contract which was completed in the relevant assessment year and with respect to which income was offered to tax after deduction of expenditure incurred over entire period of the contract. It rejected Revenue’s contention that since the assessee was following the mercantile system of accounting, prior years expenditure could not be allowed as deduction.
Pr.CIT v NathpaJhakri Joint Venture – (2018) 92 taxmann.com 303 (Bom) – ITA No. 808 of 2015 dated 12.02.2018

887. Where the assessee, earlier engaged in the business of manufacturing tiles, had received only rental income from letting out three properties during relevant year which it had treated as business income and the AO opined that rental income was assessable under head ‘Income from house property’, the Tribunal held that since main activity of assessee was letting out properties and the rental income was derived without carrying on any other business activity, the said rental income had to be assessed under head ‘Income from business or profession’. Further, since the rental income earned by assessee was assessed as ‘business income’ and the assessee had furnished evidences for payment of remuneration for services rendered by directors to company, it allowed deduction u/s 37(1) with respect to remuneration paid to directors for rendering services in order to earn the said rental income.
Bharat Tiles & Marble (P.) Ltd. v DCIT – (2018) 92 taxmann.com 7 (Mum) – ITA No. 438 (Mum.) of 2015 dated 14.02.2018

888. As against the revenue’s contention of treating the annual franchise fee paid to BCCI-IPL for Season 1 as capital expenditure, Tribunal allowed deduction of the same as revenue expenditure under section 37(1) after observing that as per the Franchise agreement the payment of the franchise fee for a year vested assessee with a right to participate in the tournament for that year without guarantee that in the future years it would be eligible to participate in the tournament and thus such recurring annual payment neither vested of any right of participation in the subsequent years, nor lead to creation/ownership of an asset or generation of a benefit of an enduring nature in the hands of the assessee. Tribunal, however, after noting that as per the Franchise agreement, the franchise fee was to be paid on the date on which the first match of the league was played, disallowed the deduction of annual franchise fee for Season 2 charged to the financial of relevant previous year on the ground that the same was to crystallize into an expenditure only on such payment date. Tribunal allowed deduction of amount paid to Police Welfare Fund as per the directions of Cricket Association with respect to security during matches. Tribunal also deleted the disallowance with respect to amount paid for coaching services and other adhoc disallowances.
Knight Riders Sports Private Limited v ACIT – TS-609-ITAT-2017(Mum) – ITA No. 1307/Mum/2013 dated 29.12.2017

889. Where the commission paid by assessee to various agents in order to secure orders from other countries and to ensure that payments were received in a timely manner, the Court held that commission paid to those agents could reasonably be linked with assessee’s business, that the expenses could not be disallowed based on the AO’s personal understanding of how business ought to have been conducted.
Pr.CIT v Mohan Export India (P.) Ltd. – (2018) 90 taxmann.com 168 (Delhi HC) – ITA No. 640 of 2017 dated 04.01.2018

890. Tribunal allowed deduction u/s 37(1) of royalty paid by the assessee, partnership firm of advocates, to its founder partner for use of brand name, logo or trademark owned by him, irrespective of the Revenue’s contention that there was no provision in partnership deed for payment of royalty to founder partner. Tribunal had noted that from partnership deed that name, logo or trademark of firm and other intellectual property rights exclusively belonged to founder partner and that there was a ‘Name Licence’ agreement in terms of which payment had to be made even to legal heirs of founder partner after his death.
ARA Law v ACIT – (2018) 90 taxmann.com 395 (Mum) – ITA No. 1889 (Mum) of 2017 dated 05.01.2018

891. Tribunal quashed the CIT’s order passed u/s 263 wherein the CIT had disallowed the advertisement and publicity expenditure incurred by the assessee, a pharmaceutical company, by invoking the Expln. to section 37(1) and considering the said expenditure to be incurred for a purpose which is prohibited by law being the Medical Council regulation. Tribunal noted that the Medical Council regulation which limits/curbs/prohibits incurring any development or sales promotion expenses is applicable to medical practitioners, not to Pharma or allied health care companies and that the CBDT Circular No. 5/2012, dated 1-8-2012 under which CBDT had stated that the said regulation is applicable to pharmaceutical company cannot impose a burden on the assessee by enlarging the scope of a different regulation issued under a different Act and in any case cannot be reckoned retrospectively (year under appeal being AY 2011-12). Tribunal also noted that the expenditure was incurred for conferences and seminars of doctors organized with the main object to update them about latest developments in medical research and create awareness about new research, which was beneficial to doctors in treating patients as well as to pharmaceutical companies in promoting sale and brand
Solvay Pharma India Ltd. v Pr.CIT – (2018) 169 ITD 13 (Mum) – ITA No. 3585 (Mum) of 2016 dated 11.01.2018

892. Court allowed assessee-bank’s claim for deduction u/s 37(1) on account of provision for interest on overdue deposits stating that the liability was ascertained and not unascertained. It held that since assessee was aware of its liability and was able to crystallize it and set it out expeditiously in its returns, possibility of likelihood of depositor renewing overdue deposits or for that matter, payment being made later, would in no way, deflect from the reality that assessee was able to identify its liability when it filed its returns.
Oriental Bank of Commerce v ACIT – (2018) 401 ITR 65 (Del HC) – ITA No. 57 of 2018; CM Appl. 1856 of 2018 dated 17.01.2018

893. The Court rejected assessee’s claim for deduction u/s 37(1) for certain sum expended towards housing scheme for poor, holding that philanthropic act of building houses for poor and needy, at time of company’s centenary celebrations, did not reveal any commercial expediency or a business requirement.
CIT v Malayala Manorama Co. Ltd. – (2018) 91 taxmann.com 14 (Ker) – ITA No. 1596 of 2009 dated 01.02.2018

894. The Tribunal held that the cost incurred by assessee for repairs of goods returned by its customers on account of low quality was directly connected with business activities of assessee, eligible to be allowed u/s 37(1) and the same could not be disallowed merely because assessee had not produced details of sales which were returned back to it by its customers.
EPCOS India (P.) Ltd. v ITO – (2018) 169 ITD 541 (Kol Trib) – ITA Nos. 2553, 2758 (Kol.) of 2013 & 688, 1325, 1718 & 1895 (Kol.) of 2014 dated 02.02.2018

895. Tribunal allowed assessee-bank’s claim for deduction u/s 37(1) for amortisation of premium paid for purchase of securities following the Tribunal’s order in the assessee’s own case for earlier year.
Allahabad Bank v DCIT – (2018) 169 ITD 189 (Kol Trib) – ITA Nos. 127 of 2011 & 649 (Kol.) of 2013 dated 07.02.2018

896. Where the assessee was to receive reimbursement of certain sales promotion expenses incurred by it in respect of its branded products as per a JV Agreement entered in year 2002 with another company but the said company subsequently refused to reimburse the same and the AO disallowed the assessee’s claim for deduction u/s 37(1) with respect to write off of the said reimbursement amount holding that expenses in question were in nature of prior period expenses which could not be allowed as deduction against income of relevant assessment year, the Tribunal allowed the said deduction observing that the expenses were incurred for business purposes only and irrecoveribility of same leading to loss got crystallised only in relevant year pursuant to refusal by the said company.
Citadel Fine Pharmaceuticals (P.) Ltd. v ACIT – (2018) 92 taxmann.com 79 (Chen) – ITA Nos. 2027 & 2028 (CHNY) of 2017 dated 08.02.2018

897. The Tribunal allowed deduction u/s 37(1) with respect to ex-gratia /anugrah rashi payments made by assessee (mining corporation), pursuant to a Govt. order, to labourers who were not employed by assessee but were employed by the truck owners entering mining area for excavation and loading of sand in trucks, noting that the ex-gratia payment even though not directly linked to revenue earned by company was very much directly linked with the royalty paid by truck owners to the assessee-corporation, which was calculated on basis of sand excavated from mines.
M.P. State Mining Corpn. Ltd. v ACIT– (2018) 91 taxmann.com 430 (Indore Trib) – ITA Nos. 592 of 2013, 371 of 2014 & 20 of 2015 dated 09.02.2018

898. The Tribunal upheld CIT(A)’s deletion of disallowance made u/s 37(1) of 1/4th of repairing expenses on ad hoc basis on ground that no details in respect of same was furnished, noting that necessary details were duly filed by assessee at time of assessment proceedings but AO was not satisfied with same and holding that if AO was not satisfied with claim of assessee then he had to make disallowance after making specific reference to documents/vouchers produced on record whereas in the present case AO had made disallowance on ad hoc basis without pointing out any defect/error in evidence produced by assessee.
DCIT v Lexicon Auto Ltd. – (2018) 92 taxmann.com 84 (Kolkata – Trib) – ITA No. 1354 (kol.) of 2016 dated 19.02.2018

899. Where the Court held that the amount received by the assessee from one ‘G’ as an advance was not towards procurement of license as claimed by the assessee but deemed dividend attracting provisions of section 2(22)(e), the Court upheld the disallowance made by AO of the deduction claimed with respect to guarantee commission paid to a third entity for guarantee given by that entity to ‘G’ for the alleged advance received by assessee on the ground that it was intended for purposes other than of business.
CIT v Prasidh Leasing Ltd. – (2018) 90 taxmann.com 385 (Del HC) – ITA No. 637 of 2004 dated 20.02.2018

900. The Tribunal allowed assessee’s claim for deduction u/s 37(1) with respect to provision made for ULC charges [i.e. charges under the Urban Land (Ceiling and Regulation) Act, 1976] payable to State Govt since the liability had arisen because of order passed by Additional Collector in financial year relevant to the assessment year under consideration, irrespective of the fact that the assessee had disputed the said liability before High Court. It held that as soon as competent authority passed an order for payment of ULC charges, said liability could not be considered as contingent liability as same had been ascertained and crystallised. Further, the Tribunal held that since the assessee was following percentage completion method for recognition of revenue for a project and such project had been completed during relevant year, the provision made for ULC charges in its books was in accordance with law.
Punit Construction Co. v JCIT – (2018) 92 taxmann.com 28 (Mum) – ITA Nos. 6337 and 6980 (Mum) of 2014 dated 21.02.2018

901. The Tribunal, in the interest of justice & fair play, restricted the disallowance made by AO with respect to expenses claimed to be incurred by assesseee to maintain the status of the company active under the head ‘business expenditure’ to the extent of 10% of such expenses where the assessee had not shown any income from the business activity during the year but had offered to tax rental income derived under head ‘Income from house property’ and the assessee had not brought any material on record suggesting that the expenses claimed under the head of business were incurred exclusively for business purpose and no part of it was incurred in connection with the rental income.
Mangilall Estates (P.) Ltd. v DCIT – (2018) 91 taxmann.com 266 (Kolkata Trib) – ITA No. 156 (kol.) of 2015 dated 21.02.2018

902. Where assessee-company had entered into an agreement to take over business of a proprietory concern and in terms of the agreement only a license to use copyright was granted to assessee, the Court held that since the assessee had not acquired copyright itself, the license fee paid by assessee was allowed to be deducted as revenue expenditure.
Pr.CIT v Mobisoft Tele Solutions (P.) Ltd. – (2018) 90 taxmann.com 383 (P&H) – ITA No. 434 of 2015 dated 22.02.2018

903. The Tribunal deleted the disallowance made by AO u/s 37(1) with respect to advertisement expenditure merely for reason that advertisement hoardings were put up in Surat and Thane where assessee was not having any of its business outlets. The Tribunal held that the assessee had incurred expenditure on advertisement for promoting its business which was in principle allowable and the AO had not disputed genuineness of expenditure.
Rajmal Lakhichand v JCIT – (2018) 92 taxmann.com 94 (Pune) – ITA Nos. 670 & 832 (PUN.) of 2015 dated 28.02.2018

904. The Tribunal allowed the appeal of assessee, a pharmaceutical company eligible for deduction u/s 80-IB(4), against the disallowance of Sales Promotion expenses made by the AO on the ground that the CBDT Circular dated 01.08.2012 states that the said expenses (which represent gift or freebies to doctors & medical professional)s were prohibited by the Notification issued by Medical Council of India (MCI) and thus, not eligible for deduction u/s 37(1) being expense prohibited by law, relying on the decision in the case of DCIT v PHL Pharma Pvt. Ltd. (49 CCH 124) and Solvay Pharma India Ltd. v CIT [ITA No.3585/ Mum/2016] wherein it held that the circular issued by the CBDT enlarging the scope of disallowance to the pharmaceutical companies was without any enabling notification or circular of the MCI and, thus, the pharmaceutical company like the assessee were outside the scope of the circulars by the MCI or the CBDT.
EMCURE PHARMACEUTICALS LTD. v DCIT – (2018) 62 ITR (Trib) 0744 (Pune) – ITA No.1532/PUN/2015 dated 29.01.2018

905. The Tribunal partly deleted the disallowance made by the AO and sustained by the CIT(A) w.r.t. payment of service charges made by the assessee for service rendered by the supplier of goods in relation to purchase of spilt palm kernel fatty acid, due to lack of conclusive evidence to prove that such service was necessary and was actually provided to the assessee. Noting that the services providers had to undertake varied activities as per the service contracts, the confirmation was received from such service providers, the purchases (with respect to which such services were provided) had been accepted as genuine and that such charges were paid by other manufacturers also, it held that the AO and the CIT(A) did not comment on the documentary evidences produced by the assessee and that the AO could not step into the shoes of the businessman to decide whether such expenditure was for the purpose of business or not. The Tribunal, however, upheld the disallowance of the payments made to the intermediaries (not being the supplier) for the same service which were to be provided by the service provider (supplier), holding that in case of direct supply of goods, the payment of service charges to other parties acting as intermediaries was not in the business interest of the assessee.
Hindustan Unilever Ltd. v DCIT – ITA No. 4179/Mum./2013 dated 26.02.2018

906. The Court dismissed the Revenue’s appeal field against the Tribunal’s order deleting the disallowance made by AO on account of foreign exchange loss claimed u/s 37(1), noting that in past years, in prior and subsequent years, assessee had accorded similar treatment for foreign exchange gains and paid required tax. It held that having regard to consistent approach adopted by assessee, conclusion arrived at by the Tribunal being a concurrent finding with the CIT(A), could not be said to involve any substantial question of law.
PR.CIT v SAMWON PRECISION MOULD MFG. INDIA PVT. LTD. – (2018) 401 ITR 486 (Del HC) – ITA 72/2018 dated 23.01.2018

907. Where the assessee’s claim for business promotion expenses incurred on Doctors who attended Seminars and Conferences u/s 37(1) was disallowed by the AO since the assessee could not furnish details of Doctor-wise expenditure and confirmation letter from Doctor and on basis of the CBDT Circular dated 01.08.2012 which stated that the said expenses were prohibited by the Notification issued by MCI and thus, not eligible for deduction u/s 37(1) being expense prohibited by law clarified, the Tribunal held that the expenditure incurred upon Doctors to attend Seminars and Conferences may be business expenditure of assessee before 01.08.2012 (i.e. date of CBDT Circular), but the same could not be allowed after 01.08.2012 as it was prohibited by Notification issued by MCI. Accordingly, noting that the AO had simply disallowed entire expenditure having invoked Circular issued by CBDT, it held that the expenditure incurred till 01.08.2012 should be allowed as expenditure towards business the nature of expenditure incurred thereafter on Doctors to be examined by AO.
VASCULAR CONCEPTS LTD. v DCIT – (2018) 52 CCH 65 (Bang Trib) – ITA Nos. 1921 to 1927/Bang/2016 dated 29.01.2018

908. The Tribunal deleted the disallowance made by the AO on account of interest paid to supplier who supplied stores to assessee’s tea garden for delay in making payment for supplies made since it pertained to the earlier year, noting that it was the assessee’s claim that liability to pay interest itself accrued only pursuant to bill raised by supplier and since the bill was received from supplier after the date of annual general meeting, the same could not have been anticipated by the assessee in order to make a provision for interest on accrual basis in earlier year. It further held that there was no loss that could be attributed to exchequer because of this claim of expenditure by assessee as business expediency of said expenditure and its genuineness had not been doubted by revenue at any point of time.
RYDAK SYNDICATE LTD. v DCIT – (2018) 52 CCH 18 (Kol Trib) – ITA Nos. 301-302 & 304-305/Kol/2016 dated 05.01.2018

909. The Tribunal dismissed Revenue’s appeal against the CIT(A)’s order deleting the disallowance made by AO of commission expenses debited in P&L a/c on the ground that genuineness of commission paid/reimbursement of expenses was not proved beyond doubt that same were incurred wholly and exclusively for business purpose by noting that the services were rendered for assessee’s business by commission agents and the assessee had discharged its onus by filing all possible details including confirmations and TDS and successfully established that genuine expenditure was expended for business purposes. It further held that the AO could not gather positive evidence for department and took decision based on presumptions and not on facts on record and it was not the case of the AO that commission was paid to bogus parties which came back indirectly to assessee through cash.
ACIT v KIWIFX SOLUTIONS – (2018) 52 CCH 32 (Ahd Trib) – ITA No. 1536/Ahd/2013 dated 12.01.2018

910. The Tribunal upheld the CIT(A)’s order allowing the assessee’s claim for deduction of commission payable to Managing Director for the earlier year, disallowed by the AO on the ground that since the assessee was following mercantile system of accounting, the said expense pertaining to earlier year was not to be allowed against the income of current year. The Tribunal held that since the commission was payable on the profits and the profits for the earlier year was determined only in the year under consideration after finalizing the account, the allowability on account of commission was crystallized in the year under consideration and thus, the CIT(A) was fully justified in allowing the same.
DCIT v ASSOCIATED PIGMENTS LTD. – (2018) 52 CCH 4 (Kol Trib) – ITA No. 2042/Kol/2014 dated 03.01.2018

911. Where the assessee made payment for compensation for land under the head “social facilities expenses” and the AO disallowed the same on the ground that the amount paid related to acquisition of their land, the Tribunal upheld the order of the CIT(A) deleting the addition and observing that amount was incurred in compliance to Orissa Resettlement & Rehabilitation Policy, 2006′ and same had been paid for one-time payment in lieu of employment and training for self-employment and therefore held that the same had been paid for the purpose of business operation.
DCIT v MAHANADI COALFIELDS LTD. & ANR. 2018) 52 CCH 0204 CuttackTrib – ITA No.421/CTK/2013 dated Mar 20, 2018

912. Noting that the assessee’s group concern bid and won a contract which it transferred to the assessee and also provided the assessee assistance in the execution of the contract, the Tribunal allowed the assessee’s claim of commission paid to the group concern as a valid deduction and held that the AO and CIT(A) erred in denying the said payment as a deduction on the basis that the assessee allegedly failed to provide evidence that the payment was towards its business.
DRISHTI MARINE SOLUTIONS PVT. LTD. vs. INCOME TAX OFFICER – (2018) 52 CCH 0195 MumTrib- ITA No. 2803/Mum/2014 dated Mar 20, 2018

913. The Tribunal held that the expenditure incurred by the assessee on Employee Stock Option Plans (ESOP) provided to its employees were to be allowed as deduction under Section 37(1). It dismissed the AO’s contention that ESOP expenses were nothing but notional loss and under mercantile system of accounting, notional loss could not be allowed as deduction and held that the Legislature itself contemplated discount on premium under ESOP as benefit provided by employer to its employees during course of service and therefore held that the same was allowable deduction in computing income under head ‘Profit and gains of business or profession”. It noted that the liability to pay discounted premium was incurred during vesting period and amount of such deduction was to be found out as per terms of ESOP scheme by considering period and percentage of vesting during such period and accordingly set aside the order of the lower authorities.
OXIGEN SERVICES (I) PVT. LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX – (2018) 52 CCH 0190 DelTrib – ITA No. 3318 to 3320/DEL/2016 dated Mar 16, 2018

914. The Tribunal allowed the assessee deduction u/s. 37 for penalty paid by the assessee to Slum Rehabilitation Authority (SRA) observing that the penalty was paid for regularization of certain construction work within the permissible byelaws of concerned authority and not for infringement or violation of any law. It noted that during the year the assessee had commenced certain construction work before obtaining commencement certificate due to reasons beyond its control as there was an ambiguity in demarcation of the Coastal Regulation Zone, which was later clarified by the Maharashtra Coastal Zone Management Authority from the National Institute of Oceanography and after due survey and demarcation, assessee was granted commencement certificate on payment of necessary fees and accordingly observed that the violation was not an offence under the Act.
Lokhandwala Shelters (I) Pvt Ltd – TS-119-ITAT-2018(Mum) – I.T.A No.5000/Mum/2015 dated 09-03-2018

915. The Court remanded the matter back to the AO for deciding as to whether there was actual irrecoverability of advances which the assessee chose to write off in its account and claimed the same as business loss since the AO had not analysed the nature of the claim himself on the basis of materials on record for determining the character of claim for deduction and merely confined his scrutiny on the accounts submitted by the assessee, where the Tribunal had allowed the assessee’s claim noting that the assessee-company after review of the books of accounts and after due diligence and discussion with the statutory auditors had come to the conclusion that detailed reconciliation and accounting adjustments of these advances was no longer possible due to lack of information.
Pr.CIT v Linde India Ltd. – (2018) 90 taxmann.com 412 (Calcutta) – GA No. 1113 of 2016 ITAT No. 166 of 2016 dated 15.01.2018

916. The Court allowed deduction u/s 37(1) of lease rent paid for a shed where the shed was originally taken on lease by assessee for a business venture but the same could not start due to delay in getting electric connection and subsequently part of the said shed was leased to another person. It held that merely because there was some difficulty faced by the assessee in commencing the use of the premises it did not follow that the expenses claimed were not for the purpose of the assessee’s business.
Pr.CIT v SRBS Entertainment – (2018) 90 taxmann.com 410 (P&H) – ITA No. 280 of 2016 (O & M) dated 18.01.2018

917. The Tribunal held that expenditure incurred by assessee in the form of ROC fee at time of increase of authorised share capital being in nature of capital expenditure, could not be allowed as deduction u/s 37(1). Further, the Tribunal upheld the denial of deduction u/s 37(1) on account of foreign travel expenditure incurred by executive manager of company, noting that assessee was not having any business outside India neither, assessee was exporting any goods or articles nor importing and, thus, in absence of specific purpose of foreign trip of executive manager, expenditure incurred on said trip could not be considered as an expenditure incurred wholly and exclusively for business of assessee.
ACCME (Urvashi Pumps) Eng. (P.) Ltd. v JCIT – (2018) 90 taxmann.com 189 (Jaipur) – ITA Nos. 561 (JP) of 2014 and 1111 & 1112 (JP) of 2016 dated 23.01.2018

918. Where the AO rejected assessee’s claim for deduction of administrative expenses on ground that it had discontinued its business operations, the Tribunal held that so long as assessee was in operation and its name was not struck off from register of Registrar of Companies, it had to maintain its status as a company and for said purpose it was necessary to maintain clerical staff and secretary or accountant and incur incidental expenses. It, therefore, held that the AO was not justified in rejecting assessee’s claim for deduction of administrative and office expenses.
Sai Fragrance & Flavours (P.) Ltd. v ACIT – (2018) 90 taxmann.com 307 (Mum) – ITA Nos. 7012 (Mum.) of 2011 & 6085 (Mum.) of 2013 dated 31.01.2018

919. Where the assessee made payment on account of royalty for use of brand name, the Court noting that only license to use copyright was granted to assessee company and that the assessee company had not acquired copyright, held that license fee paid was revenue expenditure. It held that the assessee did not own any copyright and was only granted license to use the same.
PRINCIPAL COMMISSIONER OF INCOME TAX vs. MOBISOFT TELE SOLUTIONS (P) LTD. – 2018) 101 CCH 0157 PHHC – I.T.A. No. 434 of 2015 (O&M) dated Feb 22, 2018

920. Where the assessee paid marketing and distribution expenses to HDFC AMC, 5 percent of which was disallowed by the AO on the premise that the payment was designed in such a way that it would lead to losses in the assessee’s hand, the Tribunal held that since the AO did not otherwise doubt the genuineness of the transaction, no ad hoc disallowance could be made. Further, it noted that both the assessee and the payee were corporate assessee’s and therefore there was no motive for evasion of taxes.
INCOME TAX OFFICER & ANR. vs. HDFC TRUSTEE COMPANY LTD. & ANR. – (2018) 52 CCH 0113 MumTrib – ITA Nos. 5669 & 5670/Mum/2015, 5444/Mum/2015 dated Feb 21, 2018

921. The Tribunal held that prior to the insertion of explanation to Section 37(1) w.e.f 1.04.2015, claim of deduction on account of CSR expenses was not allowable as a deduction under Section 37(1) as it could not be considered to bring direct business benefit to the assessee. It held that the concept of Corporate social responsibility provision had been brought in Companies Act 2013 and consequential amendment was brought to Income Tax Act u/s 37(1) by way of insertion of explanation w.e.f. 01.04.2015 and therefore prior to the said provisions deduction in respect of expenditure incurred under Corporate Social Responsibility was not allowable unless and until expenditure was incurred wholly and exclusively for purpose of business of assessee.
RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORP. LTD. & ORS. vs. DEPUTY COMMISSIONER OF INCOME TAX & ORS. – (2018) 52 CCH 0130 JaipurTrib – ITA No. 311/JP/2014 dated Feb 23, 2018

922. The Tribunal held that the assessee was not justified in claiming expenses towards earning referral commission income noting that the income was derived from mere reference which did not involve any provision of service or value addition and therefore, in the absence of any further substantiation, it held that the assessee was not justified in claiming expenses towards earning of such income.
RAGA MOTORS PVT. LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX – (2018) 52 CCH 0103 AsrTrib – ITA No. 11/(Asr)/2017 dated Feb 16, 2018

923. Where the assessee advanced the sum in question to two companies through banking channel in its ordinary course of business in lieu of charging interest and on non-recovery thereof for almost three years wrote them off as sundry balances and claimed the same as revenue loss, the Tribunal held that such claim was to be allowed as a deduction under Section 37(1) of the Act.
GENERAL CAPITAL AND HOLDING COMPANY PVT. LTD. vs. INCOME TAX OFFICER – (2018) 52 CCH 0097 AhdTrib – ITA No. 538/Ahd/2016 dated Feb 12, 2018

924. The assessee, a private limited company, engaged in business of trading in stainless steel and allied products claimed expense for celebrating French National Day under the head of advertisement expenses. The AO observing that the assessee had no export business to France, disallowed its claim on the ground that it had not been incurred in connection its business activity. The Tribunal held that the reason given by AO that no business activity was carried on by assessee with France was not tenable in view of fact that allowability of expenditure did not depend upon outcome of expenditure. It observed that the expenditure was incurred and claimed by assessee under head “advertisement” which was not disputed by Revenue and therefore held that any expenses incurred by way of advertisement must be considered from point of view of assessee and not from any other angle. Accordingly, it held that once it was found that expenditure was incurred by assessee for publicity or advertisement, it was not for department to consider whether commercial expediency justified expenditure. Therefore, it allowed the claim of deduction under Section 37(1) of the Act.
MKJ TRADEX LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX – (2018) 52 CCH 0119 KolTrib – ITA No. 1044/Kol/2016 dated Feb 14, 2018

925. The Court held that the amount of Rs. 5 lakhs paid to National Stock Exchange (NSE) by the assessee-company(engaged in share trading, merchant banking) was ‘capital’ in nature’ as it represented procurement of a permanent right in the form of a license to carry on trade which enabled assessee to do business in future. The assessee had paid the aforementioned amount to NSE as a non-adjustable deposit for acquisition of membership and treated the same as revenue expenditure but the AO held that the payment was non-recurring in nature giving rise to an enduring benefit and therefore would qualify as capital expenditure. Relying on the SC ruling in Techno Shares and Stocks Limited wherein it was held that membership card enabled an assessee to trade as a stock-broker and hence, such a membership was a business or a commercial right in the nature of license u/s 32(1)(ii), it held that there could not be any doubt that one-time and lump-sum payment made to acquire membership right by a company or person engaged in business of trading in stocks, brings into existence an asset or an advantage of enduring nature and therefore held that the payment was capital in nature.
Abhipra Capital Ltd [TS-80-HC-2018(DEL)] – ITA 676/2005 – 15th February, 2018

926. The Tribunal allowed the assessee deduction u/s. 37(1) for advertisement expenditure incurred for brand building of “Jansons” and held that it was revenue in nature. It rejected Revenue’s stand that expenditure for building brand name would definitely increase the value of brand and thus, being an intangible asset, was capital in nature and remarked that even though there was incidental increase in brand value by way of advertisement, the real benefit was only to carry out the business in an effective and profitable manner. Following the decision of the Apex Court ruling in Empire Jute Co. Ltd, it held that a mere incidental benefit or enduring benefit or commercial advantage could not result in disallowing the claim of the assessee. It concluded that the impugned expenditure incurred by the assessee was in the course of earning of profit without touching the capital asset and accordingly allowed the assessee’s claim.
Jansons Industries Ltd. vs. ACIT – TS-79-ITAT-2018(CHNY) – ITA Nos.613, 614 & 615/Mds/2017 dated 08.02.2018

927. The Tribunal allowed the assessee-travel company’s claim for deduction u/s 37(1) towards non-compete fees paid to the director /employee of another travel company for not doing similar business for 5 years and towards license fees for use of its brand name for 5.5 years under an agreement entred into with the said travel company. With respect to non-compete fees payment, the Tribunal held that since the payment was made for elimination of competition for short period and neither the assessee had derived any enduring benefit nor any new asset was added, the payment of non-compete fee was in the nature of restricting the director/ employee in exercising their skill and experience in the similar field, and thus, could not be treated as capital expenditure. With respect to license fees payment, the Tribunal held that the said expenditure incurred by the assessee for use of the brand name to leverage and expand business activities in Middle East market to be a revenue expenditure, inter alia relying on the Apex Court decision in the case of CIT vs. IAEC (Pumps) Ltd. [232 ITR 316 (SC)] wherein it was held that the license fee paid for use of patent and design was on revenue account.
DCIT v SOTC Travel Services Pvt. Ltd. [TS-143-ITAT-2018(Mum)] – ITA No. 1924 & 2075 /Mum/2007 dated 19.01.2018

928. The Tribunal allowed the claim of the assessee-NBFC for deduction towards service tax payment relatable to exempted services in absence of input tax credit availability as per the Service tax Rules. It rejected the Revenue’s stand that since assessee followed ‘Exclusive method’ for accounting of Service tax i.e. it did not route the collection and remittance of Service tax through the P & L A/c., the claim could not be allowed and accepted the assessee’s contention that the method of accounting for service tax liability, i.e., exclusive method or inclusive method did not have revenue implications and noted that the service tax paid by assessee was otherwise eligible for deduction.
DCIT v Morgan Stanley (India) Capital Pvt Ltd [TS-100-ITAT-2018(Mum)] – ITA No. 5289, 5290, 4962 & 4963/Mum/2015 dated 29.01.2018

929. The assessee co-operative society was engaged in business of procurement of milk, processing it to prepare its products and sale thereof. The AO disallowed amount being contribution made to ‘Sparsh Trust’ Pashudhan Kalyan and Utpadakta Sanvardhan Sansthan, trust constituted by assessee to run programme and for providing services to farmers who were selling milk to primary societies from whom assessee procured milk. The Court upheld the Tribunal’s deletion of disallowance paid as contribution to the Trusts and held that the same were in the nature of business expenditure. It held that any contribution made by assessee to public welfare fund which was directly connected or related with carrying on of assessee’s business or which resulted in benefit to assessee’s business had to be regarded as allowable deduction u/s 37(1). Accordingly, it dismissed Revenue’s appeal.
PRINCIPAL COMMISSIONER OF INCOME TAX vs. JAIPUR ZILA DUGADH UTPADAK SAHAKARI SANGH LTD. – (2018) 101 CCH 0062 RajHC – D.B. Income Tax Appeal No. 9/2018 dated Feb 5, 2018

930. The Tribunal dismissed the department’s appeal filed against the CIT(A)’s order deleting the disallowance made by the AO with respect to one time “Conversion Charges” paid by assesse to Municipal Corporation for conversion of use of premises from “Industrial Activities” to “Commercial Activity” which was treated by AO to be capital in nature on the ground that such expense would confer enduring benefit to the assesse. It relied on the so-ordinate bench decision in the case of DCIT vs. Haldiram Products Pvt. Ltd. [ITA No. 5158/Del/12] on identical issue wherein also the assessee had paid charges to Munical Corporation for conversion of its outlet from industrial unit to commercial unit outlet in order to save its business and it was held that when the expenditure have been incurred by the assessee at the stage of setting of his business, the same was necessarily capital expenditure, however since the said expenditure had been incurred by making payment to the Municipal Corporation, it could not be of any enduring benefit to the assessee rather it was for regularization of his existing business.
DCIT v ORIENT FASHION EXPORTS INDIA PVT. LTD. – (2018) 53 CCH 154 (Del Trib) – ITA No. 3813 /Del/2015 dated Jun 14, 2018

931. The Tribunal dismissed assessee’s appeal field against the CIT(A)’s order upholding the disallowance made by the AO by treating the amount paid by the assesse towards part expenses and as part damages for non-performance of contract / MOU (which the assesse had entered into with another entity for purpose of creation of joint venture for putting up constructions on properties owned by assesse) as capital expenditure not allowable as deduction. It was held that since the MOU had been entered into by assessee for the purpose of creation of joint venture vehicle for putting up constructions on properties to be taken on lease from assesee, it was a new business line and thus the amount payable by assessee on account of violation of conditions of MOU (which also led to cancellation of the same) was nothing, but loss of capital and not revenue expenditure.
EXPRESS NEWSPAPERS PVT. LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX – (2018) 53 CCH 0144 (Chen Trib) – ITA NO. 1417/CHNY/2017 dated Jun 12, 2018

932. The Tribunal rejected the ground raised by Revenue against the CIT(A)’s deletion of the additions towards diminution in value of investment held as stock-in-trade (its closing stock) which as per the method of accounting followed by the assesse was valued at cost or market value whichever was less and whatever loss was incurred on account of diminution in value of investment was charged off to the profit and loss account as a loss, noting that the issue had been decided in favour of assesse in the case of CIT vs. Bank of Baroda [2003] 262 ITR 334 (Bom) wherein it was held that where the bank valued its investments at cost or market value whichever is less and the difference arising as a result of the valuation has to be allowed to the assessee as a loss. Further, the Revenue had not brought on record any contrary decision to support its argument.
DEPUTY COMMISSIONER OF INCOME TAX & ANR. vs. CENTRAL BANK OF INDIA & ANR. – (2018) 53 CCH 0157 MumTrib – ITA No. 1891/Mum/2011 & 3958/Mum/2014, 1431/Mum/2011 & 3757/Mum/2014 (CO. No. 200/Mum/2013) dated Jun 8, 2018

933. AO treated the expenditure shown by the assessee, a registered share broker, in the Error & Omission account of the P&L A/c (being the loss borne by the assesse on account of settlement with one of its client, whose outstanding trades were squared off by the assesse as the client had not provided the requisite margin to the assessee) as speculative loss and disallowed the said loss to the extent it was not set off against the speculative income offered to tax by the assessee. On appeal, CIT(A) upheld the AO’s order and held that the said loss was not revenue in nature. Tribunal allowed assessee’s appeal holding that the assesse had agreed to bear the loss to settle the matter and maintain trade relationships. It was noted that the trade with the said client were resumed from the month in which the settlement was made and that in the immediately next year the assesse had earned brokerage of an amount more than the loss borne by the assesse from the said client. Thus, the Tribunal held that the said loss was a business loss and commercial expediency of making the settlement with the client and agreeing to bear the said loss was very well established on records.
ARIHANT FINCAP LIMITED vs. ASSISTANT COMMISSIONER OF INCOME TAX – (2018) 53 CCH 0271 (Indore Trib) – ITA No. 415/Ind/2016 dated Jun 29, 2018

934. The AO had disallowed the assessee’s claim for deduction u/s 37(1) with respect to expenses claimed against the professional income earned by the assessee company (engaged in the business of equity research, investment advisory services and running portfolio management services) by allocating the entire expenses between the professional income and capital gains earned by the assesse. The Tribunal had allowed the assessee’s appeal against such disallowance noting that the Revenue had consistently over the years i.e. for the 10 years prior to years under appeal and for 4 subsequent years, accepted the principle that all expenses incurred were attributable entirely to earning professional income and the Revenue was not able to point out any distinguishing features, which would warrant a different view in the subject assessment year from that taken in the earlier and subsequent assessment years. The Court upheld the Tribunal’s order following the Apex Court decision in the case of Bharat Sanchar Nigam Ltd. Vs. Union of India [282 ITR 273 (SC)] wherein it was held that where facts and law in a subsequent assessment year are the same, no authority whether quasi-judicial or judicial can generally be permitted to take a different view.
PRINCIPAL COMMISSIONER OF INCOME TAX vs. QUEST INVESTMNET ADVISORS PVT. LTD – (2018) 102 CCH 0111 (MumHC) – ITA No. 280 OF 2016 dated Jun 28, 2018

935. The Tribunal allowed the assessee’s claim for deduction u/s 37(1) with respect certain expenses written off by the assesse (involved in the business of establishing, running and managing hospitals) which were in the nature of preoperational and infrastructural expense, incurred for expansion of an existing hospital with respect to which it had entered into a collaboration with another company, rejecting Revenue’s contention that the said expenses were capital in nature. It held that carrying out expansion of existing hospital property of the trust for the purpose of running and operating of the same on a revenue share basis was part of the routine business activity of the assesse. The Tribunal thus held that the expenditure incurred was on account of the project which was finally abandoned without acquiring any new asset for enduring benefit and, therefore, the entire claim was allowable as revenue expenditure. However, noting that the CIT(A) had spread over the entire claim for 5 years and allowed 1/5th of the claim in the impugned assessment year and these findings were not challenged by the assesse, it confirmed the CIT(A)’s order.
MANIPAL HEALTH SYSTEMS PVT. LTD. & ORS. vs. ASSISTANT COMMISSIONER OF INCOME TAX & ORS. – (2018) 53 CCH 0263 BangTrib – ITA Nos. 1551/Bang/2016, 1552/Bang/2016, 1667/Bang/2016, 1668/Bang/2016, 1557/Bang/2016, 1558/Bang/2016, 1076/Bang/2017, 1208/Bang/2017, 1209/Bang/2017 dated June 27, 2018

936. The Tribunal allowed the assessee’s appeal against the disallowance made by the AO on account of deduction claimed by the assesse with respect to provision for increase in price of material supplied by the vendors (which were purchased with express understanding that rates would be revised, if there was substantial increase/decrease in cost of materials, at agreed interval). It held that it was common trade practice for payment of arrears in event of substantial increase/ decrease in cost, in order to maintain continuous supply of raw materials without being affected by market fluctuations, especially in light of volume of purchases made by the assesse and in absence of such understanding/ contract with vendors, the assessee would not be able to operate and continue manufacturing operations without disruption. It noted that the same process was followed when there was reduction in cost elements of component prices. The Tribunal held that such price revisions, being an accrued liability at time of purchase of raw materials, were recorded in books of accounts by assesse and at year end, the assesse estimated additional liability on account of price revision under negotiation and made upward/downward provision, as the case may be, until end of relevant year.
HERO MOTO CORP LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX – (2018) 53 CCH 0200 (Del Trib) – ITA No. 6990/DEL/2017 dated Jun 20, 2018

937. The Tribunal accepted assessee’s claim that notional foreign exchange gain resulting to the assesse-company on conversion of Foreign Currency Convertible Bonds (FCCBs) issued by it into shares was not exigible to tax since the bonds were issued for acquiring capital assets, noting that the AO had not allowed the assesse’s claim for deduction of foreign exchange loss on loan borrowed for acquisition of assets in the next year. It held that there could not be one method if the fluctuations resulted in reduction of liability and a different treatment if the fluctuations result in a higher liability and that the treatment in terms of taxation has to be uniform at all times. The Tribunal also allowed the assesse claim for deduction on account of provision made for premium payable on redemption of FCCBs, relying on the decision in the case of Madras Industrial Investment Corporation Ltd vs. CIT [225 ITR 802 (SC)] wherein it was held that discount given on issue of debentures is an allowable expenditure.
GATI LIMITED vs. ASSISTANT COMMISSIONER OF INCOME TAX – (2018) 53 CCH 0209 HydTrib – ITA No. 1467 & 1670/Hyd/2017 dated Jun 20, 2018

938. Where the Assessee paid penalty to the Stock Exchange for procedural defaults such a delay in submission of return, etc., the AO made addition on account of payment of such penalty. The CIT(A) deleted the addition made by the AO. The Tribunal relied on the ruling of the Bombay HC in the case of CIT vs The Stock & Bond Trading Company (ITA No 4117 of 2010) and held that payment of penalty to the Stock Exchange is a regular business expenditure and since the assessee committed no offence prohibited by law as per the provisions of Section 37 of the Act, the penalty had been rightly deleted by the CIT(A). Thus, the Tribunal ruled in favour of the assessee
ACIT & ANR. vs. ARIHANT CAPITAL MARKETS LTD. & ANR. (INDORE TRIBUNAL) (ITA No. 370/Ind/2017 (C.O. No. 17/Ind/2018)) dated May 31, 2018 (53 CCH 0100)

939. The Tribunal allowed assessee’s claim of deduction w.r.t. expenses incurred for running school situated on land purchased by assessee company and in which the children of the assessee’s employees studied. The same was disallowed by the AO on the ground that the same related to welfare/charity purposes. It held that the school running expenses included care and concern for society at large, particularly for people of locality where business was located. Thus, the said expenses were integrally related to business activities of assesse and had been incurred wholly and exclusively for purpose of business. It also noted that the AO had not disputed genuineness of expenses nor it was case of AO that expenses used by assessee were for its personal purposes.
DLF HOME DEVELOPERS LIMITED & ANR. vs. DEPUTY COMMISSIONER OF INCOME TAX & ANR. – (2018) 53 CCH 0182 (Del Trib) – ITA No. 2209/Del/2016, 2567/Del/2016 dated Jun 19, 2018

940. The Tribunal dismissed Revenue’s appeal against the CIT(A)’s order allowing the assessee’s claim for deduction u/s 37(1) with respect to certain amount paid to National Pharmaceuticals Pricing Authority (NPPA) being the excess price charged by the assessee on sale of certain medicine/ drug, which was disallowed by the AO considering the same to attract Explanation 1 to section 37(1) i.e. dealing with payment for any purpose which an offence or prohibited by law. The Tribunal relied on its decision in the assessee’s own case for an earlier year, wherein after perusal of the relevant provisions of The Essential Commodities Act, 1955, it was held that there are separate provisions for penalty and interest and the amount paid by the assesssee to the NPPA was the refund of excess price and, hence, there was no violation and infringement of any law or Government’s order.
ASSISTANT COMMISSIONER OF INCOME TAX & ANR. vs. JOHNSON & JOHNSON LTD. & ANR. – (2018) 53 CCH 0174 (Mum Trib) – ITA Nos. 1776 & 1777/M/2017 (CO No. 242/M/2017) dated June 18, 2018

941. The Tribunal dismissed Revenue’s appeal against the CIT(A)’s order allowing the assessee’ claim for deduction u/s 37(1) with respect to payment made by the assesse, branch of a foreign bank, to Clearing Corporation of India on account of short position on security deal, which was disallowed by the AO considering the same to be in nature of penalty and thus attracting Explanation 1 to section 37. Noting that the assessee was required to maintain certain limit with CCIL, however, due to shortage in that limit the said payment to made to CCIL, it held that the same appeared to be compensatory in nature. Further, the Tribunal also held that the CIT(A) had rightly observed that the AO had not established on record that the payment was on account of an offence or was prohibited by law.
The Tribunal also dismissed the revenue’s appeal against the CIT(A)’s order allowing deduction claim by the assesse on account of revaluation of forward contract, being stock-in-trade for the assesse, following the order in assessee’s own case for an earlier year wherein the issue was decided in favour of the assesse following the decision in the case of CIT. Vs. Woodward Governor India Private Limited (312 ITR 224) wherein it was held that adjustment on account of foreign exchange fluctuation could be made on each balance-sheet date in respect of any forward foreign exchange contract pending actual payment and any loss arising there from had to be allowed as an item of expenditure u/s 37(1).
ASSISTANT COMMISSIONER OF INCOME TAX & ORS. vs. DBS BANK LIMITED & ORS – (2018) 53 CCH 0167 (Mum Trib) – ITA No. 6865/Mum./2012, 6037/Mum./2014, 4949/Mum./2014, 6038/Mum./2014, 4948/Mum./2014 (C.O. no.8/Mum./2014) dated June 15, 2018

942. The Tribunal dismissed the revenue’s appeal against the CIT(A)’s order allowing deduction u/s 37(1) with respect expenses incurred by the assesse, running hotel business, for repair and renovation of hotel rooms, which was disallowed by the AO treating the said expense to be capital expenditure considering the fact that the assessee in earlier year had not incurred repair and renovation expense more than 30% of such expenditure. It was noted that the expenses were incurred on rented premises and no new fixed asset came into existence. The Tribunal relied on the decision in the case of New Shorrock Spinning & Manufacturing Co. Ltd. [30 ITR 338 (Bom)] wherein it was held that, “The simple test that must be constantly borne in mind is that as a result of the expenditure which is claimed as an expenditure for repairs what is really being done is to preserve and maintain an already existing asset. The object of the expenditure is not to bring a new asset into existence, nor is its object the obtaining of a new or fresh advantage. This can be the only definition of ‘repairs’ because it only by reason of this definition of repairs that the expenditure is a revenue expenditure.”
ASSISTANT COMMISSIONER OF INCOME TAX vs. PEERLESS HOTELS LTD. – (2018) 53 CCH 0161 KolTrib – ITA No.1869/Kol/2016 dated June 14, 2018

943. The Assessee had entered into a trademark and license agreement with its holding company the consideration for which (i) one time initial consolidated fees and (ii) annual recurring license fee payable on basis of net annual turnover. Both the aforesaid payments were disallowed by the AO. The Tribunal rejected the assessee’s claim for deduction u/s 37(1) with respect to one time initial consolidated fees paid for use of the trademark in the business, holding the said payment to be in nature of capital expenditure. It was noted that by acquiring the said business right/ license, the assessee could incidentally boost its revenue and that the same had an enduring benefit which would be applicable till the assessee ceased to be subsidiary of its holding company. The Tribunal, however, accepted the assessee’s alternative claim for depreciation u/s 32(1)(ii) for such capital expenditure. With respect to annual recurring license fees, it was noted that the said fees was payable on the basis of certain percentage on the net annual turnover and the AO had allowed the same in later two assessment years. Accordingly, the Tribunal held the annual recurring fees to be revenue expenditure allowable u/s 37(1).
GMR Airport Developers Ltd. v ITO – [2018] 95 taxmann.com 283 (Hyderabad – Trib.) – IT APPEAL NO. 806 (HYD.) OF 2017 dated June 29, 2018

944. The Court admitted the appeal filed by the Revenue against the Tribunal’s order on the question, “Whether the Appellate Tribunal has erred in law and on facts of the case in restricting the addition to 25% of the value of alleged purchases after categorically finding it to be bogus?”
CIT v Aashadeep Industries – [2018] 95 taxmann.com 135 (Gujarat) – R/TAX APPEAL NOS. 606 TO 611 & 618 TO 620 OF 2018 dated June 18, 2018

945. The Court allowed the assessee’s claim for deduction u/s 37(1) with respect to expenditure incurred for implementation of project of setting up Chemical Benefication Plant for production of high quality sintered magnesia, which was one of products of the assessee, where the State Government had ordered closure of the said project. It was held that since the project undertaken by the assessee was in same line of business already being carried on by the assessee and no new business was set up, and there was no creation of new asset of enduring nature. It thus held that the impugned expenditure was to be allowed as revenue expenditure.
Tamilnadu Magnesite Ltd. v ACIT – [2018] 95 taxmann.com 239 (Madras) – T.C. (APPEAL) NOS. 907 & 908 OF 2007 dated June 5, 2018

946. The Court upheld the Tribunal’s order rejecting the assessee’s claim for deduction u/s 37(1) with respect to amount paid by the assesseee-lawyer for settlement of dues of a company in which he was the Managing Director (MD) and for which he stood personal guarantor in his capacity as MD on the company’s inability to repay substantial advances to financial institutions / banks. It rejected the assessee’s argument that if the above amount, which was claimed by him as litigation expenses, was not paid then it would have been impossible for him to carry on his profession as an advocate and therefore, the amount was wholly and exclusively laid out for business. The Court held that the assessee’s liability had occurred in his capacity as the guarantor and entrepreneur (i.e. MD) and the same could not be allowed as business expenditure in relation to income generated through legal profession.
SATINDER KAPUR v ACIT – [TS-295-HC-2018(DEL)] – ITA 656/2018 & CM APPL 23524/2018 dated May 30, 2018

947. The Court allowed the assessee’s appeal for deduction u/s 37(1) with respect to amount paid by the assessee-company (a television broadcasting co.) as non-compete fees to one of its directors for not competing with the assessee’s business for 5 years, rejecting the revenue’s plea that the said payment was a capital expenditure. It held that the assessee had not acquired any new business, profit making apparatus had remained the same, the assets used to run the business remained the same and there was no new business or no new source of income, which accrued to the assessee on account of the said payment. With respect to Revenue’s contention that the assessee itself had amortised the payment and treated it as capital expenditure in the books, the Court held that the entries in the books were not relevant and, moreover the assessee had treated it as ‘deferred revenue expenditure’.
M/s.Asianet Communications Ltd. v CIT – [TS-429-HC-2018(MAD)] – Tax Case (Appeal) No.174 of 2005 dated June 26, 2018

948. The Court dismissed assessee’s appeal against the Tribunal’s order rejecting the assessee’s claim for deduction of expenditure incurred on acquisition of distribution rights of three films, noting that since there was no exhibition of the films on commercial basis, there was no amount realised on exhibition of films and as per Rule 9B(5) which is a non-obstante clause, the said deduction was not allowable under Rule 9 unless the distributor credited in the P&L A/c the amounts realised on exhibition of film on commercial basis. [Rule 9B provides for manner in which the deduction in respect of the cost of acquisition of a feature film is to be allowed while computing the profits and gains of the business of distribution of feature films.]
Malayala Manorama Co Ltd v ACIT [TS-362-HC-2018(KER)] – ITA.No. 80 of 2010 dated June 26, 2018

949. The assessee, part of Renault group, was engaged in rendering engineering and design and sourcing support services & logistic services to Renault SAS, France (RSAS) as per the agreement between them. The AO disallowed assessee’s claim for deduction of promotional expenditure which represented expenses incurred in relation to participation in Auto Expo 2010 for promotion of Renault cars. The Tribunal, however, allowed the said claim noting that parties had mutually agreed to include additional services within scope of service agreement and the activities of participating in exhibitions and trade fairs at request of RSAS was specifically covered in the scope of services vide an amendment to the service agreement. It was also noted that expenditure incurred by company towards the exhibitions and trade fairs were invoiced and compensated by RSAS at cost plus a mark-up and the said mark-up was also accepted by the TPO without any adjustment.
RENAULT INDIA PRIVATE LIMITED vs. DEPUTY COMMISSIONER OF INCOME TAX – (2018) 52 CCH 0321 ChenTrib – ITA NO. 2814/CHNY/2016 dated April 2, 2018

950. The Tribunal dismissed Revenue’s appeal against the order of CIT(A) allowing assessee’s claim for deduction of expenses incurred towards club subscription fee/ renewal of club membership fees on the ground that the same were revenue expenditure and not capital expenditure since no capital assets came into existence out of the said expenditure. It held that the main purpose for incurring the said expenses which were in nature of entrance fees, annual fees, life membership fees and reimbursement of actual expenses etc was to induce its officers to attend such places for maintaining and making contacts for benefit of business and even if some personal advantage was obtained by officers, it would be in nature of maintaining good relations with officers and in nature of staff welfare expenses. The Tribunal thus held that the expenses were incurred wholly and exclusively for purpose of business.
Further, the Tribunal upheld the CIT(A)’s order allowing the assessee’s claim for deduction with respect to provision made for Performance Related Pay (PRP) to executives, shown under the head “Employees Benefit Expense”, being amount payable based on the performance of the assessee-company in a particular year. The AO had disallowed the said expense considering the same to be unascertained liability and thus not been incurred during the relevant previous year. The Tribunal noted that the PRP was quantified by the assessee (a Govt. Co.) in pursuance to the formula provided by the Department of Public Enterprise, Govt. of India and the same was allowed on year to year basis. It thus held that the said provision was not an unascertained liability rather the said liability had crystallised during the relevant previous year only. It relied on the Apex Court decision in the case of Bharat Earth Movers vs. CIT (2000) 245 ITR 428 (SC) wherein it was held that if a business liability arises in an accounting year, the deduction for the same should be allowed although the said liability may have to be quantified and discharged at a future date.
ASSISTANT COMMISSIONER OF INCOME TAX vs. HINDUSTAN COPPER LTD. – (2018) 52 CCH 0475 KolTrib – ITA No. 1616/Kol/2016 dated April 4, 2018

951. The AO disallowed the assessee’s claim of business expenditure on CSR activity stating that such expenses should be incurred from surplus profit after tax and it need not claim these expenses in books of account as expenditure for determining taxable profit. However, the CIT(A) deleted the disallowance after following CIT & Anr. Vs. Infosys Technologies Ltd wherein court allowed expenditure incurred on account of CSR by installing traffic signal near establishment to ease traffic congestion u/s 37(1) by holding that such expenses could be held to be expended wholly and exclusively for purpose of business u/s 37(1). Thus, the Tribunal, on concurring with CIT(A), held that CSR expenditure is an allowable expenditure u/s 37(1).
The AO had also made addition to assessee’s income of expenses on account of sales-tax claim off u/s 37(1) opining that transfer of goods by assessee from UP to Haryana was in violation of Sales-tax Act [It is to be noted that Explanation 1 to section 37(1) provides that deduction shall not be allowed for any expenditure incurred for any purpose which is an office or prohibited by law]. The CIT(A) deleted the addition following the decision rendered by the Sales-tax Tribunal as well as Hon’ble Allahabad High Court in assessee’s own case holding that the said transfer of goods from UP to Haryana was in the nature of central sale thus liable to Central Tax Act and was not a penalty for violation of sales tax act as held by the AO. The Tribunal held that there was no illegality or perversity in the CIT(A)’s order and thus dismissed the revenue’s appeal.
DCIT v Hindustan Tin Works Ltd. (2018) 52 CCH 0402 DelTrib – ITA No. 3531/Del./2016 dated 27.04.2018

952. The AO disallowed the business expenditure pertaining to the professional charges paid for feasibility study. Aggrieved, the assessee filed an appeal. The Tribunal held that the said issue was decided before in the favour of assessee wherein it was held that expenditure on feasibility study pertained to expansion of business by way of acquisition and thus was allowable as revenue expenditure. It was also observed that no new asset had come into existence.Thus, the Tribunal allowed assessee’s appeal thereby allowing the claim of expenditure.
Minda Industries Ltd & Anr v DCIT & Anr (2018) 52 CCH 0404 DelTrib – ITA No. 4297/Del /2015, 4298/Del /2015, 4299/Del /2015, 4300/Del /2015, 4455/Del /2015, 4456/Del /2015 dated 27.04.18

953. The Tribunal allowed the assessee’s claim for deduction with respect to write off of stores and spares imported earlier but lying in godown of port authority as the assessee was not able to clear them from the port authorities on account of financial stringency prevailing during that period. The AO disallowed the said claim noting that the said stores and spares were simply dumped in the port and no part of the same was installed or utilised for the purpose of the business activity. The Tribunal observed that the said imported materials as lying under the custody of Port Authorities were considered as permanently impaired in terms of Accounting Standard 28, because market/realizable value of all such materials were completely eroded and the material was surrendered to the Port Authorities. Further, it relied on the decision in the case of Zenith Steel Pipes Ltd. vs. CIT (1990) 186 ITR 594 (Bom.) wherein it was held that write off of stores & spares imported earlier but lying in the godown of a port authority was a loss incidental to the business.
ACIT & Anr v Ballarpur Industries Ltd & Anr (2018) 52 CCH 0340 NagTrib – ITA No. 91/Nag/2011, 92/Nag/2011 dated 16.04.2018

954. During the assessment proceedings, the assessee claimed reduction of Rs.29,42,23,853 from its returned income on account of reversal of provision for foreign exchange loss which was disallowed in the preceding year i.e. AY 2009-10. The AO did not allow the same observing that the such a reduction would reduce the returned income. The CIT(A) allowed the assessee’s claim appreciating the facts of the case. However, noting that the in the assessment order of the preceding year, the disallowance was only Rs.21,46,28,951/-, the Tribunal held that there was some discrepancy in the claim made and the amount disallowed in the preceding year and accordingly, it remitted the issue to the file of AO for examining the issue with reference to the books of account.
ACIT v Kiran Gems Pvt. Ltd. (2018) 52 CCH 0586 MumTrib – I.T.A. No.1108/Mum/2016 dated 09.04.2018

955. The assessee, engaged in business of cultivation and manufacturing tea, filed it returns claiming deduction of expenditure incurred for acquiring Pollution Control Certificate valid for 3 years. The AO rejected the claim of deduction holding that the certificate being valid for 3 years, it was to be regarded as capital expenditure having enduring benefits and thus disallowed the claim. The CIT(A) confirmed the said disallowance. On further appeal, the Tribunal allowed the assessee’s claim holding that even though expenditure in question incurred by assessee for getting pollution control certificate for three years had enduring benefit, same by its very nature was revenue, and thus allowable as deduction.
Manipur Tea Co. Pvt. Ltd. v ACIT (2018) 52 CCH 0285 KolTrib – ITA No. 1749/Kol/2017 dated 06.04.2018

956. The Tribunal held that where there was no authorization in trust deed to pay remuneration by assessee trust to its employees, remuneration paid by assessee trust to its employees was to be disallowed. Further, the Tribunal partially upheld the disallowance of several expenditure claimed by assessee on grounds that payments for such expenses were supported by self made vouchers only. It held that since in a normal trade practice, it was not possible to prove 100 percent bills and eceipts from recepients and there was every chance of making payments by way of self made vouchers. However, as there was every chance of inflating expenditure by way of self made vouchers, the Tribunal upheld the disallowance only to the extent 20 percent of the total amount towards self made vouchers.
Shalom Charitable Ministries of India v ACIT [2018] 94 taxmann.com 266 (Cochin – Trib.) – ITA NOS. 79 & 80 (COCH) OF 2017 dated 25.04.2018

957. The Court held that where under a licence agreement between assessee and HRL, assessee was granted exclusive right to use trademark ‘Hilton’ for 10 years against running royalty on sale as well as one time royalty of Rs. 1 crore, since mark ‘Hilton’ did not belong to assessee and benefit of use of trade mark had inured to licensor, payment of Rs. 1 crore ought to be treated as revenue expenditure.
Hilton Roulunds Ltd. v Cit [2018] 92 taxmann.com 268 (Delhi) – ITA NO 325 OF 2005 dated 20.04.2018

958. The Court held that where assessee incurred expenditure on product development and claimed deduction for same under section 37(1), in view of fact that expenditure so incurred did not involve development of a new product or even a new technique or technology to manufacture existing product more efficiently rather it was aimed at improving quality of existing product of assessee, assessee’s claim for deduction was to be allowed.
CIT v Arvind Products Ltd. [2018] 93 taxmann.com 454 (Gujarat) – TAX APPEAL NO. 1389 OF 2007 dated 02.05.2018

959. Where revenue challenged order passed by Tribunal allowing assessee’s claim of sales commission paid to ‘M’, an agent in Iraq, on ground that his name figured in Volker Commission Report and payment of commission was not authorised by U.N., the Court held that since question as to whether particular person was or was not an agent and as to whether he was paid commission was a pure question of fact, impugned order passed by Tribunal did not require any interference.Further, held that even though computer software is treated as a capital asset and is amendable to depreciation, yet consultancy charges on account of drawings and designs prepared by a particular agency in respect of computer software cannot be treated as capital expense
PCIT v TIL Ltd. [2018] 93 taxmann.com 394 (Calcutta) – ITA NO 504 OF 2007 dated 03.05.2018

960. The Tribunal held that professional fees paid to retired employees of assessee who were expert in this field fell under business within section 37(1) Further, it held that foreign tour expenses allowable where due to foreign tours of manager export and import increased.
DCIT v Laboratories Griffon (P.) Ltd. [2018] 93 taxmann.com 29 (Kolkata – Trib.) – ITA NO 133 OF 2016 dated 11.04.2018

961. The assessee, a manufacturer of air conditioner (AC), had been making provision for five years warranty provided with respect to certain models of the AC sold by it and the computation of the said provision was based on the number of units sold and per unit rate of provision. It was noted that the assessee had been following consistent method in creating such warranty provision in other assessment years as well and no disallowance was made at revenue’s behest. The Tribunal thus held that the assessee’s claim of warranty provision being computed on scientific basis, was to be accepted. Further, the Tribunal held that where stores and spares expenses pertained to normal repairs and maintenance of manufacturing facility and salary, wages and staff welfare were related to normal business expenditure, no ad hoc disallowance could be made.
Hitachi Home & Life Solutions (I) Ltd. v ACIT (OSD) – [2018] 93 taxmann.com 282 (Ahmedabad – Trib.) – IT APPEAL NOS. 2303, 2304, 2420 AND 2421 (AHD.) OF 2015 dated 18.04.2018

962. The Court held thatprovision made for increase in wages on basis of Wage Board Award which became enforceable on date of publication of award on 20-7-1983 could not be accepted as a liability having accrued within previous year ended 30-6-1983, though assessee agreed before Arbitrators that award shall come into operation from an earlier date.The Court held thatunder mercantile system of accounting, liability to pay commission to agents arises in previous year in which agent secured order and not when supplies were effected by assessee. The Court held that where assessee claimed deduction towards payment of insurance premium but did not even pay first instalment, of insurance premium, before 30-6-1983, last date of relevant previous year, said deduction could not be allowed to assessee during relevant year.
CIT v KCP Ltd. – [2018] 94 taxmann.com 46 (Andhra Pradesh) – REFERRED CASE NO. 71 OF 1993 dated 01.05.2018

963. The AO had disallowed the assessee’s claim for deduction u/s 37(1) on account of payment of salary to a sweeper for cleaning and maintaining the premises of a Hall, on the ground that the said hall was in the name of the founder of the assessee-company and the hall was not owned by the assessee-company itself. The assessee contended that the claim was to be allowed as keeping the hall clean, enhanced the assessee-company’s goodwill. The Court, however, sustained the said the AO’s disallowance relying on a binding precedent in the assessee’s own case [Malayala Monorama Co. Ltd. v. CIT (2006) 284 ITR 69 (Ker.)] for another assessment year involving similar claim.
CIT v Malayala Manorama Co. Ltd [2018] 95 taxmann.com 136 (Kerala) – ITA NO 26 OF 2010 dated 29.05.2018

964. The assessee-company had several units engaged in different business and stated that its income/expenses were not furnished on unit-wise basis since all the units together carried on business. In the AY under consideration, assessee incurred expenses on restructuring its business & claimed deduction regarding the said expenditure as revenue expenditure. The Tribunal allowed assessee’s claim, after considering the facts and relying on a Punjab & Haryana High Court decision (details of which were not given by the Tribunal in its own judgement).The Court held that since the issue whether the restructuring of expenses could, in the circumstances, be treated as a revenue expenditure/capital expenditure was a question of ‘fact’ and the Tribunal had taken relevant facts into considerations and noticed the law applicable, the impugned order did not call for any reconsideration. Accordingly, it dismissed the revenue’s appeal.
PCIT v Akzo Noble India Ltd. [2018] 94 taxmann.com 38 (Calcutta) – ITAT NO. 414 OF 2016 dated 15.05.2018

965. Where the Assessee company shut down its Aurangabad unit and paid retrenchment compensation to its employees on account of closure of the factory, Tribunal upheld the order of the CIT(A) by holding that retrenchment compensation paid by assessee on account of closure of its unit was allowable as business expenditure under Section 37 and that provisions of Section 35DDA applied by the AO were not applicable as the assessee has not paid any service compensation under any scheme of voluntary retirement.
ACIT vs Lumax Automotive Systems Ltd. – [2018] 53 CCH 0071 (Coch ITAT) – IT(TP) Appeal No. 475/Coch/2016, 134/Coch/2016 (SA No. 08/Coch/2018) dated May 23, 2018

966. The assessee, engaged in the business of constructing, operating and running bus shelter, provided bank guarantee as performance security for construction of such shelters. However, the same was encashed due to non-performance and the assessee incurred certain expenditure for restraining such encashment. The assessee also incurred certain expenditure on account of liability towards cancellation of contracts and claimed the same as revenue expenditure. The AO disallowed such expenditure by holding that the same was not recurring and hence should be treated as capital in nature. Relying on the ruling of the Gujarat High Court in Neo Constructo construction Ltd (218 taxman 24), the Tribunal held that such encashment of bank guarantee which was furnished as a performance guarantee due to non-fulfilment of contract by the assessee could be said to be compensatory in nature and same was allowable as business expenditure under Section 37(1) of the Act.
Green Delhi BQS Limited vs. ACIT – [2018] 53 CCH 0008 (Delhi ITAT) – ITA No 6375/Mum/2016, 6274/Mum/2016 dated May 7, 2018

967. Where the assessee claimed certain expenses like, conveyance, travelling, foreign travelling, telephone and electricity etc. as business expenses, the AO disallowed such expenses considering the same as excessive. Tribunal upheld the order of the CIT(A) and held that since the AO disallowed such expenses on ad-hoc basis without pointing out any defects in the books of account or vouchers of those expenses, the disallowance was deleted.
ACIT vs. vs. Modi Rubber Limited – [2018] 53 CCH 0044 (Del Tribunal) – ITA No 1952 of 2014 dated May 15, 2018

968. Where the assessee followed mercantile system of accounting, the AO disallowed prior period expenses claimed by the assessee on actual basis. CIT(A) upheld the order of the AO. The Tribunal held that since the said claim of expenditure was revenue in nature and crystallized during the impugned year itself, the same could not be disallowed. Following the ruling of the co-ordinate bench in the assessee’s own case for earlier years, the Tribunal restored the matter to the file of the AO to examine the genuineness and crystallisation of the expenses in the impugned year.
Orissa Mining Corporation Ltd. & Anr. vs. JCIT – [2018] 53 CCH 0188 (Cuttack ITAT) – ITA Nos. 69 & 183/CTK/2014, 70 & 257/CTK/2014 dated May 17, 2018

969. Where the assessee company paid commission in respect of personal guarantee given by its directors as collateral security for securing bank loan, the AO disallowed such guarantee commission. The CIT(A) deleted the disallowance and the Tribunal upheld the deletion of the said disallowance. The Tribunal observed that the directors provided personal guarantee by undertaking risk and the same was beyond scope of their services as employees of assessee-company. The Tribunal held that since it was established that the transactions were real and commission was paid to the Directors for providing personal guarantee, the assessee had the right to decide the guarantee commission to be given to the directors as part of business expediency and in the normal course of business and that the AO should not step into the assessee’s shoes and dictate how business had to be carried out.
DCIT vs. U.P. Asbestos Ltd. – [2018] 53 CCH 0180 (Lucknow ITAT) – ITA No 378 & 379/LKW/2016 dated May 18, 2018

970. Where the assessee company had claimed deduction on account of the premium paid towards keyman insurance policies that were in the name of the two directors of the company and the same was disallowed on ground that policies were infact life insurance policies, the Tribunal held that the same was allowable u/s 37(1) since according to the terms and conditions of the policy, the assured sum would return to the assessee company on the death of the policy holders.
Arcadia Share and Stock Brokers (P.) Ltd. v. ACIT – [2018] 93 taxmann.com 188 (Mumbai – Trib.) – IT Appeal Nos. 5854 & 5855 (MUM.) of 2016 dated April 25, 2018

971. The Court upheld the order of the Tribunal allowing software expenses incurred by assessee to upgrade computer software which brought greater efficiency in functioning of assessee’s business as Revenue in nature considering that in view of fast changing technology, software had to be regularly updated so as to keep pace with the changing technology. Further, the Court upheld the order of the Tribunal allowing expenditure incurred by assessee in respect of health and safety measures for benefit of its employees to foster a safe working environment as Revenue expenditure. It held that the test of one-time payment was not the sole test to determine the nature of expenditure. Further, the test of enduring benefit in this case would not apply for the reason that the expenses assisted in providing a hassle free environment for smooth running of business. The expense did not add to or expand the profit making apparatus of the assessee.
PCIT v. Holcim Services (South Asia) Ltd. – [2018] 93 taxmann.com 270 (Bombay) – IT Appeal No. 73 of 2016 dated April 25, 2018

972. The assessee declared a loss of Rs. 70.24 lakhs and claimed a deduction of Rs. 1.65 crores as lease equalization charges. The assessee relied on the Guidance Note issued by the ICAI for claiming deduction on account of lease equalization charges from lease rental income. The AO disallowed the deduction claimed and added the same to the income of the assessee which was further upheld by the CIT (A). The Tribunal allowed the deduction of lease equalization charges which was further upheld by the High Court. The Apex Court on an appeal by the Revenue decided in favour of the assessee and held that the IT Act was silent on such deduction and therefore the assessee had to take recourse of the method given under the Guidance note prescribed by the ICAI to show the fair and real income which is liable to be taxed under the IT Act. The Court further held that the rule of interpretation makes it clear that when an internal aid is not available for the proper interpretation of the statute, the Court can take help of an external aid and the meaning could be taken as prevalent in common parlance.
CIT v. Virtual Soft Systems Ltd. – [2018] 92 taxmann.com 370 (SC) – Civil Appeal Nos. 4358 to 4376 of 2018 dated April 24, 2018

973. The assessee company was established in the year 1970 and at the time of inception one ‘K’ had joined as a General Manager who was later promoted to the post of Managing Director. On the death of ‘K’, the board of the assessee company decided to meet all the educational expenses of the children of Mr. K and also passed a resolution to pay a minimum pension to his widow on account of his services to the company. Assessee company made the said payments and claimed it as business expenditure which was denied by the AO and the CIT (A). On Department’s appeal to the High Court, the Court held that the claim by the assessee that the said payments were in the nature of business expenditure was to be accepted since the assessee company had passed a resolution granting monetary benefit to the legal heir of a former employee and such resolution was sufficient even if the company did not have a pension scheme.
CIT v. India Motor Parts & Accessories Ltd. – [2018] 92 taxmann.com 409 (Madras) – T.C. (Appeal) No. 880 of 2008 dated April 4, 2018

974. The Court held that the payment made for acquiring membership in a social club could not be allowed as a business expenditure, more so, when there was no evidence to prove that membership of social club was acquired for entertaining customers of the assessee.
L. Jairam Parwani v. DCIT – [2018] 93 taxmann.com 291 (Madras) – T.C. (A) Nos. 857 & 858 of 2008 dated April 9, 2018

975. An Appeal was filed before the Court by the assessee against the order of the Tribunal for disallowing the expenditure incurred in connection with the share issue by the assessee without considering the nature of expenditure. The Court upholding the decision of the Tribunal held that the expenditure incurred by assessee in connection with share issue was capital in nature as the assessee had not furnished the breakup details of such expenditure before the Court or the Tribunal.
Sterling Holiday Financial Services Ltd. v. ACIT – [2018] 93 taxmann.com 60 (Madras) – TAX CASE (APPEAL) NO. 564 OF 2008 dated APRIL 3, 2018

976. The assessee during the relevant year made payments to the cane growers in excess of price fixed by the Government subsequent to which the assessee’s claim for deduction of excess payment was rejected by the AO on the ground that it was in the nature of an advance recoverable under the terms of the agreement. The CIT (A) reversed the decision of the AO and held that the payment to the cane growers in excess of the administered price was eligible to be treated as an allowable expenditure exclusively and necessarily incurred for the purpose of business which was further confirmed by the Tribunal. The High Court dismissing the appeal of the Revenue held that the assessee could not avoid excess payment in view of business expediency as the entire business of the assessee was dependent on the supply of the sugarcane and the mere use of the word ‘advance’ in letter of Sugarcane Growers Association, would not change the character of payment especially when the amount paid was an ascertained liability and the assessee was following the mercantile system of Accounting.
CIT v. Aruna Sunrise Hotels Ltd. – [2018] 93 taxmann.com 361 (Madras) – T.C. (Appeal) No. 271 of 2005 dated April 10, 2018

977. The assessee engaged in the business of wholesale trade acquired goods from various people and sold the same to retail sellers who subsequently sold the goods on ‘Flipkart.com’. The goods sold to the retailers by the assessee was at a price less than the cost price and the AO was of the view that the action of the assessee was not a normal business activity thereby calling upon calling upon the assessee to explain the purpose of selling the goods at a price less than the cost. The plea of the assessee was that the sale at a discounted price was to increase the volume of sales but the same was not accepted by the AO who opined that the strategy of selling goods at a lower price was done to establish goodwill and reap the benefits in the later years. In view of the same, the AO regarded the predatory pricing as capital expenditure and disallowed the deduction. The Tribunal reversing the decision of the AO and the CIT (A) held that the taxing authorities could not take into account the market price of the goods to ascertain profit from the transaction in cases where the trader transfers his goods at a price less than the market price, if the transaction was a bona fide one. The Tribunal further held that the assessee had not incurred any expenditure to acquire marketing intangibles or for creation of goodwill thereby setting aside the order passed by the AO.
Flipkart India (P.) Ltd. v. ACIT – [2018] 92 taxmann.com 387 (Bangalore – Trib.) – IT APPEAL NOS. 202 & 693 (BANG.) OF 2018 dated APRIL 25, 2018

978. The assessee bank incurred expenditure towards acquiring various categories of software and claimed deduction u/s 37(1) on the ground that the expenditure was revenue in nature. The AO denied the deduction claimed by the assessee on the ground that the expenditure was capital in nature as it conferred enduring right upon the assessee. The order of the AO was affirmed by the CIT (A) and the Tribunal. The assessee preferred an appeal before the High Court. The Court noted that the nature of articles acquired were licenses to use software and the same could not confer an enduring right on assessee. The Court held that the objective of the assessee was not to carry on software business, rather to use it as a tool to maximize the performance and to streamline the efficiency. Accordingly, the claim of the assessee for deduction of software expenses u/s 37(1) was allowed.
Oriental Bank of Commerce v. ACIT – [2018] 93 taxmann.com 432 (Delhi) – IT APPEAL NOS. 414, 415 OF 2017, 56 & 129 OF 2018 dated APRIL 17, 2018

979. The AO had made the disallowance of expenditure incurred on Intragroup services on the ground that the same were not wholly and exclusively incurred for the purpose of business.The Tribunal deleted the disallowance of expenditure incurred for intragroup services u/s.37(1) made on protective basis noting that on perusing the assessment orders for earlier years and subsequent years, though TP addition for Intragroup services had been made, there was no disallowance made u/s.37(1) on protective basis or otherwise and hence the addition could not be sustained in view of principles of consistency.
Avery Dennison (I) Pvt Ltd vs ACIT [TS-611-ITAT-2018(DEL)-TP] ITA No.7183/Del/2017 dated 27.06.2018

980. The Tribunal dismissed assessee’s appeal and upheld the DRP’s treatment of foreign exchange loss incurred in respect of advances received as capital as there was no material or evidence placed before it to demonstrate whether advances were in nature of revenue.It also noted that though the DRP had agreed in principle that if the losses pertained to trading item, revenue account or trading account or circulating capital of business would be revenue in nature in light of the Apex Court ruling in CIT v Woodword Governor India Pvt. Ltd but the DRP treated the same on capital account and disallowed the amount in the absence of details.
EIT Services India Pvt. Ltd v ACIT EIT Services India Pvt. Ltd. (formerly known as Hewlett Packard Global Soft Pvt. Ltd. [TS-612-ITAT-2018(Bang)-TP] IT(TP)A No.1394/Bang/2012,ITA No.1332/Bang/2010 and IT(TP) A No.163/Bang/2012 dated 28.06.2018

981. The Tribunal relied on the co-ordinate bench ruling of the assessee in earlier year and allowed the assessee’s claim of provision for warranty which was certified by the actuary. It relied on the ratio laid down in Apex Court ruling in Rotork Controls Ltd. wherein it was held that warranty services are normal business expenditure and not contingent liability if the provision for the same could be measured by using substantial degree of estimation.
Toshiba India Private Limited vs ACIT [TS-609-ITAT-2018(DEL)-TP] ITA No. 1438/Del/2018 dated 18.06.2018

982. The AO had disallowed the research and development expenditure on the ground that it was capital in nature. However, as the assessee’s contention was that it had rendered research and development services against which it had earned revenue income, the Tribunal restored the issue to the AO to examine the same afresh.
Bloom Energy India Pvt. Ltd v DCIT [TS-626-ITAT-2018(CHNY)-TP] ITA No.2857/Chny/2017 dated 20.06.2018

983. With regards to disallowance of commission expenses, the Tribunal remanded the matter back to the file of the AO to examine the details/ correspondence/ agreements regarding fixation of commission as in the present case, it could not be established that the rate of commission was as per the contract. While doing so, Tribunal held that if the payment of commission was done without reference to any document relating to consent of parties, it could not be considered as genuine.
Daga Global Chemicals P. Ltd. & Anr. vs. DCIT – [2018] 53 CCH 0007 (Mumbai ITAT) – ITA No. 5296 & 5889/Mum/2017 dated May 2, 2018

Section 40

984. The Tribunal deleted the disallowance made u/s 40(b) by the AO with respect to remuneration paid to partners, noting that the remuneration was paid as per the partnership deed and the remuneration received had already been subject to tax in the individual hands of the partners. It relied on the decision in the case of ACIT Vs. Associated Engineers & Allied Products [ITA No.680/JP/2014] wherein it was held that since the remuneration paid as per section 40(b) was taxable in the hands of the partners, if the same was disallowed in the hands of assessee-firm then it would be result in double taxation.
ASSISTANT COMMISSIONER OF INCOME TAX & ANR. vs. CLASSIC SUPPER CONSTRUCTION & ANR. – (2018) 52 CCH 0483 CuttackTrib – ITA NO. 57/CTK/2015, 180/CTK/2017 dated Apr 11, 2018

Section 40A

985. Where the assessee made provision of gratuity, the payment of which was not made before the close of the year, the Tribunal deleted the disallowance made by the AO under Section 40A(7) and upheld the order of the CIT(A) wherein the CIT(A) held that since the provision made by the assessee was an approved gratuity fund no disallowance under Section 40A(7) could be made. Further, the CIT(A) also held that that since the payment was made before the due date for filing return of income, no disallowance under Section 43B could be made.
DELHI TOURISM AND TRANSPORT DEVELOPMENT CORPORATION LTD. & ORS. vs. DEPUTY COMMISSIONER OF INCOME TAX & ORS. – (2018) 52 CCH 0258 DelTrib – ITA No. 3457/Del/2007, 1505/Del/2009

986. Tribunal deleted addition made u/s 40A(3) of cash payments made by assessee to its group concerns for repayment of debt and not for any expenditure incurred and which had not been debited in P&L, observing that the provision of said section is applicable only when an expenditure has been incurred and claimed by way of debiting to P&L account.
Saamag Developers (P.) Ltd. v ACIT – (2018) 168 ITD 649 (Del Trib) – ITA Nos. 3559 of 2017, 3582-3617, 3618-3638 & 3655-3689 of 2014 dated 12.01.2018

987. The Tribunal held that the AO was justified in invoking Section 40A(2) vis-à-vis the purchase of land (forming part of its stock in trade) by the assessee partnership firm from its partners and dismissed the contention of the assessee that the provisions of Section 45(3) of the Act (which states that the amount credited in the books of partner transferring capital asset to the firm would be the full value of consideration of the property) would apply. It held that Section 45(3) would apply only in the hands of the partners and would not apply to the case of the assessee firm. It further held that the asset was converted into a trading asset by the firm and therefore held that Section 45(3) would not override Section 40A(2). However, it noted that the AO had taken the value of property pursuant to inquiries from the Sub-register’s office to determine the FMV of the property without appreciating the assessee’s submission that the said value did not take into account various other considerations such as geographical location and other locational advantages. Accordingly, it remitted the matter to the file of the AO to re-determine the fair market value adopted by him.
ACIT v Karuna Estates & Developers – [2018] 92 taxmann.com 282 (Visakhapatnam – Trib.) – IT APPEAL NOS. 282, 367, 368 (VIZ) OF 2012 dated MARCH 23, 2018

988. The Tribunal deleted the disallowance made u/s 40A(2)(a) on account of trade discount allowed by assessee to its related parties where no such discount was offered to other parties, as the trade discount is not a payment and therefore, does not fall in the ambit of said section. Tribunal held that there was no actual out go from the assessee as discount was allowed on sale made and in absence of any prohibitory provisions u/s 40A(2)(a) or u/s 37, same could not be disallowed.
ACCME (Urvashi Pumps) Eng. (P.) Ltd. v JCIT – (2018) 90 taxmann.com 189 (Jaipur) – ITA Nos. 561 (JP) of 2014 and 1111 & 1112 (JP) of 2016 dated 23.01.2018

989. Where the assessee paid rent on machineries to its HUF and the AO disallowed the same under Section 40A(2) alleging that the rent paid was excessive, the Tribunal held that since the AO neither placed anything on record material showing fair market value of goods nor did he conduct any inquiry or verification into reasonableness of expenditure with reference to fair market charges payable under similar conditions, in light of the decisions in the case of ACIT vs. Bombay Real Estate Development Company (P) Ltd.’, 64 DTR 137 and ‘Jagdamba Rollers Flour Mill Ltd. Vs. ACIT’, 117 ITD 260, (Nagpur ) (TM), it held that no disallowance u/s 40A(2) could be made. It held that unless the payment was found to be excessive or unreasonable having regard to market value of goods, services or facilities for which payment was made and that in absence of inquiry by AO, as contemplated by provisions of section 40A(2)(a), no disallowance could be made.
ANURAG AGARWAL vs. ASSISTANT COMMISSIONER OF INCOME TAX – (2018) 52 CCH 0332 AgraTrib – ITA No. 497/Agra/2015 dated Mar 28, 2018

990. The AO disallowed the expense claimed by the assessee on directors’ remuneration / salary paid to four lady directors out of total eight directors u/s 40A(2) considering the same to be bogus expenditure and rejected assessee’s explanation that four male directors remained involved in supervising production, marketing, etc. in the production units and the four female directors were engaged for adequate surveillance and supervising of official works including for duly timely compliance with statutory obligations in running the business. CIT(A) upheld order of AO. The Tribunal directed the AO to allow 30% of remuneration given to these lady directors, noting that even if lady directors were not involved in pure managerial or supervising work of assessee company, the AO as well as the CIT(A) indirectly accepted that to certain extent women directors are rendering services to benefit of assessee company.
BETTERMAN ENGINEERS PVT. LTD. vs. INCOME TAX OFFICER – (2018) 53 CCH 0115 (Kol Trib) – ITA No. 2001/Kol/2014 dated Jun 6, 2018

991. The assessee had raised sale invoice in favour of ‘C’ for goods sold by assessee to the said concern and instead of making payments to assessee against the said invoice, ‘C’ made payments through banking channel to ‘F’ on behalf of assesse (i.e. to assessee’s creditor). The assessee adjusted the said payments made by it’s debtor (‘C’) directly to its creditor (‘F’) through journal voucher adjustments in its books of account. The AO made addition u/s 40A(3) considering the said payments made to party (‘F’) from whom purchases were made by the assessee to be otherwise than through account payee cheque or account payee bank draft and thus in violation of the said section. The Tribunal held that the said payment made directly by assessee’s debtor to assessee’s creditor through approved banking mode as prescribed in section 40A(3) in settlement of inter-se transaction between debtor and creditor would not trigger provisions of the said section and hence deleted the addition. It noted that the cardinal rational and objective of the said provisions was to plug evasion of taxes so as to ensure that unaccounted money of the tax-payer does not get recycled in the form of cash payments towards ghost expenditures or ghost payees which are out of ambit of tax net.
LION MERCANTILE P. LTD. vs. INCOME TAX OFFICER – (2018) 53 CCH 0248 (MumTrib) – ITA No. 5998/Mum/2014 dated June 27, 2018

992. The Tribunal deleted the addition made by the AO u/s 40A(2) on account of fess (being 0.5% of the total turnover) paid by the assesse-company to its holding company for various services rendered as per the service agreement entered between both the companies. The AO opined that the assesse-company was unduly benefitting holding company and diverting legitimate profit of company through colourable device termed as service agreement. The Tribunal, however, observed that the AO had not brought any comparable case to demonstrate that payment made by assessee was in excessive and hence held that without bringing any cogent material on record to demonstrate that payment made by assessee was excessive no disallowance could be made since the provisions of section 40A(2) were not automatic and could be called into play only if AO established that expenditure incurred was in excess of fair market value.
MANIPAL HEALTH SYSTEMS PVT. LTD. & ORS. vs. ASSISTANT COMMISSIONER OF INCOME TAX & ORS. – (2018) 53 CCH 0263 BangTrib – ITA Nos. 1551/Bang/2016, 1552/Bang/2016, 1667/Bang/2016, 1668/Bang/2016, 1557/Bang/2016, 1558/Bang/2016, 1076/Bang/2017, 1208/Bang/2017, 1209/Bang/2017 dated June 27, 2018

993. The Tribunal deleted the addition made by the AO u/s 40A(2) on an ad hoc basis viz. 30 per cent of the payments made to the related parties with respect to commission / legal and professional charges, noting that the said disallowance was made without placing on record any material which could prove that payments were excessive or unreasonable, having regard to fair market value of the services for which same were made or keeping in view legitimate needs of business of assessee or benefit derived by or accruing to assessee therefrom. It thus held that in the absence of satisfaction of the basic condition for invoking of section 40A(2)(a), the said disallowance could not be sustained.
Nat Steel Equipment (P.) Ltd. v DCIT – [2018] 95 taxmann.com 159 (Mumbai – Trib.) – IT APPEAL NOS. 4011, 4681, 5070 & 5270 (MUM.) OF 2013 dated June 13, 2018

994. The AO held that commission paid by assessee company to its director was excessive or unreasonable. The CIT(A) held that before invoking the provisions of S.40A(2) the AO was required to consider the fair market value of the services rendered, the benefit accrued to the assessee and the legitimate needs of business of the assessee from the standpoint of a prudent businessman. He found that the AO could not have decided what the assessee should do and pay. Disallowance could be made under section 40A(2) only when warranted and when the conditions of the said section were satisfied.The CIT(A) noted that the director was assessed to tax in the highest tax bracket and therefore, there was no loss of revenue with regard to the expenditure incurred on account of profit commission paid by the assessee.Accordingly, the CIT(A) deleted the disallowance for profit commission. The Tribunal also concurred with the finding of the CIT(A). Based on such findings, the Court held that since this was a subjective decision having regard to facts of case, there was no substantial question of law involved in appeal.
PCIT v Madras Engineering Industries (P.) Ltd. [2018] 94 taxmann.com 93 (Madras)– T.C.A NOS. 129 TO 131 OF 2018 dated 10.04.2018

995. The Tribunal held that where assessee trust had not claimed capital expenditure incurred for purchase of land, section 40A(3) could not be invoked to disallow cash payments made by assessee for said purchase of land.
Shalom Charitable Ministries of India v ACIT [2018] 94 taxmann.com 266 (Cochin – Trib.) – ITA NOS. 79 & 80 (COCH) OF 2017 dated 25.04.2018

996. The assessee who was engaged in running a clinic paid 84 percent of the total professional receipt to four doctors who were also the promoter directors and the remaining percentage was paid to seven doctors. Noting that 84 percent of the receipts were paid to 4 doctors whereas only the balance of 16 percent was paid to 7 doctors, the AO concluded that the payments made to the 4 doctors, who were incidentally promoters, was unreasonable and accordingly disallowed 15 percent of said payments under section 40A(2) on the grounds that such payments were excessive and unreasonable. The Tribunal deleting the disallowance made by the AO held that payment of higher salaries to doctors who were reputed professionals in their fields could not be regarded as excessive and unreasonable. The Tribunal further stated that there was an inherent fallacy in the approach of the AO as the remuneration depends on the market worth and the determination of the market worth was uninfluenced by what other professionals in that area earn.
ITO v. Hemato Oncology Clinic (Ahmedabad) (P.) Ltd. – [2018] 93 taxmann.com 272 (Ahmedabad – Trib.) – IT Appeal No. 3411 (AHD.) of 2015 dated April 24, 2018

997. The Court upheld the order of the CIT(A) / Tribunal wherein it was held that where assessee inflated purchase expenditure by raising bogus claim of cash purchases exceeding Rs. 20,000, profit element embedded therein should be brought to tax and entires amount was not to be disallowed u/s 40A(3).
PCIT v Juned B. Memom [2018] 95 taxmann.com 20 (Gujrat) – R/TAX APPEAL NO. 379 OF 2018 dated 25.04.2018

998. The assessee firm purchased certain plots of land from various persons & the payment was made partly in cash. The AO disallowed the amount pertaining to payment by cash by invoking S.40A(3) of the Act. The CIT(A) upheld the said order. The assessee claimed that the part payment was made in cash since the sellers being new to assessee, refused to accept payment through banks and due to mode of payment it could have lost the land. The assessee had even submitted copies of sale deed & other vital details for proving genuineness of the transaction. Thus, based on the above facts and further noting that the cash payments were made from disclosed sources (amount withdrawn from bank), the Tribunal held that since even the business expediency was met, no disallowance was called for.
A Daga Royal Arts v ITO [2018]94 taxmann.com 401 (Jaipur – Trib.)- ITA NO. 1065 OF 2016 dated 15.05.2018

999. The assessee made a total payment of Rs.1.08 Cr in cash as Truck Loading Charges. The AO opined that though the transaction was genuine, since the payment was made to a single person in violation of S.40A(3) ,he disallowed the said amount. The CIT(A) confirmed the disallowance. On appeal, the Tribunal deleted the said disallowance by giving benefit of clause (g) of Rule 6DD[exemption to S.40A(3) applicable in a case where the payment is made to a person in village/town, who on date of payment, was not served by bank].However, the Court held that as no evidence was produced by the assessee to the AO or the CIT(A), the Tribunal erred in presuming that the all the payment and the truck loading was made in the village which was not served by the bank and thus remanded the matter back to the CIT(A) for fresh disposal.
CIT V Lal Traders & Agencies (P.) Ltd. [2018] 93 taxmann.com 491 (Calcutta) – ITA NO 45 OF 2018 dated 11.05.2018

Section 41(1)

1000. The Tribunal allowed assessee’s appeal against the CIT(A)’s order wherein the CIT(A) had confirmed the addition made by the AO u/s 41(1) opining that the liability towards sundry creditors had ceased. The Tribunal noted that the opening balances of the liabilities were already admitted in the immediately preceding assessment years. It was further noted that the assesse had gone into BIFR and it had filed the claim (a list of sundry creditors and other liabilities) before the BIFR. It was thus held that it is only a matter of timing that as the issue is pending before BIFR, the creditors remained suspended but there had been no notice which could have extinguished the existing right except to the extent that they become part of the sanctioned scheme.
HINDUSTAN VEGETABLE OILS CORP. LTD. & ORS. vs. DEPUTY COMMISSIONER OF INCOME TAX & ORS. – (2018) 53 CCH 0131 (Del Trib) – ITA No. 6776/Del/2015, 6833/Del/2014 (Cross Objection 183/Del/2017) dated Jun 8, 2018

1001. The Tribunal dismissed Revenue’s appeal against the CIT(A)’s order deleting the addition made by the AO u/s 41(1) with respect to difference in the sales tax liability resulting from prepayment of the said liability at discounted rate under a deferral sales tax scheme, relying on the decisions in the case of CIT vs. Sulzer India Ltd. [2014] 369 ITR 717(Bom) wherein it was held that where the assessee had made premature payment of deferral sales tax at net present value against the total liability and credited the balance to its capital reserve account, the said credited amount was a capital receipt and could not be a remission or cessation of trading liability u/s 41(1). Further reliance was placed by the Tribunal on CIT vs. Balkrishna Industries Ltd. (2017) 88 taxmann.com 273 (SC) wherein it was held that the premature payment of sales tax liability under Sales Tax Deferral Scheme of 1983 would not amount to remission or cessation of assessee’s liability.
ASSISTANT COMMISSIONER OF INCOME TAX & ANR. vs. JOHNSON & JOHNSON LTD. & ANR. – (2018) 53 CCH 0174 (Mum Trib) – ITA Nos. 1776 & 1777/M/2017 (CO No. 242/M/2017) dated June 18, 2018

1002. The Tribunal allowed Revenue’s appeal against the CIT(A)’s order wherein the CIT(A) had deleted the addition made by the AO u/s 41(1) with respect to sundry creditors outstanding for 6 to 20 years on the ground that where the assessee had not written back these amounts as income in its books of account such outstanding liabilities could not be regarded as income u/s 41(1). The Tribunal held that merely because liabilities were shown in books of account by the assessee as outstanding and not written back, would not, tie down the Revenue to hold such liabilities to be subsisting liability. Further, it also observed that –
– the AO had made inquiries u/s 133(6) about said creditors in which it was found that certain creditors had categorically denied that they had made any transaction with the assessee
– notices in some cases had returned unserved
– the assessee had failed to produce said creditors as directed
– the assessee had not even furnished correct address of all creditors, their PAN numbers and confirmation
ACIT v Dattatray Poultry Breeding Farm (P.) Ltd. – [2018] 95 taxmann.com 130 (Ahmedabad – Trib.) – IT APPEAL NO. 2193 (AHD.) OF 2014 dated June 19, 2018

1003. The Tribunal held that where assessee had not written back sundry creditors in his profit and loss account and had shown balance outstanding towards those creditors even in next assessment year, it could not be said that there was any cessation of liability under section 41(1).
Jashojit Mukherjee v ACIT [2018] 93 taxmann.com 366 (Kolkata – Trib.) – ITA NO. 403 OF 2017 dated 04.05.2018

1004. The assessee had availed the benefit of sales tax deferral scheme and the deferred tax payable was converted into interest free loan. The assessee made pre-payment of the said loan at its net present value and the excess of outstanding liability over net present value was written back as not being payable anymore by the assessee and was treated as a capital receipt. However the AO made the addition of the said excess amount considering the same to be remission of liability u/s.41(1). Relying on the ratio laid down in Bombay HC decision of Sulzer India, the Tribunal upheld the CIT(A)’s order deleting the addition made by the AO and held that the write back of the said excess amount had resulted in a capital receipt which could not be added u/s.41(1).
ACIT vs Johnson & Johnson Ltd [TS-537-ITAT-2018(Mum)-TP] ITA Nos.1776 & 1777/M/2017 and CO No.242/M/2017 dated 18.06.2018

Section 43

1005. The Court held that (i) while computing written down value (WDV) u/s 43(6) for claiming depreciation, depreciation allowed under State Enactment (Kerala Agricultural Income-tax Act, 1991) could not be reduced (ii) since as per Rule 7A only 35% of assessee’s income from manufacture of rubber was deemed to be taxable, only 35% of the cost of total assets was to be taken as WDV.
Rehabilitation Plantations Ltd. v CIT – (2018) 90 taxmann.com 420 (Ker) – ITA No. 29 of 2008 dated 29.01.2018

1006. In a case where transactions of currency derivatives were conducted by assessee through a recognised stock broker, on a recognised Stock Exchange and they were duly supported by time stamped contract notes, Tribunal held that the same could not be held as ‘speculative transaction’ as defined in section 43(5) and, therefore, loss on such derivative transactions should be allowed to be set off against other business income.
Nand Nandan Agrawal v DCIT – (2018) 169 ITD 161 (Agra Trib) – ITA Nos. 349 & 350 (Agra) of 2016 dated 18.01.2018

1007. The Court dismissed the revenue’s appeal filed against the Tribunal’s order allowing the assessee’s claim for loss arising on account of damages paid by the assessee for not honouring its commitment to take delivery against some purchase orders placed with foreign sellers consequent to decline in the price of the goods, which was disallowed by the AO considering the said loss to be speculative loss. It held that even if a party in breach accepts the claim for damages that the other party to the contract may put forward, what actually happens is the disposal of a dispute and not any settlement of the kind that is envisaged by the word “settled” used in section 43(5).
CIT v Ambo Agro Products (P.) Ltd – [2018] 95 taxmann.com 345 (Calcutta) – GA NO. 542 OF 2015, ITAT NO. 37 OF 2015 dated June 20, 2018

1008. The assessee had claimed deduction on account of purchase of ‘assets’ for its in-house R&D facility. The said expenditure was disallowed on ground that expenditure resulted in acquisition of rights in or arising out of scientific research such as patents and it would come under an exclusion under section 43(4)(ii). The Tribunal held that if interpretation sought to be urged by revenue was to be accepted, then benefit sought to be conferred by provisions of section 35(1)(iv) would virtually be denied in all cases by invoking exclusion clause in section 43(4)(ii) and, therefore, AO should allow deduction claimed by assessee under section 35(1)(iv). Objective behind exclusion clause in section 43(4)(ii) appear to be that expenditure on scientific research should be incurred on research actually carried out by assessee in-house and assessee should not spend money in acquiring rights in or arising out of scientific research carried on by some other person.
Tata Hitachi Construction Machinery Company Ltd. v DCIT [2018] 93 taxmann.com 339 (Bangalore – Trib.) – ITA NO. 877 OF 2014 dated 20.04.2018

Section 43A

1009. The Court upheld the order of the Tribunal wherein it was held that where assessee constructed a residential house and rental income earned therefrom was offered to tax as income from house property and not as business income and the assessee had not claimed any deduction or depreciation on account of lift, provisions of section 43A would not apply to apparent gain made by assessee as a consequence of foreign exchange fluctuation in respect of lift imported from abroad.
CIT v Bengal Intelligent Parks (P.) Ltd. [2018] 94 taxmann.com 399 (Calcutta) – ITAT NO. 290 OF 2016 dated 10.05.2018

Section 43B

1010. The Tribunal, relying on the decision of the Court in CIT vs Vijayshree Ltd., GA No.2607 of 2011, held that employees contribution deposited beyond the due date prescribed under the relevant law governing contribution to provident fund would be allowable as a deduction under Section 43B of the Act as long as it is paid before the due date of filing return of income.
ASSISTANT COMMISSIONER OF INCOME TAX vs. GILLANDERS ARBUTHNOT & CO. LTD. – (2018) 52 CCH 0155 KolTrib – ITA No. 2090/Kol/2016 dated Mar 1, 2018

1011. The Tribunal upheld the CIT(A)’s deletion of disallowance made u/s 43B where the assessee had not deposited employees’ contribution towards provident fund on due date as prescribed under relevant statute, but had deposited same before due date of filing of return.
DCIT v Lexicon Auto Ltd. – (2018) 92 taxmann.com 84 (Kolkata – Trib) – ITA No. 1354 (kol.) of 2016 dated 19.02.2018

1012. The AO had disallowed the deduction of provision created towards leave encashment by assessee in view of the provisions of section 43B(f), rejecting assessee’s contention that provision for leave encashment was not a statutory liability and hence it was not liable to be disallowed u/s 43B, placing reliance on the decision of the Supreme Court to stay the operation of the decision in the case of Exide Industries Ltd. v. Union of India (2007) 164 Taxman 9 (Cal) wherein it was held that provisions of section 43B(f) is unconstitutional. The Tribunal upheld the disallowance further noting that the Supreme Court while deciding to stay the operation of the said decision had also held that the assessee should pay tax on disallowance of provision for leave encashment as if section 43B(f) is on statute book.
Everest Industries Ltd. v JCIT – (2018) 90 taxmann.com 330 (Mum) – ITA Nos. 3804 & 3849 (Mum.) of 2015 dated 31.01.2018

1013. The Tribunal confirmed disallowance under Section 43B on account of service tax received from the service recipients, but not deposited within the return filing due-date [as contemplated u/s. 43B(a)] and rejected assessee’s stand that since it had not debited the expenditure as service tax to the profit and loss account, no disallowance could be made. Noting that it was liable to pay service tax as the liability had arisen under the Point of Taxation Rules, it held that the assessee was legally obliged to declare its turnover inclusive of service tax received (which was not done by assessee) and held that the assessee could not be exonerated from its liability by saying that he accounted for the service tax received separately. It observed that the assessee did not produce any invoice before it despite the fact that the issue of invoice was mandatory under service tax rules.
Hemkunt Infratech (P) Ltd. – TS-181-ITAT-2018(DEL) – ITA No. 6683/Del./2017 dated 23.03.2018

1014. The Court dismissed Revenue’s appeal filed against the Tribunal’s order deleting the disallowance made u/s 36(i)(va) r.w.s. 2(24)(x) of the Act on account of Employees’ Contributions to ESIC paid by the assessee-company beyond the due dates under the ESIC Act, noting that the said issue had already been decided in favour of the assessee in the case of CIT v Ghatge Patil Transports Ltd. 368 ITR 749 (Bom) wherein it was held that as per section 43B the assesse would be eligible for the said deduction if the payment was made before the due of filing of return u/s 139(1).
PRINCIPAL COMMISSIONER OF INCOME TAX vs. STARFLEX SEALING INDIA PVT. LTD. – (2018) 102 CCH 0158 (Mum HC) – ITA No. 130 & 151 of 2016 dated June 27, 2018

1015. The Tribunal dismissed Revenue’s appeal filed against the CIT(A)’s order deleting the disallowance made u/s 36(i)(va) r.w.s. 2(24)(x) of the Act on account of depositing employees’ contributions towards Provident Fund and ESIC beyond the due dates under the Provident Fund Act and the ESIC Act but before filing of return of income, following the Jurisdictional High Court decision in the case of CIT v M/s Hemla Embroidery Mills (P) Ltd [ITA no. 16 of 2009 (P&H)] wherein it was held that as per section 43B, the assessee was entitled to deduction in respect of employer and employee’s contribution to ESI and Provident Fund when the same had been deposited prior to the due date of filing of the return u/s 139(1).
ASSISTANT COMMISSIONER OF INCOME TAX vs. KHYBER INDUSTRIES PVT. LTD. – (2018) 53 CCH 0266 (Asr Trib) – ITA No.395(Asr)/2017 dated June 21, 2018

1016. The Tribunal upheld CIT(A)’s order allowing the assessee’s claim for deduction with respect to delayed payment of employees’ contribution to ESI and PF u/s 43B, relying on the Jurisdictional High Court decision in the case of CIT v. Magus Customers Dialog P. Ltd (2015) 57 taxmann.com 94 (Kar) and not considering the decision of Gujarat High Court in the case of CIT v. Gujarat State Road Transport Corporation (2014) 41 taxmann.com 100 (Guj) [wherein the issue was decided against the assesse]. In the former decision, it was held that the word “contribution” used in clause(b) of section 43B meant the contribution of the employer and the employee and that being so, if the contribution was made on or before the due date for furnishing the return of income u/s 139(1), the employer was entitled for deduction.
DEPUTY COMMISSIONER OF INCOME TAX vs. ALLEGIS SERVICES INDIA LTD. – (2018) 53 CCH 0143 (Mum Trib) – ITA No. 325/Bang/2018 dated June 13, 2018

1017. The Tribunal allowed the assessee’s appeal against the CIT(A)’s order wherein the CIT(A) had confirmed the disallowance made by the AO u/s 43B with respect to unpaid service tax amount. It was noted that the amount of service tax collected by the assessee-builder from the customers on sale of flats under construction was not paid to Government account for reason that levy of service tax on builders was challenged before High Court and High Court had granted interim stay from collection of tax till the matter was decided. It was also noted that the assessee had treated the service tax collected from customers as current liability without claiming it as expenditure during relevant assessment year and the same was paid in subsequent financial year as soon as the High Court had passed decision on the same.
Wadhwa Residency (P.) Ltd. v ACIT – [2018] 95 taxmann.com 294 (Mumbai – Trib.) – IT APPEAL NO. 5413 (MUM.) OF 2015 dated Jun 20, 2018

1018. The assessee entered into an agreement with its subsidiary to transfer its packaging division and claimed that the liability towards gratuity and leave wages of employees pertaining to the said division was also transferred and was no longer assessee’s liability. Accordingly, the assessee claimed that the said liability was to be considered as paid/discharged for the purpose of Section 43B.The AO however disallowed the assessee’s said claim. The Tribunal held that the basic question of treatment given by transferee in its books of account was not considered by both lower authorities and also since there was nothing on record to show as to what was decided by the buyer and seller on the question of gratuity and leave wages, it needed further verification and thus the matter was remanded back to AO for fresh adjudication.
Oricon Enterprises Ltd v ACIT [2018] 94 taxmann.com 250 (Mumbai – Trib.) ITA NO 2913 OF 2015 dated 16.05.2018

1019. The Tribunal deleted the disallowance u/s. 43B or 2(24)(x) r.w.s. 36(1)(v)(a) since the contribution to employee’s PF was deposited before the due date of filing of return of income.
Granite Services International India Private Limited vs DCIT [TS-628-ITAT-2018(DEL)-TP]

Section 44C

1020. Following the Tribunal’s decision in the assessee’s own case on identical issue for earlier years, the Tribunal allowed the assessee’s appeal against the disallowance of management charges paid by the assesse, an Indian branch of a UK based company, to its head office under a management services agreement, where the AO had treated the management charges as Head Office expenses and had restricted the claim of the assessee to 5% of the total adjusted income in terms of section 44C of the Act and the CIT(A) had restricted the said disallowance to 50% of the amount paid. In the earlier year, it had deleted the disallowance on account of the management charges holding that the said charges paid to did not come within the purview of section 44C of the Act.
LLOYDs REGISTER QUALITY ASSURANCE LTD. & ORS. v DCIT – (2018) 53 CCH 156 (Mum) – ITA No. 2856/Mum/2015, 2857/Mum/2015, 3920/Mum/2015 dated Jun 15, 2018

Section 14A

1021. The Tribunal held that where the assessee’s share capital along with reserve and surplus was many times higher than the amount invested in shares etc. yielding exempt income, no disallowance could be sustained under Rule 8D(2)(ii).
Vis-à-vis the disallowance made by the AO under Rule 8D(2)(iii), the Tribunal, relying on the decision of the Court in ACB India Ltd. vs. ACIT (2015) 374 ITR 108 (Del) held that only the average of those investments which yielded exempt income were to be taken into consideration and not the average of all investments. Accordingly, it directed the AO to carry out the computation of disallowance under 8D(2)(iii) as per its findings. Further, it held that if the disallowance under clause (iii) of Rule 8D(2) exceeded the amount of exempt income, then, the disallowance was to be restricted to such income alone.
DEPUTY COMMISSIONER OF INCOME TAX & ANR. vs. DLF COMMERCIAL DEVELOPERS LTD. & ANR. – (2018) 52 CCH 0148 DelTrib – ITA No. 1388/Del/2013 dated Mar 1, 2018

1022. Where the CIT(A) after directing the AO to exclude the strategic investments from the average value of investments while determining disallowance of administrative expenses u/s 14A r.w. Rule 8D(2)(iii), had held that such exclusion would be restricted only to the old investments made in the group companies and not incremental amount invested during the year, the Tribunal held that once the CIT(A) had found that the investments made in the group companies were in the nature of strategic investments then no differentiation could be made between the old investments and the incremental increase made during the year and that there was no rationale behind the CIT(A)’s such differential approach. Accordingly, it d