Appeal details
Counselvise Citation
[2021] 104 COUNSELVISE.COM (IT) 9168 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
6 year(s) 26 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
10-01-2017
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
B
Assessment Year
2006-2007
Appeal Filed On
15-12-2010
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH ‘C’, BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER IT(TP)A No.1455 (Bang) 2010 (Assessment year : 2006-07) M/s Hewlett-Packard Global Soft Pvt. Ltd. No.139/40, Electronic City – Phase-II, Hosur Road, Bangalore-560 100 Pan No.AACCK8428P Appellant Vs The Asst. Commissioner of Income-tax, Central Circle-11(4), Bangalore Respondent Assessee by : Shri Sharath Rao, Vaidehi G & Ankur Pai, CA Revenue by : Shri Sudhakar Rao, CIT Date of hearing : 04-01-2017 Date of pronouncement : 11-01-2017 O R D E R PER SHRI A.K.GARODIA, AM This is an assessee’s appeal directed against the assessment order dated 11-10-2010 passed by the AO u/s 143(3) r.w.s.144C of the IT Act, 1961 as per the directions of DRP for assessment year 2006-07. 2. The assessee has raised the following grounds; “ Transfer Pricing “1. The order passed by the Honorable Dispute Resolution Panel ("DRP") and the learned Assessing Officer ("AO") I T ransfer Pricing Officer ("TPO") is not in accordance with the law and is contrary to the facts and circumstances of the present case and in any case in violation of the principle of equity and natural justice. 2. The Honorable DRP and the learned AOITPO erred in fact and in law in determining the Arm's Length Price ("ALP") by adopting the financial data for a single year [i.e. the financial year ("FY") 2005-06] of the com parables as against multiple year data considered by the Appellant. 3. The learned TPO has erred in selecting companies as comparable to the Appellant despite such companies failing the test of comparability and reliability on some or all of the factors such as functional dissimilarity, product led revenues and lower employee cost levels. 4. The leaned TPO has erred in adopting a faulty process of selection of comparable companies without taking into account aspec ts such as the influence of extraordinary events, abnormality in the financial results of the concerned year, reliability of the financial data and the failure of his own filters. 5. The Honorable DRP and the learned AOITPO erred in fact and in law in using selective information, which was not available in public domain, obtained under section 133(6) of the Income-tax Act, 1961 ("the Act") without any independent validation of the data provided and by ignoring the inconsistencies therein with the information available in public dom ain, including the audited financial statements, of the comparable companies. 6. The learned TPO erred in computing the operating margins of the comparable companies at higher levels and determining the oper ating margin of the Appellant to be lower than the margin actually earned by the Appellant. The Honorable DRP and the learned AO have erred in upholding the same. The exercise of computation of margins ignores certain items which ought to have been considered as operating or non-operating items, as the case may be, and also ignores risk adjustments to the ma rgins of the comparable companies 7. The Honorable DRP and the learned AO/TPO erred in law and on fa cts in upholding the arm's length margin arrived at by the learned TPO by not considering the lower range of 5 percent from the mean margin as allowed under the Act and the Income-tax Rules, 1962 ("Rules"). 8. Without prejudice to all of the above, the Honorable DRP and the learned AO/TPO have erred in facts and in law in applying the provisions of transfer pricing to the Appellant without appreciating the fact that the Appellant was entitled to tax holiday under section 10A of the Act during the relevant year and therefore there would be not be any motive to shift profits t o the other country. Adjustments under the Section 10A of the Act 9. The H onourable DRP and the learned AO has erred in law and on facts in concluding that communication expenses and expenditure incurred in foreign currency are to be excluded from the export turnover for the purpose of computation of relief u nder the section 10A of the Act. 10. The Honourable DRP and the learned AO has erred in law a nd on facts in upholding that the said communication expenses and expenditure incurred in foreign currency should not be reduced from the total turnover for the purpose of comp utation of relief under section 10A of the Act even if these are reduced from the export turnover. 11. Without prejudice to the Ground above, the Honourable DRP and the learned AO has erred in law and on facts in upholding that the relief under section 10A of the Act is to be computed af ter setting off losses incurred by certain undertakings as against computing relief for each undertaking separately Others 12. The Honourable DRP and the learned AO have erred in hold ing interest income earned by the Appellant as "Income from other sources" and rejecting the Appellant's argument to consider the same as "Profits or Gains from Business or P rofession". In doing so, the Honorable DRP I learned AO have failed to consider the decision of the Income-tax Appellate Tribunal ("IT A 1") in the Appellant's own case on the same aspect 13. The Learned AO has erred in law in concluding that expenses incurred by the Appellant towards purchase of computer software along with related hardware, which are not of enduring nature, as capital in nature and therefore not being eligible for deduction under section 37 of the Act but only entitled to depreciation at 60 percent. Consequential Grounds 14. The learned AO has erred in not granting a higher foreign tax credit based on the assessed income. 15. The Honourable DRP and the learned AOITPO has erred in law and on facts in levying interest under section 2348 and sect ion 2340 of the Act. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds, at any time before or at the time of hearing of the appeal. Each of the above objections is independent and without prejudice to the other grounds preferred by the Appellant. The Appellant-Company does not have a Managing Director and h ence these concise grounds of appeals are signed by the Director of the Company in accordance with the provisions of the Act” As per letter dated 17-11-2014, the grounds raised are 15 as reproduced above. Subsequently, the assessee has filed another letter dated 25-10-2016 filed on 10-11-2016 as per which it was submitted that ground no.1 to 8 pertain to TP adjustment are not pressed and additional grounds raised earlier vide letter dated 17-11-2014 are withdrawn. Accordingly, these grounds are rejected as not pressed/ withdrawn. 3. Regarding ground no.9 & 10 in respect of deduction u/s 10A of the IT Act, it was submitted by the ld. AR of the assessee that this issue is covered in favour of the assessee by the judgment of the Hon’ble Karnataka High Court rendered in the case of M/s Tata Elxsi Ltd. as reported in 349 ITR 98. 4. Regarding ground no.11, he submitted that this issue is covered in favour of the assessee by the judgment of the Hon’ble Apex High Court rendered in the case of M/s Yokogawa India Ltd. He also submitted a copy of the judgment of the Hon’ble Apex Court in Civil Appeal No.8498 of 2013 dated 16- 12-2016 in the case of Yokogawa Ltd., as per which the judgment of Hon’ble Karnataka High Court has been upheld by the Hon’ble Apex Court and in view of this, ground no.11 of the appeal should also be allowed. 5. Regarding ground no.12, he submitted that this issue is covered in favour of the assesee by the Tribunal order in assessee’s own case for assessment year 2001-02 in ITA No.122 (B)/2004 dated 27-06-2007. He submitted a copy of this Tribunal order. He pointed out that the issue involved in this ground is regarding the head of income under which the interest income has to be taxed as to whether it should be taxed under the head “Income from business” or under the head ‘Income from “Other sources”. At this juncture, a query was raised by the Bench as to whether change of head for taxing interest income will have any impact on the amount of tax payable by the assessee and in reply, it was submitted by the ld. AR of the assessee that in the present year at least, there will be no impact but the assessee wants to keep the issue alive. The Bench opined that if this issue has no impact on the tax liability of the assessee in the present year then at least in the present year, this issue is of academic interest only and therefore, we do not want to enter into this aspect of the matter in the present year because of this reason that in the present year, this aspect is of academic interest only. In reply, the ld. AR of the assessee had nothing to say. 6. Regarding ground no.13, he submitted that although, this may be correct that the expenses on purchase of computer software along with related hard ware is not allowable as a revenue expenditure u/s 37 of the IT Act and only depreciation is allowable at the rate of 60%, but the resulting disallowance should be added to the profit of the assessee company for computation of deduction allowable u/s 10A of the IT Act, 1961. 7. Regarding ground no.14, he submitted that the issue regarding granting of foreign tax credit may be restored back to the file of the AO for fresh decision. At this juncture, a query was raised by the Bench as to whether the income in respect of which the assessee is claiming foreign tax credit has been brought to tax in the hands of the assessee in the present year in India or whether the same was considered as eligible for exemption. In reply, it was submitted by the ld. AR of the assessee that this aspect of the matter may be also be restored back to the file of the AO for fresh decision with direction to AO to allow foreign tax credit only in respect of those incomes which were taxed in foreign country and on which no exemption is claimed or allowed in India. 8. As against this, the ld. DR of the revenue supported the orders of the authorities below. 9. We have considered the rival submissions. Ground no.1 to 8 and additional grounds are rejected as withdrawn. 10. Ground no.9 & 10 are allowed by respectfully following the judgment of the Hon’ble Karnataka High Court rendered in the case of M/s Tata Elxsi Ltd. (Supra) wherein it was held by the Hon’ble High Court that the total turnover is sum total of export turnover and domestic turnover and therefore, if an amount is reduced from export turnover then the total turnover also automatically goes down by the same amount. We direct the AO that the expenses he has reduced from the export turnover should also be reduced from the total turnover for the purpose of computation of deduction allowable u/s 10A of the Act. These grounds are allowed in this manner. 11. Ground no.11 is also allowed by respectfully following the judgment of the Hon’ble High Court rendered in the case of M/s Yokogawa India Ltd (Supra) which has been approved by the Hon’ble Apex Court. 12. Regarding ground no.12, in view of this admitted position that this dispute as to whether interest income is assessed under the head “Income from business” or “Income from other sources” is not having any impact on the tax liability of the assessee in the present year, we hold that this issue is only of academic interest in the present year and we do not enter into this aspect in the present year and the same is left open for a decision in a later year where it will have an impact on the tax liability of the assessee. 13. Regarding ground no.13, we hold that the expenditure incurred on purchase of computer software along with related hardware is not allowable as revenue expenditure u/s 37 of the IT Act and only depreciation thereon is allowable as per the applicable rate but the income of the assessee should be considered after making this disallowance for the purpose of computing deduction allowable to the assessee u/s 10A of the IT Act because in our considered opinion, if an amount is not allowable on the basis of this dispute that it is capital expenditure and not revenue expenditure then it has to be accepted that the actual business income was the income assessed after making such disallowance and the same should be considered for the purpose of computing the deduction allowable u/s 10A of the IT Act, 1961. 14. Regarding ground no.14, we restore the matter regarding granting of foreign tax credit to the assessee to the file of the AO for a fresh decision with the direction that if it is established by the assessee that an income was taxed in a foreign country and the same was also taxed in India and on such income, no exemption was claimed by the assessee in India then foreign tax paid in a foreign country should be considered for foreign tax credit as per law. The AO should pass necessary order as per law on this aspect after providing adequate opportunity of being heard to the assessee. The issue involved in ground no.15 in respect of chargeability of interest is consequential in nature for which no separate adjudication is called for. 15. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on the date mentioned on the caption page. (VIJAY PAL RAO) (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER Place: Bangalore: D a t e d : .01.2017 am * Copy to : 1 Appellant 2 Respondent 3 CIT(A)-II Bangalore 4 CIT 5 DR, ITAT, Bangalore. 6 Guard file By order, AR, ITAT, Bangalore 1. ौुतलेख क तार ख................................................................................. DATE OF DICTATION................................................................................. 2.तार ख, जस पर टाइप कया ह ु आ मसौदे, संबंिधत सदःय के सामने रखा गया ह DATE ON WHICH TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER..................................................................................................... 3. तार ख जस पर अनुमो दत मसौदे व.िनजी सिचव/िनजी सिचव के पास वापस आए DATE ON WHICH THE APPROVED DRAFT COMES TO THE PS/Sr.PS................... 4. घोषणा के िलए आदेश संबंिधत सदःय के सामने रखने क ितिथ DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.......................................................................................... 5. आदेश िन.सिचव/व.िन.सिचव के पास वापस आने क ितिथ DATE ON WHICH THE ORDER COMES BACK TO THE PS/Sr.PS.......................... 6 आदेश अपलोड करने क ितिथ DATE OF UPLOADING THE ORDER ON WEBSITE.................................................. 7. अगर अपलोड नह ं कया तो, उसका कारण IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO............................... 8. ब.च िल/पक के पास फाइल जाने क ितिथ DATE ON WHICH THE FILE GOES TO THE BENCH CLERK...................................... 9. आदेश ज़ेरो2स/पृ4ांकन के िलए भेजने क ितिथ DATE ON WHICH ORDER GOES FOR XEROX &ENDORSEMENT........................... 10. फाइल मु6य िल/पक के पास जाने क ितिथ DATE ON WHICH THE FILE GOES TO THE HEAD CLERK....................................... 11. आदेश पर हःता7र के िलए फाइल सहायक र जःशार के पास जाने क ितिथ THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER..................................................................................... 12. अिधकरण आदेश के ूेषण के िलए फाइल ूेषण /वभाग म. जाने क ितिथ THE DATE ON WHICH THE FILE GOES TO DESPATCH SECTION FOR DESPATCH OF THE TRIBUNAL ORDER....................................................................................... 13. आदेश क ूेषण क ितिथ DATE OF DESPATCH OF ORDER...............................................................................
