Manhattan Associates (India) Development Centre Private Limited, Bangalore V. Deputy Commissioner of Income Tax, Circle-4(1)(1), Bangalore

ITA 221/BANG/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8172 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2016-2017
• Appeal Filed On: 27-05-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SMT. BEENA PILLAI, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER IT(TP)A No. 221/Bang/2021 Assessment Year : 2016-17 M/s. Manhattan Associates (India) Development Centre Pvt. Ltd., 5 th and 6 th Floor, B1 Block, Brigade Tech Gardens, Brookefields, Kundanahalli, Whitefield, Bangalore – 560 037. PAN: AADCM0727A Vs. The Deputy Commissioner of Income Tax, Circle 4(1)(1), Bangalore. APPELLANT RESPONDENT Assessee by : Shri T. Suryanarayana, Advocate Revenue by : Shri Arun Kumar, CIT DR Date of Hearing : 08-09-2022 Date of Pronouncement : 12-09-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against final assessment order dated 30/03/2021 passed by National e-Assessment Centre, Delhi for A.Y. 2016-17. 2. The Ld.AR submitted that the only issue that is raised before this Tribunal in the present appeal is regarding addition of assets Page 2 of 6 IT(TP)A No. 221/Bang/2021 received free of cost basis taxed as business income u/s. 28(iv) of the Act. 3. The Ld.AR submitted that this issue has now become academic as an APA has been entered into between the competent authorities, wherein, the said expenses stands subsumed in the operating expenses. The Ld.AR referring to the APA dated 28/02/2020 submitted that the definition of operating expenses has been recorded as under: “Definition.........................(a).............. (b) "operating expense" means costs incurred in the previous year by the Applicant in relation to the covered transactions during the course of its normal business operations, including depreciation and amortisation expenses relating to the assets used by the Applicant, and expenses reflected in Statement of Profit & Loss of MA India on account of Employees' Stock Option Plan ("ESOP") benefits or similar benefits, granted by the AE to the Applicant's employees and charged to the Applicant, but does not include the following, namely:— (i) interest expense; (ii) provision for unascertained liabilities; (iii) pre-operating expenses; (iv)extraordinary expenses such as one-time expenses relating to the change in the accounting policies or accounting standards, (e.g. migration to Ind-AS / IFRS), etc.; (v) loss on transfer of investments or assets, other than on assets whose depreciation is included in the operating expense; (vi) expense on account of income-tax; and (vii) other expenses not relating to normal operations of the Applicant. It is clarified that the following shall also be part of operating expense: .............................A..........D............ E. The following amounts in respect of third-party software, databases, licenses and other assets/tools provided by the "MA US" to "MA India", namely: Page 3 of 6 IT(TP)A No. 221/Bang/2021 i. Original cost of the assets to the AE and/or depreciation costs thereon claimed by MA US (whichever applicable), as the case may be, where the assets have been provided free of cost or on loan basis; or ii. The difference between cost of the asset to the AE and the price at which it has been provided to the Applicant, of the depreciation attributable to such difference, as the case may be, where the assets has been provided at a concessional cost or notional cost by the AE;” 4. The Ld.AR submitted that, pursuant to the above, the assessee filed its return of income, wherein, the cost of the assets received by the assessee from its AE free of cost is considered to be part of operating cost for the covered transaction and has been included to determine the ALP of the covered transaction. He referred to the computation of income which is filed before this Tribunal as additional evidence along with other annexures. 4.1 The Ld.DR has not objected for admission of the additional evidence as the same has been filed by assessee pursuant to the APA. 4.2 For the sake of convenience, the computation of income filed by assessee is scanned and reproduced hereunder. Page 4 of 6 IT(TP)A No. 221/Bang/2021 5. The Ld.AR referring to the decision of Coordinate Bench of this Tribunal in case of Tesco Bengaluru Pvt. Ltd. vs. JCIT in IT(TP)A Nos. 2898/Bang/2018 & 2387/Bang/2019 by order dated 04.08.2022 for A.Ys. 2014-15 & 2015-16, submitted that identical issue was considered by this Tribunal and has allowed this claim of assessee. Page 5 of 6 IT(TP)A No. 221/Bang/2021 5.1 The Ld.DR relied on the orders passed by authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. 6. We note that in the case of Tesco Bengaluru Pvt. Ltd. vs. JCIT (supra), this Tribunal observed and held as under: “11.1 Facts of the case are that during the year under consideration, the Appellant received certain capital goods such as computers, scanners, hard disks, etc. from its Associated Enterprise on free of cost basis. The assets were received for usage in rendering services to the AE. The Assessing Officer treated the value of the assets of Rs. 1,64,92,752/- as being benefit arising to the Appellant from its business activities and made an addition under Section 28(iv) of the Act. The DRP affirmed the addition. 11.2 In this regard, Ld. A.R. submitted that pursuant to passing of the final assessment order, the Appellant entered into an Advance Pricing Agreement, covering the subject assessment year. In terms of the agreement, for the purpose of computing the operating profit margin, the operating expense is to include all costs incurred by the Appellant in relation to the covered transaction, including depreciation and amortization expense relating to the assets used by the Appellant. Therefore, since the depreciation on the assets is considered as a part of the operating expense for computing the operating profit margin arising from the transaction, the income from which is offered to tax, no addition under Section 28(iv) of the Act is warranted. It is submitted that since the item has already suffered tax pursuant to the APA, a separate addition would result in double taxation, which is unsustainable. In view of the above, the other contentions are not argued at the present stage and the Appellant reserves liberty to argue the same at a future stage, if required. 11.3. The Ld. D.R. relied on the order of lower authorities. 11.4 We have heard the rival submissions and perused the materials available on record. We find force in the arguments of the assessee's counsel. If the depreciation on assets is considered as part of operating profit margin arising from the transaction, and the income from which it is offered to tax, no addition u/s 28(iv) of the Act is warranted, which is already subject to tax pursuant to APA and no further addition is necessary, otherwise it amounts to double taxation. Accordingly, we allow this ground taken by the assessee.” Page 6 of 6 IT(TP)A No. 221/Bang/2021 7. In the present facts of the case, the situation and fact is similar with that of the Tesco Bengaluru Pvt. Ltd. vs. JCIT (supra). Respectfully following the above, we direct the Ld.AO to delete the addition made u/s. 28(iv) as the same has been subjected to tax pursuant to APA and therefore no further addition is warranted. Accordingly, this ground raised by assessee stands allowed. 8. Ground no. 3 is in respect of disallowance of education cess. Pursuant to the amendment introduced by Finance Act, this ground is no longer to be considered and accordingly is dismissed. In the result, the appeal filed by assessee stands partly allowed as indicated hereinabove. Order pronounced in the open court on 12 th September, 2022. Sd/- Sd/- (LAXMI PRASAD SAHU) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 12 th September, 2022. /MS / Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore