M/s ANZ Operations & Technology Private Limited, Bangalore V. Income-Tax Officer, Ward-1(1)(1), Bengaluru

ITA 57/BANG/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8940 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 11-08-2021
• Assessment Year: 2014-2015
• Appeal Filed On: 07-01-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Additional evidence; Competent authority; Revenue expenditure; Capital expenditure
• Section: 143(3); 144C; 48

Judgement Text

IT(TP)A NO.57/BANG/2019 M/S. ANZ OPERATIONS & TECHNOLOGY PVT. LTD., BANGALO RE IN THE INCOME TAX APPELLATE TRIBUNAL CBENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.57/BANG/2019 ASSESSMENT YEAR: 2014-15 M/S. ANZ OPERATIONS & TECHNOLOGY PVT. LTD. SEZ UNIT, RMZ ECOWORLD, CAMPUS 5A, GROUND FLOOR AND LEVELS 4 TO 9 SARJAPUR MARATHAHALLI OUTER RING ROAD DEVARABEESANAHALLI VILLAGE VARTHURHOBLI, BANGALORE EAST TALUK BANGALORE 560 103 PAN NO : AABCA9002G VS. ITO WARD- 1(1)(1) BANGALORE APPELLANT RESPONDENT APPELLANT BY : SHRI CHAVALI NARAYAN, A.R. RESPONDENT BY : SHRI PRADEEP KUMAR, D.R. DATE OF HEARING : 11.08.2021 DATE OF PRONOUNCEMENT : 11.08.2021 O R D E R PERB.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE FINAL ASSESSMENT ORDER DATED 31.10.2018 PASSED BY THE A.O . FOR ASSESSMENT YEAR 2014-15 U/S 143(3) R.W.S. 144C OF T HE INCOME-TAX ACT,1961 ['THE ACT' FOR SHORT] PURSUANT TO DIRECTIO NS GIVEN BY LD. DISPUTE RESOLUTION PANEL (DRP). THE ISSUES URGED I N THE APPEAL RELATE TO TRANSFER PRICING ADJUSTMENTS MADE IN RESP ECT OF SOFTWARE DEVELOPMENT SERVICES, ITES SEGMENT, OUTSTANDING REC EIVABLES AND A CORPORATE ISSUE RELATING TO CAPITALIZATION OF SOFTW ARE EXPENSES. IT(TP)A NO.57/BANG/2019 M/S. ANZ OPERATIONS & TECHNOLOGY PVT. LTD., BANGALO RE PAGE 2 OF 7 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SOFTW ARE DEVELOPMENT AND PROVIDING IT ENABLED SERVICES. 3. AT THE TIME OF HEARING, THE LD. A.R. SUBMITTED T HAT THE ASSESSEE HAS ENTERED INTO BILATERAL ADVANCE PRICING AGREEMENT (APA) WITH CBDT ON 31.8.2018, WHICH IS APPLICABLE FOR 5 Y EARS COMMENCING FROM FINANCIAL YEARS 2015-16 TO 2019-20 (RELEVANT TO ASSESSMENT YEARS 2016-17 TO 2020-21) WITH ROLL BACK OF 4 YEARS COMMENCING FROM FINANCIAL YEARS 2011-12 TO 2014-15 (RELEVANT TO ASSESSMENT YEARS 2012-13 TO 2015-16). ACCORDINGLY, THE LD. A.R. SUBMITTED THAT THE APA WOULD APPLY FOR THE YEAR UND ER CONSIDERATION. ACCORDINGLY, HE SUBMITTED THAT THE GROUND NOS.2 TO 11 RELATING TO TRANSFER PRICING ADJUSTMENT MADE IN SOFTWARE DEVELOPMENT SEGMENT AND ITES SEGMENT ARE NOT PRESSE D. ACCORDINGLY, GROUND NOS.2 TO 11 ARE DISMISSED AS NO T PRESSED. 4. GROUND NOS.12 TO 17 RELATES TO TRANSFER PRICING ADJUSTMENT MADE ON OUTSTANDING RECEIVABLES. THE LD. A.R. SUBM ITTED THAT UNDER APA ENTERED WITH CBDT, THE PERIOD OF REALIZAT ION OF RECEIVABLES HAS BEEN FIXED AT 60 DAYS. HE SUBMITTE D THAT THE ABOVE PERIOD OF 60 DAYS MAY BE ADOPTED FOR DETERMINING TH E TRANSFER PRICING ADJUSTMENT IN RESPECT OF OUTSTANDING RECEIV ABLES. IN THIS REGARD, THE LD. A.R. PLACED RELIANCE ON THE DECISIO N DATED 6.8.2021 PASSED BY THE TRIBUNAL IN THE ASSESSEES SISTER CON CERN CASE NAMED M/S. ANZ SUPPORT SERVICES INDIA (P) LTD. (IT TP A NO.58/BANG/2019), WHEREIN SIMILAR CLAIM OF THE ASSE SSEE WAS ACCEPTED. 5. WE HEARD LD. D.R. ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT AN IDENTICAL ISSUE WAS EXAMINED BY THE COORDINATE IT(TP)A NO.57/BANG/2019 M/S. ANZ OPERATIONS & TECHNOLOGY PVT. LTD., BANGALO RE PAGE 3 OF 7 BENCH IN THE ASSESSEES SISTER CONCERNS CASE REFER RED ABOVE AND IT HAS BEEN DECIDED AS UNDER:- 7. THE LEARNED COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT IT HAD FILED AN APPLICATION FOR BILATERAL ADVANCE P RICING AGREEMENT TO THE COMPETENT AUTHORITY UNDER THE ACT IN RESPECT OF THE INTERNATIONAL TRANSACTION OF ALLOWING CREDIT PE RIOD TO THE AE ALSO. AS PER THE APA, A REALIZATION PERIOD OF 60 DA YS HAS BEEN AGREED FOR THE REALISATION OF INVOICES PERTAINING T O INTERNATIONAL TRANSACTIONS (I.E. ITES) FROM 01 APRIL 2017 ENTERED INTO WITH THE AES (REFER PG NO. 643 OF PAPERBOOK I). FURTHER. THE ACTUAL WEIGHTED REALIZATION PERIOD FOR AY 2014-15 IS 48 DA YS (REFER PG NO. 626 TO 632 OF PAPERBOOK I). IT WAS SUBMITTED BY HIM THAT THE REALIZATION PERIOD OF 60 DAYS AS AGREED IN THE APA FOR SUBSEQUENT YEARS (FY 2016-17 ONWARDS) SHOULD ALSO BE APPLICABL E FOR AY 2014-15 (ROLLBACK YEAR). IT WAS SUBMITTED THAT DURI NG THE APA PROCEEDINGS, THE DETAILED WEIGHTED AVERAGE REALIZAT ION PERIOD FOR ROLLBACK YEARS INCLUDING AY 2014-15 WERE SUBMITTED WITH THE INDIA COMPETENT AUTHORITY OFFICE (PG NO. 622 TO 632 OF PA PERBOOK I). THE INDIAN COMPETENT AUTHORITY OFFICE OBSERVED THAT THE 60 DAYS CREDIT PERIOD WILL BE CONSIDERED AS NORMAL AND FOR LATE REALIZATION BEYOND 60 DAYS PREVAILING BANK RATE WILL BE CHARGED . 8. IT IS THE PLEA OF THE LEARNED COUNSEL FOR ASSESS EE THAT THE CONCEPT AND THE METHODOLOGY LAID DOWN IN APA CAN HAVE A GUI DANCE VALUE FOR THE REVENUE AUTHORITIES. THE MAIN INTENT OF THE APA IS TO PROTECT THE FAIR SHARE OF THE REVENUE OF THE STATES IN SIMPLE AND EFFICIENT MANNER AND TO PROTECT THE TAX BASE. THERE FORE, THE AGREEMENT ENTERED INTO BY CBDT WITH THE ASSESSEE, W HICH HAS CONSIDERED ALL THE ASPECTS OF THE MANNER OF DETERMI NATION OF ALP SHOULD BE GIVEN HIGHEST SANCTITY AND HENCE, MECHANI SM SUGGESTED IN THAT AGREEMENT SHOULD BE NECESSARILY FOLLOWED, W HEREIN THE APA CLEARLY PROVIDES A REALIZATION PERIOD OF 60 DAYS TO THE ASSESSEE. 9. OUR ATTENTION WAS DRAWN TO THE CLARIFICATIONS ON ROLLBACK PROVISIONS ISSUED BY THE CBDT VIDE CIRCULAR NO. 10/ 2015 DATED 10 JUNE 2015, RULE 10MA(2)(I) OF THE INCOME TAX RULES MANDATES THAT THE ROLLBACK PROVISION SHALL APPLY IN RESPECT OF AN INTERNATIONAL TRANSACTION THAT IS SAME AS THE INTER NATIONAL TRANSACTION TO WHICH THE AGREEMENT (OTHER THAN THE ROLLBACK PROVISION) APPLIES. FURTHER, THE FUNCTIONS, ASSETS AND RISKS ('FAR') ANALYSIS SHOULD NOT DIFFER MATERIALLY. SINC E THERE IS NO CHANGE IN THE FAR ANALYSIS OF THE ASSESSEE AND THE NATURE OF INTERNATIONAL TRANSACTIONS ARE IDENTICAL IN NATURE FOR ALL THE NINE YEARS COVERED UNDER APA, THAT THE APPROACH ON CREDI T PERIOD AGREED IN THE APA FOR SUBSEQUENT YEARS IS APPLICABL E TO THE AY 2014-15 (ROLLBACK YEAR) AS WELL. IT(TP)A NO.57/BANG/2019 M/S. ANZ OPERATIONS & TECHNOLOGY PVT. LTD., BANGALO RE PAGE 4 OF 7 10. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER PL ACED RELIANCE ON JUDICIAL PRECEDENTS IN SUPPORT OF ITS ARGUMENTS WHEREIN, THE HON'BLE BENCHES OF THE TRIBUNAL HAVE HELD THAT THE METHODOLOGY/APPROACH AS AGREED WITH CBDT IN THE APA COVERED YEARS SHALL BE APPLIED FOR OTHER YEARS AS WELL WHIC H ARE NOT COVERED UNDER APA. AMERIPRISE INDIA PVT. LTD. [TS-174-HC-2016(DEL)-TP] CELLTICK TECHNOLOGIES LTD. [TS-552-ITAT-2019(MUM)-T P] ABICORBINZEL PRODUCTION (INDIA) PVT LTD. [TS-1036- ITAT2017(PUN)-TP] 11. WE HAVE CONSIDERED THE SUBMISSIONS AND ARE OF T HE VIEW THAT AY 2014 -15 IS COVERED UNDER ROLL-BACK PERIOD OF TH E APA. ALSO, THE FAR FOR ALL THE YEARS COVERED UNDER APA IS SAME . HENCE, THE PERIOD OF REALIZATION OF 60 DAYS WHICH IS AGREED IN THE APA FOR 01 APRIL 2017 ONWARDS SHOULD BE CONSIDERED FOR AY 2014 -15 AS WELL. THE PRINCIPLE LAID DOWN IN THE DECISIONS REFERRED T O IN PARAGRAPH 10 OF THIS ORDER WILL APPLY TO THE PRESENT CASE ALS O. WE HOLD AND DIRECT ACCORDINGLY. 6. FOLLOWING THE ABOVE SAID DECISION, WE RESTORE TH IS ISSUE TO THE FILE OF AO/TPO WITH A DIRECTION TO FOLLOW THE PRINC IPLE LAID DOWN IN THE ABOVE SAID CASE. 7. GROUND NOS.18 TO 20 RELATES TO DISALLOWANCE OF S OFTWARE EXPENSES CLAIMED BY THE ASSESSEE BY TREATING THEM A S CAPITAL IN NATURE. THE LD. A.R. SUBMITTED THAT THE A.O. HAS TR EATED THE SOFTWARE EXPENSES AS CAPITAL EXPENDITURE AND ALLOWE D DEPRECIATION @ 30%. HOWEVER, LD. DRP PASSED THE ORDER DIRECTING THE A.O. TO VERIFY THE INVOICES AND ALLOW THE SOFTWARE EXPENDIT URE, IF THE LICENSE IS FOR A PERIOD OF LESS THAN 1 YEAR. THE LD. A.R. SUBMITTED THAT THE ASSESSEE, HOWEVER, COULD FURNISH ONLY PARTIAL DETAI LS ONLY BEFORE THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS. EVEN THOUGH THE ASSESSEE FILED BALANCE DETAILS BEFORE A.O. VIDE ITS LETTER DATED 10.10.2018, THE SAME WAS NOT ACCEPTED BY THE A.O. HE SUBMITTED THAT THE SOFTWARE EXPENSES INCURRED BY THE ASSESSEE CONSISTS OF IT(TP)A NO.57/BANG/2019 M/S. ANZ OPERATIONS & TECHNOLOGY PVT. LTD., BANGALO RE PAGE 5 OF 7 PAYMENTS MADE TOWARDS LICENSE FEES AND SUBSCRIPTION AND THE PERIOD OF LICENSE/SUBSCRIPTION WAS LESS THAN 1 YEAR . HENCE, AS PER THE DIRECTION GIVEN BY LD DRP, ENTIRE CLAIM IS ALLO WABLE AS REVENUE EXPENDITURE. THE LD. A.R. SUBMITTED THAT AN IDENTI CAL ISSUE WAS CONSIDERED BY THE COORDINATE BENCH OF TRIBUNAL IN T HE CASE OF ANZ SUPPORT SERVICES INDIA PVT. LTD. (SUPRA) AND THE MA TTER WAS RESTORED TO THE FILE OF THE A.O. FOR EXAMINING THE CLAIM OF THE ASSESSEE AND FOLLOW THE DIRECTION GIVEN BY LD. D.R.P. 8. WE HEARD LD. D.R. ON THIS ISSUE AND PERUSED THE RECORD. BEFORE US, THE ASSESSEE HAS FILED THE DETAILS OF SO FTWARE EXPENSES INCURRED BY THE ASSESSEE AS UNDER: NAME OF PAYEE INVOICE NO INVOICE AMOUNT PERIOD OF LICENSE/ SUBSCRIPTION JQ NETWORK 7590026595 2,615,130 12 MONTHS REDINGTON N044239 1,415,610 12 MONTHS JQ NETWORK 3402 1,331,608 12 MONTHS DIMENSION DATA 7930029941 839.744 PROPORTIONATE ONSITE SUPPORT CHARGES - FOR THE PERIOD 1 APRIL'13 TO 31 MARCH'14 AGC NETWORK 723,813 6 MONTHS IDEA DEVICE 0017 691,930 12 MONTHS SILICOMP INDIA 014 683,429 1 MONTHS DIMENSION INDIA 7930028306 414,343 12 MONTHS DYNAMIC COMPUTER SERVICES S-53 347,192 1 MONTH JQ NETWORK 7590027445 343,098 12 MONTHS WIPRO LIMITED 282,744 1 MONTHS SOFTCELL 00339 234,239 12 MONTHS REACH AUTOMATION 586 147,700 1 MONTH MANUPUTRA 0923 121,800 PROPORTIONATE EXPENSE FOR RENEWAL FOR DATABASE SUBSCRIPTION FOR THE PERIOD 1 APRIL'13 TO 31 MARCH'14 IT(TP)A NO.57/BANG/2019 M/S. ANZ OPERATIONS & TECHNOLOGY PVT. LTD., BANGALO RE PAGE 6 OF 7 LDS INFOTECH LDS/2013- 14/K0238 87,806 1 MONTH HOLISTIC 166 56,180 1 MONTH OTHERS 17,54,988 LESS THAN 12 MONTHS IDEA DEVICE 0034 50,562 1 MONTH IDEA DEVICE 0006 50,562 1 MONTH IDEA DEVICE 0011 50,562 1 MONTH IDEA DEVICE 0012 50,562 1 MONTH IDEA DEVICE 0016 50,562 1 MONTH IDEA DEVICE 0018 50,562 1 MONTH SIGMA BYTE 1033 47,641 1 MONTH DYNAMIC COMPUTER SERVICES S-34 44.481 1 MONTH SILICOMP INDIA 015 39,326 1 MONTH TAX INDIA ONLINE OCT-17-2013-14 22,472 12 MONTHS REACH AUTOMATION 587 21,337 1 MONTH DYNAMIC COMPUTER SERVICES S-68 12,788 1 MONTH MICRO DATA PRODUCTS WCT/1119/13-14 12,333 1 MONTH WORKWARE 7932 11,955 1 MONTH WORKWARE 8026 10,502 1 MONTH WORKWARE 7962 10,256 1 MONTH TOTAL 1,26,27,817 9. IT IS THE SUBMISSION OF THE ASSESSEE THAT THE PE RIOD OF LICENSE/SUBSCRIPTION WAS LESS THAN 1 YEAR OR LESS I N ALL THE ABOVE SAID CASES. IT WAS SUBMITTED THAT THE LD. DRP HAS ALSO DIRECTED THE A.O. TO ALLOW SOFTWARE EXPENSES AS DEDUCTION, IF TH E LICENSE PERIOD IS 1 YEAR OR LESS. UNDER IDENTICAL SET OF FACTS, THE COORDINATE BENCH HAS RESTORED AN IDENTICAL ISSUE IN THE CASE OF ANZ SUPPORT SERVICES INDIA PVT. LTD. (SUPRA) WITH THE FOLLOWING OBSERVAT IONS:- 23. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEAR NED COUNSEL FOR THE ASSESSEE WHO REITERATED THE FACTS STATED AB OVE. LEARNED DR RELIED ON THE ORDER OF THE A.O. WE HAVE GIVEN A CA REFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. AS FAR AS GROUNDS 17 TO 20 RAISED BY THE ASSESSEE ARE CONCERNED, WE ARE OF THE VIEW THAT IT WOULD BE JUST AND APPROPRIATE TO DIRECT THE AO TO C ONSIDER THE CLAIM OF THE ASSESSEE REGARDING SOFTWARE EXPENSES I N THE LIGHT OF THE INVOICES ADMITTED AS ADDITIONAL EVIDENCE BY US. TO THE EXTENT THAT THE SOFTWARE EXPENDITURE IS IN THE NATURE OF P AYMENT OF LICENSE FEE FOR A PERIOD OF LESS THAN 1 YEAR, THE SAME COUL D NOT BE REGARDED IT(TP)A NO.57/BANG/2019 M/S. ANZ OPERATIONS & TECHNOLOGY PVT. LTD., BANGALO RE PAGE 7 OF 7 AS A CAPITAL EXPENDITURE AND SHOULD BE ALLOWED AS A DEDUCTION AS WAS DIRECTED BY THE DRP IN ITS DIRECTIONS DATED 6.9 .2018. 10. FOLLOWING THE ABOVE SAID DECISION, WE RESTORE T HIS ISSUE ALSO TO THE FILE OF THE A.O. WITH SIMILAR DIRECTIONS. 11. OTHER GROUNDS URGED BY THE ASSESSEE ARE EITHER GENERAL OR CONSEQUENTIAL IN NATURE. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH AUG, 2021 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 11 TH AUG, 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE