M/s. Aircom International (India) Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 6617/DEL/2013

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2726 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 07-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 13-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Capital asset; Depreciation; Transfer pricing; International transaction; Cost of acquisition; Notional interest; Revenue expenditure; Capital expenditure
• Section: 143(3); 244A; 234B; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: I - 1 , NEW DELHI BEFORE SHRI N.K.SAINI , ACCOUNTANT MEMBER AND SMT. BEENA . A . PILLAI, JUDICIAL MEMBER ITA NO. 6617 /DEL/201 3 A.Y. 20 09 - 10 AIRCOM INTERNATIONAL (INDIA) PVT. LTD. M - 12, BALRAMA HOUSE KARAMPURA COMMERCIAL COMPLEX NEW DELHI 110 015 PAN: AADCA0915A VS . ACIT, CIRCLE 1(1) NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY SH. RAVISHARMA, ADV. SH. ANUBHAV RASTOGI, ADV. RESPONDENT BY SH. SANJAY I BARA, CIT, DR DATE OF HEARING 22.03.2018 DATE OF PRONOUNCEMENT 28.03.18 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST THE FINAL ASSESSMENT ORDER DATED 31/10/13, PASSED BY ACIT , C IRCLE 1 (1), NEW DELHI UNDER SECTION 143 (3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961 (THE ACT ) ON THE FOLLOWING GROUNDS OF APPEAL: ITA 6617/DEL/2013 AY 2009 - 10 AIRCOM INTERNATIONAL (INDIA) P.LTD. VS. ACIT 2 1. THAT ON FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE ORDER PAS S ED B Y THE LEARNED ASSESSING OFFICER (LD.AO)/TRANSFER PRICING OFFICER (TPO) U/S 143(3) R.W.S. 144C OF THE ACT IS BAD IN LAW AND VOID AB - INITIO. 2. THAT ON FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD.AO HAS ERRED IN ASSESSING THE INCOME OF THE APPELLANT DECLARED AT RS.2,90,39,367 TO RS.9,85,16,540. 3. THAT ON FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. DISPUTE RESOLUTION PANEL (LD.DRP) HAS ERRED IN CONFIRMING THE PROPOSED ADDITIONS /DISALLOWANCES MADE IN DRAFT ORDER BY LD.AO. TRANSFER PRICING ADJUSTMENTS 4. THE LD. AO/TPO ERRED ON FACTS AND IN LAW IN DETERMINING THE ARM'S LENGTH PRICE ('ALP') OF THE INTERNATIONAL TRANSACTIONS OF REIMBURSEMENT OF GROUP COSTS AND PAYMENT OF MANAGEMEN T FEE TO ASSOCIATED ENTERPRISE ('AE') AT NIL AS AGAINST THE AMOUNT OF RS . 2,58,88,820 PAID BY THE APPELLANT AND THEREBY MAKING AN ADDITION OF RS 2,58,88,820 ON THAT ACCOUNT. 4.1 THE LD. AO/TPO ERRED IN NOT APPRECIATING THAT THE APPELLANT RECEIVED ECONOMI C AND COMMERCIAL BENEFIT AND THE SERVICES RECEIVED WERE NOT INCIDENTAL OR DUPLICATE IN NATURE. 4.2 THE LD. AO/TPO ERRED ON FACTS AND IN LAW IN HOLDING THAT NO SERVICES HAVE ACTUALLY BEEN RECEIVED BY THE APPELLANT AND THAT NO INDEPENDENT ENTERPRISE UNDER COMPARABLE CIRCUMSTANCES WOULD BE WILLING TO PAY AN INDEPENDENT PARTY FOR SUCH SERVICES. ITA 6617/DEL/2013 AY 2009 - 10 AIRCOM INTERNATIONAL (INDIA) P.LTD. VS. ACIT 3 4.3 THE L D. AO/TPO ERRED IN NOT APPRECIATING THAT THE PAYMENT MADE TOWARDS MANAGEMENT FEE IS CLOSELY LINKED WITH THE TRANSACTIONS OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND PROVISION OF CONSULTANCY SERVICES. 4.4 THE LD. AO/TPO ERRED ON FACTS AND IN LAW IN ARBITRARILY APPLYING THE COMPARABLE UNCONTROLLED PRICE ('CUP') METHOD DISREGARDING OF THE PROVISIONS OF RULE 10 B OF THE INCOME TAX RULES, 1962. 4.5 THE LD. AO/TPO ERRED ON FACTS AND IN LAW IN CONSIDERING THE ALP OF THE TRANSACTION TO BE NIL MERELY ON TH E BASIS OF CONJECTURES AND SURMISES. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD AO/TPO ERRED IN MAKING AN ADDITION OF RS. 2,57,35,216 IN RESPECT OF THE OUTSTANDING INTERCOMPANY RECEIVABLES. 5.1. THE LD.AO/TPO ERRED ON FACTS AN D IN LAW IN TREATING THE OUTSTANDING RECEIVABLES FROM AES AS SEPARATE I NTERNATIONAL TRANSACTION. 5.2. LD.AO/TPO ERRED ON FACTS AND IN LAW IN RECHARACTERISING THE OVERDUE AMOUNT ON RECEIVABLES FROM AES AS AN UNSECURED LOAN . 5.3. LD. AO/TPO ERRED ON FAC TS AND IN LAW ARBITRARILY APPLYING THE CUP WITHOUT PLACING ON RECO RD ANY COMPARABLE UNCONTROLLED TRANSACTION. 5.4. W ITHOUT PREJUDICE, THE LD. AO/TPO ERRED ON FACTS AND IN LAW IN IMPUTING INTEREST ON THE OVERD UE AMOUNT ON RECEIVABLES - ON THE BASIS OF INTEREST RATE APPLICABLE TO DOMESTIC BONDS. ITA 6617/DEL/2013 AY 2009 - 10 AIRCOM INTERNATIONAL (INDIA) P.LTD. VS. ACIT 4 5.5. WITHOUT PREJUDICE, THE LD. AO/TPO ERRED ON FACTS AND IN LAW IN IGNORING THE FACT THAT THE EFFECT, IF ANY, OF OUTSTANDING INTERCOMPANY RECEIVABLES HAS TO BE CONSIDER ED BY MAKING A WORKING CAPITAL ADJUSTMENT. 6. THE LD. AO/TPO HAS ERRED ON FACTS AND IN LAW IN MAKING THE ADDITION OF RS 80,68,034 ON ACCOUNT OF INTERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND RS . 13,73,574 ON ACCOUNT OF INTERNAT IONAL TRANSACTION OF PROVISION OF SOFTWARE CONSULTANCY SERVICES. 6 .1. THE LD. AO/TPO HAS ERRED ON FACTS AND IN LAW IN REJECTING THE COMPARABLES 'AS IDENTIFIED BY THE APPELLANT, BASED ON ERRONEOUS REASONS AND PRESUMPTIONS AND ADDING CERTAIN COMPANIES TO T HE FINAL SET OF COMPARABLES, THEREBY RESORTING TO CHERRY PICKING OF COMPARABLES. 6.2 THE LD. AO/TPO HAS ERRED ON FACTS AND IN - LAW IN SELECTING COMPARABLES WITH HIGH TURNOVER S UPERNORMAL PROFITS AND IN NOT APPROPRIATELY CONSIDERING THE FUNCTIONS, ASSET AN D RISK PROFILE OF THE COMPARABLES USED FOR COMPARISON WITH THE APPELLANT. 6.3 THE LD. AO/TPO HAS ERRED ON FACTS AND IN LAW DISREGARDING MULTIPLE YEAR DATA USED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING TH A T THE CURRENT YEAR ( I.E. FY 2008 - 09) SHOULD BE USED DESPITE THE FACT THAT THE SAME WAS NOT NECESSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTATION. 6.4 THE LD. AO / TPO HAS ERRED ON FACTS AND IN LAW IN SELECTING COMPANIES WHICH ARE FUNCTIONALLY DISSIMILAR TO THE A SSESSEE AS COMPARABLE FOR THE PURPOSE OF BENCH MARKING ANALYSIS. ITA 6617/DEL/2013 AY 2009 - 10 AIRCOM INTERNATIONAL (INDIA) P.LTD. VS. ACIT 5 6.5 THAT THE LD AO/TPO ERRED ON FACTS AND IN LAW IN APPLYING ARBITRARY FILTERS FOR THE PURPOSE OF BENCH MAR KING ANALYSIS. 6 .6 THE LD. AO / TPO HAS ERRED ON FACTS AND IN LAW APPLYING A FILTER TO SELECT COMPARABLES WHICH H AVE A RATIO OF EMPLOYEE COSTS TO SALES LESS THAN 25 PER - CENT, THEREBY NOT RECOGNIZING THE FACT THAT THERE IS NO STANDARD DISCLOSURE NORM FOR EMPLOYEE COST. 6.7 THE LD. AO /T PO HAS ERRED ON FACTS AND IN LAW IN REJECTING COMPARABLES WITH DIMINISHING REVENUES/PERSISTENT LOSSES. 6.8. THE LD. AO / TPO HAS ERRED ON FACTS AND IN LAW IN SELECTING COMPANIES WITH HIGHLY VOLATILE AND SUPER NORMAL PROFIT MARGINS AND DISREGARDING THE JUDI CIAL PRECEDENTS AVAILABLE IN THIS REGARD. 6.9. THE LD. AO/TPO HAS ERRED ON FACTS AND IN LAW IN REJECTING THE CLAIM OF THE APPELLANT IN ALLOWING WORKING CAPITAL ADJUSTMENT TO ACCOUNT FOR DIFFERENCES IN THE WORKING CAPITAL POSITION OF THE APPELLANT VIS - A - V IS THE WORKING CAPITAL POSITION OF COMPARABLES. 6. 10 . THE LD. AO/TPO HAS ERRED ON FACTS AND IN LAW IN REJECTING THE CLAIM OF THE APPELLANT WITH REGARD TO RISK ADJUSTMENT TO ACCOUNT FOR DIFFERENCES IN THE RISK PROFILE OF THE ASSESSEE VIS - A - VIS COMPARABLE C OMPANIES. CORPORATE TAX DISALLOWANCES 7. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ DRP ERRED IN NOT ALLOWING THE 'SOFTWARE LICENCE FEE' OF RS. 2,38,04,180 INCURRED BY THE APPELLANT AS REVENUE EXPENDITURE. 7.1 THAT O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ DRP ERRED IN TREATING 'SOFTWARE LICENCE FEE' AS INTANGIBLE ASSET COVERED UNDER SECTION 32(1)(II) OF THE ACT. ITA 6617/DEL/2013 AY 2009 - 10 AIRCOM INTERNATIONAL (INDIA) P.LTD. VS. ACIT 6 7.2 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN' LAW, THE LD. AO/ DRP ERRED IN DISALLOWING PROPORTIONATE (75%) OF THE EXPENDITURE INCURRED ON 'SOFTWARE LICENCE FEE' OF RS.1,78,53,135, AFTER ALLOWING DEPRECIATION @ 25%, WITHOUT APPRECIATING THAT THE PROVISIONS OF SECTION 32(1)(II) OF THE ACT ARE NOT APPLICABLE ON THE FACTS OF THE CASE. 7.3 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ DPR ERRED IN RELYING UPON THE' ASSESSMENT ORDERS FOR THE AY 2007 - 08 AND AY 2008 - 09 FOR DISALLOWANCE OF 'SOFTWARE LICENCE FEE' WITHOUT APPLICATIO N OF MIND. 7.4, THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ DRP FAILED TO APPRECIATE THE FACT THAT THE AMOUNT PAID AS 'SOFTWARE LICENCE FEE' IS PAID FOR EARNING TRADING INCOME RATHER THAN ACQUISITION OF THE INTANGIBLE ASSET. 7.5 THAT O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ DRP FAILED TO APPRECIATE T - HAT THE 'SOFTWARE LICENSE FEE' EXPENDITURE INCURRED BY THE APPELLANT AS PURCHASE, COST OF THE SOFTWARE TRADED IS NEITHER RESULTING IN ANY CAPITAL ASSET BEIN G ACQUIRED NOR DOES THE EXPENDITURE GIVES ANY ENDURING COMMERCIAL BENEFIT IN THE CAPITAL FIELD. 7.6 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ DRP COMPLETELY FAILED TO APPRECIATE THE FACT THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF TRADING OF, READY - MADE, OFF THE SHELF 'CANNED' SOFTWARE AND THE 'SOFTWARE LICENCE FEE' PAID IS ONLY A TERMINOLOGY BEING USED BUT THE SUBSTANCE OF THE TRANSACTION IS THAT IT IS THE PURCHASE COST OF THE SOFTWARE TRADED . ITA 6617/DEL/2013 AY 2009 - 10 AIRCOM INTERNATIONAL (INDIA) P.LTD. VS. ACIT 7 7 . 7 THAT ON' TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ DRP FAILED TO APPRECIATE THAT THE INCURRENCE OF 'SOFTWARE LICENCE FEE' EXPENDITURE HAS NEXUS WITH THE BUSINESS OF THE APPELLANT AND IS 'AN INTEGRAL PART OF THE PROFIT EARNING APPARATUS O F THE APPELLANT AND THUS IS ALLOWABLE AS REVENUE EXPENDITURE. 8. THAT O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WHILE SUGGESTING THE ADDITIONS, THE LD. AO/TPO HAVE INTER - ALIA GROSSLY ERRED IN MAKING INCORRECT STATEMENTS IN THE ORDER , BASED ON CONJECTURES AND SURMISES, WHICH ARE NOT IN ACCORDANCE WITH THE FACTS OF THE CASE. 9. THAT THE LD. AO/DRP ERRED ON FACTS AND IN LAW IN LEVYING INTEREST UNDER SECTIONS 234B AND 234D OF THE ACT AND WITHDRAWING THE INTEREST EARLIER PAID TO THE APP ELLANT UNDER SECTION 244A OF THE ACT. 10. THAT THE LD. AO ERRED ON FACTS AND IN LAW IN INITIATING THE PENALTY PROCEEDINGS AGAINST THE APPELLANT UNDER SECTION 271(1)(C) OF THE ACT. THAT THE ABOVE GROUNDS OF APPEAL ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. THAT THE APPELLANT RESERVES ITS RIGHT TO ADD, ALTER, AMEND OR WITHDRAW ANY GROUND OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 2. BRIEF FACTS OF THE CASE ARE AS UNDER : RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED ON 30/09/09 DECLARING TOTAL INCOME OF RS.2,90,39,367/ - . ASSESSEE S CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE ISSUED TO ITA 6617/DEL/2013 AY 2009 - 10 AIRCOM INTERNATIONAL (INDIA) P.LTD. VS. ACIT 8 ASSESSEE , IN RESPONSE TO WHICH REPRES ENTATIVE OF ASSESSEE APPEARED BEFORE LD. AO AND SUBMITTED REQUISITE DETAILS. LD. AO OBSERVED THAT ASSESSEE UNDERT OOK INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES TO THE TUNE OF MORE THAN RS.15 CRORES AND ACCORDINGLY, THE CASE WAS REFERRED TO T RANSFER P RICING O FFICER FOR DETERMINING ARM S LENGTH PRICE. 2.1. LD. TPO OBSERVED THAT ASSESSEE IS ENGAGED IN PROVI DING OF SOFTWARE DEVELOPMENT SERVICES, SOFTWARE DEPLOYMENT SERVICES, CONSULTANCY SERVICES, TRAINING SERVICES, SOFTWARE SUBLICENSING AND AMC ACTIVITIES. LD.TPO OBSERVED THAT ASSESSEE ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTION FOR THE YEAR UNDER CONSIDERATION: SL. NO. NAME OF TRANSACTION VALUE OF INTERNATIONAL TRANSACTION (IN RS.) METHOD APPLIED PLI MARGIN OF COMPARABLES MARGIN OF ASSE SSEE 1. PROVISION OF SOFTWARE DVT. SERVICES 7,06,83,893 TNMM OP/OC 9.80% 12.55% 2. PAYMENT OF TRAINING FEES 9,17,636 NO BENCH MARKING 3. RECEIPTS OF TRAINING FEES 10,29,749 TNMM OP/OC 8.47% 18.81% 4. PROVISION OF CONSULTANCY FEES 46,63,240 5. PROVISION OF PRODUCT DELIVERY SERVICES 74,72,202 6. LICENSE FEE PAID 2,27,57,625 OP/OI 9.16% 41.85% 7. SALE OF FIXED ASSETS 96,44,815 CUP N.A. ITA 6617/DEL/2013 AY 2009 - 10 AIRCOM INTERNATIONAL (INDIA) P.LTD. VS. ACIT 9 2.2. L D. TPO AFTER CONSIDERING SUBMISSIONS ADVANCED BY ASSESSEE AS WELL AS THE COMPARABLES SELECTED , PROPOSED ADJUSTMENT AMOUNTING TO R S.13,73,574/ - IN THE SOFTWARE CONSULTANCY SERVICES, AND RS.87,96,521/ - IN SOFTWARE DEVELOPMENT SERVICES. LD. TPO OBSERVED THAT THE MANAGEMENT FEE WAS EMBEDDED IN BOTH THESE SEGMENTS AND THEREFORE A LP OF MANAGEMENT FEES WAS DETERMINED AT NIL . 2.3. AGGRIEVED BY THE ADJUSTMENT PROPOSED BY LD. TPO, ASSESSEE RAISED OBJECTIONS BEFORE DRP . DRP CONFIRMED THE ADJUSTMENTS PROPOSED BY LD. TPO. 2.4. LD. AO THEREAFTER PASSED THE FINAL ASSESSMENT ORDER BEING T HE IMPUGNED ORDER BY MAKING AN ADJUSTMENT OF RS.5,16,24,036/ - ON ACCOUNT OF TRANSFER PRICING ADDITION AND DISALLOWANCE OF RS.1,78,53,135/ - TREATING SOFTWARE LICENSE FEES AS CAPITAL EXPENDITURE. 3. AGGRIEVED BY THE FINAL ORDER PASSED BY LD.AO, ASSESSEE IS IN APPEAL BEFORE US. 4. AT THE OUTSET LD. C OUNSEL SUBMITS THAT GROUND NO. 1 - 3 ARE GENERAL IN NATURE AND THEREFORE DO NOT WARRANT ADJUDICATION. ACCORDINGLY WE DISMISS THESE GROUNDS. 5. GROUND NO. 4 RAISED BY ASSESSEE IS IN RESPECT OF INTRAGROUP SERVICES IN LIEU OF WHICH ASSESSEE MADE PAYMENTS TO ITS ASSOCIATED ENTERPRISE. ITA 6617/DEL/2013 AY 2009 - 10 AIRCOM INTERNATIONAL (INDIA) P.LTD. VS. ACIT 10 5.1. LD.COUNSEL SUBMITTED THAT ALP OF MANAGEMENT FEE AMOUNTING TO RS.2,58,88,820/ - PAID BY ASSESSEE TO ITS AE S H AS BEEN CONSIDE RED AS NIL BY AUTHORITIES BELOW. HE SUBMITTED THAT THIS ISSUE HAD ARISEN BEFORE THIS T RIBUNAL FOR ASSESSMENT YEAR 2007 - 08 AS WELL AS 2008 - 09, WHEREIN THIS T RIBUNAL S ET ASIDE THIS ISSUE BACK TO LD. AO FOR DECIDING THE ISSUE IN THE LIGHT OF EVIDENCES FIL ED BY ASSESSEE. AT THIS JUNCTURE LD.C OUNSEL SUBMITTED THAT FOR THE YEAR UNDER CONSIDERATION ALL RELEVANT DOCUMENTS/EVIDENCES WERE FILED BEFORE LD. TPO , HOWEVER THE SAME WERE NOT CONSIDERED WHILE DECIDING THE ISSUE. HE SUBMITTED THAT AN OBJECTION WAS RAISED BEFORE DRP WHICH ALSO HAS NOT BEEN ADJUDICATED UPON. 5.2. ON THE CONTRARY LD.CIT DR PLACED RELIANCE UPON THE ORDERS OF AUTHORITIES BELOW. 5.3. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH THE SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. 5.4. THE ISSUE THAT HAS BEEN AGITATED IN TH IS GROUND IS THAT PAYMENT ADVANCED BY ASSESSEE TOWARDS MANAGEMENT FEES ON COST TO C OST BASIS WHICH WERE ACTUALLY REIMBURSEMENT OF EXPENSES INCURRED BY AE, AND LD. TPO IGNORING THE RELEVANT DETAILS FILED BY ASSESSEE HAS HELD TO BE NIL ALP THEREBY MAKING ADDITION OF RS.2,58,80,820/ - AS PROPOSED BY L D. TPO. 5.5. ON PERUS AL OF THE ORDER PASSED BY THIS T RIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2007 - 08 AS WELL AS 2008 - 09 , IT IS OBSERVED THAT THE ISSUE HAS BEEN SE T ASIDE TO LD.TPO FOR CONSIDERING EVIDENCES FILED BY ASSESSEE AND TO DECIDE THE ISSUE AS PER LAW. ITA 6617/DEL/2013 AY 2009 - 10 AIRCOM INTERNATIONAL (INDIA) P.LTD. VS. ACIT 11 5.6. IN THE FACTS OF THE PRESENT CASE BEFORE US, IT IS SUBMITTED THAT ASSESSEE ALREADY FILED ALL RELEVANT DETAILS BEFORE LD. TPO AND DRP WHICH HA VE NOT BEE N CONSIDERED WHILE DECIDING THIS ISSUE. ACCORDINGLY WE DIRECT LD.TPO TO EXAMINE THESE EVIDENCES FILED BY ASSESSEE TO ESTABLISH THE FACT OF HAVING AVAILED SUCH SERVICES FROM AE AND TO DECIDE THE ISSUE AS PER LAW. 5.7. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES . 6. GROUND NO. 5 HAS BEEN RAISED BY ASSESSEE AGAINST ADDITION MADE BY LD. TPO IN RESPECT OF INTEREST PAID BY ASSESSEE ON ADVANCES RECEIVED FROM ASSOCIATED ENTERPRISES. 6.1 . LD. C OUNSEL SUBMITTED THAT ASSESSEE DO NOT CHARGE INTEREST ON ANY RECEIVABLES AND PAYABLES OUTSTANDING. IT WAS SUBMITTED THAT ASSESSEE DURING THE YEAR HAD RECEIVED PAYMENTS FOR SERVICES IN ADVANCE FROM ITS AE ON WHICH IT HAD NOT PAID ANY INTEREST. IT HAS BEEN SUBMITTED BY LD.C OUNSEL THAT IN THE ABSENCE OF ANY EVIDENCE LD. TPO CONSIDERED RECEIVABLES AS UNSECURED LOANS ADVANCED TO AE AND CHARGED INTEREST ON THE PERIOD OF DELAY BEYOND 30 DAYS AT A NOTIONAL INTEREST RATE AS PER THE S TATE B ANK OF INDIA BASE RATE OF 12.77% PER ANNUM +5 00 BASIS POINTS THEREBY LEADING TO AN ADJUSTMENT OF RS.2,57,35,216/ - . 6.2 . HE SUBMITTED THAT THE LD. TPO HAS ONLY CONSIDERED THE PAYABLES TO AE S AND IGNORED RECEIVABLES FROM AE. HE SUBMITTED THAT LD. TP O WHILE COMPUTING INTEREST, SHOULD HAVE WORKED OUT NET INTEREST. HE PLACED RELIANCE UPON THE DECISION OF HON BLE DELHI HIGH ITA 6617/DEL/2013 AY 2009 - 10 AIRCOM INTERNATIONAL (INDIA) P.LTD. VS. ACIT 12 COURT IN THE CASE OF M/S. COTTON NATURALS (INDIA) PVT. LTD., VS. CIT IN ITA NO. 233/2014 . 6.3 . ON THE CONTRARY LD. CIT DR REFERRED TO THE OBSERVATIONS OF L D. TPO IN PARA 4.1 & 4.2 OF THE ORDER WHICH READS AS UNDER: 4. EXAMINATION OF THE BALANCE SHEET REVEALED RECEIVABLES THEREBY IMPLYING THAT THE PAYMENT FOR THE INVOICES RAISED BY THE ASSESSEE HAVE NOT BEEN RECEIVED WITHIN THE STI PULATED T IME. IN THIS REGARD, THE ASSESSEE WAS REQUESTED T O FURNISH THE TIME PERIOD FOR PAYMENT AS PER SERVICE AGREEMENT, HOWEVER , TO BE REASONABLE' AND FAIR TO THE ASSESSEE, INSTEAD OF CHARGING PENAL INTEREST, THE DELAYED PAYMENTS ARE BEING TREATED AS UNSECURED LOANS ADVANCED TO THE AES AND IT IS PROPOSED TO C HARGE A NORMAL RATE OF INTEREST @17.22%, FOR THE PERIOD OF DELAY IN RECEIPT 'OF PAYMENT BEYOND THE TIME STIPULATED IN THE SERVICES AGREEMENT. THE BASIS FOR ARRIVING AT THE RATE OF INTEREST IS DISCUSSED IN THE FOLLOWING PARA. 4 - .2 THE ASSESSEE DID NOT SUBM IT THE INVOICE DETAILS IN ORDER TO ARRIVE AT THE ACTUAL AMOUNT OF PAYMENT WHICH HAS BEEN RECEIVED BEYOND DUE DATE, INSP I TE OF A SPEC I FIC QUERY. 'HENCE, THE AMOUNT SHOWN AS OUTSTANDING IN THE BOOKS OF THE ASSESSEE AS ON 31/03/2009 IS BEING TAKEN AS THE AMOUNT DUE FROM AE AND OUTSTANDING FOR MORE THAN 30 DAYS. SINCE, THE OPENING BALANCE AN D CLOSING BALANCE' ARE MORE OR LESS SIMILAR, AND IN THE ABSENCE OF ANY INVOICE W ISE DETAILS PROVIDED BY THE ASSESSEE, I T I S ALSO SAFE TO ASSUME THAT THE PAYMENT HAS BEEN OUTSTANDING FOR THE ENTIRE YEAR. IN ABSENCE OF ANY FORMAL COVENANT, AND TO BE REASONABLE 30 DAYS I S BEING TAKEN AS TH E NORMAL CREDIT PERIOD BEYOND WHICH THE DELAY WO ULD BE TREATED AS UNSECURED LOAN ITA 6617/DEL/2013 AY 2009 - 10 AIRCOM INTERNATIONAL (INDIA) P.LTD. VS. ACIT 13 ADVANCED TO THE AE BY THE ASSESSEE. ANY DELAY BEYOND THE AFORESAID PERIOD WOULD BE BENCHMARKED ACCORDINGLY. THE EXPLANATION FOR THE ABOVE RATE OF INTEREST IS BEING DISCUSSED AS BELOW. 6. 4 . LD.CIT, DR SUBMITTED THAT OPE NING BALANCE AND THE CLOSING BALANCE OF RECEIVABLES WERE MORE OR LESS SIMILAR, AND IN THE ABSENCE OF INVOICES/DETAILS, ACTUAL AMOUNT OF PAYMENT WHICH HAS BEEN RECEIVED BEYOND DUE DATE COULD NOT BE DETERMINED. IT WAS UNDER THESE CIRCUMSTANCES THAT LD. TPO ASSUMED ASSESSEE TO HAVE BEEN PROVIDED BENEFIT TO AE BY WAY OF ADVANCEMENT OF INTEREST FREE LOAN IN THE GARB OF DELAY ED RECEIPT OF RECEIVABLES. LD. CIT DR SUBMITTED THAT T HE DECISIONS RELIED UPON BY LD.C OUNSEL IN CASE OF M/S COTTON N ATURALS (INDIA) P RIVATE L IMITED VERSUS CIT (SUPRA) ARE ON DIFFERENT FACTS. HE SUBMITTED THAT THIS IS A CASE WHERE ASSESSEE THEREIN, ( AN INDIAN COMPANY ) , WAS ONE OF THE LEADING MANUFACTURERS OF RIDER APPAREL. IT HAD INCORPORATED A SUBSIDIARY COMPANY IN UNITED STATES FOR UN DERTAKING DISTRIBUTION AND MARKETING ACTIVITIES FOR THE PRODUCTS MANUFACTURED BY IT AND ADVANCED LOAN TO ITS SUBSIDIARY AND RECEIVED INTEREST AT THE RATE OF 4 PER CENT. IT APPLIED CUP METHOD AND CLAIMED RATE OF 4 % TO BE COMPARABLE WITH THE EXPORT PACKING CREDIT RATE OBTAINED FROM INDEPENDENT BANKS IN INDIA. 6. 5 . LD. CIT DR THUS SUBMITTED THAT THIS WAS AN ACCEPTED POSITION WHERE ASSESSEE HAD ADVANCED LOANS TO ITS SUBSIDIARY BEING THE AE WHEREAS IN THE PRESENT CASE DUE TO LACK OF EVIDENCE IT HAD TO BE PRESUMED THAT THESE WERE INTEREST FREE LOANS. WE HAVE PERUSED THE ITA 6617/DEL/2013 AY 2009 - 10 AIRCOM INTERNATIONAL (INDIA) P.LTD. VS. ACIT 14 SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF RECORDS PLACED BEFORE US. 6.6 . LD.COUNSEL SUGGESTED TO APPLY THE PRINCIPLE OF NETTING OF F AS THERE ARE RECEIVABLES FROM AE AS WELL AS PAYABLES TO AE. HOWEVER THE AS SESSEE HAS NEITHER FILED ANY DETAILS IN RESPECT OF THE RECEIVABLES AS WELL AS PAYABLES BEFORE THE AUTHORITIES BELOW NOR BEFORE US. AT THE SAME TIME, T HE ASSUMPTION MADE BY LD.TPO/AO CANN OT BE ACCEPTED IN THE ABSENCE OF EVIDENCES. 6.7 . WE, THEREFORE, SET ASIDE THIS ISSUE TO BE DECIDED IN THE LIGHT OF EVIDENCES/INVOICES PLACED ON RECORD BY ASSESSEE BEFORE LD.TPO AND TP REPORT IN RESPECT OF RECEIVABLES AS WELL AS PAYABLES. IN THE EVENT IT IS ESTABLISHED THAT THE RECEIVABLES AS WELL AS PAYABLES RELATE TO ASSESSEE & AE INTER SE, THEN NETTING OFF SHALL BE GRANTED. ON THE CONTRARY IF IT IS ESTABLISHED THAT ONLY RECEIVABLES ARE IN THE NATURE OF LOAN THEN INTEREST AT THE MARKET RATE SHALL BE APPLIED. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES . 7. GROUND NO. 6 HAS BEEN RAISED BY THE ASSESSEE DUE TO THE ADJUSTMENT MADE BY L D. TPO/AO ON ACCOUNT OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND SOFTWARE CONSULTANCY SERVICES. 7.1. LD. C OUNSEL SUBMITTED THAT A LP OF THESE TWO SEGMENTS HAVE BEEN COMPUTED AT RS.80 , 68,034/ - AND RS.13,73,574/ - RESPECTIVELY. HOWEVER L D. TPO HAS NOT MAD E ANY ADJUSTMENTS SINCE THE MANAGEMENT FEES HAS ALREADY BEEN DETERMINED AT NIL. LD. TPO HAS THUS RESTRICTED THE ADJUSTMENT TO MANAGEMENT FEES IN RESPECT OF THESE TWO SEGMENTS. 7.2. AS WE HAVE ALREADY SET ASIDE THE GROUND RELATING TO MANAGEMENT FEES BEI NG GROUND NO. 4 TO LD. AO FOR VERIFICATION OF THE ISSUE IN THE LIGHT OF THE EVIDENCES ALREADY PLACED ON RECORD, THIS GROUND NOW BECOMES INFRUCTUOUS. ITA 6617/DEL/2013 AY 2009 - 10 AIRCOM INTERNATIONAL (INDIA) P.LTD. VS. ACIT 15 ACCORDINGLY WE DISMISS THIS GROUND. 7.3 . GROUND NO. 7 HAS BEEN RAISED BY ASSESSEE ON ACCOUNT OF DISALLOWA NCE OF SOFTWARE LICENSE FEES. 7.4. LD. C OUNSEL SUBMITTED THAT A SSESSING O FFICER DISALLOWED EXPENSES UNDER SECTION 37 CONSIDERING THAT THE LICENSE EXPENSES WOULD FALL UNDER THE DEFINITION OF INTANGIBLE ASSETS AND CONSEQUENTLY ALLOWED DEPRECIATION AT 25%. 7.5 . ON AN OBJECTION BEFORE DRP, THE ACTION OF LD. AO WAS UPHELD. 7.6. LD. C OUNSEL NOW SUBMITS THAT THE ISSUE STANDS SQUARELY COVERED BY ORDER OF THIS T RIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2007 - 08 AND 2008 - 09 IN ITA NO. 5743/DEL/2011 AND 40 2/DEL/2012 V IDE ORDER DATED 27/07/17 AND 02/08/17 RESPECTIVELY. 7.7. LD. C OUNSEL SUBMITTED THAT THE FACTUAL CIRCUMSTANCES PREVAILING IN THESE ASSESSMENT YEARS ARE SIMILAR AND IDENTICAL TO THAT OF THE YEAR UNDER CONSIDERATION BEFORE US. 7.8. ON THE CONTRAR Y LD. CIT DR PLACED RELIANCE UPON THE ORDERS OF AUTHORITIES BELOW. 8. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH THE SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. 8.1. IT HAS BEEN SUBMITTED BY ASSESSEE BEFORE L D. TPO THAT ASSESSEE PAID LICE NSE FEE WHICH CONTAINS 45% OF THE TOTAL SALE VALUE OF THE SOFTWARE WHICH ARE PROVIDED BY THE PARENT COMPANY. IT WAS SUBMITTED THAT LICENSE FEE IS ONLY A TERMINOLOGY BEING USED , BUT SUBSTANCE OF THE TRANSACTION WAS NOT LICENSE FEE. IT IS MERELY A COMMERC IAL VALUE LINKED TO THE PERCENTAGE OF THE SALE VALUE AND NOT ITA 6617/DEL/2013 AY 2009 - 10 AIRCOM INTERNATIONAL (INDIA) P.LTD. VS. ACIT 16 CAPITAL IN NATURE. ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT IT IS OBSERVED THAT ASSESSEE HAS DEBITED A SUM OF RS.2,38,04,180/ - AS SOFTWARE LICENSE FEE. 8.2. ON PERUSAL OF THE ORDER FOR ASSESSMENT YEAR 2007 - 08 AS WELL AS ASSESSMENT YEAR 2008 - 09, THIS T RIBUNAL OBSERVED AND DECIDED IDENTICAL ISSUE AS UNDER: 34. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, IT IS NOTICED THAT AIRCOM, UK, OFFERS SOLUTION FOR NETWORK ENGINEERING REQUIREMENTS WITH ITS SOFTWARE, NAMELY, ENTERPRISE SUITE', WHICH IS A SOLUTION FOR ALL ASPECTS OF NETWORK ENGINEERING. APART FROM DIRECTLY LICENSING E N TERPRISE SUITE BY AIRCOM, UK, THE ASSESSEE ALSO SELLS THE SOFTWARE IN THE DOMESTIC MARKET . SINCE THE INTELLECTUAL PROPERTY RIGHTS RELATING TO ENTERPRISE SUITE VEST IN AIRCOM, UK, THE ASSESSEE ENTERED IN TO CONTRACT WITH AIRCOM, UK TO SELL THIS PRODUCT DIRECTLY IN THE DOMESTIC MARKET. AS A QUID PRO QUO, THE ASSESSEE AGREED TO SHARE A PERCENTAGE OF SALE PRICE TO AIRCOM, UK. CLAUSE (1) OF THE AGREEMENT PROVIDE THAT: 'ITP CHARGES TO BE PAID BY THE SUBSIDIARY TO THE PARENT COMPAN Y @ 45 % OF THE TOTAL SALE VALUE OF SOFTWARE AND SUPPORT AND MAINTENANCE CHARGE.' PURSUANT TO THIS AGREEMENT, THE A SSESSEE RAISED INVOICES ON CERTAIN CUSTOMERS IN INDIA. THE IN V OICE V ALUE WAS SHOWN AS ITS INCOME AND THE AMOUNT PAID TO ITS AE WA S SHOWN AS LICENCE FEE EXPENDITURE IN ITS ANNUAL ACCOUNTS. WE ARE AT LOSS TO APPRECIATE AS TO HOW THE ASSESSEE CAN BE SAID TO HAVE CREATED AN 'INTANGIBLE ASSET' BY PAYING THE LICENCE FEE TO ITS AE IN RESPECT OF SALES MADE. SUCH PAYMENT @ 45 % OF THE INVOICE VALUE WAS THE OBLIGATION OF THE ASSESSEE AB INITIO WITHOUT WHICH IT COULD NOT HAVE PROCURED THE LICENSE OF ENTERPRISE SUITE FOR SALE IN INDIA. THIS AMOUNT CAN BE LOOSELY CHARACTERIZED AS COST OF GOODS TRANSFERRED TO THE CUSTOMERS IN INDIA, W HICH HAS NECESSARILY TO BE ALLOWED AS A REVENUE EXPENDITURE. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN ITS ORDER FOR TH E IMMEDIATE LY PRECEDING YEAR. WE, THEREFORE, OVERTURN THE IMPUGNED ORDER ON THIS ITA 6617/DEL/2013 AY 2009 - 10 AIRCOM INTERNATIONAL (INDIA) P.LTD. VS. ACIT 17 SCORE AND DIRECT THE DELETION OF ADDITION OF RS.112.50 LAC AND ODD MADE BY THE ASSESSING OFFICER. 8.3. RESPECTFULLY FOLLOWING THE ABOVE OBSERVATIONS IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS AND THAT THERE HAS BEEN NO DIFFERENCE IN THE FACTUAL POSITION , WE ARE OF THE CONSIDERED OPINION THAT TH E ADDITION DESERVES TO BE DELETED. 8.4. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS ALLOWED. 9. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOWED AS DISCUSSED HEREIN ABOVE. ORDER PRONOUNCED IN THE O PEN C OURT ON 28.03.2018. S D/ - SD/ - ( N.K.SAINI ) (BEENA .A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 28.03. 201 8 . MV ITA 6617/DEL/2013 AY 2009 - 10 AIRCOM INTERNATIONAL (INDIA) P.LTD. VS. ACIT 18 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER ASST. REGISTRAR ITAT, DELHI BENCHES, NEW DELHI