M/S. FINANCIAL SOFTWARE AND SYSTEM PRIVATE LTD,CHENNAI V. DCIT, CENTRAL CIRLCE-1(4),CHENNAI, CHENNAI

ITTPA 87/CHNY/2024

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The case involves Financial Software and Systems Pvt. Ltd., which appealed against the final assessment order for the assessment year 2021-22 passed by the Deputy Commissioner of Income Tax, Chennai. The primary issues in the appeal included transfer pricing adjustments related to marketing services fees, interest on trade receivables, and corporate guarantee fees, as well as corporate tax issues concerning depreciation on ATM machines, and disallowances related to gratuity and bad debts. The Tribunal examined the methods used for transfer pricing, the appropriateness of the adjustments made, and the compliance with legal provisions regarding deductions claimed.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 398190 (ITAT-CHENNAI)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 03-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2021-2022
• Other Referred Cases: PCIT v. ITC Infotech India Limited, Tata Consultancy Services Ltd. v. Deputy Commissioner of Income-tax, Sony Ericson Mobile Communication India Pvt. Ltd., Societe General Global Solution Centre Pvt Ltd, SRF Limited, Denso Haryana (P.) Ltd. v. Deputy Commissioner of Income-tax, Virtusa Consulting Services (P.) Ltd. v. Deputy Commissioner of Income Tax, Company Circle 5(2), Chennai, Micro Ink Limited Vs. ACIT, Avnet India Pvt. Limited. vs DCIT, Lotus Labs Private Limited, M/s. Dell International Services India Pvt. Limited, M/s. Tally Solutions Pvt. Limited, Xchanging Solutions Limited, M/s. Global e-business Operations Pvt. Limited, M/s. Indo American Jewellery Limited, M/s. Crayon Group AS vs ACIT (IT), M/s. Mega Soft Ltd. vs DCIT, M/s. Havells India Limited vs DCIT (LTU), M/s. Greenply Industries Ltd. vs ACIT, M/s. J.B. Chemicals and Pharmaceuticals Ltd. v. Deputy Commissioner of Income-tax, M/s. 3F Industries Ltd. v. Deputy Commissioner of Income-tax, Royal Bank of Scotland N.V. vs DDIT (International Taxation), CIT vs Saraswat Infotech Ltd, Ramco Cements Limited vs DCIT, Special Range-I, Madurai, Commissioner of Income-tax v. Hindustan Pilkington Glass Works Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A. SASIKUMAR; C.I.T
• Assessee Lawyers: B. RAMAKRISHNAN; F
• Keywords: Set aside; Opportunity of being heard; Additional evidence; Transfer pricing; International transaction; Retrospective amendment; Bad and doubtful debts; Depreciation; Rule of consistency; Commercial expediency; Principle of natural justice; TDS; Valuation report; Application of stay
• Section: 143(3); 133(6); 234B; 43B; 92B

Judgement Text

" आयकर अपीलीय अिधकरण,‘डी’ Ɋायपीठ,चेɄई IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI ŵी मनु क ुमार िगįर ,Ɋाियक सद˟ एवं ŵी एस . आर . रघुनाथा, लेखा सद˟ क े समƗ BEFORE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND SHRI S.R.RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./IT(TP)A No.: 87/CHNY/2024 िनधाŊरण वषŊ/Assessment Year:2021-22 & SA No.78/CHNY/2024 [in ITA No.87/CHNY/2024] Financial Software and Systems Pvt. Ltd., 42, Saradha Ground Floor, Third Main Road, Gandhi Nagar, Adyar, Chennai – 600 020. Vs. The Deputy Commissioner of Income Tax, Central Circle -1(4), Chennai. PAN: AAACF-2351-C (अपीलाथŎ/Appellant) (ŮȑथŎ/Respondent) अपीलाथŎ की ओर से/Appellant by : Shri B. Ramakrishnan, F.C.A. ŮȑथŎ की ओर से/Respondent by : Shri A. Sasikumar, C.I.T. सुनवाई की तारीख/Date of Hearing : 12.03.2025 घोषणा की तारीख/Date of Pronouncement : 03.06.2025 आदेश /O R D E R PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the final assessment order passed by the DCIT, Central Circle 1(4), Chennai, u/s. 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter the ‘Act’) for the assessment year 2021-22 dated 29.10.2024 in pursuant to the directions of the Dispute Resolution Panel-2, Bengaluru dated 09.09.2024. :-2-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 2. The assessee has raised the following issues:- Ground No.1: General Ground No.2: General ground on Transfer Pricing Issues Ground No.3: Transfer Pricing Issue – Downward adjustment of Rs.45,28,07,087/- on Marketing services fees. Ground No.4: Transfer Pricing Issue – Upward adjustment of Rs.1,64,75,839/- on account of interest on trade receivables from AEs. Ground No.5: Transfer Pricing Issue – Upward adjustment of Rs.53,58,144/- on account of fees chargeable on the Corporate Guarantee given by the Assessee to its AEs. Ground No.6: General ground on Corporate Tax Issues Ground No.7: Corporate Tax Issue – Disallowance of depreciation claimed @ 40% on ATM machines by restricting it to 15% chargeable on ‘Plant & machinery’ amounting to Rs. 46,56,30,577/- Ground No.8: Corporate Tax Issue – Disallowance of Rs.36,20,000/- pertaining to deduction claimed on account of gratuity. Ground No.9: Corporate Tax Issue – Disallowance of Rs.7,16,76,685/- towards bad debts written off. Ground No.10: Corporate Tax Issue – Additional claim of Loss of Rs.19,45,70,000/- not made in the Return of Income filed. Ground No. 11: Corporate Tax Issue – Additional claim of Rs.4,02,70,000/- pertaining to additional deduction towards ATM site rent charges paid. For this, assessee has raised various sub-grounds which are factual, argumentative and hence, need not be reproduced. 3. The brief facts of the case are that the assessee M/s.Financial Software and Systems Private Limited (‘the assessee”) is a Private Limited Company engaged in the :-3-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 business of setting up and maintenance of ATMs for various banks in India. The assessee had filed its Return of Income for Assessment Year (‘AY’) 2021-22 on 10.03.2022 declaring total income at Rs. NIL and current year business loss at Rs.52,69,53,381/-. The Assessee company had entered into international transactions for an amount of Rs.234,16,34,213/- as per books of accounts and Form 3CEB was filed with respect to the same. The case was selected for scrutiny under CASS and notice dated 27.06.2022 was issued u/s.143(2) of the Income Tax Act, 1961 (“the Act”) and duly served on the Assessee. 4. A reference u/s.92CA(1) of the Act was made for determination of Arm’s Length Price(ALP) in respect of the International Transactions entered into by the Assessee with its associated enterprises reported in Form No.3CEB filed by it. Subsequently, the Transfer Pricing Officer (“the TPO”) had passed an order u/s.92CA(3) of the Act vide DIN & Order No. ITBA/TPO/F/92CA3/2023-24/1057539438(1) dated 31.10.2023 proposing an adjustment of Rs.47,14,64,086/-. In compliance to the statutory notices and various queries and requirements, the Assessee had filed the details called for from time to time. Further, the Assessee was issued the show cause notice (“SCN”) on 06.12.2023 on the various issues, in response to which the Assessee had filed its submission. Thereafter, the Assessing Officer (“AO”) had passed a Draft Assessment Order on 29.12.2023 by proposing the following additions/disallowances/rejections of claims made: TRANSFER PRICING ADJUSTMENT OF Rs.47,14,64,086/-:  Issue 1: Downward adjustment of Rs.45,28,07,087/- in respect of the international transactions relating to Marketing service fee paid by the Assessee to its Associated Enterprises (“AE”). :-4-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024  Issue 2: Upward adjustment of Rs.1,32,98,855/- on account of interest on Trade Receivables pertaining to its AEs.  Issue 3: Upward adjustment of Rs.53,58,144/- on account of fees chargeable on the Corporate Guarantee given by the Assessee to its AE. CORPORATE TAX ISSUES OF Rs.101,63,47,262/- :  Issue 4: Disallowance of depreciation claimed @ 40% on ATM machines by restricting it to 15% chargeable on ‘Plant & machinery’ amounting to Rs.46,56,30,577/-.  Issue 5: Disallowance u/s.43B of the Act of Rs.36,20,000/- towards provision for gratuity.  Issue 6: Disallowance of Rs.7,16,76,685/- towards bad debts written off debited to Profit & Loss account.  Issue 7: Disallowance of loss on financial assets amounting to Rs.24,05,80,000/-  Issue 8: Rejection of claim made of Rs.19,45,70,000/- pertaining to loss as per the Audited Financials omitted to be claimed in the Return of Income that was filed based on Unaudited Financial Statements.  Issue 9 : Rejection of claim made of Rs.4,02,70,000/- pertaining to additional deduction towards ATM site rent charges paid derecognized for ‘Right of Use’ Assets (IND AS) adjustment omitted to be claimed in the Return of Income. 5. Aggrieved by the Draft Assessment Order, the assessee had preferred an application before the Hon’ble Dispute Resolution Panel (“DRP”) against the above- mentioned issues except Issue no.7. The Hon’ble DRP had then issued directions u/s.144C(5) of the Act vide Order dated 09.09.2024, wherein: a. the additions/disallowances in dispute were directed to be sustained; :-5-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 b. an enhancement pertaining to above mentioned Transfer Pricing Issue 2 by directing an addition of a markup of 100 basis points over and above that made if the Assessee was bearing the foreign currency exchange fluctuation risk and c. the claims made as per above mentioned Issue nos. 8 & 9 were rejected. 6. The TPO had then passed an Order u/s.144C(5) of the Act dated 30.09.2024 to give effect to the directions issued by the DRP and the AO had passed an Order dated 29.10.2024 u/s.143(3) r.w.s 144C(13) of the Act whereby the Taxable income of the assessee was assessed at Rs.72,91,94,951/- and a demand of Rs.25,33,61,950/- had been raised u/s.156 of the Act including interest u/s.234A & 234B of the Act by making the following additions/disallowances : TRANSFER PRICING ADJUSTMENT OF Rs.47,46,41,070/-: 1. Downward adjustment in respect of the international transactions relating to Marketing service fee paid by the Assessee - Rs.45,28,07,087/-. 2. Upward adjustment on account of interest on Trade Receivables pertaining to its AEs of Rs.1,64,75,839/-, including the enhancement of Rs.31,76,984/- proposed by the DRP in this regard. 3. Upward adjustment on account of fees chargeable on the Corporate Guarantee given by the Assessee to its AE of Rs.53,58,144/-. CORPORATE TAX ISSUES OF Rs.101,63,47,262/- : 4. Disallowance of depreciation claimed @ 40% on ATM machines by restricting it to 15% chargeable on ‘Plant & machinery’ - Rs.46,56,30,577/-. 5. Disallowance u/s 43B of the Act towards provision for gratuity - Rs.36,20,000/-. 6. Disallowance towards bad debts written off debited to Profit & Loss account of Rs.7,16,76,685/-. :-6-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 7. Disallowance of loss on financial assets – Rs.24,05,80,000/-. 8. Rejection of claim made pertaining to loss as per the Audited Financials omitted to be claimed in the Return of Income that was filed based on Unaudited Financial Statements - Rs.19,45,70,000/-. 9. Rejection of claim made pertaining to additional deduction towards ATM site rent charges paid derecognized for ‘Right of Use’ Assets (IND AS) adjustment omitted to be claimed in the Return of Income - Rs.4,02,70,000/-. 7. The ld.AR submitted that there is an arithmetical error in the tax computation whereby the demand payable had been calculated at an excess of Rs.50,95,231/- while the actual tax demand payable works out to only be Rs.24,82,66,719/- as against the demand raised at Rs.25,33,61,950/-. The assessee had filed a rectification petition u/s.154 of the Act on 18.11.2024 to rectify such mistake apparent from record. 8. Aggrieved by the aforesaid Assessment Order, the assessee had preferred this appeal before us, disputing the additions/disallowances/rejection of claims made therein excepting Issue No.7 on ‘Disallowance of loss on financial assets’ of Rs.24,05,80,000/-. In this regard, the ld.AR submitted as under: 9. Ground No.1 : General Since the ground is general in nature, no specific submission made in this regard. 10. Ground No. 2 : General ground on Transfer Pricing Issues Since the ground is general in nature, no specific submission made in this regard. :-7-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 Ground No.1 and 2 are general in nature and hence not adjudicated. 11. Ground no.3: Transfer Pricing Issue – Downward adjustment of Rs. 45,28,07,087/- on Marketing services fees : DRP / Transfer Pricing Officer’s (“TPO”) contention: The Assessee has made payment to its AEs towards ‘Marketing Services received’ amounting to Rs.45,28,07,087/-. The Assessee has aggregated these transactions and benchmarked the same under TNMM along with other international transactions. In transfer pricing, the ALP is to be determined on a transaction to transaction basis and not on a consolidated basis. The very term ‘Most Appropriate Method’ (MAM) implies that the taxpayer has to select a method which would give the closest proximity to the ALP value. In such a scenario, combining all the AE transactions and studying under TNMM is not a Most Appropriate Method. The Assessee has not provided any credible evidence to prove its claim with respect to Marketing Support Service Fee paid to its associated enterprises. The Assessee has not been able to furnish any evidence that the services were actually received and if received, it benefitted the assessee in some way. The assessee had merely furnished a table of aggregate cost amount for each AEs, without providing the breakup of costs or any material proof as evidence for incurring these costs. Different markup percentages have been applied for different AEs without assigning any justification. Therefore, it is inferred that no services have been rendered by the AE. The AO had thus concluded that instead of aggregating all the transactions and adopting TNMM, each transaction should be analyzed individually and the ‘Other Method’ is the Most Appropriate Method and the ALP of the transactions in pursuance :-8-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 of the Agreement was thus proposed to be treated as NIL and the transaction is considered to be benchmarked separately under Rule 10AB, rejecting also the assessee’s adoption of Foreign AEs as the ‘Tested party’. The DRP had concurred with the same and thereby, a downward adjustment of Rs.45,28,07,087/- in respect of the international transactions relating to Marketing service fee paid by the Assessee to its AEs was made. 11.1 Assessee’s contention: The ld.AR submitted that the FSS India, either directly or through its affiliates, provides services to its customers (primarily banks in the global BFSI industry) across countries including USA, Canada, UK, South Africa, UAE, Singapore and other countries besides India. For access to overseas markets/ customers, FSS India has established subsidiaries in various jurisdictions. The AEs provide Marketing support services (MSS) to promote the products of FSS India in their local regions. For the services, they are compensated at cost plus arm’s length mark-up on the value-added expenses. 12. Further, ld.AR submitted that in relation to the software products sold to customers by AEs, the intellectual property in relation to the software is held by FSS India. Further, the assessee is also responsible for executing the projects/ rendering the services and bears the contractual liability related to the same. 13. Accordingly, the AEs function as marketing service providers bearing risks lower than those normally borne by an entity operating in the marketing services industry. For the services rendered, the AEs are compensated with an arm’s length mark-up on the operating expenses incurred. :-9-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 14. The ld.AR stated that the assessee, in the TP documentation, had benchmarked the above transactions of receipt of software support fee, provision of software services, sale of software licenses and payment of marketing service fee under the combined transaction approach using TNMM as the most appropriate method for Net margins earned by comparable companies performing activities similar to those of AEs are available in the public domain and can be easily established, thus facilitating a more reliable comparability analysis. Further, it is a well-accepted principle that net margins are less affected by transactional differences than are prices (as in the case of CUP) and gross margins (as in the case of CPM). In this case, since the functions performed by comparable identified by the Assessee were broadly similar to the functions performed by AE’s, TNMM, which involves net margin comparison, was considered as the most appropriate method for testing the above-mentioned transaction of the Assessee. 15. Further, the ld.AR stated that the overseas subsidiaries do not own significant intangibles. Hence, where the ‘Tested Party’ would be the least complex of the transacting entities, AEs were chosen as the ‘Tested party’ and their margins earned were compared to that of independent comparable companies operating in similar geographies/jurisdictions under TNMM. Reliance in this regard is placed on the decision of the Calcutta High Court in the case of PCIT v. ITC Infotech India Limited [2024] 159 taxmann.com 323 (Calcutta) wherein it had been held that Foreign AE can be taken as a tested party for purpose of establishing ALP of assessee and also that of the Mumbai ITAT in the case of Tata Consultancy Services Ltd. v. Deputy Commissioner of Income- tax [2024] 163 taxmann.com 671 (Mumbai - Trib.). :-10-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 16. The ld.AR submitted that the adoption of aggregation approach is duly warranted and well-founded on facts and circumstances of the case and supported by the transaction flow of the assessee and the FAR analysis of these international transactions. The combined benchmarking approach also derives legal sanctity from rule 10A(d) of the Rules, which defines the term ‘transaction’ for the purpose of ‘international transaction’ as: “Transaction includes a number of closely linked transactions”. The ld.AR placed reliance upon Para 3.9 of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022 issued by the Organisation for Economic Co-Operation and Development (“OECD Guidelines”). The ld.AR submitted that the assessee’s contention finds support in the Guidance Note issued in 2013, by the Institute of Chartered Accountants of India (ICAI) as well. Reliance is placed on the following decisions in this regard : - Delhi High Court in the case of Sony Ericson Mobile Communication India Pvt. Ltd., 374 ITR 118 - ITAT Bangalore in the case of Societe General Global Solution Centre Pvt Ltd [TS-56-ITAT-2022(Bang)-TP] - Delhi ITAT in the case of SRF Limited [TS-166-ITAT-2021(DEL)-TP] 17. The ld.AR further argued that the TPO had not provided any cogent reasoning for rejecting the aggregation approach adopted by the assessee. Also, while aggregation approach had been rejected for marketing fees paid by the assessee, the TPO had accepted the same with reference to other transactions wherein the same aggregation approach was followed. In support of the same the ld.AR placed reliance on the decision of the ITAT Delhi in the case of Denso Haryana (P.) Ltd. v. Deputy Commissioner of Income-tax [2023] 156 taxmann.com 573 (Delhi - Trib.). :-11-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 18. With respect to the TPO’s contention that the assessee has not substantiated the need for the services and provided evidence to that effect, the ld.AR submitted that there is no legal requirement or mandate for any assessee to necessarily undertake a cost-benefit analysis and a mere absence of such analysis should not necessarily lead to a pre-conceived notion that no benefits have been received by the assessee and should not form a basis to disallow the said payment. 19. With respect to the TPO’s contention that the marketing services received by the assessee constitute ‘shareholder activity’ that does not require separate payment, the ld.AR submitted that reliance is placed on Para 7.9 and 7.10 of OECD Transfer Pricing Guidelines 2022 and United Nations Practice Manual on Transfer Pricing (2017), Para B.4.2.13. and Para B.4.2.14. 20. However, in the assessee’s case in hand, ld.AR submitted that the payment towards marketing support services received benefits the assessee in terms of increased sales and does not fall within the definition of shareholder activities. The ld.AR placed a reliance on Paras 7.2 & 7.14 of the OECD Guidelines which provides some guidance on what are the type of services for which an independent third party would be willing to pay. Reliance is also placed on the following decisions: - ITAT Delhi in the case of Iris Worldwide Integrated Marketing Pvt. Ltd Vs DCIT (ITA No. 3849/Del/2018) - ITAT Delhi in the case of McCann Erickson India Pvt. Ltd. v. ADCIT (ITA No. 5871/D/2011) 21. Without prejudice to the above submission in support of actual receipt of services and benefits derived therefrom, the ld.AR stated that it is the assessee’s prerogative to run its business in the manner that it deems fit and it is ultra vires for a tax officer to :-12-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 question the commercial expediency and the business rationale. It is a well settled law that the question whether any expenditure needs to be incurred and whether incurring of such expenditure is commercially expedient has to be viewed from point of view of the assessee and the Revenue cannot substitute the same. The ld.AR relied on the Supreme Court decision in the case of S. A. Builders Ltd. vs Commissioner of Income Tax (Appeals) [Appeal (civil) 5811 of 2006]. 22. The ld.AR also drew our attention to Page 37 of their Transfer Pricing Study Report submitted, wherein the reasons behind not adopting ‘Other Method’ under Rule 10AB had been duly disclosed. Hence, where the same had been considered and not adopted based on a detailed analysis due to specific reasons as enumerated above, the ld.AR submitted that the adoption of ‘Other Method’ under Rule 10AB by the TPO in benchmarking the marketing services received by the Assessee is erroneous and unwarranted. 23. The ld.AR filed Additional Evidence Petition under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 in this regard, submitting the following documents that evidence the receipt of services by the assessee: - Sample mail correspondence between the assessee company and that of its Associated Enterprises with respect to their Marketing support services rendered to the assessee to prove that such services were rendered during the relevant previous year. - Copy of the sample Invoice copies raised by the Associated Enterprises on the assessee company with respect to their Marketing support services rendered during the subject FY 2020-21. :-13-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 24. Further to the above, in support of the assessee’s contention, the ld.AR also relied on the decision of the Jurisdictional Madras High Court in the case of Virtusa Consulting Services (P.) Ltd. v. Deputy Commissioner of Income Tax, Company Circle 5(2), Chennai [2021] 124 taxmann.com 309 (Madras) wherein it had been held that where assessee considered its AEs to be tested party to determine ALP of its international transactions and also submitted relevant evidences and documents to establish functional profile and risks assumed by its AEs, however, TPO rejected same and undertook a fresh search for external comparable, since TPO himself had not attached any sanctity to TP documentation as submitted by assessee, he could not foreclose assessee from canvassing issue that subsidiaries were least complex entities which should be taken note of and, thus, matter was to be remanded back to TPO. The said case-law is applicable to the assessee’s case in hand. 25. Per contra the ld.DR submitted that the assessee had not furnished any documents for services rendered by the AE. The assessee’s total revenue earned from marketing activities was only Rs.53.08 Crores against the expenditure of Rs.45.28 crores during the impugned assessment year. The ld.DR further argued that the assessee has made huge payment of marketing service fees only because the recipient is AE. Further, the DR submitted that the Foreign AEs cannot be the tested party for comparable with AE as observed by the DRP in para 2.3 of page 4 of their order. Hence, the downward adjustment of marketing services fees is as per law and prayed for confirming the same. 26. We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with the paper books filed and the case laws relied on by both the parties. Admittedly the assessee has paid Rs.45.28 :-14-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 crores to its AEs towards marketing service fees during the impugned assessment year and the ALP has been computed by following the TNMM. 27. We find that in relation to the software products sold to customers by AEs, the intellectual property in relation to the software is held by FSS India. The AEs function as marketing service providers bearing risks lower than those normally borne by an entity operating in the marketing services industry. Hence, for the services rendered, the AEs are compensated with an arm’s length mark-up on the operating expenses incurred. 28. Further, we observe that the assessee in the TP documentation, had benchmarked the above transactions of receipt of software support fee, provision of software services, sale of software licenses and payment of marketing service fee under the combined transaction approach using TNMM as the most appropriate method for Net margins earned by comparable companies performing activities similar to those of AEs are available in the public domain and can be easily established, thus facilitating a more reliable comparability analysis. In this case, the functions performed by comparable identified by the assessee were broadly similar to the functions performed by AE’s, TNMM, which involves net margin comparison, was considered as the most appropriate method for testing the above-mentioned transaction of the Assessee. 29. As the overseas subsidiaries do not own significant intangibles, where the ‘Tested Party’ would be the least complex of the transacting entities, hence the assessee has chosen AEs as the ‘Tested party’ and their margins earned were compared to that of independent comparable companies operating in similar geographies/jurisdictions under TNMM. :-15-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 30. Our above view is supported by the decision of the Calcutta High Court in the case of PCIT v. ITC Infotech India Limited [2024] 159 taxmann.com 323 (Calcutta) wherein it had been held that Foreign AE can be taken as a tested party for purpose of establishing ALP of assessee and also that of the Mumbai ITAT in the case of Tata Consultancy Services Ltd. v. Deputy Commissioner of Income-tax [2024] 163 taxmann.com 671 (Mumbai - Trib.). 31. On perusal of the order of the TPO, we find that no cogent reasoning for rejecting the aggregation approach adopted by the assessee. Also, while aggregation approach had been rejected for marketing fees paid by the assessee, the TPO had accepted the same with reference to other transactions wherein the same aggregation approach was followed. 32. On examination of the Transfer Pricing Study Report submitted, wherein the reasons behind not adopting ‘Other Method’ under Rule 10AB had been duly disclosed. Hence, where the same had been considered and not adopted based on a detailed analysis due to specific reasons. Therefore, the adoption of ‘Other Method’ under Rule 10AB by the TPO in benchmarking the marketing services received by the Assessee is erroneous and unwarranted. 33. Since the assessee has filed the following Additional Evidence before us, to establish the receipt of services by the assessee, the same needs verification. - Sample mail correspondence between the assessee company and that of its Associated Enterprises with respect to their Marketing support services rendered to the assessee to prove that such services were rendered during the relevant previous year. :-16-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 - Copy of the sample Invoice copies raised by the Associated Enterprises on the assessee company with respect to their Marketing support services rendered during the subject FY 2020-21. 34. We find that in the identical set of facts the Jurisdictional Madras High Court in the case of Virtusa Consulting Services (P.) Ltd. v. Deputy Commissioner of Income Tax, Company Circle 5(2), Chennai [2021] 124 taxmann.com 309 (Madras) had remitted the issue back to the TPO for verification. Wherein it had been held that where assessee considered its AEs to be tested party to determine ALP of its international transactions and also submitted relevant evidences and documents to establish functional profile and risks assumed by its AEs, however, TPO rejected same and undertook a fresh search for external comparable, since TPO himself had not attached any sanctity to TP documentation as submitted by assessee, he could not foreclose assessee from canvassing issue that subsidiaries were least complex entities which should be taken note of and, thus, matter was to be remanded back to TPO. 35. Therefore, in the present set of facts and circumstances and by relying on the judicial precedents (supra) we are remitting the issue back to the TPO with a direction to accept the assessee’s claim of following the TNMM for payments made towards marketing service fees by considering the comparable as Foreign AEs, after verification of additional evidence furnished before us to prove the nature / kind of services received by the assessee from AEs. 36. Ground No. 4: Transfer Pricing Issue – Upward adjustment of Rs.1,64,75,839/- on account of interest on trade receivables from AEs: :-17-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 DRP / Transfer Pricing Officer’s contention: As a sequel to the AE transaction, the outstanding receivable constitutes another set of transactions which has an impact on the Profit and Loss Account of the Assessee in the form of opportunity cost of funds and indirectly conveying the benefit to the AEs in the form of interest free advances. There are two limbs involved in the transaction, one being the remuneration for provision of services and the other being the compensation for providing credit. Accordingly, the receivables transaction shall be treated as separate international transaction. With the retrospective amendment (Inserted by the Finance Act, 2012, w.r.e.f. 1- 4-2002) in the Act, the definition of the term ‘international transaction’ is incorporated which is an inclusive definition including “…receivable or any other debt arising during the course of business; ……..” It is important to note that the above-mentioned Explanation is clarificatory in nature and hence the legislature has given it retrospective effect from 01.04.2002. Thus, receivables or other debt arising during the normal course of business are to be mandatorily treated as international transaction u/s.92B of the Act. The DRP had also relied on several decisions quoted therein in this regard. Since the Assessee has not performed the benchmarking of the outstanding receivables and trade receivable transaction in the Transfer Pricing study documentation, the international transactions pertaining to the receivables is being benchmarked using the following approach: 1. Credit period of 30 days is being allowed. 2. Credit period extended by the Assessee exceeding 30 days is considered to propose adjustment on account of receivables. :-18-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 3. The outstanding amount as on 31.03.2021, is calculated as per the ageing details provided by the assessee with the prevailing interest rate of LIBOR + 350 BPS (0.686% + 3.50%) is taken as interest rate and interest is calculated. Hence, an upward adjustment of Rs.1,32,98,855/- on account of interest on trade receivables was made to the value of international transaction reported in the Assessee's case for A.Y. 2021-22. 37. The DRP had upheld the TPO’s contentions in this regard and had further directed the AO to make a further addition of a markup of 100 basis points over and above the upward adjustment proposed on account of interest on trade receivables from AEs if the assessee was bearing the risk on foreign currency exchange fluctuation, whereby an enhancement of Rs.31,76,984/- was made in the impugned Assessment Order. 38. Assessee’s contention: The ld.AR submitted that early or late realization of service proceeds is incidental to the main transactions and not a separate transaction in itself. In other words, these represent the consequence of an international transaction and not an international transaction per-se. It is to be appreciated that normally the companies factor the opportunity cost/ interest component involved in delayed collection of receivables in the price/ mark-up charged for the products rather than levy of actual interest on belated payments made by the customer. In the assessee’s case, the ld.AR submitted that the Assessee had not charged interest on delayed collection of receivables both from AEs as well as Non-AE customers which ought to be considered. Reliance in this regard is placed on the following decisions: :-19-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 - Jurisdictional ITAT Chennai the case of Integra Software Services (P.) Ltd. v. Dy. Commissioner of Income-tax [2022] 145 taxmann.com 460 (Chennai - Trib.) - ITAT Ahmedabad in the case of Toshiba Technical Services International Corporation v. ACIT, International Taxation [2022] 145 taxmann.com 474 (Ahmedabad - Trib.) - ITAT Mumbai in the case of WNS Global Services (P.) Ltd. v. Income-tax Officer, Ward- 10(2)(4), Mumbai [2019] 103 taxmann.com 75 (Mumbai) 39. If the ALP in respect of an international transaction is determined, then there can be no question of treating non-receipt of interest in such transaction as separate international transaction warranting any further adjustment. Once ALP is determined in respect of the sale transaction, it would be deemed to be covering all the elements and consequences of such transaction of provision of services. Hence, after having determined the ALP in the primary transaction, it cannot be assumed that separate adjustment is required in respect of interest therefrom, since outstanding receivables emanate from the main transactions itself (which has already been benchmarked). Reliance in this regard is placed on the following decisions: - M/s. Indo American Jewellery Limited (TS-107-ITAT-2012(Mum)) - Information System Resource Centre private Limited [TS-252-ITAT-2015 (Mum)- TP] - The Bombay Dyeing & Mfg. Co. Limited [ITA No. 1716/Mum/2017] - Nimbus Communication Limited Vs ACIT (139 TTJ 214) - Panasonic India Private Limited (2011) 43 SOT 68 - M/s. Dell International Services India Pvt. Limited. [ITAT-2016(Bang)-TP] - M/s. Tally Solutions Pvt. Limited. [ITAT-2016(Bang)-TP] - Xchanging Solutions Limited (ITA 1294/Bang-2012 and 166/Bang-2014) - Lotus Labs Private Limited [ITAT-2016(Bang)-TP] - Avnet India Pvt. Limited., vs DCIT (TS-629-ITAT-2015(Bang)-TP) - M/s. Global e-business Operations Pvt. Limited. vs DCIT (IT(TP)A No.172&147/Bang/2015) - Micro Inks Limited Vs. ACIT [(2014) 63 taxmann.353 (Ahd)] :-20-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 - Kadimi Tool Manufacturing Co Private Limited v/s DCIT [ITA No. 7068/Del/2014] 40. Without prejudice to the above contention that outstanding receivables is not an international transaction, the ld.AR submitted that if outstanding receivables is treated as a separate international transaction, the same should be benchmarked using a combined transaction approach, by combining the outstanding receivables with the main international transaction due to the fact that receivables are only a result/consequence of the international transactions of the assessee which had been duly considered in the Transfer Pricing Study Report through a working capital adjustment, whereby no further adjustment is required. Reliance in this regard is placed on the following decisions: - ITAT Ahmedabad in the case of Effective Teleservices P. Ltd. v. Deputy Commissioner of Income-tax [2023] 152 taxmann.com 389 (Ahmedabad - Trib.) - ITAT Visakhapatnam in the case of Teejay India (P.) Ltd. v. Assistant Commissioner of Income-tax [2023] 149 taxmann.com 196 (Visakhapatnam - Trib.) 41. The principle of aggregation is a well-established rule in the Transfer Pricing analysis which is applicable here. Hence, the outstanding receivables arising from the international transactions should be benchmarked along with the main transaction using a combined transaction approach. 42. The ld.AR submitted that, normally, the decision of levying interest on delayed collection of receivables is that of commercial expediency and where the assessee had adopted a uniform practice of not charging interest on delayed collection of receivables from AEs and Non-AEs alike, the TPO ought not to have made such addition on interest leviable on receivables. :-21-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 43. Moreover, the TPO had suo-moto adopted a calculation method for computation of interest by considering credit period to be at 30 days and the interest rate at LIBOR plus 350 BPS (0.686% + 3.50%) without providing any appropriate reasoning / furnishing the basis on which such number was arrived at for adopting the same. The assessee was not given an opportunity of being heard against adoption of the same which defies the principles of natural justice. 44. Similarly, the DRP had also proposed an enhancement of a markup of 100 basis points over and above the upward adjustment proposed on account of interest on trade receivables from AEs if the assessee was bearing the risk on foreign currency exchange fluctuation without giving an opportunity of being heard against the same which is in violation of the principles of natural justice that amounted to a further addition of Rs.31,76,984/- made in the impugned Assessment Order in this regard. 45. Per contra, the ld.DR submitted that the assessee has not furnished any details or statement to prove that the sales / billing are charged equally to the AE and non-AEs, hence it is not acceptable. 46. We have heard both the parties and gone through the orders of the authorities. We find that the assessee has not charged any interest for the outstanding receivables from the AEs for an international transaction. As submitted by the ld.AR, normally the companies factor the opportunity cost/ interest component involved in delayed collection of receivables in the price/ mark-up charged for the products rather than levy of actual interest on belated payments made by the customer. We find that in the case on hand, the assessee has not charged interest on delayed collection of receivables both from :-22-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 AEs as well as non-AE customers. We concur with the following judicial precedents relied by the assessee: - Jurisdictional ITAT Chennai the case of Integra Software Services (P.) Ltd. v. Dy. Commissioner of Income-tax [2022] 145 taxmann.com 460 (Chennai - Trib.) - ITAT Ahmedabad in the case of Toshiba Technical Services International Corporation v. ACIT, International Taxation [2022] 145 taxmann.com 474 (Ahmedabad - Trib.) - ITAT Mumbai in the case of WNS Global Services (P.) Ltd. v. Income-tax Officer, Ward- 10(2)(4), Mumbai [2019] 103 taxmann.com 75 (Mumbai) 47. In view of the above, we are inclined to delete the addition made by the AO by allowing related grounds of appeal raised by the assessee. 48. Ground No.5 – Transfer Pricing Issue – Upward adjustment of Rs.53,58,144/- on account of fees chargeable on the Corporate Guarantee given by the Assessee to its AEs: During the relevant previous year, the assessee’s bank - IDFC Bank had issued a standby letter of credit (“SBLC”) to the AE’s bank i.e., First Abu Dhabi Bank as a security for the loan availed by the FSS Technologies FZE (“FSS FZE”) for a sum of AED 11,000,000. The Loan utilized stood at about AED 3.1 million as at 31.03.2021. During the year, there was no financial obligations imposed on the assessee on account of default by FSS FZE. Hence, the assessee had not incurred any cost/outflow on account of issuance of corporate guarantee. No direct guarantee was provided by the assessee to the AE other than the same. The interest /principal repayment pertaining to the loan taken was met by the AE only. Details on interest paid and the Financial Statements of the AE for the FY 2020-21 was submitted before the TPO during the assessment proceedings. The assessee had :-23-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 filed Additional Evidence Petition submitting the following documents that substantiate the said facts: a) Copy of the Standby Letter of Credit issued by the Assessee company’s Bank – IDFC Bank to the Associate Enterprise’s bank i.e., First Abu Dhabi Bank as a security for the loan availed by the FSS Technologies FZE (“FSS FZE”) for a sum of AED 11,000,000. b) Copy of the relevant extract of the Financial Statements of M/s FSS FZE for the year ended 31.03.2021 - disclosing the utilized Loan at AED 3.1 million. DRP / Transfer Pricing Officer’s contention : The Corporate Guarantees (“CG”) were issued to further the business prospects of the assessee through its AE. Both the assessee and the AE invested in the loan transactions, and both benefitted. The TPO had relied upon Para 7.13. of “Chapter – VII Special Considerations for Intra-Group Services” of OECD Transfer Pricing Guidelines 2010. Reliance placed upon the Jurisdictional Hon’ble Madras High Court’s decision in the case of Reddington India Ltd. for AY 2009-10 in TCA Nos. 590 and 591 of 2019 dated 10.12.2020, wherein it was held that the amendment brought in by explanation to Section 92B by Finance Act, 2012 is retrospective and that as per the amended provision of clause ‘e’ of explanation 1 to S. 92B, the international transactions shall include even those transactions which may not have “bearing on the profit, income, loss or assets of such enterprise at the time of transaction” but also if they have a bearing “at any future date”. From a financial viewpoint, there is fundamentally no difference between a Corporate Guarantee and a Bank Guarantee. By invoking Section 133(6) of the Act, rates levied by the various banks which provide guarantee services was collected and based on the Arithmetic Mean of such :-24-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 data, the rate of 2.58% was arrived at as fee chargeable on the Corporate Guarantees given by the assessee to its AE. Based on the AED to INR exchange rate as on 06.05.2019 (date of the Loan Agreement) which is 1 AED = INR 18.88, the facility amount agreed as per the Loan Agreement in INR works out to Rs. 20,76,80,000/- for AED 11,000,000. Accordingly, the Corporate Guarantee fee on Rs.20,76,80,000/- works out to Rs.53,58,144/-. Hence, an upward adjustment of Rs.53,58,144/- was made to the value of the international transaction in Corporate Guarantee. The DRP had upheld the same, rejecting the assessee’s alternative plea to restrict the fees levied to 0.5% by holding that the said claim was not substantiated appropriately. 49. Assessee’s contention: The ld.AR submitted that the assessee had, in fact, provided only a standby letter of credit to the AE’s bank i.e., First Abu Dhabi Bank as a security for the loan availed by them and no direct corporate guarantee was issued to warrant charging of any fees. It is pertinent to note that the Assessee, having a net-worth of about Rs.4,655 million, has extended support to its AE for a loan of about of Rs.20.77 crores by issuing SBLC and thus the same is in the nature of stewardship activity. In essence, the decision to extend a corporate guarantee underlines the assessee’s commitment to supporting its associates' growth and expansion initiatives. 50. The ld.AR highlighted that during the year, there was no financial obligations imposed on the assessee on account of default by FSS FZE. Hence, ld.AR submitted that the assessee had not incurred any cost/outflow on account of issuance of corporate guarantee. :-25-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 51. The ld.AR reiterated that the assessee had issued SBLC to its AE only to enable them to raise monies from financial institutions. Being issued for their benefit, it did not involve any cost to the assessee and did not have any bearing on the profits, income, losses or assets of the assessee, whereby it fails to fall under the definition for ‘international transaction’. Further, even after the amendment in Section 92B, a corporate guarantee issued for the benefit of the AEs, which does not involve any costs to the assessee, does not have any bearing on profits, income, losses or assets of the enterprise and, therefore, it is outside the ambit of ‘international transaction’ to which ALP adjustment can be made. 52. Such bearing or impact may happen in the future, but, would not cover situations where the impact is contingent as in the assessee’s case in hand. Such support/guarantees often serve strategic, business-driven purposes and may not have immediate financial implications. 53. The assessee, being a shareholder, considering the same as a part of its shareholder function as well as to safeguard its own business, which was undertaken through FSS FZE, had decided to provide corporate guarantee, in line with the OECD TP Guidelines, 2022 wherein ‘shareholder activity’ means “An activity which is performed by a member of an MNE group (usually the parent company or a regional holding company) solely because of its ownership interest in one or more other group members, i.e., in its capacity as shareholder.\" (Emphasis supplied). 54. The ld.AR placed reliance on the relevant explanation provided in the UN Practical Manual on Transfer Pricing Guidelines, 2017 where ‘shareholder services’ means :-26-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 “Services performed by a member of a multinational group (usually the parent company or a holding company) in its capacity as a shareholder, for example preparation of consolidated accounts.” (Emphasis supplied). 55. Hence, no fee was required to be charged by the assessee and the ‘NIL’ rate would meet the arm’s length criteria. It is also submitted that issuance of corporate guarantee is a mere shareholder activity and does not constitute intra-group services and hence, does not warrant a separate charge. 56. Further, a corporate guarantee provided by the parent company without charging any commission is a shareholder activity and cannot be brought under the TP provisions. It is also important to consider that the precondition of an impact on profits, income, losses, or assets has to be on a real basis and this bearing cannot be contingent on the happening of an event. 57. Reliance is placed on the decision of the Ahmedabad ITAT in the case of Micro Ink Ltd. v. Additional Commissioner of Income-tax, Vapi Range, Vapi [2015] 63 taxmann.com 353 (Ahmedabad - Trib.) had distinguished ‘Corporate Guarantee’ from that of ‘Bank Guarantee’. 58. However, the issue remains that the courts and tribunals have not been able to provide for a settled principle to decide if corporate guarantee dealings which do not have any bearing on profits, income, losses, or assets are international transactions per se. The ambiguity continues to persist. Reliance in this regard is placed on the following decisions: - ITAT Kolkata in the case of DCIT vs EIH Ltd. [2018] 89 taxmann.com 417 (Kolkata - Trib.) :-27-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 - ITAT Kolkata in the case of IFGL Refractories Ltd. v. Assistant Commissioner of Income-tax (OSD) [2021] 128 taxmann.com 462 (Kolkata - Trib.). 59. Without prejudice to the above, the ld.AR submitted that if at all a fee has to be charged on SBLC issued construed as ‘Corporate Guarantee’ provided to AE, it cannot be based on bank guarantee rates as made by the TPO / AO. Reliance in this regard is placed on the decision of the ITAT Mumbai in the case of Crayon Group AS vs ACIT (IT) [2023] 153 taxmann.com 345 (Mumbai - Trib.) wherein it was held that bank guarantee rates could not be considered for benchmarking corporate guarantee fee and it depends on creditworthiness of parties and benefit arising out of same in hands of parties to transaction; therefore, benchmarking of TPO was incorrect. 60. Alternatively, the fees chargeable on Corporate Guarantee could be restricted to 0.5% of the Corporate Guarantee provided by the Assessee as held in a plethora of decisions including the following recent ones: - The Jurisdictional Chennai ITAT in the case of Mega Soft Ltd. vs DCIT [2022] 145 taxmann.com 111 (Chennai - Trib.) - Delhi ITAT in the case of Havells India Limited vs DCIT (LTU) [2023] 156 taxmann.com 486 (Delhi - Trib.) - ITAT Guwahati in the case of Greenply Industries Ltd. vs ACIT [2022] 143 taxmann.com 364 (Gauhati) - ITAT Kolkata in the case of DCIT vs Mcleod Russel India Ltd. [2023] 154 taxmann.com 396 (Kolkata - Trib.) - ITAT Mumbai in the case of J.B. Chemicals and Pharmaceuticals Ltd. v. Deputy Commissioner of Income-tax [2021] 128 taxmann.com 439 (Mumbai - Trib.) - ITAT Vishakapatanam in the case of 3F Industries Ltd. v. Deputy Commissioner of Income-tax [2023] 150 taxmann.com 143 (Visakhapatnam - Trib.) 61. Without prejudice to the above arguments, the ld.AR submitted that, as stated above, the Loan being utilized outstanding only at about AED 3.1 million as at :-28-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 31.03.2021, the corporate guarantee fee, if any, to be charged should be restricted only to the utilised amount of AED 3.1 million and not the sanctioned amount of AED 11 million as computed by the Learned TPO which is erroneous and hence, ought not be upheld. 62. Hence, based on the above, the ld.AR prayed that the Upward adjustment of Rs.53,58,144/- towards fee on corporate guarantee provided be not upheld or alternatively be restricted to 0.5% of the utilized sum of AED 3.1 million instead of the applied 2.58% on the sanctioned sum of AED 11million in arriving at the said addition made. 63. Per contra, the ld.DR supported the order of the TPO/DRP. 64. We have heard both the parties and gone through the orders. Admittedly, the assessee has given a corporate guarantee during the year for the sanctioned amount of AED 11 million to FSS FZE. However, the loan was utilized and outstanding only at about AED 3.1 million as at 31.03.2021. Further, we find that there was no financial obligations imposed on the assessee on account of default by FSS FZE. Hence, the assessee had not incurred any cost/outflow on account of issuance of corporate guarantee. In the present set of facts, we are in agreement with the alternative ground pleaded by the assessee, since the assessee has not incurred any expenditure on account of the corporate guarantee, that the corporate guarantee fee, if any, to be charged should be restricted only to the utilised amount of AED 3.1 million and not the sanctioned amount of AED 11 million as computed by the TPO. Our above view is supported by the judicial precedents relied upon by the assessee. :-29-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 Therefore, respectfully the following judicial precedents (supra) we direct the TPO to recompute the Upward adjustment of fee on corporate guarantee provided by restricting to 0.5% of the utilized sum of AED 3.1 million. 65. In the result the related grounds of appeal of the assessee are partly allowed. 66. Ground no. 6 : General ground on Corporate Tax Issues Since the ground is general in nature, no specific submission made in this regard. Ground No.6 is general in nature and hence not adjudicated. 67. Ground No. 7 : Corporate Tax Issue – Disallowance of depreciation claimed @ 40% on ATM machines by restricting it to 15% chargeable on ‘Plant & machinery’ amounting to Rs. 46,56,30,577/- DRP / Assessing Officer’s contention: During the course of scrutiny proceedings, it has been noticed that the assessee has claimed depreciation on ATMs at the rate of 40%, as is applicable to computers, for the A.Y. 2020-21. The assessee was claiming depreciation only at the rate of 15% on ATM machines till the assessment year 2012-13. Only from A.Y.2013-14 onwards, the assessee has claimed depreciation at 60% (till the A.Y. 2017-18 and 40% from the A.Y. 2018-19) treating the ATM machines as computer. From the A.Y. 2012-13 to 2013-14, the configuration or the working of the ATM machines had not undergone any change in order to classify the ATM as a computer from electronic equipment. 68. Reliance is placed on the decision of Hon’ble Karnataka High Court in the case of Diebold Systems (P) Ltd. Vs Commissioner of C.T. [2006] 144 STC 59 (Kar), wherein :-30-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 it was examined whether an ATM machine was a computer with reference to Entry 20(2)(b) of part C of the second schedule to the Karnataka VAT Act, 2003 captioned ‘Computer Terminals’. It was held that if the common parlance test is applied, then ATMs would be considered as electronic devices and not computer peripherals. 69. ATM is not a computer by itself, and it is connected to a computer that performs the tasks requested by the persons using the ATM. The ATM is guided by an external computer, which does not mean that the ATM itself is a computer. ATM itself has its own identity and can be used independently, but once it is connected with the computer, further information sought by the customers can also be processed. Therefore, it cannot be said to be part of a computer or computer. Therefore, ATM is not eligible for a higher rate of depreciation which is to be allowed to a computer. 70. The Assessee had relied on various case laws and its own case wherein the Hon’ble ITAT, Chennai had allowed depreciation on ATMs at the rate as applicable to computers from AY 2013-14 to AY 2017-18 and for AY 2020-21. However, it is pertinent to mention here that the order of Hon’ble ITAT has not been accepted by the department and appeal before Hon’ble HC has been filed for on the above issue. Hence, the issue under consideration has not reached finality. Moreover, it may not be out of place to state that the Hon’ble ITAT in its order in the assessee’s case has ignored the decision of Hon’ble Karnatak High Court in the case of Diebold Systems (P) Ltd. Vs Commissioner of C.T. [2006] 144 STC 59 (Kar) on the ground that the same was rendered in the context of Karnataka sales tax and not in the context of Income Tax wherein the Hon’ble HC has held that ATM cannot be classified as computer terminal. :-31-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 71. Hence, ATM machines are eligible for only depreciation at par with equipment and not computers. Accordingly, the depreciation on ATM is limited to15% as against the claim of 40% by the assessee and the excess claim of depreciation by the assessee on ATMs works out to Rs.46,56,30,577/- and the same is added to its returned income. 72. Assessee’s contention : Ld.AR submitted that the ATM machines are computerized telecommunication device and would fall under the definition of ‘computer network’ which is included in the definition of ‘computers’ as per the provisions of section 2(i) of the Information Technology Act, 2000. ATM is the computerized telecommunication device that allows bank’s customers to access the bank at places other than the normal bank without having to take the trouble to go to the bank in person and collect the cash as is done under the conventional method of withdrawing money from the bank. The ATM machines are computerized machines which not only allow the customers to withdraw money, but they can check the account balance, pay bills, purchase goods and services, and therefore, unless it is computerized and linked with the main server, it is not possible to operate the ATM. Hence, the ATMs can never be held at par with normal plant & equipment. 73. In support of the above argument, the ld.AR stated that the issue of depreciation on ATM at the rate as applicable to computers is addressed by the Hon’ble ITAT, Kolkata Bench in the case of Royal Bank of Scotland N.V. vs DDIT (International Taxation) reported in (2017) 88 taxmann.com 330 (Kolkata – Trib.) dated 13.4.2016 and similarly, the decision of Hon’ble Bombay High Court on the very same issue is in favour :-32-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 of the Assessee in the case of CIT vs Saraswat Infotech Ltd in Income Tax Appeal (L) No. 1243 of 2012 dated 15.1.2013. 74. Further, it is imperative to note that the Hon’ble Tribunal, Chennai Bench in the assessee’s own case has allowed the issue of depreciation on ATM at the rate as applicable for the computers for the various preceding AYs tabulated hereunder: A.Y. I.T.A. Nos. 2013-14 2564/CHNY/2018 2014-15 2565/CHNY/2018 2015-16 2126/CHNY/2019 2016-17 2127/CHNY/2019 2017-18 439/CHNY/2022 2020-21 148/CHNY/2023 75. Therefore, the ld.AR also submitted that the department going on further appeal to the High Court against such orders passed whereby the subject issue is claimed to have not attained finality, does not make the Assessee ineligible to make the claim for the subject AY 2021-22 in line with the preceding years. 76. It is imperative to note that the Jurisdictional ITAT having decided the case in assessee’s favour as stated above, the Orders are binding on the AO. The judicial discipline requires adherence to decisions of the relevant higher authorities as held by the Supreme Court in the case of Union of India vs Kamalakshi Finance Corporation Ltd. [1992] 1992 taxmann.com 16 (SC). However, the AO failed to follow the Jurisdictional Chennai ITAT’s orders in the assessee’s own case as stated above and had made such an addition which is unwarranted and hence ought not be upheld. :-33-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 77. Without prejudice to the above, ld.AR submitted that the AO had erred in computing the disallowance at Rs.46,56,30,577/- by considering the entire block of assets subject to depreciation @ 40% instead of restricting it to ATM machines included therein, whereby an excess disallowance to the tune of Rs. 27,39,02,750/- has been made. 78. Per contra, the ld.DR argued that the order of Hon’ble ITAT in allowing deprecation on ATM machines @ 40% has not been accepted by the department and appeal before Hon’ble HC has been filed. Hence prayed for confirming the order of the AO/DRP. 79. We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with the paper books filed and the case laws relied. The rate of depreciation on ATM Machines claimed by the assessee is @ 40%. However, the department has treated ATM Machines as Plant and machinery and restricted the deprecation to 15%. The assessee claimed that the ATM machines are computerized telecommunication device and would fall under the definition of ‘computer network’ which is included in the definition of ‘computers’ as per the provisions of section 2(i) of the Information Technology Act, 2000. ATM is the computerized telecommunication device that allows bank’s customers to access the bank at places other than the normal bank without having to take the trouble to go to the bank in person and collect the cash as is done under the conventional method of withdrawing money from the bank. The ATM machines are computerized machines which not only allow the customers to withdraw money, but they can check the account balance, pay bills, purchase goods and services, and therefore, unless it is computerized and linked with the main server, it is not possible to operate the ATM. In support of the claim the assessee relied on the decision of the ITAT, Kolkata in the case of Royal Bank of :-34-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 Scotland N.V. vs DDIT (International Taxation) reported in (2017) 88 taxmann.com 330 (Kolkata – Trib.) dated 13.4.2016 and similarly, the decision of Hon’ble Bombay High Court on the very same issue is in favour of the Assessee in the case of CIT vs Saraswat Infotech Ltd in Income Tax Appeal (L) No. 1243 of 2012 dated 15.1.2013. 80. We also note that the issue in assessee’s own case has been decided in favour of the assessee by this Tribunal for the A.Y.2013-14 to 2017-18 and 2020-21 (supra). Therefore, following the rule of consistency, we are inclined to set aside the order of the AO/DRP on this issue and direct the AO to allow the deprecation on ATM Machines @ 40%. 81. Ground No. 8 – Corporate Tax Issue – Disallowance of Rs.36,20,000/- pertaining to deduction claimed on account of gratuity: DRP / Assessing Officer’s contention: On perusal of the computation of income sheet, it is seen that ‘Provision for gratuity’ of Rs.36,20,000/- has been claimed as expenditure, while the same appears under “any other amount allowable as deduction” claimed in schedule BP of Return of Income as per submission made during assessment proceedings. However, the Assessee has not provided any documentary evidence with respect to payment of said gratuity amount of Rs.36,20,000/- and as per section 43B of the Act, gratuity amount which has been paid during the year under consideration on or before the due date of filing return of income u/s 139(1) of the Act only shall be allowed as deduction. Since the Assessee has not provided any documentary evidence regarding payment of such amount, Rs.36,20,000/- is disallowed u/s 43B of the Act. :-35-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 The DRP had upheld the same in view of insufficient basis and evidence-based explanation. 82. Assessee’s contention: The ld.AR submitted that the assessee was never provided with an opportunity to file its rebuttal against the said addition since this issue did not form part of the show- cause notice issued, which being against the principles of natural justice, is unsustainable in law. The AO, based on his observation on submission made in response to the notices issued, had made this addition of Rs.36,20,000/- towards ‘provision for gratuity’, without calling for the relevant details. 83. In this regard, the ld.AR submitted that the deduction was nothing but ‘reversal of excess provision’ that was claimed as deduction in the computation of Taxable income and not payment as construed by the AO. 84. As per the Actuarial Valuation Report for the relevant FY 2020-21, the provision for gratuity at 31.03.2021 stood at Rs. 3,35,36,226/-. To align the books in line with the provision prescribed by the Actuarial Valuation Report as per the Accounting Standards, the excess provision of Rs.36,21,917/- was reversed in the books of accounts. Since the relevant provision was disallowed in the preceding AY 2020-21, the reversal thereon was claimed as deduction in the subject AY 2021-22. Copy of the computation of Taxable income statement for the preceding AY 2020-21 had been submitted to substantiate the same. 85. Per contra, the ld.DR relied on the orders of the authorities. :-36-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 86. We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with the paper books filed and the case laws relied. On perusal of the above, it is evident that the said sum of Rs.36,20,000/- pertains only to reversal of excess provision and not payment warranting disallowance u/s.43B of the Act for want of documentary evidence. 86.1 The issue of disallowance of gratuity provision during the year as per the computation of income filed by the assessee is with regard to reversal of excess provision made in the earlier assessment year i.e. A.Y. 2020-21 on account of the Actuarial Valuation Report for the relevant FY 2020-21, the provision for gratuity at 31.03.2021 stood at Rs.3,35,36,226/-. On perusal of the computation of income (Page No.964 of the paper book) for the year ending 31.03.2020 (A.Y. 2020-21) it is found that the assessee has added back Rs.72,04,973/- on account of provision for gratuity debited to profit and loss account. Therefore, it is evident that the said sum of Rs.36,20,000/- pertains only to reversal of excess provision and not the unpaid amount of disallowance u/s.43B of the Act. Hence, in our considered view the AO/DRP have erred in disallowing the deduction claimed and direct the AO to allow the deduction. Accordingly, we allow the ground of appeal filed by the assessee. 87. Ground no. 9 – Corporate Tax Issue – Disallowance of Rs.7,16,76,685/- towards bad debts written off: DRP / Assessing Officer’s contention: The Assessee had debited a sum of Rs.7,16,76,685/- towards bad debts written off in its Profit & Loss account for the year ended 31.03.2021. In support of such a claim, the Assessee had filed an excel sheet showing party- wise details as to the respective amounts written-off were offered to tax as income year- wise along with the ledger extracts of the respective parties for the applicable years. :-37-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 On perusal of the same, it appears that the amount has been written off as bad debt in ledgers of the respective parties. However, out of the three essential conditions to decide whether the bad debt written off is an allowable expenditure, the assessee has not provided any credible documentary evidence to substantiate its claim of this income being offered in earlier years. In the absence of the same, it is not ascertainable whether the said amount has actually been taken into account in computing the income of the assessee in the earlier years and offered to tax. Hence, the bad debts written off amounting to Rs. 7,16,76,685/- debited to Profit & Loss account had been disallowed and added to income returned. 88. Assessee’s contention : The ld.AR submitted that, on perusal of the list of parties receivables from whom had been written off in the books of accounts, it is very much evident that all excepting two or so line-items are banks only. Given that the Assessee is engaged in the business of setting up and maintenance of ATMs for various banks in India, the list in itself proves the fact that the receivables arise only from income that had been offered to tax earlier. 89. The Assessee has provided the year-wise line-item breakup for the sum written off and the respective ledger extracts across the applicable years have also been submitted. On perusal of the ledger extract itself, the income offered to tax in earlier years, and the bad debt written off during the subject FY 2020-21 on non-realisation of the receivable is clearly understood. 90. The ld.AR stated that the AO, in fact, in the show-cause notice issued dated 23.12.2023, had called for details of bad debt claimed, details as to when the same was offered to income and supporting ledger in support of its claim had been called for as :-38-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 ‘documentary evidence’ –all of which had been duly submitted by the assessee vide its submission dated 27.12.2023 filed in response to the same as also stated by the AO in the impugned Assessment Order. In spite of submission of details called for, the AO had made this addition for want of documentary evidence which is incorrect and unwarranted. 91. Hence, the ld.AR submitted that the AO’s contention that ‘no credible documentary evidence to substantiate its claim of these income being offered in earlier years’ is erroneous and ought not be upheld. 92. Per contra the ld.DR relied on the orders of the authorities. 93. We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with the paper books filed and the case laws relied on. The assessee has been billing its revenue to the customers who are into banking activities. On perusal of the paper book furnished by the assessee, we find that the assessee has raised invoices for the revenue to the banks from F.Y.2007- 08 upto 2020-21, which have been recognised as revenue in the respective financial years (Page No.965 of paper book). We note that some of the customers of the assessee have not paid certain amounts out of the invoices raised and which were offered as revenue in the respective earlier years, the assessee has written off the same as bad debts in the impugned A.Y. 2021-22 (FY 2020-21) by transferring such amount to the profit and loss account (Page No.966 to 989 of the paper book). On perusal of the ledgers, we find that the assessee has furnished the details of income shown in the earlier A.Ys. which has been written off during the impugned assessment year as not realizable. In considering this issue we take the guidance of the Hon’ble :-39-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 Apex court in the case of TRF ltd vs. CIT[2010] 190 Taxman 391 (SC), wherein their lordship has held as under: “4. The position in law is well-settled. After 1-4-1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer’s account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the above- mentioned aspect only and that too only to the extent of the write off.” 94. Therefore, in the present facts and circumstances of the case and respectfully following the decision of the Hon’ble Supreme Court (supra), we are of the considered view that the AO/DRP has erred in disallowing the expenditure claimed by the assessee and hence we are inclined to direct the AO delete the addition of Rs.7,16,76,685/- by allowing the related grounds of the appeal filed by the assessee. 95. Ground No. 10 : Corporate Tax Issue – Additional claim of Loss of Rs.19,45,70,000/- not made in the Return of Income filed : DRP / Assessing Officer’s contention : The Assessee claimed a net loss of Rs.99,15,26,555/- in its Return of Income filed for the subject AY 2021-22, while its Audited Financial statements for the relevant FY 2020-21 disclose a loss of Rs.118,61,00,000/-, whereby the loss claimed was less by about Rs.19.46 crores. The said loss omitted to claim was asked to be allowed during the assessment proceedings. The reliance was placed upon the Supreme Court decision in the case of :-40-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 Goetz (India) Limited vs CIT (284 ITR 323) and the AO had contended that only those claims that were made in the original Return of Income can be claimed before the AO and that where the return had not been revised by the assessee for the subject AY 2021-22, the claim of additional loss made is not acceptable. 96. Assessee’s contention : The ld.AR placed on record the facts behind the unintentional omission relating to the above issues while filing the Income Tax Return for the subject AY 2021-22 on 10.03.2022 vide Acknowledgement number 320377420100322 as under: a. During the subject AY, there was a dispute among the shareholders and arbitration proceedings had been initiated to resolve the same. b. Due to the ongoing dispute among the shareholders, the erstwhile Statutory Auditors M/s.Price Waterhouse LLP Chartered Accountants had resigned with effect from 30.03.2022. c. The assessee had then appointed M/s.S.Viswanathan LLP as their Statutory Auditors on 25.04.2022 for the period 01.04.2020 to 31.03.2021 (i.e.) the subject FY. d. Thus, there was a delay in completion of Statutory Audit that had been completed on 21.07.2022 and the Audit Report had been issued on that date. e. It is submitted that the said Audit Report forms part of the Audited Financial Statements for the subject FY 2020-21 filed earlier before us which substantiates the said fact. f. The ld.AR drew our attention to clause 4.b. of the Statutory Audit Report issued where under ‘Emphasis of matter’ mentioned therein, the said fact had been stated as follows: “note 38.1 to the standalone financial statements, regarding the initiation of arbitration proceedings between shareholders, and management’s view that the dispute will have no impact on the business of the company.” :-41-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 g. The ld.AR submitted that, thus, due to non-availability of Audited Financial Statements then, due to the facts enumerated above, to comply with the Income Tax Return filing requirements under the Income Tax Act, the Return of Income for the subject AY 2021-22 had been filed on 10.03.2022 based on unaudited books of accounts. h. On completion of Statutory Audit, it was observed that the loss as per Profit & Loss account was less claimed by about Rs.19.46 crores and that deduction towards ATM site rent charges paid derecognized for ‘Right of Use’ Assets (IND AS) adjustment was claimed less by Rs.40.27 million or Rs.4,02,70,000/- in its Income Tax Return filed for the subject AY 2021- 22. i. However, the claim made towards the same during the assessment proceedings had been rejected by the AO. 97. From the facts enumerated above, the ld.AR stated that it is quite evident that the omission in the Return of Income filed was bonafide and was caused by factors beyond the assessee’s control which ought to be given due consideration. The ld.AR filed Additional Evidence Petition before us under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 in this regard, submitting the Copy of the relevant Memo of computation of Taxable income and the relevant extract of the Provisional Financial Statements of the assessee for the subject FY 2020-21 forming the basis for the Return of Income filed for the subject AY 2021-22. The said additional evidence is placed in the respective Additional Evidence paper-book from pages 39 to 41. 98. Further in support of the above claim the ld.AR submitted that the judicial forums have time and again upheld the power of the Appellate Authorities in admitting a fresh claim when the relevant details are available on record. Reliance in this regard is placed on the following decisions: :-42-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 - Jurisdictional Madras High Court in the case of Ramco Cements Limited vs DCIT, Special Range-I, Madurai [2015] 55 taxmann.com 79 (Madras) - Calcutta High Court in the case of Commissioner of Income-tax v. Hindustan Pilkington Glass Works Ltd. [1994] 73 TAXMAN 631 (CAL) - ITAT Mumbai in the case of Givaudan Flavours (India) (P.) Ltd. v. Deputy Commissioner of Income-tax – 1(3), Mumbai [2013] 31 taxmann.com 177 (Mumbai - Trib.) 99. We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with the paper books filed and the case laws relied on. Admittedly the assessee had filed its return of income on 10.03.2022 for the A.Y. 2021-22 along with the TP audit and tax audit reports based on the unaudited financials of the assessee. On perusal of documents, we note that the statutory audit of the company books of accounts has been completed, and the audit report was issued by the new statutory auditors only on 21.07.2022 due to change in statutory auditors on account of dispute among the shareholders. However, as per the clause 4.b. of the Statutory Audit Report issued where under ‘Emphasis of matter’ mentioned therein, the said fact had been stated as follows: “note 38.1 to the standalone financial statements, regarding the initiation of arbitration proceedings between shareholders, and management’s view that the dispute will have no impact on the business of the company.” 100. Therefore, the loss claimed by the assessee based on the audited financial statements as on 31.03.2021 has to be considered for the purpose of computing the actual income / loss of the assessee for the purpose of taxation also. Our view is supported by the decision of the Jurisdictional Hon’ble Madras High Court in the case of Ramco Cements Limited vs DCIT, Special Range-I, Madurai [2015] 55 taxmann.com 79 (Madras) and Hon’ble Calcutta High Court in the case of Commissioner of Income-tax v. Hindustan Pilkington Glass Works Ltd. [1994] 73 TAXMAN 631 (CAL). In view of the :-43-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 above and respectfully following the judicial precedents (supra), we are inclined to remit the issue back to the AO for verification of the additional documents filed for claiming the loss of Rs.19.46 crores and decide the issue in accordance with law. 101. Ground No. 11 – Corporate Tax Issue – Additional claim of Rs.4,02,70,000/- pertaining to additional deduction towards ATM site rent charges paid: DRP / Assessing Officer’s contention: The Assessee had reduced a sum of Rs.607.81 million relating to deduction towards ATM site rent charges paid derecognized for ‘Right of Use’ Assets (IND AS) adjustment and had claimed a sum of Rs.4,031.64 million under the head ‘Hosted payment and other services’ as reported in Note 19 - ‘Purchase and service charges’ to the Audited Financial Statements for the FY 2020-21 (Page No.39 of the Paper book). 102. The same being, an IND AS adjustment entry had to be deducted while arriving at the Taxable income. However, while reporting the same as a deduction in the Return of Income filed for the relevant AY 2021-22, the said sum that was included in ‘Any other amount allowable as deduction’ in Schedule – BP, Table A, Sl.No.33 of the Income Tax Return, was inadvertently reported at Rs.567.54 million, whereby the deduction claimed was less by Rs.40.27 million [(ie) 607.81 million – 567.54 million] or Rs. 4,02,70,000/-. The same was claimed by the assessee during the assessment proceedings. 103. Relying upon the Supreme Court’s decision in the case of Goetz (India) Limited vs CIT (284 ITR 323), the AO had contended that only those claims that were made in the original Return of Income can be claimed before the AO and that where the return had not been revised by the Assessee for the subject AY 2021-22, the claim of additional loss made is not acceptable. :-44-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 104. Further, the AO had contended that the Assessee had not provided any documentary evidence as to how the claimed sum of Rs. 607.81 million was arrived at. Assuming without conceding, she had also contended that if the same represented actual rent paid, the Assessee ought to have provided documentary evidence with respect to payment of rent and details of TDS deducted thereon, which the Assessee had failed to provide. Hence, the claim of the Assessee was held as not acceptable and the DRP had upheld the AO’s contentions. 105. Assessee’s contention : The ld.AR submitted that the relevant line-item breakup of ‘Hosted payment and other services’ shown under Note 19 – ‘Purchase and service charges’ disclosed in audited Profit and Loss Account for the year ended 31.03.2021 is given as follows: S.No. Nature of expenditure Amt. in INR million 1 Card services related expense 170.88 2 Cash Replenishment Service Expenses 2,353.31 3 Caretaker & House Keeping Service Expenses 672.73 4 ATM - Peripherals, consumables, R&M, Rent 1,108.23 5 ATM - Electricity, POS, other related service expense 334.30 6 IND AS adjustment towards ATM site rent charges derecognized for Right of Use (“ROU”) (607.81) TOTAL 4,031.64 Thus, a sum of Rs.607.81 million was credited in Profit & Loss account towards IND AS adjustment entry on ATM site rent charges derecognized for Right of Use Assets. The same being IND AS adjustment entry, in line with the provisions of the Act, it should be deducted while computing the Taxable income. :-45-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 However, the said sum of Rs.607.81 million was deducted at Rs.567.54 million while filling the Income Tax Return based on unaudited books of accounts due to factors enumerated in the preceding para no.19.2.1. The line-item breakup of the sum of Rs.72,37,22,348/- shown under ‘Any other amount allowable as deduction’ under Column 33, Table A of Schedule BP in Income Tax Return filed for the subject AY 2021- 22 is given as below: S.No. Nature of deduction Amt. in INR million 1 IND AS adjustment towards ATM site rent charges derecognized for ROU 567.54 2 Office Rent de-recognised for ROU 54.28 3 AMC Software License de-recognised for ROU 95.01 4 Loss/(profit) on sale of asset 3.27 5 Gratuity Provision 3.62 TOTAL 723.72 106. The above facts are evident from the Audited Financial Statements and the Income Tax Return filed (Page Nos.1 to 54 audited financials and 746 to 871 return of income of paper book). The ld.AR stated that the assessee had thus omitted to claim the deduction for about Rs.40.27 million [(ie) 607.81 million – 567.54 million] or Rs. 4,02,70,000/- in its Income Tax Return filed for the subject AY 2021-22. The AO had erroneously construed the deduction of Rs.567.54 million claimed on IND AS adjustment entry as towards rent. In this regard, it is clarified that the sum pertained to IND AS adjustment entry only and not otherwise whereby such documentary evidence as required by the AO would not be applicable and hence could not be provided. :-46-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 107. The Ld.AR stated that the judicial forums have time and again upheld the power of the Appellate Authorities in admitting a fresh claim when the relevant details are available on record. 108. We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with the paper books filed and the case laws relied on. On perusal of the audited financial statements and return of income filed for the impugned assessment year, we find that the assessee has shown an amount of Rs.4,031.64 million as Purchase and service charges in Note No.19 to the Profit and loss account. As claimed by the assessee the amount of IND AS adjustment towards ATM site rent charges derecognized for Right of Use (ROU) was Rs.607.81 million has been reduced in the above expenses. On examination, it is also noted that in the return of income filed by the assessee, the IND AS adjustment towards ATM site rent charges derecognized for Right of Use (ROU) of Rs.607.81 million has been inadvertently shown as Rs.567.54 million. 109. We find that the AO/DRP has not considered the assessee’s claim of above deduction of Rs.4.02 crores by relying on the decision of Hon’ble Supreme Court’s in the case of Goetz (India) Limited vs CIT (284 ITR 323). Further, we note that the AO had erroneously construed the deduction of Rs.567.54 million claimed on IND AS adjustment entry as towards rent. 109.1 In the present facts of the case, relying on the judicial precedents (supra), we are inclined to remit the issue back to the files of the AO for limited purpose of verification of the correctness of the claim from the records and documents filed by the assessee and direct the AO to allow the IND AS adjustment towards ATM site rent charges :-47-: IT(TP)A No.87/CHNY/2024 & SA No.78/CHNY/2024 derecognized for Right of Use (ROU). Thus, the related grounds raised by the assessee is allowed. 110. Since we have disposed of the appeal of the assessee, the stay application filed by the assessee becomes infructuous and we dismiss the same. 111. In the result the appeal filed by the assessee is partly-allowed and the stay application filed by the assessee is dismissed. Order pronounced in the open court on 03rd June, 2025 at Chennai. Sd/- Sd/- (मनु क ुमार िगįर) (MANU KUMAR GIRI) Ɋाियक सद˟/Judicial Member (एस. आर. रघुनाथा) (S. R. RAGHUNATHA) लेखासद˟/Accountant Member चेɄई/Chennai, िदनांक/Dated, the 03rd June, 2025 SP आदेश की Ůितिलिप अŤेिषत/Copy to: 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3.आयकर आयुƅ/CIT– Chennai/Coimbatore/Madurai/Salem 4. िवभागीय Ůितिनिध/DR 5. गाडŊ फाईल/GF "