Tech Mahindra Ltd Vs DCIT (ITAT Mumbai)
Summary: The assessee, Tech Mahindra Ltd., a joint venture between Mahindra & Mahindra Limited and British Telecommunications Plc. (BT), is engaged in development of computer software and allied information technology services. For A.Y. 2008-09, its international transactions were referred to the Transfer Pricing Officer (TPO). The TPO proposed transfer-pricing adjustments aggregating to Rs.5,35,42,00,075/-. The draft assessment also proposed disallowance of depreciation on the upfront payment, addition of mark-to-market profit on cash-flow hedges, disallowance under section 14A and reduction of certain expenses from export turnover for section 10A purposes. The DRP partly directed deletion/verification but sustained, among other matters, notional-interest adjustments, the section 14A disallowance and the section 10A computation. The assessee appealed.
On the exclusivity payment of Rs.440.12 crores connected with Project Andes, the Tribunal considered the assessee’s case that the payment secured a 90-day exclusive negotiation window with BT, empanelment and participation in the vendor-selection process, and BT’s time, efforts, negotiation and coaching. The payment was unconditional, irrevocable and non-refundable, and the assessee had not claimed it as a deduction while computing taxable income. The Tribunal noted that the assessee subsequently earned substantial revenue from BT under the resulting contract and that the record did not contain material establishing that the transaction was sham, fictitious or lacking commercial substance. It held that an unconventional commercial arrangement could not, by itself, justify disregarding its commercial character. The primary adjustment of Rs.440.12 crores had not survived the final assessment after the DRP’s direction and AO verification. Since no surviving primary adjustment existed and A.Y. 2008-09 was prior to 01/04/2016, the Tribunal held that the consequential notional-interest adjustment of Rs.72.34 lakhs could not be sustained. Ground Nos.2.1 and 2.2 were allowed.
