Aptean India Pvt. Ltd. Vs DCIT (ITAT Bangalore)
Assessee submitted that’s education says and secondary and higher education cess has been duly discharged by assessee while computing tax liability under normal provisions of income tax act. Placing reliance on following decisions Ld.AR submitted that ‘cess’ is deductible as business expenditure under section 37(1) of the Act for determining the assessed income for year under consideration and that this view is upheld in following decisions:
- Sesa Goa Ltd. vs. Joint Commissioner of Income-tax. 1(2020) 117 com 96 (Bombay High Court)]
- Reckitt Benckiser (I) Pvt. Ltd. vs. Deputy Commissioner of Income-tax [(2020) 117 com 519 (Kolkata Tribunal)]
- ITC Limited vs. Assistant Commissioner of Income-tax [I.T.A No. 1267 /Kol/2014(Kolkata Tirbunal)]
- The Peerless General Finance & Investment Co. Ltd. vs. Deputy Commissioner of Income-tax [ITA No. 1439/Kol/2018 (Kolkata Tribunal)]
- Tata Steel Limited vs. Assistant Commissioner of Income-tax [ITA No. 5573/Mum/2012 (Mumbai Tribunal)]
56. We have perused submissions advanced by both sides in light of records placed before us.
57. Nothing is discernible from the record to establish that assessee has raised the claim by way of revised return before Ld.AO. However we are of considered opinion that this is an allowable expenditure and has of assessee’s. Accordingly we remand this issue back to Ld.AO to consider the claim of assessee in accordance with law
FULL TEXT OF THE ITAT JUDGEMENT
Present appeal has been filed by assessee against final assessment order dated 10/10/2017 passed under section 143(3) read with section 144C(13) of the Act, by Ld.DCIT Circle 1(1)(2) for assessment year 2013-14, on following grounds of appeal:
“1. That the order of the learned of Deputy Commissioner of Income-tax, Circle – 1(1)(2), Bangalore (“learned Assessing Officer” or “learned AO”) pursuant to the directions of the Hon’ble Dispute Resolution Panel (“Hon’ble DRP”) to the extent prejudicial to the Appellant, is bad in law and liable to be quashed.
2. That on the facts and circumstances of the case, the Hon’ble DRP erred in upholding the approach of the Deputy Commissioner of Income-tax, Transfer Pricing -i(i)(i) (“learned TPO”) in not accepting the Transfer Pricing (“TP”) Study/economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income-tax Rule, 1962 (“the Rules”), conducting a fresh economic analysis for the determination of the Arm’s Length Price (“ALP”) in connection with the impugned international transactions, and holding that the Appellant’s international transactions are not at arm’s length.
3. That the Hon’ble DRP has erred in upholding the learned TPO’s approach using data as at the time of assessment proceedings, instead of that available as on the date of preparing the TP documentation for comparable companies while determining ALP, ignoring the fact that this data was not available to the Appellant at the time of complying with the TP documentation requirements.
4. That the Hon’ble DRP erred in upholding the approach of the learned TPO, in rejecting the Appellant’s contentions against the use of information under section 133(6) of the Act, as that tantamounts to choosing secret comparable companies whose information were not available in public domain while undertaking the TP study for the respective financial year.
5. That the Hon’ble DRP erred in upholding the approach of the learned TPO, in law and facts, by not making suitable adjustments to account for differences in the risk profile of the Appellant vis-à-vis the comparables.
6. That the Hon’ble DRP erred in upholding the rejection of comparability analysis in the Transfer Pricing documentation undertaken by the Appellant in accordance with the provisions of the Act read with the Rules and in conducting a fresh comparability analysis and application of certain arbitrary filters.
Software Development Services
7. The Hon’ble DRP erred in upholding the appr*oach of the learned TPO , in law and on facts by excluding Akshay Software Technologies Limited, as a comparable on the ground that segmental information was not available hence considered it to be functional dissimilar, whereas this comparable company should have been included on ground of functional similarity.
8. The Hon’ble DRP erred in upholding the approach of the learned TPO, in law and on facts by excluding Evoke Technologies Private Limited, as a comparable on the ground that the financial statements were unreliable, whereas this comparable company should have been included on ground of functional similarity.
9. The Hon’ble DRP erred in upholding the approach of the learned TPO, in law and on facts by excluding Sasken Communication Technologies Limited, as a comparable on the groufe of functional dissimilarity, whereas this comparable company is functionally similar her should have been included.
10. That the Hon’ble DRP erred in upholding the approach of the learned TPO, in law and in facts by including CG – VAK Software and Exports Limited, as a comparable whereas this company should have been excluded on ground of functional dissimilarity. Additionally, without prejudice to the above contention, the learned TPO has earned in margin computation of the comparable, hence the correct operating margin is to be considered.
ii. That the l-lon’ble DRP erred in upholding the approach of the learned TPO, in law and in fact by including ICRA Techno Analytics Limited, as a comparable whereas this company should have been excluded on ground of functional dissimilarity and it fails related party transactio] filter of 25% applied by the learned TPO. Additionally, without prejudice to the above contention, the learned TPO has earned in margin computation of the comparable, hence the crfr operating margin is to be considered.
12. That the Hon’ble DRP erred in upholding the approach of the learned TPO, in law and in facts by including Larsen & Toubro Infotech Private Limited, as a comparable whereas this company should have been excluded on grounds of functional dissimilarity. Additionally, without prejudice to the above contention, the learned TPO has earned in margin computation of the comparable, hence the correct operating margin is to be considered.
13. That the Hon’ble DRP erred in upholding the approach of the learned TPO, in law and in facts by including Persistent Systems Limited, as a comparable whereas this company should have been excluded on ground of functional dissimilarity. Additionally, without prejudice to the above contention, the learned TPO has earned in margin computation of the comparable, hence the correct operating margin is to be considered.
Information Technology Enabled Services
14. The Hon’ble DRP erred in upholding the approach of the learned TPO, in law and on facts by excluding Tech process Solutions Limited, as a comparable by applying export income to sales filter greater than 75% whereas this comparable company should have been included on ground of functionally similarity.
15. That the Hon’ble DRP erred in upholding the approach of the learned TPO, in law and in facts by including Capgemini Business Services (India) Limited, as a comparable whereas this company should have been excluded on ground that it fails related party transaction filter of 25% applied by the learned TPO.
16. That the Hon’ble DRP erred in upholding the approach of the learned TPO, in law and in facts by including Infosys BPO Limited, as a comparable whereas this company should have been excluded on ground of functional dissimilarity.
17. That the Hon’ble DRP erred in upholding the approach of the learned TPO, in law and in facts by including Harton Communication Limited, as a comparable whereas this company should have been excluded on ground of functional dissimilarity.
The above grounds are independent of, and without prejudice to, each other and that the appellant craves leave to add, alter, amend, modify or withdraw the grounds of appeal or produce further documents before or at the time of hearing of this Appeal.”
2. Assessee has also raised two additional grounds, vide applications dated 09/06/2020 and 13/10/2020 which are as under:
Ground raised vide application dated 9/06/2020:
“The grounds mentioned herein are without prejudice to the grounds mentioned in Appeal No.: 2979/Bang/2017 dated December 12, 2017.
Transfer Pricing Related
1. On the facts and in the circumstances of the case and in law the learned Transfer Pricing Officer (‘TPO’) / the learned Deputy Commissioner of Income Tax, Circle 1(1)(2), Bangalore (‘Assessing Officer’ or ‘AO’) / the Dispute Resolution Panel, erred in not applying the turnover filter for selection of comparable companies for benchmarking the international transaction of Software Development Services and Information Technology Enabled Services rendered by the Appellant to its Associated Enterprises.
The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.”
3. Ld. AR submitted that failure to raise this ground at an earlier stage was not willful and that no new facts needs to be investigated upon in order to adjudicate these grounds. It has been submitted that by way of abundant caution assessee raises exclusion of certain comparables on turnover filter. He also submitted that in the event these comparables are excluded based on turnover filter other grounds relating to exclusion of the same comparables on other dissimilarities need not be adjudicated.
4. On the contrary Ld.DR submitted that turnover filter is not a relevant criteria based on which comparables could be considered for exclusion. He thus objected for admission of additional ground.
5. We have perused the submissions advanced by both sides and records placed before us.
6. The additional ground raised vide application dated 09/06/2020 is fundamental to the appeal and the non-admission of the same would result in an incomplete appreciation and adjudication of the matter. The Petitioner submits that failure to raise this ground at an earlier stage either neither wilful or wanton.
We therefore admit the additional ground raised vide application dated 09/06/2020 by assessee.
7. Ground raised by application dated 13/10/2020
Ground relating to other than transfer pricing matters
“1. That on the facts and in the circumstances of the case and in law, the Learned Assessing Of (‘AO) and Learned Commissioner of Income-tax Appeals [‘CIT(A’]) ought to grant deduction under section 37(1) of the Income Tax Act, 1961 for Education Cess and Secondary and Higher Education Cess (collectively referred to as ‘Cess) paid by the Appellant on the assessed income along with income-tax and surcharge for the year under appeal.
It is prayed that the deduction of Education Cess and Secondary and Higher Education Cess should be allowed to the Appellant as business expenditure under the provisions of the Act.
The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.”
8. AR submitted that this issue was inadvertently missed out while filing original ground of appeal before this Tribunal. He submitted that, this issue is covered by decision of Hon’ble Rajasthan High Court, placed cash law in paper book filed by assessee. It is also submitted that no new facts needs to be investigated on to adjudicate this ground.
9. Sr.DR opposed admission of this ground.
10. We have perused submissions advanced by both sides and records placed before us.
11. The additional ground raised vide application dated 13/010/2020 is fundamental to the appeal and the non-admission of the same would result in an incomplete appreciation and adjudication of the matter.
Accordingly, the additional ground raised vide application dated 13/10/2020 stands admitted.
12. AR at the outset submitted that in the even certain comparables are considered for exclusion/inclusion under both the segments the other grounds becomes academic.
13. He submitted that, Ground Nos. 1-6, 9, 11 and 14 are not pressed by assessee.
Accordingly, these Ground Nos. 1-6, 9, 11 and 14 are dismissed as not pressed.
14. AR submitted that, under SWD segment, assessee wish to argue upon following comparables for inclusion raised in Ground 7, 8 being;
