Samsung R&D Institute India – Bangalore Pvt Ltd Vs JCIT (ITAT Bangalore)
ITAT Bangalore held that addition u/s. 28(iv) of the Income Tax Act not justified since the assets imported free of cost for testing purposes are either returned or destroyed by the assessee and that the pricing towards software development services rendered are agreed under Mutual Agreement Procedure (MAP).
Facts- The assessee is a wholly owned subsidiary of Samsung Electronics Company Ltd. The assessee filed the return of income for AY 2015-16 on 30.11.2015 declaring a total income of Rs. 238,85,10,090/-. Since the assessee had international transactions with its AEs, a reference was made by AO to the Transfer Pricing Officer (TPO) to determine the arm’s length price of the international transactions the assessee had with its AEs.
TPO passed an order u/s. 92CA of the Income Tax Act, 1961 (the Act) on 26.10.2018 proposing a TP adjustment of Rs. 1,86,94,215/- towards software development services rendered by the assessee to its AEs and the AO passed the assessment order incorporating the TP adjustments.
AO besides the TP adjustments made a disallowance of Rs. 18,20,990/- u/s. 40(a)(i) of the Act on the depreciation claimed by the assessee on computer software for the reason that the assessee did not deduct tax at source on the payments made towards purchase of software. The AO also made an addition of Rs. 7,37,33,056/- u/s. 28(iv) of the Act towards the value of equipments given by the AEs free of cost to the assessee for the purpose of software development and testing.
