SAP India Private Limited Vs DCIT (ITAT Bangalore)
SAP India Private Limited filed ITA No. 704/Bangalore/2023 for the assessment year 2019–20 against the assessment order under sections 143(3), 144B, and 144C(13) of the Income Tax Act, 1961, pursuant to the transfer pricing assessment under section 92CA(3) issued by the Deputy Commissioner of Income Tax (Transfer Pricing) and directions from the Dispute Resolution Panel (DRP). The total income initially filed by the assessee was ₹7,901,553,920, revised to ₹7,804,453,360, and assessed at ₹8,423,688,054.
Several grounds of appeal were filed, but grounds 1 to 3 related to general objections, limitation, and document identification were not pressed and dismissed. Grounds 9 and 10, concerning interest under section 234D and penalty proceedings, were deemed consequential or premature and were also dismissed. The key contested grounds included:
Ground 4: Disallowance of employee stock compensation cost of ₹55.4 crore, claimed as capital in nature and not deductible under section 37.
Ground 5: Excess dividend distribution tax (DDT) of 20.56% paid to non-resident shareholders, contended to be 10% under the India-Germany Double Taxation Avoidance Agreement.
Ground 6: Interest on overdue receivables from associated enterprises treated as a separate international transaction. The assessee argued no external borrowing, no third-party interest, inappropriate 30-day credit assumption, and that SBI short-term deposit rates were wrongly used instead of EURIBOR.
Ground 7: Arm’s-length price (ALP) of distribution segment challenged, including selection of comparables, filters applied, exclusion of functionally comparable companies, and rejection of working capital adjustment.
Ground 8: Short grant of TDS credit, where the assessee claimed ₹3,545,912,359 but was granted ₹3,545,131,579; the difference of ₹780,770 was contested.
SAP India, a subsidiary of SAP AE, Germany and SAP India Holdings PTE Ltd, Singapore, engaged in sublicensing, distribution, and support of SAP AE products in India, performed distribution and consultancy functions under a non-exclusive license. It entered international transactions including royalty payments of ₹19,532,077,658, consultancy revenue from associated enterprises of ₹4,060,762,300, consultancy provided to associated enterprises of ₹1,283,03,86,141, expense reimbursements of ₹20,202,906, and IT/support services of ₹600,63,49,599.
