ITAT Bangalore Orders Exclusion of Persistent Systems Ltd; Clarifies Inclusion of Akshay Software Technologies Ltd in Transfer Pricing Comparables for Captive SWD Providers - The ITAT Bangalore concluded that Persistent Systems Ltd must be excluded from the list of comparables due to its functionally divergent profile, lack of segmental data, and significant engagement in IP creation and product development, which renders it economically dissimilar to a captive SWD service provider. Conversely, Akshay Software Technologies Ltd should be included as a comparable since it meets all quantitative criteria and its primary source of income is from software development services, despite references to ancillary activities.
Income Tax - Sections 144B, 144C - ITAT Hyderabad Rules Gross Electricity Rate, Including Penal Charges, Must Be Adopted in ALP Benchmarking for Intra-Group Power Transactions - The ITAT Hyderabadâs decision lays down a clear and actionable principle: when benchmarking specified domestic transactions involving electricity supply for transfer pricing purposes, the ALP must be computed using the total gross rate levied by the State Electricity Authority, including all mandatory and penal charges, rather than just the base rate. Taxpayers must ensure that all elements of the statutory tariff are considered in their transfer pricing documentation and computations for such transactions.
Income Tax - Sections 115-O, 14A, 115JB, 43B, 37(1) - ITAT Mumbai Clarifies: DDT Refund Not Permissible under India-Mauritius DTAA, Upholds ESOP Deduction and Restricts Section 14A Disallowance - The Tribunalâs decision provides clear guidance on four key issues:
DDT paid under Section 115-O is not governed by the India-Mauritius DTAA as it is a tax on the company, not shareholders.
ESOP expenses, calculated on the fair value basis, remain allowable deductions as per established judicial precedent and CBDT Circular No. 9/2007.
Disallowance under Section 14A cannot exceed the amount voluntarily disallowed by the assessee if no exempt income has been earned.
Additions under Section 43B are not permissible for computation of MAT book profits unless specifically allowed under Explanation 1 to Section 115JB(2).
Taxpayers should align their tax positions with these clarified principles and ensure documentation is robust, particularly in the context of ESOP expense recognition and Section 14A disallowance computation.
Income tax - Sections 148A, 149 - ITAT Mumbai Quashes Reassessment Notice Issued Post-Limitation: AO's Section 148 Notice for AY 2015-16 Held Time-Barred under First Proviso to Section 149 - Based on the facts of the case and the applicable legal provisions, the ITAT concluded that the reassessment notice issued on 27.04.2022 for AY 2015-16 was beyond the limitation period as prescribed under the erstwhile Section 149(1)(b), read with the first proviso to Section 149 introduced by the Finance Act, 2021. Accordingly, the impugned reassessment proceedings and the resultant assessment order stand quashed as being time-barred and without legal authority.
Income tax â Sections 10(50) - ITAT Mumbai Rules Distribution Income from Standardized Software Not FTS for Singapore-based Limited-Risk Distributor; Disallows Application of India-Switzerland DTAA - The Tribunalâs decision firmly establishes that income from the principal-to-principal distribution of standardized software by a tax resident of Singaporeâwho does not own the IP and provides no technical, managerial, or consultancy services involving human interventionâcannot be taxed as Fees for Technical Services under either domestic law or the India-Singapore DTAA. The attempt to apply the India-Switzerland DTAA to a Singapore resident was held to be fundamentally incorrect. The proper treaty to apply is based on the assesseeâs tax residency, and where the âmake availableâ condition is not met, FTS characterization fails. The income, having suffered Equalization Levy and not qualifying as royalty/FTS, is exempt under section 10(50).
ITAT Delhi Finds No Permanent Establishment: Non-Exclusive Software Distributor in India Not Constituting Agency PE Under India-Ireland DTAA - Based on the detailed examination of the contractual terms and business operations, the ITAT ruled that the taxpayerâs Indian distributor, CIPL, does not create a Permanent Establishmentâeither as a fixed place or dependent agent PEâunder Article 5 of the India-Ireland DTAA. Consequently, the profits attributed to such alleged PE and the corresponding tax addition were deleted. This decision hinges on the factual matrix where the distributor operates independently, assumes title and risk, and does not habitually conclude contracts or maintain stock for the foreign principal.
Appellate Tribunal Affirms Penalty for FEMA Violation on EEZ Fish Exports; Mens Rea Not Essential, Penalties Reduced for Proportionate Justice - The Tribunalâs decision reinforces that compliance with FEMA and related regulations is mandatory for all export transactions, including those involving the EEZ. The absence of mens rea as a prerequisite for penalty underscores the strict liability regime under FEMA. However, the Tribunal has shown readiness to exercise discretion in the quantum of penalty, particularly where the violation appears inadvertent and has been partially remedied through compounding. Entities must ensure prior RBI approval for any deduction or netting-off arrangements from export proceeds to avoid regulatory contraventions and minimize financial liabilities.
Appellate Tribunal Reduces Penalty under FEMA for Import-Linked Foreign Exchange Contravention Citing Delay and Proportionality - In light of the facts and circumstances, particularly the unchallenged nature of the contravention, the long-pending status of the case, and the partial penalty already paid, the Tribunal intervened solely to reduce the quantum of penalty. The penalty for Mr. Pravin Kumar Ratnabhai Ajudiya was thus limited to the amount already deposited, thereby settling the matter without further recovery. For other appellants, the penalty as previously determined was maintained.
Income tax - Sections 6(3), 197 - Delhi High Court Quashes Arbitrary 10% TDS Certificate for Irish CRM Company with No PE in India; Upholds Nil Withholding Status - The High Court set aside the 10% TDS certificate, directing the competent officer to issue a nil withholding certificate in the absence of any change in facts or law justifying a higher rate. The decision underscores that, unless there is a demonstrable change in circumstances affecting residency or PE status, authorities must adhere to judicial precedents and cannot arbitrarily alter withholding rates based on revenue considerations alone.
Income Tax - Sections 37(1), 40(a)(i), 144C, 192, 270A - ITAT Hyderabad Upholds Disallowance of TDS-Related Interest and Salary Payments to Overseas Consultant, Partly Allows Assesseeâs Appeal on Reimbursements and Bank Charges - The Tribunalâs decision reinforces that interest paid for delayed TDS deposit under Section 201(1A) is not deductible as a business expense under Section 37(1). Payments to individuals with characteristics of employment, even if styled as consultation, attract TDS under Section 192; non-compliance justifies disallowance under Section 40(a)(i). Reimbursement claims require adequate substantiation, failing which disallowances will be remanded for proper verification. Furthermore, payments to banks for guarantees are not subject to TDS under Section 194H in the absence of a principal-agent relationship. Penalty proceedings under Section 270A, if only initiated, are premature for adjudication at the appellate stage. Taxpayers should ensure robust documentation and proper TDS compliance to avoid such disallowances.
Income Tax - Sections 143(3), 144C(13), 144B - ITAT Hyderabad Quashes Assessment Order Passed Beyond Statutory Limitation Period Despite DRP Directions - Based on the above analysis, the ITAT Hyderabad held that the assessment order passed beyond the statutory limitation period, even if pursuant to DRP directions, is invalid and must be quashed. The AO is bound by the limitation period prescribed under section 153, and failure to adhere to this period vitiates the entire assessment process. Assessees facing a similar factual matrix should promptly challenge any assessment orders issued after the limitation period.
ITAT Mumbai Quashes Ad-Hoc TP Adjustment on RHQ Charges; Upholds TNMM with Aggregation Approach for Manufacturing and Service Segments - The ITAT decision unequivocally establishes that transfer pricing adjustments must rest on a rigorous application of the methods prescribed under Section 92C of the Income Tax Act, 1961, and must be substantiated by suitable comparables as per Rule 10AB. Ad-hoc or arbitrary adjustments, particularly in the absence of comparables and without compliance with Tribunal directions, cannot withstand legal scrutiny. The Tribunalâs acceptance of the aggregation approach and TNMM for benchmarking RHQ charges, with the assessee as the Tested Party, provides clear actionable guidance for handling similar transfer pricing disputes.
Income Tax - Sections 143(3), 92CA(3), 144C(13) - Final Assessment Order Passed Beyond Statutory Time Limit under Section 153(4) Quashed by ITAT Hyderabad: Limitation Period Strictly Enforced in TP Cases - The ITAT Hyderabad, in light of the statutory framework and binding judicial precedents, quashed the final assessment order passed by the AO as it was issued beyond the outer time limit prescribed under section 153(4). This decision reiterates the strict adherence to limitation periods under the Income-tax Act, especially in cases involving transfer pricing adjustments.
Income Tax - Sections 143(3), 147 - ITAT Mumbai Rejects Additions Based on Internal Banking Identifiers in Foreign Account Case Involving Legal Heirs of Dhirubhai Ambani - The ITAT Mumbaiâs decision reinforces that tax authorities cannot rely solely on internal foreign bank identifiers and presumptive calculations when making substantive or protective additions to income. Additions must be substantiated by credible and independent evidence linking the account or asset to the assessee. In the absence of such evidence, as in this case, additions are liable to be deleted. This actionable outcome upholds the CIT (A)âs deletion of the additions and mandates strict adherence to evidentiary standards in similar fact patterns.
Income Tax - Sections 37, 144C - Delhi ITAT Upholds Deductibility of Warranty Provision Based on Scientific Estimation Despite Sufficient Opening Balance - The decision of the ITAT makes it clear that so long as a warranty provision is created on a scientific basis, rooted in historical data and the nature of business, and satisfies the test laid down by the Supreme Court in Rotork Controls India (P) Ltd., it is allowable under Section 37, irrespective of the sufficiency of opening balances. Taxpayers should ensure that their provisioning methodology is robust, evidence-based, and consistent year-on-year to withstand scrutiny.
Income tax - Sections 68 - ITAT Mumbai Rules Mere Transfer of Loan Liability Between Entities Not Taxable as Unexplained Cash Credit under Section 68 Where No Benefit Derived by NRI Assessee - In light of the comprehensive documentary evidence demonstrating the identity and creditworthiness of the lenders, as well as the bona fide nature of the transactionsâwhich merely shifted a liability from a company to a partnership firm without any accrual of benefit to the assesseeâthe ITAT directed deletion of the addition under Section 68. Taxpayers facing similar reassessment for inter-entity loan transfers should ensure robust documentation and can rely on this ruling to contest additions where no actual unexplained credit or income arises.
Income Tax - Sections 90, 139(1) - ITAT Pune Rules Delay in Filing Form 67 Not Fatal to Foreign Tax Credit Claim for Resident Working Abroad - The ITAT Puneâs decision establishes that the requirement to file Form 67 within the due date prescribed under Section 139(1) is procedural and directory, not a mandatory condition for claiming Foreign Tax Credit. Therefore, so long as Form 67 is available and the claim is otherwise substantiated, FTC cannot be denied solely on account of delay in filing Form 67. The order is actionable, as it directs the AO to verify and allow the FTC claim after due verification.
Income Tax - Sections 92BA, 271AA - Omission of Section 92BA(i) Renders Transfer Pricing Adjustments & Penalties Invalid in Pending Domestic Transaction Cases: ITAT Pune - In light of the Finance Act, 2017âs omission of clause (i) of section 92BA, the ITAT Pune has confirmed that Transfer Pricing adjustments and related penalty proceedings initiated under the erstwhile provision cannot be sustained in pending cases where the assessment or penalty order was not final before the omission. This decision ensures that taxpayers are not subjected to retrospective application of omitted provisions unless explicitly provided.
Income Tax - Sections 143(3), 144C(13) - ITAT Delhi Upholds Armâs Length Nature of Technical Support Service Payments with 5% Mark-Up to AEs: Transfer Pricing Adjustment Set Aside - Based on the above analysis, the ITAT directed deletion of the transfer pricing adjustment, holding that the payment of technical support service charges by the assessee to its AE, with a 5% mark-up over actual costs incurred, is at armâs length as per Section 92C and Rule 10B, whether the AE or the assessee is treated as the tested party under TNMM. The TPOâs determination of ALP at Nil was found unsustainable due to lack of substantive evidence or methodological fault.
Calcutta High Court Rules Mandatory Pre-Deposit for NPA Entity as Jurisdictional Error: Upholds Flexible Appellate Relief under FEMA - The Calcutta High Court has unequivocally held that when an appellant before the Appellate Tribunal under FEMA is found to be in a state of indigence or undue hardship, the Tribunal must exercise its discretion under the Second Proviso to Section 19(1) to either waive or relax the pre-deposit condition. Insisting on a rigid 10% minimum deposit, without considering alternative safeguards or the appellantâs financial incapacity, constitutes a jurisdictional error. Tribunals are duty-bound to ensure that the right to appeal is substantive and not rendered illusory by impossible conditions.