The Income Tax Appellate Tribunal ( ITAT ), Bangalore in a case carried that no addition may be made by an Assessing Officer ( AO ) u/s 28(iv) of the Income Tax Act, 1961 in the case that imported assets were furnished to the taxpayer free of cost, exclusively for testing which was either returned or destroyed post-testing and where the cost of the assets was determined by means of the Mutual Agreement Procedure ( MAP ).
Samsung R&D Institute India (Samsung) filed an income tax appeal against the order of the Commissioner of Income Tax (Appeals)-10 Bangalore ( CIT(A) ) concerning the financials of the taxpayer for the Assessment Year (A.Y.) 2015-16.
The Appellant-Assessee is a wholly owned subsidiary of Samsung Electronics Company Ltd. ( SECL ), Korea, and furnishes software development services before its parent company and allied entities. The taxpayer furnishes services before SECL on the certain needs raised through the and is compensated on a cost along with a markup basis for it.
Declaring a total income of Rs. 238,85,10,090 Samsung filed their returns of income for A.Y. 2015-16. AO referred to the Transfer Pricing Officer ( TPO ) to find out the Arm’s Length Pricing (ALP) of the international transactions between the taxpayer and its allied entities.
TPO order offered a Transfer Pricing adjustment of Rs. 1,86,94,215 for the software development services generated by the taxpayer, which was acknowledged by the AO while making disallowance of Rs 18,20,990 u/s 40(a)(i) of the Income Tax Act, 1961, mentioning that taxpayer has unable to deduct Tax Deducted at Source ( TDS ) on the “purchase of software”.
Also, under section 28(iv) the AO has made an addition of Rs 7,37,33,056 for equipment provided via the allied entities to the taxpayer, free of cost, for the objective of software development and testing.
The two-member Bench of the Bangalore ITAT presided over by Vice President George George K., and Accountant Member Padmavathy S., directed to Section 28(iv) of the Income Tax Act, 1961 to note that the rendered benefit value should be irretrievable and that the benefit is obtained to avoid income.
In this, it is an indisputable fact that the equipment obtained free of cost via the taxpayer is either returned or destroyed after finishing the testing, therefore not rendering any commercial benefit to the taxpayer.
Noting that the taxpayer is engaged in rendering services before its allied entities merely and that the ALP has neem solved earlier via MAP via the competent authorities of India and Korea any indirect advantages shall have been regarded while adjusting the Margin for costing.
The Tribunal under the observations carried that no justification concluded by the Revenue in carrying that cost filed for the import of the test assets shall result in the surged income of the taxpayer, warranting addition u/s 28(iv) of the Act.
The bench quoting these observations proceeded to permit the plea of Samsung while dismissing the cross-appeal by the Revenue.
| Case Title | Samsung R&D Institute India Vs. JCIT, Special Range – 6 |
| Citation | IT(TP)A No. 625/Bang/2020 |
| Date | 16.10.2024 |
| Assessee by | Shri T. Suryanarayana, Sr. Adv |
| Revenue by | Shri R.N. Siddappaji, CIT-DR |
| Bangalore ITAT | Read Order |
