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2016 (1) TMI 1273 - AT - Income TaxTPA - selection of comparable - Held that - As AR submitted that there is no extra ordinary event took place in the case of Quintegra Solutions Ltd. and it was only with the case of Singapore company. Being so we are inclined to give direction to the TPO to see whether any merger taken place in the case of Quintegra Solutions Ltd. or not. If any merger taken place in some other subsidiary then Quintegra Solutions Ltd. is to be considered as a comparable case. Accordingly this issue is remitted back to the TPO for fresh consideration. Regarding M/s. Vama Industries Ltd. considering as comparable it mainly deals with software services and the assesse is dealing in global IT solutions offering multiple service offerings ranging from application development and maintenance application re-engineering to application testing and outsourced software development. Being so these are ultimately different. Accordingly rejection of the TPO is justified. Bodhtree is not considered as comparable to the assesssee s case to determine the ALP by TPO. Disallowance u/s.14A with rule 8D as expenditure incurred in relation to exempt income earned - Held that - Sisallowance u/s.14A r.w. Rule 8D should not exceed the exempt income. The alternative claim of the assessee was that disallowance if at all should be made it should be restricted to exempt income earned and not beyond that. Accordingly the AO is directed to look at this issue on this angle and decide it afresh .
Issues:
1. Rejection of comparable companies by TPO 2. Disallowance under section 14A with Rule 8D Analysis: Issue 1: Rejection of Comparable Companies by TPO The first issue in the appeal was the rejection of two comparable companies, M/s. Quintegra Solutions Ltd. and M/s. Vama Industries Ltd., by the Transfer Pricing Officer (TPO). The Appellant argued that there were no extraordinary events in the case of Quintegra Solutions Ltd., making it comparable to the Assessee's case. However, the Respondent contended that Quintegra Solutions Ltd. had undergone a merger with the holding company, leading to its rejection by the TPO. The Tribunal directed the TPO to investigate whether a merger had occurred in Quintegra Solutions Ltd. and remitted the issue for fresh consideration. Regarding Vama Industries Ltd., the rejection by the TPO was justified as it dealt mainly with software services, different from the Assessee's global IT solutions offerings. The Tribunal cited precedents where comparable companies were excluded based on specific criteria, emphasizing the need for accurate comparisons in determining the Arm's Length Price (ALP). The Tribunal concluded that Bodhtree Consulting Ltd. was not a suitable comparable for the Assessee's case due to discrepancies in accounting practices, leading to an order for its exclusion from the final list of comparables. This decision was based on detailed analysis and comparison with relevant legal precedents. Issue 2: Disallowance under Section 14A with Rule 8D The second issue involved the disallowance under section 14A with Rule 8D for expenditure related to exempt income earned by the Assessee. The Assessing Officer invoked section 14A and Rule 8D as the Assessee had not segregated expenses attributable to exempt investments. The CIT(Appeals) upheld the disallowance. The Tribunal referred to previous judgments where the applicability of section 14A was contingent on the receipt of exempt income during the relevant year. Additionally, the Tribunal considered cases where disallowances were restricted to the amount of exempt income earned, rather than exceeding it. Based on these precedents, the Tribunal directed the Assessing Officer to reevaluate the disallowance under section 14A with Rule 8D, ensuring that it does not surpass the exempt income earned. This decision was made after thorough consideration of legal interpretations and previous rulings, providing a balanced approach to the issue at hand. In conclusion, the appeals of the Assessee were partly allowed for statistical purposes, with specific directions given to the authorities for reconsideration based on legal principles and precedents. The detailed analysis and application of legal interpretations demonstrate a judicious approach in resolving the issues raised in the appeal.
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