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2017 (6) TMI 1253 - AT - Income TaxDisallowance of deduction claimed u/s 35D - proof of commencement of business - Held that - As could be seen from material on record neither before the AO nor before the ld. CIT(A) the assessee has brought any evidence to conclusively prove the fact that it has commenced its business activities by rendering any advisory services from June 2009. In fact only in response to the query raised by the Bench the assessee had furnished certain documentary evidences by way of additional evidence to demonstrate that it has rendered advisory services from June 2009. Undisputedly these evidences were not filed either before the AO or before the ld.CIT(A). Considering the fact that these evidences may have crucial bearing for determining the actual date of commencement of assessee s business we are inclined to admit the additional evidences. However these documents were not filed before the departmental authorities. Therefore to give a fair chance to the department we are inclined to remit the issue to the file of the AO for fresh adjudication. TDS u/s 194J - Disallowance u/s 40(a)(ia) - Subscription fee paid by the assessee to M/s Bloomberg Data Services India Pvt.Ltd data service - Held that - After analyzing the relevant facts we have noted that the subscription fee paid by the assessee to M/s Bloomberg Data Services India Pvt.Ltd data service was for accessing the database and is in the nature of subscription of e-magazine/journal. Therefore the payment made cannot be treated as royalty or Fees Paid for Technical Services coming within the purview of section 194J. Notably the aforesaid view has also been expressed by the Co-ordinate Bench of the Tribunal in the case of M/s. India Capital Markets P. Ltd (2013 (1) TMI 646 - ITAT MUMBAI). DR has failed to controvert the contention of the assessee that the payee has offered the income received towards subscription charges as in the return filed by it - neither there is requirement for the assessee to deduct tax at source on payment towards subscription charges paid to M/s Bloomberg Data Services India Pvt.Ltd. nor the assessee can be treated as an assessee in default u/s 201(1) - decided in favour of assessee Addition on account of transfer price adjustment - average arithmetic mean computation - Held that - AO has considered the arithmetic mean of three comparable i.e. Crisil Risk and Infrastructure Solutions Ltd Future Capital Investment Advisors Ltd and ICRA Management Consulting Services Ltd on the basis of multiple year data to work out the average arithmetic mean of 22.60%. Surprisingly he had added 5% to the arithmetic mean of the three companies to determine the markup at 26.20% and applied the same markup to work out the profit of the assessee. When the AO himself has accepted the average arithmetic mean of three comparables on multiple year data at 22.60% there is no reason to add further 5% to the said arithmetic mean to arrive at markup of 26.20%. We are unable to understand under which method as provided under Rule 10B the AO can make such addition to the average arithmetic mean of the comparables. Thus the profit worked out by applying the markup of 26.20% being contrary to statutory provisions cannot be sustained - TP adjustment made on that basis would not survive. Accordingly we delete the addition. This grounds is allowed.
Issues Involved:
1. Disallowance of deduction claimed under section 35D of the Income Tax Act, 1961. 2. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961. 3. Addition on account of transfer price adjustment. Issue-Wise Detailed Analysis: 1. Disallowance of Deduction Claimed Under Section 35D of the Income Tax Act, 1961: The assessee, a domestic company engaged in advisory services, claimed a deduction of Rs. 1,16,03,152/- under section 35D of the Act. The AO observed that the business could not have commenced without furniture and fixtures, as the furniture agreement was executed on 18.1.2010. Consequently, the AO restricted the deduction to Rs. 1,99,000/-, adding back Rs. 1,06,08,152/- to the total income. The CIT(A) upheld this addition, stating the assessee failed to produce evidence proving the commencement of business from June 2009. The assessee argued that the business commenced in June 2009, supported by debit notes and bank statements. However, these details were not produced before the AO or CIT(A). The Tribunal admitted additional evidence and remitted the issue back to the AO for fresh adjudication, allowing the assessee to establish the commencement of business from June 2009. 2. Disallowance Under Section 40(a)(ia) of the Income Tax Act, 1961: The AO disallowed Rs. 8,23,275/- under section 40(a)(ia) for subscription fees paid to M/s Bloomberg Data Services India Pvt. Ltd., considering it as payment towards professional services liable for TDS under section 194J. The assessee contended that the payment was for accessing data and not for managerial or technical consultancy services. The Tribunal noted that the payment was for subscription to an e-magazine/journal and not for royalty or technical services, aligning with the ITAT Mumbai Bench's decision in a similar case. Additionally, the payee had shown the income and paid taxes. Therefore, the Tribunal held that there was no requirement for TDS deduction under section 194J, and the disallowance under section 40(a)(ia) was not justified. 3. Addition on Account of Transfer Price Adjustment: The assessee, engaged in advisory services, conducted a TP analysis using the TNMM method, selecting 11 comparables with an average margin of 22.60% against its 17.50%. The AO rejected certain comparables and selected three with a positive margin, calculating an arithmetic mean of 22.60% and adding 5%, resulting in a margin of 27.60%. The AO applied this margin to the total expenses, leading to a transfer price adjustment of Rs. 14,64,898/-. The CIT(A) upheld this adjustment. The Tribunal found the AO's addition of 5% to the arithmetic mean unjustified and contrary to statutory provisions. The Tribunal deleted the TP adjustment, stating the profit worked out by applying the markup of 26.20% could not be sustained. Conclusion: The appeal filed by the assessee was partly allowed. The Tribunal remitted the issue regarding the deduction under section 35D back to the AO for fresh adjudication, allowed the appeal on the disallowance under section 40(a)(ia), and deleted the addition on account of transfer price adjustment.
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