2020 (9) TMI 1257 - AT - Income Tax

TP Adjustment - comparable selection - HELD THAT - There cannot be any dispute with respect to that for the comparability analysis the functions performed, assets employed and risks assumed of the assessee is required to be compared strictly with each of the comparable companies. Unless they are found to be distinct, they cannot be excluded merely because they have been excluded in some other assessee s case. However in the present case, the issue is when a particular comparable company is excluded from the comparability analysis in assessee s own case for earlier years, for whatever reasons, even if same was excluded following some judicial precedent of other assesses, judicial discipline requires that we follow - We direct the learned transfer pricing officer/assessing officer to exclude (1) E Clrex Services Ltd, ( 2 ) Infosys BPO Limited and ( 3) TCS E Serve Limited and then work out the margins of the comparable. Accordingly, ground number 2 3 of the appeal of the assessee is allowed. Disallowance u/s 14A - HELD THAT - When the assessee has not earned any exempt income during the year, there cannot be any reason to disallow any expenditure during the year. This principle has been laid down by many judicial authorities. In view of this we direct the learned assessing officer to delete the disallowance u/s 14 A of the act as assessee has not earned any exempt income. Thus ground number 4 of the appeal is allowed. Non granting the full credit of tax deduction at source claimed by the appellant in its return of income - HELD THAT - AO is directed to verify the credit claim of the assessee and if found in order may allow the credit claimed by the assessee for tax deduction at source. Accordingly, ground number 6 of the appeal is allowed.

Summary

Issues Involved:
1. Transfer pricing adjustment on account of arm's length price of international transactions.
2. Disallowance under Section 14A of the Income Tax Act, 1961.
3. Levy of interest under Section 234A of the Act.
4. Non-granting of full credit of TDS claimed by the appellant.
5. Initiation of penalty proceedings under Section 271(1)(c) of the Act.

Detailed Analysis:

1. Transfer Pricing Adjustment:
The primary issue pertains to the addition of ?25,892,279 on account of the arm’s length price (ALP) for international transactions related to information technology enabled services (ITeS) and financial support services. The assessee argued against the inclusion of three comparable companies: TCS E Serve Ltd, Infosys BPO Ltd, and E Clerx Services Ltd. The assessee contended that these companies were not comparable in terms of functions performed, assets employed, and risks assumed. The tribunal noted that in the assessee’s own case for previous assessment years, these companies were excluded as comparables by coordinate benches. As the revenue did not bring any new evidence to show a functional difference for the current year, the tribunal directed the exclusion of these three companies from the comparability analysis. Consequently, the grounds related to the transfer pricing adjustment were allowed in favor of the assessee.

2. Disallowance under Section 14A:
The assessee challenged the disallowance of ?71,851 under Section 14A of the Act, arguing that it had not earned any exempt income during the relevant year. The tribunal agreed with the assessee, citing judicial precedents that disallowance under Section 14A cannot be made if no exempt income is earned during the year. Therefore, the tribunal directed the deletion of the disallowance, allowing this ground in favor of the assessee.

3. Levy of Interest under Section 234A:
The issue of levying interest under Section 234A was raised by the assessee, who contended that the return was filed within the statutory time. The tribunal deemed this ground to be consequential in nature and dismissed it.

4. Non-granting of Full Credit of TDS:
The assessee argued that the full credit for tax deduction at source (TDS) claimed in its return of income was not granted. The tribunal directed the Assessing Officer (AO) to verify the TDS credit claim and allow it if found in order. This ground was thus allowed in favor of the assessee.

5. Initiation of Penalty Proceedings under Section 271(1)(c):
The assessee challenged the initiation of penalty proceedings under Section 271(1)(c). The tribunal found this ground to be premature and dismissed it.

Conclusion:
The appeal was partly allowed. The tribunal ruled in favor of the assessee on the issues of transfer pricing adjustment and disallowance under Section 14A, while directing the AO to verify and grant the claimed TDS credit. The grounds related to the levy of interest under Section 234A and initiation of penalty proceedings under Section 271(1)(c) were dismissed.