2018 (4) TMI 1934 - AT - Income Tax

TP Adjustment - Comparability - HELD THAT - Since the assessee has furnished the required particulars and relying on the decisions of Tribunal / High Court, we remit the issues in connection with the above comparables to the TPO/A O for a fresh examination. In respect of the comparables, Caliber Point Business Solutions Limited R Systems International Limited, the assessee shall furnish comparables data for the verification of the TPO. TPO shall decide as to whether the above comparables are to be included or to be excluded, as the case may be, in accordance with law. Disallowance made u/s. 14A r.w.r. 8D - HELD THAT - Since, the assessee has not earned any dividend (exempt) income during the year, following the jurisdictional High Court decisions in the cases of Redington (India) Limited 2017 (1) TMI 318 - MADRAS HIGH COURT and CIT, Central(1), Chennai vs Chettinad Logistics Pvt. Ltd 2017 (4) TMI 298 - MADRAS HIGH COURT the addition made by the AO is deleted and the assessee s grounds in this regard is allowed.

Summary

Issues:
1. Transfer pricing adjustments based on TNMM methodology.
2. Inclusion and exclusion of comparables for ALP determination.
3. Disallowance made under section 14A.

Issue 1: Transfer pricing adjustments based on TNMM methodology:
The assessee, a subsidiary of a UK company, adopted internal TNMM for ALP determination, but the TPO chose external TNMM leading to an upward adjustment in the TP study. The assessee challenged the inclusion of certain comparables, exclusion of others chosen by it, and disallowances made u/s. 14A. The AR argued that certain comparables were functionally different based on outsourcing activities and unique software ownership. The AR also highlighted inconsistencies in RPT ratios. The Tribunal remitted the issues concerning comparables back to the TPO for fresh examination based on furnished particulars and relevant case laws.

Issue 2: Inclusion and exclusion of comparables for ALP determination:
The AR argued against the inclusion of Cosmic Global Limited, Fortune Infotech Limited, and Jeevan Scientific Technologies Limited as comparables. Cosmic Global was deemed functionally different due to outsourcing activities. Fortune Infotech was considered unique due to extraordinary events, unique software, and failing RPT filters. Jeevan Scientific's segmental data classification was challenged. The AR relied on various tribunal decisions to support the exclusion of certain comparables. The DR supported the lower authorities' decisions based on lack of information. The Tribunal remitted the issues back to the TPO for fresh examination based on furnished particulars and relevant case laws.

Issue 3: Disallowance made under section 14A:
The AR contested the disallowance under section 14A, arguing that no exempt dividend income was earned during the year, and investments were not made to earn exempt income. The AR highlighted that investments were made from surplus funds, and no administrative overheads were attributable to the investments. The DRP and AO's decision to disallow expenses were challenged. The DR supported the lower authorities' order citing precedents. The Tribunal, following jurisdictional High Court decisions, deleted the addition made by the AO, as no exempt income was earned during the year, thereby allowing the assessee's grounds in this regard.

In conclusion, the Tribunal remitted the issues related to transfer pricing adjustments and comparables back to the TPO for fresh examination based on furnished particulars and relevant case laws. The disallowance made under section 14A was deleted as no exempt income was earned during the year. The assessee's appeal was treated as allowed for statistical purposes.