2018 (6) TMI 1231 - AT - Income Tax

Disallowance of car running and maintenance expenses - Held that - Insofar as the continuity of these facts over the years is concerned, revenue does not dispute the same. When the facts continue to be similar, we do not find any reason to take a different view. We, therefore, respectfully following the consistent view taken by the tribunal for the assessment years 2006-07 to 2008-09 answer the issue in favour of the assessee and a direct the AO to delete the addition made on account of disallowance of car running and maintenance expenses. Additional amount being offered to tax in the written of income erroneously - Held that - Inasmuch as factual verification is necessary on this aspect, we direct the AO to verify whether the assessee had reversed the provision to the extent of ₹ 2,04,88,269/-in the financial year 2007-08 itself, but by mistake of the automatically procedures reversed the entire amount of ₹ 4,09,81,176/-thereby an additional amount of rupees ₹ 2,04,88,269/-was offered to tax erroneously, and to pass order in accordance with law. These grounds are, accordingly are restored to the file of the Ld. AO for the purpose of verification and passing orders a fresh. Benchmarking of Provision Of Market Support Services (MSS) - Comparable selection - Held that - As a matter of fact even for the assessment year 2008-09 Ld. DRP recorded that for preceding years also it was held that the services rendered by the assessee were not high-end ones, as such Ld. DRP accepted the view taken for the earlier years and held for the assessment year 2008-09 that the services rendered by the assessee was not of high-end. It is not the case of the revenue that such a finding of fact was disturbed by any appellate authority. Such a finding of fact has attained finality - company M/s. Basiz Fund Services Private Limited is functionally dissimilar to the assessee inasmuch as such a company is involved in the fund accounting services, possessing significant intangible assets, the different employees profile, very significant growth in the revenue at 57.61% and earning of profits at 46.75% at supernormal level.company M/s. Basiz Fund Services Private Limited is functionally dissimilar to the assessee inasmuch as such a company is involved in the fund accounting services, possessing significant intangible assets, the different employees profile, very significant growth in the revenue at 57.61% and earning of profits at 46.75% at supernormal level.

Issues Involved:
1. Disallowance of car running and maintenance expenses.
2. Erroneous offering of additional income due to automatic reversal of year-end provisions.
3. Exclusion of M/s. Basiz Fund Services Private Limited from the final set of comparable companies for benchmarking.
4. Cross objections raised by the assessee regarding the Transfer Pricing study and inclusion/exclusion of certain comparable companies.

Issue-wise Detailed Analysis:

1. Disallowance of Car Running and Maintenance Expenses:
The assessee's disallowance of 50% of car running and maintenance expenses amounting to ?1,74,94,518/- was contested. The Ld. AO found that the cars were under the full control and command of the employees, suggesting possible non-business use. The Ld. DRP did not interfere with this decision, following the precedent set in AY 2008-09. However, it was noted that the ITAT had previously ruled in favor of the assessee for AYs 2006-07 to 2008-09. Given the continuity of facts, the Tribunal followed the consistent view and directed the Ld. AO to delete the addition made on account of disallowance of car running and maintenance expenses.

2. Erroneous Offering of Additional Income:
The assessee claimed that due to an automatic reversal of year-end provisions in FY 2008-09, an additional amount of ?2,04,88,269/- was erroneously offered to tax. The Ld. AR explained that this error was corrected in FY 2012-13, but the amount was not claimed in the return of income. The Tribunal found merit in the assessee's submission and directed the Ld. AO to verify the facts and pass an order accordingly, restoring the grounds to the file of the Ld. AO for verification and fresh orders.

3. Exclusion of M/s. Basiz Fund Services Private Limited:
The Revenue challenged the exclusion of M/s. Basiz Fund Services from the final set of comparables for benchmarking MSS. The Ld. DR argued that the Ld. DRP's decision was incorrect and that strict functional comparability should be applied to all comparables. The Ld. AR contended that M/s. Basiz Fund Services was functionally dissimilar, involved in fund accounting services, and possessed significant intangible assets. The Tribunal upheld the Ld. DRP's decision, noting that the facts were consistent with previous years where similar services were not considered high-end. The Tribunal found no reason to deviate from the consistent view and dismissed the Revenue's appeal.

4. Cross Objections Raised by the Assessee:
The assessee's cross objections sought the inclusion/exclusion of certain comparable companies and working capital adjustment. However, since the original adjustment proposed by the TPO was deleted following the DRP's directions, the grounds raised in the cross objections became academic. The Tribunal found it unnecessary to delve deeper into these grounds and dismissed the cross objections.

Conclusion:
The Tribunal dismissed the Revenue's appeal (ITA No. 1206/Del/2014) and the assessee's cross objections (CO No. 375/Del/2014). The assessee's appeal (ITA No. 2529/Del/2014) was allowed in part for statistical purposes, directing the Ld. AO to verify the erroneous offering of additional income and delete the disallowance of car running and maintenance expenses. The order was pronounced in the Open Court on 22nd June 2018.

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