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2019 (5) TMI 1536 - AT - Income TaxTP Adjustment - selection of comparable - functional dissimilarity - HELD THAT - Dynalog India Ltd. - the company, which is in the manufacturing, assembling and servicing and software, as is evident from the website of Dynalog India Ltd., cannot be a good comparable to the assessee. We are, therefore, of the considered opinion that there is no infirmity in the finding of the learned DR that the Dynalog is not a good comparable to the assessee and the same is liable to be excluded. We accordingly, confirm the finding of the learned DRP in respect of Dynalog India Ltd. Bose Corporation India P. Ltd. - profit and loss account of Bose Corporation is not available either to the revenue or to the assessee. Further, it is also an admitted fact that the Bose Corporation is engaged in trading of high end audio system direct to the consumer whereas the assessee is dealing in the industrial goods as per trade policy. Not in dispute that the Bose Corporation is in the business of customer sales whereas the assessee is in the business to business sales. Bose Corporation trades in the direct consumer audio systems whereas the assessee has been dealing with the industrial goods business to business, thus exclude the Bose Corporation from the list of comparables for benchmarking the international transactions. Disallowance u/s 14A - suo moto disallowance by assessee - as contended by the assessee that Section 14A is applicable only when the exempt income is actually received or receivable during the assessment year but not on the notional income and that the value of investment which have yielded exempt income has to be separately carved out from other investment which has not yielded any income - HELD THAT - It is an admitted fact that the assessee themselves disallowed a sum of ₹ 3,03,958/-. There is no dispute on the contention of the assessee that except BSL Dynamic Bond Retail, all other investments are taxable. Further, it also remains to be an admitted fact that similar additions made in earlier years is deleted by the ld. CIT(A) and no further appeal to the ITAT was preferred by the Department. In these circumstances, we find that the directions of the DRP for deletion of this addition is in consonance with the ratio laid down in the case of Radhasoami Satsang, 1991 (11) TMI 2 - SUPREME COURT which is to the effect that when the fundamental facts relating to a particular addition or deletion are permeating through several years, the department is not justified in taking inconsistent stands for different years. Rule 8D - CBDT circular No.5 of 2013 dated 11.2.2014, on which Ld. AO placed reliance in his order - As brought to our notice that in PCIT vs IL FS Energy Development Co. Ltd. 2017 (8) TMI 732 - DELHI HIGH COURT the Hon ble jurisdictional High Court quashed the same. In view of the same, we do not find any merit in Ground which is liable to dismissed and is dismissed as such.
Issues Involved:
1. Inclusion of Dynalog (India) Ltd. as a comparable. 2. Inclusion of Bose Corporation India P. Ltd. as a comparable. 3. Disallowance under Section 14A of the Income Tax Act. 4. Deletion of the disallowance amounting to ?28,75,000/- under Section 14A. 5. Cross Objection regarding S. Mobility as a comparable. Issue-wise Detailed Analysis: 1. Inclusion of Dynalog (India) Ltd. as a comparable: The assessee disputed the inclusion of Dynalog (India) Ltd., arguing it was primarily a manufacturing company. The TPO rejected this, stating the financials indicated trading activities. The DRP, however, noted the ISO 9001 Certificate and financials showing manufacturing activities, leading to the exclusion of Dynalog as a comparable. The Tribunal upheld the DRP's decision, confirming Dynalog's functional dissimilarity with the assessee. 2. Inclusion of Bose Corporation India P. Ltd. as a comparable: The assessee contended that Bose Corporation, trading in consumer audio systems, was not comparable due to differences in product type and market segment. The TPO included Bose Corporation, citing its use in previous years and similarity in trading electrical machinery. The DRP found functional dissimilarities and directed a reduction in the GP rate of Bose Corporation by 14.26%. The Tribunal agreed with the assessee, excluding Bose Corporation due to differences in business models and lack of public financial data. 3. Disallowance under Section 14A of the Income Tax Act: The AO made an addition of ?28,75,000/- under Section 14A read with Rule 8D. The assessee argued that Section 14A applies only to actual exempt income received or receivable, and the suo moto disallowance of ?3,03,958/- was sufficient. The Tribunal found that similar additions in previous years were deleted and upheld the DRP's direction to delete the addition, citing consistency with the Supreme Court's decision in Radhasoami Satsang. 4. Deletion of the disallowance amounting to ?28,75,000/- under Section 14A: The Tribunal confirmed the deletion of the disallowance, aligning with the precedent set in previous years and the Supreme Court's ruling on maintaining consistency in fundamental facts across several years. 5. Cross Objection regarding S. Mobility as a comparable: The assessee did not challenge the inclusion of S. Mobility before the DRP, and no arguments were presented before the Tribunal. Consequently, the Tribunal dismissed this ground. Conclusion: The Tribunal dismissed both the revenue's appeal and the assessee's cross-objection, upholding the DRP's directions on excluding Dynalog (India) Ltd. and Bose Corporation India P. Ltd. as comparables and deleting the disallowance under Section 14A. The decision was pronounced in the Open Court on 29th April 2019.
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