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2024 (7) TMI 126 - AT - Income TaxTP Adjustment - non-considering extra-ordinary expenses incurred on account of canceflation of employee stock option plan (ESOP) pursuant to acquisition as non-operating in nature - HELD THAT - It is not in dispute that the assessee had moved a rectification application before the Ld. TPO only on the matter of professional fees. However, the Ld. CIT(A) while adjudicating the grounds mistaken the rectification moved on the matter of professional fees as rectification moved on the matter of ESOP and passed the orders on three issues instead of only one issue on which the rectification had been sought by the assessee and accordingly dismiss the appeal of the assessee on these three issues. In our opinion the Ld. CIT(A) failed to appreciate the grounds raised by the assessee properly on merits, before passing the order. Hence, we set aside the issues and restore the same to the file of Ld.CIT(A) with a direction for fresh consideration of the matter in accordance with law, by giving an opportunity of being heard to the assessee. These grounds are accordingly treated as allowed for statistical purposes. Comparable selection - HELD THAT - It is not in dispute that the assessee had raised many issues i.e. selection of comparables ( grounds No. 7 to 9), erroneous computation of income of margins of comparable companies ( ground No. 10), computation of TP adjustments ( ground No. 11 12), corporate guarantee ( ground no. 13), use of single year data ( ground no. 14) and benefits of /- 5 percent (ground no. 15) before the Ld. CIT(A) through the ground no. 7 to 15 . However, the Ld. CIT(A) adjudicated the grounds no.7 to 15 on the basis of only single issue i.e. whether the comparables are valid or not and dismiss the grounds on all the different issues. In our opinion the Ld. CIT(A) failed to appreciate the grounds raised by the assessee on merits, before passing the order. Hence, we set aside the issues and restore the same to the file of Ld.CIT(A) with a direction for fresh consideration of the matter in accordance with law, by giving an opportunity of being heard to the assessee. These grounds are accordingly treated as allowed for statistical purposes. Disallowance u/s 14A - DR submission that before invoking the provisions u/s 14A r.w. rule 8D of the Act, Ld.CIT(A) ought to have considered that any investment which is yielding or likely to yield exempt income falls within the ambit of section 14A of the Act and expenditure in relation to such investment has to be computed as per the formula in Rule 8D and there is no exemption in case where no exempt income is earned or not - DR also submitted that the Ld. CIT(A) did not appreciate that the said Section 115BB of the Act prohibit the allowance on any expenditure against the said foreign dividend income - HELD THAT - The facts whether the dividend received by the assessee covered u/s 115BB of the Act and whether any expenditure have been incurred for earning those dividend are required to be verified from the records of the assessee. CIT(A) has not elaborately dealt with the issue in his order. Hence we think it proper to remit back the issue to the file of the CIT(A) with the direction to denovo verify the issue and decide as per the provision of the Act. It is need less to say that before deciding the same an opportunity of being heard should be given to the assessee. Accordingly the issue raised by the revenue is decided. Disallowance u/s 14A and disallowance u/s 14A for the purpose of MAT - HELD THAT - The contention of the assessee is correct. The order of the Ld.CIT(A) is very cryptic and did not deal with the submission made by the assessee. Hence considering the principle of natural justice to decide the issue on merits, we think it proper to set aside the impugned order and restore the issue to the file of Ld.CIT(A) with a direction for fresh consideration of the matter in accordance with law, by giving an opportunity of being heard to the assessee. Grounds are accordingly treated as allowed for statistical purposes.
Issues Involved:
1. Non-consideration of extraordinary expenses as non-operating. 2. Selection of comparables and computation of Transfer Pricing (TP) adjustments. 3. Disallowance under Section 14A of the Income Tax Act. 4. Handling of evidence and documentation by the CIT(A). Issue-wise Detailed Analysis: 1. Non-consideration of Extraordinary Expenses as Non-operating: The assessee objected to the CIT(A)'s adjudication regarding the treatment of extraordinary expenses, specifically related to the Employee Stock Option Plan (ESOP), professional fees, and forex exchange loss. The CIT(A) dismissed these grounds based on a misconception that the rectification application filed by the assessee before the TPO covered all three issues. The Tribunal noted that the rectification was only for professional fees and set aside the CIT(A)'s order, directing a fresh consideration of these issues. 2. Selection of Comparables and Computation of TP Adjustments: The assessee raised multiple grounds related to the selection of comparables and the computation of TP adjustments. The CIT(A) upheld the TPO's selection of comparables and dismissed the grounds raised by the assessee without addressing the specific issues of erroneous computation of margins, corporate guarantee, use of single-year data, and the benefit of +/- 5 percent. The Tribunal found that the CIT(A) failed to appreciate the grounds on their merits and directed a fresh consideration of these issues by the CIT(A). 3. Disallowance under Section 14A of the Income Tax Act: The Revenue appealed against the CIT(A)'s deletion of disallowances under Section 14A. The Tribunal noted that the CIT(A) did not elaborate on the issue and remitted it back to the CIT(A) for a detailed examination, including verification of whether the dividend received by the assessee was covered under Section 115BB of the Act and whether any expenditure was incurred for earning those dividends. 4. Handling of Evidence and Documentation by the CIT(A): For the assessment year 2013-14, the CIT(A) dismissed the assessee's appeal on the grounds that no evidence or documents were furnished. The Tribunal found that the assessee had indeed submitted evidence, as indicated by the paper books filed. The Tribunal directed the CIT(A) to reconsider the issues after examining the submitted evidence and providing an opportunity for the assessee to be heard. Conclusion: The appeals of both the assessee and the Revenue were treated as allowed for statistical purposes, with directions for the CIT(A) to reconsider the issues afresh, ensuring a detailed examination of the facts and adherence to the principles of natural justice. The Tribunal emphasized the need for the CIT(A) to provide a well-reasoned order after considering all relevant evidence and submissions.
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