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2024 (11) TMI 677 - AT - Income TaxTP Adjustment - comparable selection - Assessee is a software solution provider, specializing in providing quality and customized IT solutions to several multinational clients in the banking, financial services and insurance HELD THAT - Kals Information Systems Ltd. - As per functional difference and segmental data difference and hence, respectfully following the same we direct the AO to exclude this comparable and then compute the ALP. Infosys Technology Ltd. - It is to be excluded due to its huge incomparable size and scale. Admittedly, the Hon ble Karnataka High Court in the case of Acusis Software (I) (P) Ltd. 2018 (8) TMI 1885 - KARNATAKA HIGH COURT has also laid down a ceiling wherein it is held that comparable is to be excluded if the turnover is more than 10 times. This is the fact. Hence, we direct the TPO and AO to exclude Infosys Technology Ltd., as comparable and then compute the ALP. Bodh Tree Consulting Ltd. - The assessee s revenue are from software development services whereas the comparable has revenue from software services, products and from diversified services. This being covered issue by case of Kumaran Systems P. Ltd. 2016 (1) TMI 1273 - ITAT CHENNAI Respectfully following the same, we direct the TPO to exclude this as comparable for the purpose of computing PLI of the assessee. Sonata Software Ltd. - As aggregate related party transactions are roughly around 95 crores which is approximately about 40% of the total service income of Rs. 243.57 crores. As such, the said comparable is not a valid comparable and hence is directed to be excluded as it fails the RTP filter of 25% applied by the TPO. Grant of economic adjustments - We have gone through the data submitted in assessee s paper book and noted that neither the AO nor the DRP has considered granting of economic adjustment or working capital adjustment but principally assessee is entitled for working capital adjustment. Hence, respectfully following Co-ordinate Bench decision in the case of Foxteq Services India Pvt. Ltd. 2016 (9) TMI 1283 - ITAT CHENNAI and CMA CGM Shared Service Centre (India) Pvt. Ltd. 2019 (10) TMI 1598 - ITAT CHENNAI we direct the AO / TPO to grant economic / working capital adjustment after verifying the numerical data. To this proposition, the ld.Senior DR has not objected. In term of the above, we restore this issue of working capital adjustment to AO/TPO and direct him to consider the numerical data and accordingly, decide the issue as per law. Disallowance u/s 14A r.w.r. 8D - HELD THAT - Disallowance under Rule 8D(2)(ii), we noted that assessee could make a prima facie case that it has interest free funds available with it, but it is subject to verification by AO. The AO will verify the availability of interest free funds invested in instruments giving raise to exempt income. In case, the AO finds that investment is out of interest free funds available, he will not make any disallowance otherwise, he will decide as per law. Disallowance of expenses relatable to exempt income under Rule 8D(2)(iii), the AO has taken 0.5% of average value of investment and disallowed expenenses - Assessee stated that the interest free funds available will apply even to applicability of Rule 8D(2)(iii) i.e., 0.5% of average value of investment while computing disallowance. See Sintex Industries Ltd. 2017 (5) TMI 1160 - GUJARAT HIGH COURT as held t when the assessee had sufficient interest-free funds out of which concerned investments had been made, disallowance under Section 14A is not justified. Assessee stated that this income is claimed to be exempt u/s. 10A - As the assessee could not prove any nexus or any relation, we have no hesitation in confirming this disallowance. But, we set aside this disallowance of 0.5% of average value of investment to the extent the AO will verify that disallowance should be restricted only on the investments giving raise to exempt income and not others in view of the decision of Vireet Investments (P.) Ltd. 2017 (6) TMI 1124 - ITAT DELHI Computation of deduction u/s 10A - exclusion of expenditure incurred in foreign currency from export turnover and non-exclusion of foreign onward remittance not received within the prescribed period from the total turnover - HELD THAT - the assessee has filed the details in its paper-book in regard to exclusion of expenditure incurred in foreign currency from the export turnover and non-exclusion of foreign onward remittance, not received within the prescribed period from the total turnover. Assessee stated that this issue stood covered in favour of assessee by the Tribunal s decision in assessee s own case for the assessment year 2010-11 and also in regard to erroneous deduction of section 10A of the Act claimed due to exclusion of foreign currency expenditure from export turnover. On principle, we agree with the contention of the assessee but facts need to be verified. Hence, we restored this issue back to the file of the AO/DRP, who after verification of facts. Granting refund of levying interest u/s. 234D - AO has purposely added a sum by considering it as refund already paid to assessee and has also charged interest u/s. 234D - assessee made statement at bar that no refund whatsoever has been issued to the assessee or received by assessee as on date. When this fact was pointed out to ld.CIT-DR, he stated that issuance of refund can be sent back to AO and assessee could contact the AO who will consider this issue. In case, refund is issued, the AO will show evidence that the refund is issued or will rectify accordingly. This issue needs to be settled by the AO after verification.
Issues Involved:
1. Limitation period for filing the appeal. 2. Exclusion of certain comparables for transfer pricing. 3. Grant of economic adjustments. 4. Disallowance of expenses under Section 14A related to exempt income. 5. Exclusion of foreign currency expenditure from export turnover under Section 10A. 6. Non-exclusion of foreign inward remittances from total turnover. 7. Refund and interest under Section 234D. Detailed Analysis: 1. Limitation Period for Filing the Appeal: The appeal was initially barred by limitation by 2421 days. However, the High Court of Madras, in its order dated 14.10.2020, allowed the assessee to file an appeal before the appropriate authority, specifying that the limitation period would commence from the date the certified copy of the order was ready. The appeal was filed within 60 days from this date, thus within the limitation period as per the High Court's judgment. 2. Exclusion of Certain Comparables for Transfer Pricing: - Kals Information Systems Ltd.: The Tribunal directed exclusion due to functional dissimilarity, as it was engaged in software products and services, unlike the assessee, which was solely into software development services. - Infosys Technologies Ltd.: Excluded due to its incomparable size and scale, with turnover significantly larger than the assessee's, aligning with precedents that exclude entities with turnover more than 10 times that of the assessee. - Bodh Tree Consulting Ltd.: Excluded because it had revenue from diversified services and products, not solely from software development services as the assessee. - Sonata Software Ltd.: Excluded due to failing the Related Party Transaction (RPT) filter, with RPT exceeding 25% of its revenues. 3. Grant of Economic Adjustments: The Tribunal acknowledged the assessee's entitlement to economic adjustments, including working capital adjustments, provided the necessary data is verified. The AO/TPO was directed to verify the numerical data and grant suitable adjustments. 4. Disallowance of Expenses Under Section 14A Related to Exempt Income: - Interest Expenses (Rule 8D(2)(ii)): The Tribunal directed the AO to verify if interest-free funds were available for investments in instruments yielding exempt income. If so, no disallowance should be made. - Administrative Expenses (Rule 8D(2)(iii)): The Tribunal upheld the disallowance but directed the AO to ensure it applies only to investments generating exempt income, following the Special Bench decision in Vireet Investments. 5. Exclusion of Foreign Currency Expenditure from Export Turnover Under Section 10A: The Tribunal restored the issue back to the AO for proper adjudication, as neither the AO nor the DRP had addressed it adequately. The AO was directed to verify facts and follow the Tribunal's decision in the assessee's own case for the assessment year 2010-11. 6. Non-Exclusion of Foreign Inward Remittances from Total Turnover: Similar to the previous issue, this was also restored to the AO for verification and proper adjudication in line with the Tribunal's earlier decision. 7. Refund and Interest Under Section 234D: The Tribunal noted the assessee's claim that no refund was issued, yet interest under Section 234D was charged. The issue was remitted to the AO for verification of refund issuance and corresponding interest charge, with instructions to rectify if necessary. Conclusion: The appeal was partly allowed and partly remanded for statistical purposes, with directions for the AO to verify facts and apply legal principles as discussed.
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