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2025 (3) TMI 708 - AT - Income TaxTP adjustment - comparables namely Tata Elexi Limited which has the Profit Level Indicator of 28.02% and Sasken Technologies Ltd. which have profit level indicator at 17.20% - HELD THAT - We note that in case both the above comparables are excluded out of the comparable companies the average mean of the comparable companies will work out to 11.66% whereas the margin of the appellant is 9.44% which falls within 3% and therefore no TP adjustment is required to be made. Accordingly we direct the ld. Transfer Pricing Officer/ AO to exclude these two companies. The ground no.2 is allowed. TP adjustment on account of Intra Group Services ( IGS ) received by the assessee - HELD THAT - We note that this is a recurring issue in the case of the assessee which has been decided by the co-ordinate Bench in favour of the assessee in 2022 (9) TMI 1658 - ITAT KOLKATA find that the issue is squarely covered in favour of the assessee. TP adjustment on account of advertisement marketing and promotion expenses - HELD THAT - As relying on assessee own case we hold that the advertisement marketing and promotion expenses do not an international transaction and accordingly the TP adjustment made by the ld. Transfer Pricing Officer/ AO is directed to be deleted. The ground is accordingly allowed. Determination of arms length price in respect of the provisions of Contract Research Development Services (CRDS) to the Associated Enterprises (AE) - Comparable selection - HELD THAT - Both ADTL and TCG cannot be taken as a comparable while computing the transfer pricing adjustment in regard to the contract research and development services. The said two companies are excluded. Admittedly the average comes to only 10.52% which is well within the 3% margin which is permissible. Consequently the addition made on account of the said transfer pricing adjustment stands deleted. Disallowance of expenses u/s 14A in relation to earning of exempt income - HELD THAT - We note that there is no exempt income during the year and therefore no disallowance is called for u/s 14A of the Act read with Rule 8D of the Rules. The case of the assessee was squarely covered by the decision of the co-ordinate bench in assessee s own case in 2022 (9) TMI 1658 - ITAT KOLKATA wherein held that no disallowance is required to be made where the assessee has not earned any exempt income. Addition in the draft assessment order u/s 41(1) - HELD THAT - We note that the amount as shown by the assessee in the profit and loss account included an amount pertaining to cessation of trading liabilities. The ld. AO once again added the amount u/s 41(1) of the Act which was confirmed by the ld. Dispute Resolution Panel resulting into double addition of the same amount. Consequently we set aside the order of the ld. Dispute Resolution Panel / AO and direct the ld. AO to delete the addition. The ground is allowed. Disallowance of lease rental of the assets taken on financial lease - HELD THAT - We find that the issue is squarely covered by the decision of the co-ordinate Bench in assessee s own case from AO 200-10 to 2016-17. Accordingly we set aside the ld. Dispute Resolution Panel direction and direct the ld. AO to delete the addition. Accordingly the ground is allowed. Disallowance of deduction u/s 80G - We find that the issue is squarely covered in favour of the assessee by the decision of JMS Mining (P.) Ltd 2021 (7) TMI 907 - ITAT KOLKATA wherein it was held that explanation 2 to section 37(1) which denies deduction for CSR expenses by way of business expenditure is applicable only to the extent of computing business income under Chapter IV-D. The said Explanation cannot be extended or imported to CSR contributions which is otherwise eligible for deduction under any other provision or Chapter i.e. under section 80G. Thus we direct the ld. AO to allow the deduction u/s 80G - Decided in favour of assessee.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS Adjustment on Software Development Services The relevant legal framework involves the determination of the Arm's Length Price (ALP) under Section 92C of the Income Tax Act. The Tribunal considered the comparability of companies selected by the Transfer Pricing Officer (TPO) and the Dispute Resolution Panel (DRP). The Tribunal found that Tata Elxsi Ltd. and Sasken Technologies Ltd. were not functionally comparable to the assessee due to their engagement in R&D activities and ownership of intangible assets. The Tribunal directed the exclusion of these companies, resulting in no TP adjustment required as the appellant's margin was within the permissible range. Intra Group Services (IGS) Adjustment The Tribunal noted that this issue was recurring and had been consistently decided in favor of the assessee in previous years. The Tribunal followed the precedent set by earlier decisions, directing the deletion of the adjustment. Advertisement, Marketing, and Promotion Expenses This issue was also recurring and previously decided in favor of the assessee. The Tribunal held that these expenses did not constitute an international transaction, directing the deletion of the TP adjustment. Contract, Research & Development Services (CRDS) The Tribunal examined the functional comparability of Aurigene Discovery Technologies Ltd. and TCG Life Sciences Ltd. with the assessee. It found that these companies were not comparable due to their engagement in drug discovery and development, which differed from the assessee's activities. The Tribunal directed the exclusion of these companies, resulting in no TP adjustment as the appellant's margin was within the acceptable range. Disallowance of Expenses under Section 14A The Tribunal found that since there was no exempt income earned during the year, no disallowance was warranted under Section 14A. This decision was supported by precedents from the assessee's own case and other judicial decisions. Addition under Section 41(1) The Tribunal found that the amount of 27,08,766/- had already been included in the profit and loss account and offered to tax. The addition by the AO resulted in double taxation, and the Tribunal directed its deletion. Disallowance of Lease Rental The Tribunal noted that this issue was covered by previous decisions in the assessee's favor. The Tribunal directed the deletion of the addition. Disallowance of Deduction under Section 80G The Tribunal found that the deduction under Section 80G was allowable despite being part of CSR expenses. This was supported by decisions in similar cases, and the Tribunal directed the allowance of the deduction. SIGNIFICANT HOLDINGS The Tribunal established the following core principles:
The Tribunal directed the deletion of various adjustments and disallowances, allowing the appeal of the assessee.
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