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2025 (4) TMI 864 - AT - Income TaxTP Adjustment - comparable selection - Inclusion of Sasken Communication Technologies Ltd - HELD THAT - A perusal of financial statement shows that segmental information is available with regard to revenue of the company. A perusal of segmental profit and loss statement shows that the company has shown revenue from two segments i.e. Software Services and Software Products. Likewise segmental profits from Software Services and Software Products are also reflected in the segmental statement of profit and loss account of the company. Considering directions of the DRP and the fact that segmental information is available we find merit in the submissions of the assessee. Ergo Sasken Communication Technologies Ltd. is directed to be included in the final list of comparables. Wipro - Considering lack of availability of segmental information and a substantial difference in brand value of the company we are of considered view that Wipro Ltd. is not a good comparable to the assessee/appellant. Tata Elxsi is directed to be excluded from the list of comparables as services rendered by Tata Elxsi Ltd. under service segment are not comparable to the assessee which is providing software development service to its AE s as captive service provider. Infosys Ltd company has reported segmental profitability under the heads financial services manufacturing energy and utilities communications and services retail consumer packaged goods and logistics life sciences healthcare insurance and combined revenue of all other segments. There is no segmental data available for Software Development Services. Therefore in our considered view Infosys Ltd. cannot be considered as good comparable of the assessee. Functional disparity is evident from segmental reporting. Larsen Toubro Infotech Ltd - Segmental data available in public domain is not sufficient to compare revenue in the relevant segment of Software Development. Hence the said company is not a good comparable to the assessee company. Hence the same is directed to be excluded from list of comparables. Disallowance u/s. 14A r.w.r 8D - contention of assessee is that during the period relevant to assessment year under appeal the assessee has earned tax free dividend income by way of dividend on Mutual Funds and no exempt income has been earned from investments in subsidiaries - HELD THAT - It is a well settled law that where assessee is having mixed bag of own interest free funds and interest bearing borrowed funds it shall be presumed that investments are made from assessee s own non-interest bearing funds. The assessee is having sufficient non-interest bearing funds to cover investment made in Mutual Funds. Hence no disallowance with regard to interest expenditure under Rule 8D(2)(ii) is warranted. Ref CIT vs HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT The assessee has also made investments in subsidiaries however no exempt income has been earned on such investments. Thus for disallowance under Rule 8D(2)(iii) aforesaid investments cannot be taken into account. The Special Bench of Tribunal in the case of Assistant CIT vs. Vireet Investments (P) Ltd. 2017 (6) TMI 1124 - ITAT DELHI has held that for the purpose of making disallowance Rule 8D(2)(iii) only dividend yielding investments are to be considered.We deem it appropriate to restore this issue back to the AO for re-computation of disallowance under Rule 14A r.w.r. 8D in light of above observations. In the result ground no. 4 to 7 of appeal are allowed for the statistical purpose. Adjustment made in the income returned by the assessee in intimation issued u/s. 143(1) of the Act and short credit of TDS - HELD THAT - The assessee s grievance against adjustments made u/s. 143(1) cannot be redressed under the present proceedings. The assessee has to seek remedy available under the Act in separate proceedings against adjustment made u/s. 143(1) of the Act. We find that though the assessee has preferred rectification application before the CPC / AO but has not received any plausible reply / order. We are of the considered view that the remedy is available elsewhere and as the assessee has triggered the available remedy it would be appropriate to consider the remedy there. In our humble opinion the remedy sought by the assessee is not available from this forum as per the relevant provision of the Act.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS Transfer Pricing Adjustments Relevant Legal Framework and Precedents: The Transfer Pricing Officer (TPO) and the Dispute Resolution Panel (DRP) play crucial roles in assessing the appropriateness of comparable companies for determining the Arm's Length Price (ALP) under the Transactional Net Margin Method (TNMM). Court's Interpretation and Reasoning: The Tribunal examined the functional comparability of companies selected by the TPO against those proposed by the assessee. The Tribunal emphasized the need for segmental data and functional similarity. Key Evidence and Findings: The Tribunal scrutinized the annual reports and segmental data of the companies in question to determine their suitability as comparables. Application of Law to Facts: The Tribunal applied the principles of functional comparability and availability of segmental data to decide on the inclusion or exclusion of certain companies. Treatment of Competing Arguments: The Tribunal considered arguments from both the assessee and the department, particularly focusing on the functional disparity and the lack of segmental data for certain companies. Conclusions: The Tribunal directed the inclusion of Sasken Technologies Ltd. and the exclusion of companies like Wipro Ltd., Tata Elxsi Ltd., Infosys Ltd., and Larsen & Toubro Infotech Ltd. from the list of comparables. Disallowance under Section 14A r.w.r. 8D Relevant Legal Framework and Precedents: Section 14A of the Income Tax Act deals with disallowance of expenditure incurred in relation to income not includible in total income. The Bombay High Court's decision in CIT vs. HDFC Bank Ltd. was considered. Court's Interpretation and Reasoning: The Tribunal emphasized that investments made from interest-free funds should not attract disallowance under Rule 8D(2)(ii). Key Evidence and Findings: The Tribunal noted that the assessee had sufficient non-interest bearing funds to cover investments made in Mutual Funds. Application of Law to Facts: The Tribunal directed the Assessing Officer to re-compute the disallowance under Rule 14A r.w.r. 8D, excluding investments in subsidiaries that did not yield exempt income. Treatment of Competing Arguments: The Tribunal considered the department's support for the Assessing Officer's findings but found merit in the assessee's argument based on the HDFC Bank precedent. Conclusions: The Tribunal allowed the appeal for statistical purposes and directed a re-computation of disallowance. Adjustments under Section 143(1) Relevant Legal Framework and Precedents: Section 143(1) deals with the processing of returns and adjustments that can be made therein. The Tribunal referred to the decision in Microsoft India (R&D) P. Ltd. vs. DCIT. Court's Interpretation and Reasoning: The Tribunal held that grievances related to adjustments under Section 143(1) should be addressed through separate proceedings. Key Evidence and Findings: The Tribunal noted that the assessee's grievances pertained to depreciation claims and disallowances under Section 43B. Application of Law to Facts: The Tribunal declined to interfere with the adjustments made under Section 143(1) and advised the assessee to seek remedy through appropriate channels. Treatment of Competing Arguments: The Tribunal considered the department's reliance on the Microsoft India precedent and upheld the need for separate proceedings. Conclusions: The Tribunal dismissed the grounds related to Section 143(1) adjustments. Penalty Proceedings under Section 270A Relevant Legal Framework and Precedents: Section 270A deals with penalty for underreporting and misreporting of income. Court's Interpretation and Reasoning: The Tribunal found the challenge to penalty proceedings premature. Conclusions: The Tribunal dismissed the ground related to penalty proceedings. SIGNIFICANT HOLDINGS Core Principles Established: The judgment reinforced the principles of functional comparability and the necessity of segmental data in Transfer Pricing cases. It also highlighted the importance of separate proceedings for addressing grievances related to Section 143(1) adjustments. Final Determinations on Each Issue: The Tribunal partly allowed the appeal concerning Transfer Pricing adjustments and disallowance under Section 14A, while dismissing the grounds related to Section 143(1) adjustments and penalty proceedings.
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