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2015 (9) TMI 131 - AT - Income TaxTransfer pricing (TP) adjustment - assessee is seeking exclusion of only 2 comparable companies i.e. Alpha Geo (India) Ltd., and Vimta Labs from the final list of comparables - Held that - assessee has conducted functional analysis by adopting the companies performing similar functions and activities without any similarity of products or industry. We find that M/s. Alpha Geo Ltd., is also in the business of research and development of seismic data, functions similar to the functioned performed by the assessee herein. There is no human interface or involvement in any of the activities above. The assessee has not brought out any difference in the assets employed or risks assumed by Alpha Geo. Therefore, we do not see any reason to interfere with the order of the CIT(A) on this issue. As regards Vimta Labs is concerned, we find that Vimta Labs is a research and development company researching into effects of various drugs on human beings. Though the function is similar i.e. research and development, there is involvement of living beings both animals and human beings and the margin would definitely depend on the result from such research and development involving human interface. Therefore, the said company cannot be considered as comparable to the assessee herein, particularly since the TPO himself has rejected the said company as a comparable to the assessee in the subsequent assessment year i.e. 2005-06. We are therefore inclined to direct the TPO/AO to exclude this company from the final list of comparables and direct the AO to re-determine the ALP in accordance with law. - Decided partly in favour of assessee. Disallowance of deduction for provision made towards interest payable to Central Excise Department and Sales Tax Department - Held that - This issue stands covered by the decision of this bench of the Tribunal in the assessee s own case for assessment years 1994-05, 1999-00, 2000-01 and 2001-02 wherein the action of the CIT(A) in disallowing interest payable to Central Excise Department has been upheld by the Tribunal. - Decided against assessee. Disallowance of deduction u/s 80-O - Held that - Claim for deduction u/s.80-O are within the exclusive knowledge of the Assessee. It is for the Assessee to let in cogent evidence to substantiate its claim. The Assessee in our view has failed to do so and in the circumstances, the revenue authorities were justified in not allowing the claim for deduction. Assessee is not entitled to deduction u/s.80-O of the Act, is based on the fact that the Assessee has failed to establish its claim for deduction on the basis of the conditions contemplated by the amended provisions of law. - Decided against assessee. Deduction u/s 80HHC - CIT(A) held that the consideration received for development work from Robert Bosch was not liable to be reduced under Explanation (baa) to sec.80HHC - Held that - Considering the decision of the jurisdictional High Court in the case of assessee s own case for assessment year 1994-95 to hold that the consideration received for development work from Robert Bosch was not liable to be reduced under Explanation (baa) in computing the profits of the business. Since the issue is covered by the decision of the jurisdictional High Court in the assessee s own case for the earlier assessment year and the CIT(A) has only followed the judicial precedent on the issue, we do not see any reason to interfere with the same. - Decided against revenue. Exclusion of 90% net interest received from the business profits for the purpose of deduction u/s 80HHC - CIT(A) has followed this Tribunal s order in assessee s own case for the assessment years 2000-01 and 2001-02 to hold that only net interest is to be excluded from the business profits for the purpose of computation of deduction u/s 80HHC of the Act. Assessee has also placed reliance upon the judgment of CIT vs Delhi Brass & Metal Works 2008 (11) TMI 42 - HIGH COURT DELHI . We find that this issue is now covered in favour of the assessee by the above decision. Therefore, we see no reason to interfere with the order of the CIT(A) which is in consonance with the judicial precedent on the issue. - Decided in favour of assessee.
Issues Involved:
1. Transfer Pricing Adjustment 2. Deduction for Provision Made Towards Interest Payable 3. Deduction Under Section 80-O of the Income-tax Act 4. Deduction Under Section 80HHC of the Income-tax Act Detailed Analysis: 1. Transfer Pricing Adjustment: The primary issue in the assessee's appeal was the transfer pricing (TP) adjustment made by the Transfer Pricing Officer (TPO) under Section 92CA of the Income-tax Act, 1961. The assessee sought the exclusion of two comparable companies, Alpha Geo (India) Ltd. and Vimta Labs, from the final list of comparables for determining the arm's length price (ALP). - Alpha Geo (India) Ltd.: The assessee argued that Alpha Geo was functionally dissimilar as it was involved in seismic services, which are different from the assessee's research and development activities in the automobile industry. However, the Tribunal found that both companies were engaged in research and development activities, albeit in different fields. The Tribunal emphasized that the transfer pricing exercise focuses on functions performed, assets used, and risks assumed rather than the specific products or services. Therefore, the Tribunal upheld the inclusion of Alpha Geo as a comparable company. - Vimta Labs: The assessee contended that Vimta Labs should be excluded due to its high-profit margin and involvement in research and development of drugs involving human beings. The Tribunal agreed with the assessee, noting that the TPO had excluded Vimta Labs in the subsequent assessment year (2005-06) for the same reasons. Consequently, the Tribunal directed the TPO/AO to exclude Vimta Labs from the final list of comparables and re-determine the ALP. 2. Deduction for Provision Made Towards Interest Payable: The assessee contested the disallowance of a deduction for a provision made towards interest payable to the Central Excise Department and Sales Tax Department amounting to Rs. 4,29,67,460/-. The Tribunal noted that this issue had been previously decided against the assessee in its own case for the assessment years 2000-01 and 2001-02. Respectfully following the earlier decisions, the Tribunal rejected this ground of appeal. 3. Deduction Under Section 80-O of the Income-tax Act: The assessee also challenged the disallowance of a deduction under Section 80-O amounting to Rs. 64,28,890/-. The Tribunal referred to its earlier decision for the assessment year 2001-02, where it had extensively considered the issue. The Tribunal reiterated that the assessee failed to establish that the consideration received from Bosch was for the use of patents, designs, or inventions outside India. The Tribunal concluded that the assessee did not provide sufficient evidence to support its claim for the deduction under Section 80-O and thus rejected this ground of appeal. 4. Deduction Under Section 80HHC of the Income-tax Act: In the revenue's appeal, the issue was the exclusion of 90% of the fee for design and development work received from Robert Bosch from the profits of the business for computing the deduction under Section 80HHC. - Fee for Design and Development Work: The Tribunal upheld the CIT(A)'s decision, which followed the jurisdictional High Court's ruling in the assessee's own case for the assessment year 1994-95. The High Court had held that the consideration received for development work from Robert Bosch was not liable to be reduced under Explanation (baa) to Section 80HHC. Therefore, the Tribunal rejected the revenue's grounds on this issue. - Net Interest Received: The Tribunal addressed the exclusion of 90% net interest received from the business profits for the purpose of deduction under Section 80HHC. The CIT(A) had followed the Tribunal's earlier orders in the assessee's own case for the assessment years 2000-01 and 2001-02. The Tribunal also referred to the Delhi High Court's judgment in CIT vs. Delhi Brass & Metal Works, which supported the assessee's position. Consequently, the Tribunal saw no reason to interfere with the CIT(A)'s order. Conclusion: In conclusion, the Tribunal partly allowed the assessee's appeal by excluding Vimta Labs from the list of comparables and upheld the CIT(A)'s decisions on other issues. The revenue's appeal was dismissed in its entirety. The judgment was pronounced in the open court on 20th August 2015.
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