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TMI Blog2017 (8) TMI 1499X X X X Extracts X X X X X X X X Extracts X X X X ..... s the fact that the AO did not issue to ABB Global Industries & Services Limited ('the Appellant or 'the Company'), a show cause notice, as per proviso to section 92C(3) of the Income-tax Act, 1961 ['the Act']. (b) The AO has erred in law in making a reference to the Transfer Pricing Officer ['TPO'], inter alia, since he has not recorded an opinion that any of the conditions in section 92C(3) of the Act, were satisfied in the instant case. The AO also erred in not following the provision contained in section 92CA(1) of the Act. 2. The fresh comparable search undertaken by the AO/TPO is bad in law (a) The AO/TPO erred on facts and in law in conducting a fresh benchmarking analysis using non contemporaneous data and substituting the Appellant's analysis with fresh benchmarking analysis on his own conjectures and surmises. (b) On the facts and in the circumstances of the case and in law, the learned AO/TPO erred in not demonstrating that the motive of the Appellant was to shift profits outside of India by manipulating the prices charged in its international transactions, which is a pre-requisite condition to make any adjustment under the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducting the transfer pricing study by the Appellant. (b) The AO/TPO erred in law in not applying the multiple-year data while computing the margin of alleged comparable companies. 5. Non-allowance of appropriate adjustments to the comparable companies, by the AO/TPO The AO/TPO erred in law and on facts in not allowing appropriate adjustments under Rule 10B to account for, inter alia, differences in (a) accounting practices, (b) marketing expenditure adjustment, (c) research and development expenditure adjustment, (d) risk profile between the Appellant and the comparable companies, (e) capacity adjustment; and (f) depreciation adjustment. 6. Variation of 5% from the arithmetic mean The AO/TPO erred in law in not granting the benefits of proviso to section 92C(2) of the Act available to the Appellant. 7. Grant of lower deduction under section 10A of the Act (a) On the facts and in the circumstances of the case, the learned AO erred in reducing the telecommunication expenses of Rs. 10,993,000 from the export turnover while computing the deduction under section 10A of the Act. (b) The Company incurred telecommunication expenses of Rs. 10,993,000 towards postage, courier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not received any income which does not form part of the total income for the AY 2008-09; and (ii) The Appellant has not incurred any expenses given the fact that the said investment is not made out of borrowed funds. 11. Disallowance of provision created for payment of royalty (a) On the facts and in the circumstances of the case, the learned AO has erred in disallowing an amount of Rs. 4,137,000 representing provision created for payment of royalty, without considering the fact that the said provision was created as per the audited accounts and prescribed accounting policies. (b) On the facts and in the circumstances of the case, the learned AO has erred in not taking cognizance of the decision of the Karnataka High Court in the case of M/s Prakash Leasing Limited [208 Taxman 464] 12. Interest under section 234B of the Act (a) The Assessing Officer erred in levy of interest under section 234B of the Act at Rs. 8,769,586. 13. Interest under section 234D of the Act (a) The Assessing Officer erred in levy of interest under section 234D of the Act at Rs. 6,247,356. 14. Directions issued by the Honorable Dispute Resolution Panel ['DRP'] (a) The DRP has erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now raised by the assessee. He has further submitted that when these companies are functionally not comparable to the assessee then the assessee can raise the objections against the functional comparability of these companies even at this stage. He has relied upon the decisions of the Chandigarh Special Bench of this Tribunal in the case of Dy. CIT v. Quark Systems (P.) Ltd. [2010] 38 SOT 207. He has also relied upon the decision of Hon'ble Bombay High Court in the case of CIT v. Tata Power Solar Systems Ltd. [2017] 245 Taxman 93/77 taxmann.com 326 and submitted that the Hon'ble High Court has upheld the order of the Tribunal holding that merely because the assessee has included a company in its TP Study that would not by itself stopped from establishing that the said company is not comparable to it and further that a tax payer is not barred any law from withdrawing a company from its list of comparables if the same is included on account of mistake. Thus the learned Authorised Representative has pleaded that the additional grounds raised by the assessee may be admitted for adjudication on merits. 4. On the other hand, the learned Departmental Representative has vehementl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Solar System Ltd. (supra), we admit the additional grounds raised by the assessee for adjudication on merits. 6. Ground Nos.1 to 6 including additional grounds are regarding the TP Adjustment consequent to determination of Arm"s Length Price (ALP) on the basis of the set of comparables selected by the TPO. 7. The assessee is a subsidiary of ABB Holdings (South Asia) Limited and a group company of ABB Boveri Group Company where 99.9% of equity share capital is held by ABB Holdings (South Asia) Limited. The assessee is engaged in providing software development services to its Associated Enterprises (AEs). The dispute before us is only in respect of the software development services provided by the assessee to the tune of Rs. 150,35,94,000. The operating margin of the assessee from software development services segment is 8.10%. To Bench mark its international transactions, the assessee selected 17 companies having mean margin at 13.64%. The TPO rejected 12 companies from the set of comparables selected by the assessee and carried out a fresh search. The TPO finally considered 20 companies including 5 companies which are common to the set of assessee's comparables. The compara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of this Tribunal. He has relied upon the decision dt.28.03.2013 of the co- ordinate bench of this Tribunal in the case of ITO v. Supportsoft India (P.) Ltd. in IT(TP)A No.1372/Bang/2011 and the decision dt.6.8.2014 in the case of Asstt. CIT v. Zee Entertainment Enterprises Ltd. [2014] 51 taxmann.com 231 (Mum. - Trib.). The learned Departmental Representative has also relied upon the decision of Delhi Bench of the Tribunal dt.12.10.2012 in the case of Actis Advisers (P.) Ltd. v. DCIT [IT (TP) Appeal No. 5277 (Delhi) of 2011, dated 12-10-2012]. Thus the learned Departmental Representative has submitted that when the TPO has applied a filter of 25% RPT then there is no need of revising the same to 15%. 10. As regards the functional comparability of other companies, the learned Departmental Representative has submitted that the TPO as well as DRP has duly examined the functional comparability of these companies and found that these companies are functionally comparable as the predominant business activities of these companies are software development services. Therefore, when the TNMM is adopted as MAM then the minor variation becomes insignificant in the FAR analysis and furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 and this Tribunal while passing the order in the said case has considered functional comparability of these 12 companies in para 10.5 as under : ' 10.5 We have considered the rival submissions as well as relevant material on record. It is pertinent to note that the TPO in the case of Kodiak Network (India) Pvt. Ltd. (supra) has selected an identical set of 21 companies as selected in the case of the assessee. Therefore, it is clear that while selecting the comparable companies, the TPO has considered the assessee as a software development services provider as in the case of Kodiak Network (India) Pvt. Ltd. (supra). Further, the TPO has recorded the functional profile of the assessee in the impugned order which has been reproduced in the foregoing paragraphs of this order and therefore we do not find any substance in the objections raised by the learned Departmental Representative that the business profile of the assessee as far as the software development services segment may not be similar to that of Kodiak Network (India) Pvt. Ltd. (supra). The Tribunal in the case of Kodiak Network (India) Pvt. Ltd. (supra) has dealt with the issue of functional comparability of identica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s further contended that the information obtained by the TPO under section 133(6) of the Act, on the basis of which the TPO included this company in the final list of comparable companies, has not been shared with the assessee. In support of this contention, the learned Authorised Representative placed reliance on the following judicial decisions: (i) Trilogy E-Business Software India (P.) Ltd. v. DCIT (ITA No.1054/Bang/2011) (ii) Telecordia Technologies India (P.) Ltd v. ACIT (ITA No.7821/Mum/2011) It was also submitted that this company has been held to be functionally not comparable to the assessee by a co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 dt.22.2.2013. 7.3 The learned Authorised Representative further submitted that the facts pertaining to this company has not changed from the earlier year (i.e. Assessment Year 2007-08) to the period under consideration (i.e. Assessment Year 2008-09). In support of this contention, it was submitted that :- (i) The extract from the Website of the company clearly indicates that it is primarily engaged in development of software products. The extract mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability are the same. Viewed in that context, the assessee has not discharged the onus upon it to establish that the decision rendered in the case of Triology E-Business Software India Pvt. Ltd. (supra) can be applied to the facts of the case and that too of an earlier year i.e. Assessment Year 2007-08. The assessee, in our view, has not demonstrated that the facts of Triology E-Business Software India Pvt. Ltd. (supra) are identical to the facts of the case on hand and that the profile of the assessee for the year under consideration is similar to that of the earlier Assessment Year 2007-08. In view of facts as discussed above, we deem it fit to remand the matter back to the file of the Assessing Officer / TPO to examine the comparability of this company afresh by considering the above observations. The TPO is directed to make available to the assessee information obtained under section 133(6) of the Act and to afford the assessee adequate opportunity of being heard and to make its submissions in the matter, which shall be duly considered before passing orders thereon. It is ordered accordingly." The learned Authorised Representative submits that this company was selected as a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er year. Even in the earlier year, it is seen that this company was not selected IT(TP)A 1380/Bang/2012 Page 7 of 34 on the basis on any search process carried out by the TPO but only on the basis of information collected under section 133(6) of the Act. Apart from placing reliance on the judicial decision cited above, including the assessee's own case for Assessment Year 2007-08, the assessee has brought on record evidence that this company is functionally dis-similar and different from the assessee and hence is not comparable. Therefore the finding excluding it from the list of comparables rendered in the immediately preceding year is applicable in this year also. Since the functional profile and other parameters by this company have not undergone any change during the year under consideration which fact has been demonstrated by the assessee, following the decisions of the co-ordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 dt.22.2.2013, and in the case of Triology E-Business Software India Pvt. Ltd. (ITA No.1054/Bang/2011), we direct the A.O./TPO to omit this company from the list of comparables. 8.0 Bodht ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We, therefore, find no merit in the contentions raised by the learned Authorised Representative of the assessee in respect of this company at this stage of proceedings. 8.4.2 It is also seen from the submissions made before us that the assessee has only pointed out fluctuating margins in the results of this company over the years. This, in itself, cannot be reason enough to establish differences in functional profile or any clinching factual reason warranting the exclusion of this company from the list of comparables. In this view of the matter, the contentions of the assessee are rejected and this company is held to be comparable to the assessee and its inclusion in the list of comparable companies is upheld. 9. Celestial Biolabs Ltd. 9.1 This comparable was selected by the TPO for inclusion in the final list of comparables. Before the TPO, the assessee had objected to the inclusion of this company in the list of comparables for the reasons that it is functionally different form the assessee and that it fails the employee cost filter. The TPO, however, brushed aside the objections raised by the assessee by stating that the objections of functional dissimilarity has been de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contra, the learned Departmental Representative supported the inclusion of this company in the list of comparable companies. The learned Departmental Representative submitted that the decisions cited and relied on by the assessee are for Assessment Year 2007-08 and therefore there cannot be an assumption that it would continue to be applicable for the period under consideration i.e. Assessment Year 2008-09. 9.4.1 We have heard both the parties and perused and carefully considered the material on record. While it is true that the decisions cited and relied on by the assessee were with respect to the immediately previous assessment year, and there cannot be an assumption that it would continue to be applicable for this year as well, the same parity of reasoning is applicable to the TPO as well who seems to have selected this company as a comparable based on the reasoning given in the TPO's order for the earlier year. It is evidently clear from this, that the TPO has not carried out any independent FAR analysis for this company for this year viz. Assessment Year 2008-09. To that extent, in our considered view, the selection process adopted by the TPO for inclusion of this compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt from the software activity of the assessee as it is into software products. (ii) This company has been held to be functionally not comparable to software service providers for Assessment Year 2007-08 by the co-ordinate bench of this Tribunal in the assessee's own case. This company has been held to be different from a software development company in the decision of the Tribunal in the case of Bindview India Pvt. Ltd. V DCIT in ITA No.1386/PN/ 2010. (iii) The rejection of this company as a comparable has been upheld by co- ordinate benches of the Tribunal in the case of - (a) Triology E-Business Software India Pvt. Ltd. (ITA No.1054/Bang/2011). (b) LG Soft India (P.) Ltd. IT (TP)A No.112/Bang/2011) (c) CSR India (P.) Ltd. IT (TP)A No.1119/Bang/2011) and (d) Transwitch India (P.) Ltd. ITA No.6083/Del/2010) (iv) The facts pertaining to this company has not changed from Assessment Year 2007- 08 to Assessment Year 2008-09 and therefore this company cannot be considered for the purpose of comparability in the case on hand and hence ought to be excluded from the list of comparables. In support of this contention, the learned Authorised Representative drew our attentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdinate benches of the Tribunal for Assessment Year 2007-08 (cited supra) are applicable for this year i.e. Assessment Year 2008-09 also, this company ought to be excluded from the list of comparables. In this view of the matter, we hold that this company i.e. KALS Information Systems Ltd., is to be omitted form the list of comparable companies. It is ordered accordingly." "11.0 Infosys Technologies Ltd. 11.1 This was a comparable selected by the TPO. Before the TPO, the assessee objected to the inclusion of the company in the set of comparables, on the grounds of turnover and brand attributable profit margin. The TPO, however, rejected these objections raised by the assessee on the grounds that turnover IT(TP)A 1380/Bang/2012 Page 24 of 34 and brand aspects were not materially relevant in the software development segment. 11.2 Before us, the learned Authorised Representative contended that this company is not functionally comparable to the assessee in the case on hand. The learned Authorised Representative drew our attention to various parts of the Annual Report of this company to submit that this company commands substantial brand value, owns intellectual property rights an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought on record sufficient evidence to establish that this company is functionally dis- similar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) for Assessment Year 2007-08 is applicable to this year also. We are inclined to concur with the argument put forth by the assessee that Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has huge revenues from software products. It is also seen that the break up of revenue from software services and software products is not available. In this view of the matter, we hold that this company ought to be omitted from the set of comparable companies. It is ordered accordingly. 12. Wipro Ltd. 12.1 This company was selected as a comparable by the TPO. Before the TPO, the assessee had objected to the inclusion of this company in the list of comparables on several grounds like functional dis-similarity, brand value, size, etc. The TPO, IT(TP)A 1380/Bang/2012 Page 26 of 34 however, brushed aside the objections of the assessee and included this company in the set of comparables. 12.2 Before us, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparison of the consolidated financial statements of Wipro with the stand alone financials of the assessee; which is not an appropriate comparison. 12.4.2 We also find that this company owns intellectual property in the form of registered patents and several pending applications for grant of patents. In this regard, the coordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (ITA No.227/Bang/2010) has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any such intangible and hence does not have an additional advantage in the market. As the assessee in the case on hand does not own any intangibles, following the aforesaid decision of the co-ordinate bench of the Tribunal i.e. 24/7 Customer.Com Pvt. Ltd. (supra), we hold that this company cannot be considered as a comparable to the assessee. We, therefore, direct the Assessing Officer/TPO to omit this company from the set of comparable companies in the case on hand for the year under consideration." 13. Tata Elxsi Ltd. 13.1 This company was a comparable selected by the TPO. Before the TPO, the assessee had objected to the inclusion of this company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t services. The details in the Annual Report show that the segment " software development services" relates to design services and are not similar to software development services performed by the assessee. 13.5 The Hon'ble Mumbai Tribunal in the case of Telcordia Technologies India (P.) Ltd. (supra) has held that Tata Elxsi Ltd. is not a software development service provider and therefore it is not functionally comparable. In this context the relevant portion of this order is extracted and reproduced below :- " .... Tata Elxsi is engaged in development of niche product and development services which is entirely different from the assessee company. We agree with the contention of the learned Authorised Representative that the nature of product developed and services provided by this company are different from the assessee as have been narrated in para 6.6 above. Even the segmental details for revenue sales have not been provided by the TPO so as to consider it as a comparable party for comparing the profit ratio from product and services. Thus, on these facts, we are unable to treat this company as fit for comparability analysis for determining the arm's length price fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxation) [2013] 32 taxmann.com 21 (Hyd. - Trib.) and prayed that in view of the above reasons, this company i.e. e-Zest software Ltd., ought to be omitted from the list of comparables. 14.3 Per contra, the learned Departmental Representative supported the inclusion of this company in the list of comparables by the TPO. 14.4 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the record that the TPO has included this company in the list of comparbales only on the basis of the statement made by the company in its reply to the notice under section 133(6) of the Act. It appears that the TPO has not examined the services rendered by the company to give a finding whether the services performed by this company are similar to the software development services performed by the assessee. From the details on record, we find that while the assessee is into software development services, this company i.e. e-Zest software Ltd., is rendering product development services and high end technical services which come under the category of KPO services. It has been held by the co-ordinate bench of this Tribunal in the case of Capital I-Q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, as pointed out by the learned Authorised Representative, the Pune Bench of the Tribunal in the case of E-Gain Communications (P.) Ltd. (supra) has directed that since the income of this company includes income from sale of licenses, it ought to be rejected as a comparable for software development services. In the case on hand, the assessee is rendering software development services. In this factual view of the matter and following the afore cited decision of the Pune Tribunal (supra), we direct that this company be omitted from the list of comparables for the period under consideration in the case on hand. 16. Lucid Software Ltd. 16.1 This company was selected as a comparable by the TPO. Before us, the assessee has objected to the inclusion of this company as a comparable on the grounds that it is into software product development and therefore functionally different from the assessee. In this regard, the learned Authorised Representative submitted that - (i) This company is engaged in the development of software products. (ii) This company has been held to be functionally different and therefore not comparable to software service providers by the order of a co-ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngaged in the software product development and not software development services, it is functionally different and dis-similar and is therefore to be omitted from the list of comparables for software development service providers. The assessee has also brought on record details to demonstrate that the factual and other circumstances pertaining to this company have not changed materially from the earlier year i.e. Assessment Year 2007-08 to the period under consideration i.e. Assessment Year 2008-09. In this factual matrix and following the afore cited decisions of the co-ordinate benches of this Tribunal and of the ITAT, Mumbai and Delhi Benches (supra), we direct that this company be omitted from the list of comparables for the period under consideration in the case on hand. 17. Persistent Systems Ltd. 17.1 This company was selected by the TPO as a comparable. The assessee objected to the inclusion of this company as a comparable for the reasons that this company being engaged in software product designing and analytic services, it is functionally different and further that segmental results are not available. The TPO rejected the assessee's objections on the ground that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as submitted by the assessee, the segmental details are not given separately. Therefore, following the principle enunciated in the decision of the Mumbai Tribunal in the case of Telcordia Technologies India (P.) Ltd. (supra) that in the absence of segmental details/information a company cannot be taken into account for comparability analysis, we hold that this company i.e. Persistent Systems Ltd. ought to be omitted from the set of comparables for the year under consideration. It is ordered accordingly. 18. Quintegra Solutions Ltd. 18.1 This case was selected by the TPO as a comparable. Before the TPO, the assessee objected to the inclusion of this company in the set of comparables on the ground that this company is functionally different and also that there were peculiar economic circumstances in the form of acquisitions made during the year. The TPO rejected the assessee's objections holding that this company qualifies all the filters applied by the TPO. On the issue of acquisitions, the TPO rejected the assessee's objections observing that the assessee has not adduced any evidence as to how this event had an any influence on the pricing or the margin earned. 18.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive supported the action of the TPO in including this company in the set of comparables to the assessee for the period under consideration. 18.4 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details brought on record that this company i.e. Quintegra Solutions Ltd. is engaged in product engineering services and is not purely a software development service provider as is the assessee in the case on hand. It is also seen that this company is also engaged in proprietary software products and has substantial R&D activity which has resulted in creation of its IPRs. Having applied for trade mark registration of its products, it evidences the fact that this company owns intangible assets. The co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com (P.) Ltd. (supra) has held that if a company possesses or owns intangibles or IPRs, then it cannot be considered as a comparable company to one that does not own intangibles and requires to be omitted form the list of comparables, as in the case on hand. 18.5 We also find from the Annual Report of Quintegra Solution Ltd. that there have been acquisitions made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Tribunal in the case of 24/7 Customer.Com (P.) Ltd. (supra). As the facts for this year are similar and material on record also indicates that RPT is 18.3%, following the afore cited decisions of the co-ordinate benches (supra), we hold that this company is to be omitted from the list of comparables to the assessee in the case on hand. 23. Thus, it is clear from the findings of the Co-ordinate Bench of the Tribunal in the case of M/s 3DPLM Software Solutions Ltd (supra) that except Bodhtree Ltd all other 12 companies were found to be not good comparables of the software development services as provided by assessee. 24. As regard the objection of the ld. DR that Quintegra Solution Ltd. has been selected by the assessee itself, we notice that the functional comparability of this company has been examined by the Tribunal in the case of M/s 3DPLM Software Solutions Ltd (supra) and it was found that the said company is engaged in the different field of services i.e. product designing and analytic services as well as in proprietary of software product and are in research and development activity which has resulted in creation of its intellectual property rights. Therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on charges in foreign currency is reduced from export turnover an equal amount should also be reduced from total turnover while computing the deduction under section 10A of the Act, is covered in favour of the assessee by the decision of the Hon'ble Karnataka High Court in the case of CIT v. Tata Elxsi Ltd. [2012] 349 ITR 98/204 Taxman 321/17 taxmann.com 100 (Kar.). The decision of Hon'ble jurisdictional High Court has been followed in a number of cases in co-ordinate benches of ITAT. Hence, this issue is decided against the revenue and in favour of assessee. Accordingly, the Assessing Officer is directed to recompute the deduction under Section 10A of the Act by reducing the telecommunication expenses both from export turnover as well as total turnover. 15. Ground No.8 is regarding setting off of the business losses pertaining to non-STPI against the profits of STPI units prior to allowing the deduction under Section 10A of the Act. 15.1 We have heard the learned A.R. as well as learned D.R. and considered the relevant material on record. At the outset, we note that this issue is covered in favour of the assessee and against the revenue by the decision of the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794 dated 9.8.2000 which states in paragraph 15.6 that, "The export turnover and the total turnover for the purposes of sections 10A and 10B shall be of the undertaking located in specified zones or 100% Export Oriented Undertakings, as the case may be, and this shall not have any material relationship with the other business of the assessee outside these zones or units for the purposes of this provision." 17. If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No. 794 dated 09.08.2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs. 2,95,14,471. 19. Before us, the learned Authorised Representative of the assessee has submitted that the assessee invested an amount of Rs. 103,43,87,000 in the equity shares of Roman Board Limited. The said investment was not made out of borrowed fund but was made from the proceeds of issue of preference shares. Thus he has contended that no borrowed fund was used for the purpose of investment and thus, no disallowance to be made under Section 14A of the Act. Further there is no exempt income during the year under consideration earned by the assessee therefore, the provisions of section 14A cannot be invoked. In support of his contention he has relied upon the decision of Hon'ble Delhi High Court in the case of Cheminvest Ltd. v. CIT [2015] 378 ITR 33/234 Taxman 761/61 taxmann.com 118. Further the learned Authorised Representative has submitted that the assessee has not incurred any expenditure in relation to its investment which were made in the F.Y. 2007-08 therefore there will not be any disallowance under Section 14A when the Assessing Officer has not given a finding that the claim of the assessee is not correct. 20. On the other hand, the learned Departmental Rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making or earning such income. The Supreme Court explained that the expression "incurred for making or earning such income', did not mean that any income should in fact have been earned as a condition precedent for claiming the expenditure. The Court explained: "What s. 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. It is the purpose of the expenditure that is relevant in determining the applicability of s. 57(iii) and that purpose must be making or earning of income. s. 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. There is in fact nothing in the language of s. 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. The plain natural construction of the language of s. 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en brought to our notice therefore in view of the decision of Hon'ble Delhi High Court in the case of Cheminvest Ltd. (supra), we decide this issue in favour of the assessee and delete the disallowance made by the Assessing Officer under Section 14A. 23. Ground No.11 is regarding disallowance of provision for royalty. The Assessing Officer has disallowed a sum of Rs. 41,37,000 representing the provision created for royalty to be paid to ABB Technology Ltd. by applying the provisions of Section 40(a)(ia) of the Act for want of TDS. 24. Before us, the learned Authorised Representative of the assessee has submitted that there was no payment during the year under consideration and the assessee has subsequently reversed the provision and added to the income of the assessee for the subsequent assessment year i.e. 2009-10. Hence the learned Authorised Representative has submitted that this amount has been taxed by the Assessing Officer twice for the Assessment Year under consideration and again for the Assessment Year 2009-10. He has thus pleaded that if this amount of disallowance made by the Assessing Officer is confirmed for the year under consideration then the said amount shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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