9911796707
TMI Blog2018 (9) TMI 1949X X X X Extracts X X X X X X X X Extracts X X X X ..... th regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of section 14A(2) and (3) r.w.r 8D of the Rules would become applicable. In the present case, we do not find any mention of the reasons which had prevailed upon the Assessing Officer to hold that the claims of the assessee that no expenditure was incurred to earn dividend income cannot be accepted. Neither any basis has been disclosed establishing the reasonable nexus between the expenditure disallowed and the dividend income received. For this proposition, we draw support from the judgment of the Hon ble Supreme Court in the case of Godrej Boyce manufacturing Co [2017 (5) TMI 403 - SUPREME COURT] . Considering the facts in totality, we do not find any merit in the addition. Disallowance towards lease rental payment u/s 40A(2)(b) - HELD THAT:- As relying on Sigma Corporation India Ltd [2017 (3) TMI 980 - DELHI HIGH COURT ] we direct the Assessing Officer/TPO to delete the impugned addition X X X X Extracts X X X X X X X X Extracts X X X X ..... rrors in the computation of the operating profit margins of the comparables/appellant; 2.7 relying on information of the companies collected by exercising power granted to him under section 133(6) of the Act that was not available to the appellant in the public domain and not sharing with the appellant in case of number of comparables the information/ reply received by the Ld. TPO/ AO u/s 133(6); 2.8 using data as at the time of assessment proceedings, instead of using the latest data that was available as on the date of preparing the TP documentation for comparable companies while determining arm's length price; thereby ignoring the principle of 'impossibility of performance"; 2.9 disregarding judicial pronouncements in India while udertaking the TP adjustment. 3 That the Ld. AO grossly erred on facts and in law in disallowing an amount of ₹ 63,207 on account of being 0.5% of the average value of investment under section 14A of the Income tax Act, 1961 ("Act") read with Rule 8D of Income tax Rules, 1962 ("Rules"). 4. That the Ld. AO grossly erred on facts and in law in making an addition under section 14A of the Act without recording satisfaction in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In return for rendering these services, the appellant was remunerated on an arm's length cost plus basis i.e. it was compensated for all its operating costs, plus a pre-agreed mark-up thereon. 5. In operating as an ITES and financial support service provider for other GE Companies, and in being compensated on a cost plus revenue model basis, the assessee is completely shielded from risks. Since the appellant company's only customers are other GE Companies, and other GE Companies takes on all the marketing and business development functions overseas, with no involvement from the assessee, it is also shielded from other critical risks such as credit risk/debt collection risk and market risk. 6. The financial results of the appellant company for F.Y. 2007-08 are as under: Description Amount Operating Revenues ₹ 252,082,457 Operating Expenses ₹ 219,573,164 Operating Profit ₹ 3,25,09,293 NCP(%) 14.81% Method used TNMM PLI TNMM (%) No of Comparables 6 7. As mentioned elsewhere, the assessee is engaged in providing ITES and financial support services to its AEs as under: S. No. Name of the Company Industry Vertical 1 Applabs Technologies Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the margins of the comparable companies were finally determined as under: S. No Name of the Company Adjusted Operating Profits on operating Cost(%) 1 Accentia 44.50 2 Aditya Birla Minacs -0.55 3 Asit C Mehta 9.42 4 Caliber Point Business solutions 10.97 5 Coral Hub (Vishal Inf) 51.84 6 Cosmic Global 24.30 7 Ctossdomain solution Pvt. Ltd. 26.96 8 Datamatics Financial (BPO 34.87 9 e4e (earlier known Nitanny) 16.87 10 Eclerx 66.50 11 Genesys International 48.15 12 HCL Coinnet Systems & Services 32.97 13 ICRA (Seg) 11.22 14 Infosys BPO 20.03 15 i-service India Private Limited 9.73 16 Spanco Limited (Seg) 8.94 17 Acropetal Technologies Limited 35.30 18 Wipro BPO 30.23 19 R System International Limited 4.30 AVERAGE 25.61 Arithmetic mean PLI 25.60 Less: Working Capital Adjustment 3.22 Arm's Length Price 22.38 Based on the above, re-computation of the ALP is as given below Operating Cost 225,308,772 Arms Length Margin 22.38% of the Arms Length Price (ALP) 275,732,875 Price shown in the international 252,016,832 Shortfall being adjustment u/s 23.716,043 Hence, amount of adjustment is revised to ₹ 23,716 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of this company, it is palpable that it paid Translation charges amounting to ₹ 2.86 crore. Thus, it is manifest that the revenue from Medical transcription services, which could bear somewhat similarity with the assessee, is hardly 1% of the total revenues of this company. The major part is the income from Translation charges at ₹ 5.59 crore out of total revenues of ₹ 5.86 crore, which is totally dissimilar to that of the assessee. The assessee is not into any Translation business. As the assessee is engaged in rendering insurance claim processing services to it's A.E under this segment, we find no logical comparison of Cosmic Global with that of the assessee. 9.3. We are not agreeable with the ld. DR that this company cannot be excluded because it was initially included by the assessee in its list of comparables. The obvious reason is the differentiation in the functional profiles of two companies. Merely because the assessee inadvertently included this company in the list of comparable, can be no reason to bar the assessee from claiming that it was wrongly included. What is essential in this regard is to see whether the company is, in fact, comparable or n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee objected to its inclusion, but without success. 11.2. After considering the rival submissions and perusing the relevant material in record, we find that this company is engaged in rendering geospatial services catering to the needs of consumer mapping, navigation and internet portals. It is providing mapping technologies managing the earth's resources and surfaces at a time. Talent eco system with this company includes urban planners, cartographers, remote sensing scientists etc. and even rocket scientists, giving its skills in all kinds of land base work. When we consider the nature of work done by the assessee under its ITES segment, which is simply that of processing insurance claims manually, we fail to see as to how this company can be considered as comparable. We, therefore, order for the exclusion of this company from the list of comparables. The assessee succeeds." Vishal Informatics 12.1. The TPO included this company in the list of comparables by noticing that it was engaged in providing BPO services. The assessee failed to convince him and the DRP that it was incomparable. 12.2. Having heard the rival submissions and perused the relevant material on reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... softwares which were being used by the Accential Technologies Ltd. in serving the end to end results. Thus, functionally amalgamating company and amalgamated companies were different as performing different functions. 17. The effect of amalgamation has been pointed out in the annual accounts and it is merely stated therein that in view of the amalgamation being effective the figures for the year ended 31-3-2010 were inclusive of the figures relating to the amalgamating company and, thus, were not comparable with those of the previous year. 18. Ld. counsel further referred to page 355 of the PB, wherein fixed asset schedule of the said company is contained in which, in the block goodwill/ brand/ IPR an addition ITA No. 6906/Del/2014 7 of ₹ 19,651,057/- has been shown. Thus, he pointed out that the asset base had substantially increased in the year under consideration and, therefore, this could not be taken as comparable because of the extraordinary event. Ld. counsel further referred to the decision of the ITAT dated 6-7-2015 in the case of Techbook International Pvt. Ltd. for AY 2010-11, contained at pages 649 to 699 of the PB, wherein this comparable has been excluded on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , raw data received from the customers in hard copy / electronically, is converted into electronic form. Thereafter, the data is arranged and formatted. Thus, it can be said that the assessee is primarily engaged in providing ITES to its associated enterprise (AE)." 20. The assessee's business profile has been considered in para 2 this order and a comparison of the business profile of Techbook International Pvt. Ltd. (supra) with assessee clearly shows that both are providing ITES services to its AEs. Therefore, the finding in Techbook International Pvt. Ltd. (supra), regarding various comparables is applicable to the present set of facts. Therefore, respectfully following the order of the ITAT in the case of Techbooks International Pvt. Ltd. (supra), we direct this comparable to be excluded from the final list of comparables. 9. By its order passed in the case of M/s Rampgreen Solutions Pvt. Ltd. (supra), the Tribunal also excluded M/s I-gate Global Solutions Limited and M/s Infosys BPO Limited from the list of comparables. 33. Respectfully following the Tribunal's decision in the case of Techbook International Pvt. Ltd. (supra), this company is excluded from the list of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO for affording an opportunity to the assessee to cross examine the data collected and used by the TPO. 24. Respectfully following the findings of the co-ordinate bench, we direct for exclusion of these two comparables from the final list of comparables. Ground Nos. 1 and 2 with all its sub-grounds are allowed. 25. Ground Nos. 3 to 5 relates to the disallowance made u/s 14A of the Act r.w.r 8D of the Rules. 26. The Assessing Officer found that the assessee has earned dividend income of ₹ 1.96 crores on investment of ₹ 1.26 crores. The Assessing Officer further found that the assessee has not made any suo moto disallowance u/s 14A of the Act. The assessee was asked to explain as to why disallowance should not be made u/s 14A of the Act r.w.r 8D of the Rules. 27. In its reply, the assessee pointed out that it does not have any borrowed funds and the investments were made out of its own funds. It was further explained that since there was no administrative cost in investment, Rule 8D is not applicable. 28. The Assessing Officer was not convinced with the reply of the assessee and was of the opinion that the disallowance of expenditure u/s 14A of the Act r.w.r 8D of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance lease and in relation to such assets, the assessee has paid total EMI of 27.42 lakhs. This amount comprised of 19.99 lakhs of principal portion of the EMI and ₹ 7.42 lakhs of interest on such finance lease. The Assessing Officer found that these transactions are mainly entered with persons specified in section 40A(2)(b) of the Act. The assessee was asked to justify the payment. 35. In its reply, the assessee stated that since it is not the owner of these assets, depreciation on such assets has not been claimed. Accordingly, principal repayment has been claimed as deduction. It was pointed out that out of total payment of lease rent made during the year, 13.63 lakhs has already been considered for disallowance u/s 40A of the Act. The contention of the assessee did not find much favour with the Assessing Officer who observed as under: "Submissions made by the assessee have been considered. Perusal of the total movement of assets taken on finance lease as reflected in financial statement, reveals that the assessee was having opening book balance of such leased assets amounting to ₹ 45,04,863/-, and during the year there was further addition of ₹ 59,91433/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer but could not bring any distinguishing decision in favour of the Revenue. 38. We have carefully considered the judgment of the Hon'ble jurisdictional High Court of Delhi [supra] qua the issue vis a vis the facts of the case. We find force in the contention of the ld. counsel for the assessee. The Hon'ble High Court of Delhi was seized with the following question of law: "Did the ITAT fall into error in restoring the disallowance of 50% of ₹ 48 lakhs paid to the appellant/assessee employee for the relevant assessment year validly under Section 40A(2)(b) of the Income Tax Act, 1961?" 39. The Hon'ble High Court examined the provisions of section 40A(2) of the Act and held as under: "10. Having regard to the above position, this Court is of the opinion that the ITAT in the present case overlooked the materials that were to be taken into account, i.e. reasonableness of the expenditure having regard to the prudent business practice from a fair and reasonable point of view. The AO's order nowhere seeks to benchmark the expertise of Mr. Preetpal Singh with any other consultant and proceeds on an assumption that he could not have performed mult ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
