9911796707
TMI Blog2018 (10) TMI 1816X X X X Extracts X X X X X X X X Extracts X X X X ..... vised return of income filed by the assessee. The brief facts of this issue are that the assessee filed its original return of income for the Asst Year 2011-12 on 17.11.2011 declaring total income of Rs. 54,56,160/-. The revised return of income was filed on 29.11.2012 declaring total income of Rs. 53,14,323/-. Admittedly this revised return was filed within the time limit prescribed u/s 139(5) of the Act. The ld AO while completing the assessment ought to have taken note of the same and computed the total income of the assessee. Hence we direct the ld AO accordingly. The Ground Nos. 1 & 2 raised by the assessee are allowed. 3. The Grounds 3 to 5 raised by the assessee are general in nature and does not require any specific adjudication . DETERMINATION OF ARM'S LENGTH PRICE 4. The only issue to be decided in these cross appeals is with regard to inclusion and exclusion of certain comparables for the purpose of determining the Arm's Length Price (ALP) of international transactions entered into by the assessee with its Associated Enterprise (AE). 5. The brief facts of this issue are that the assessee is engaged in the business of rendering software development services. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Business risk Limited Yes Product development Risk No Yes Service liability Risk Yes No Utilization risk Yes No Credit and collection risk Limited No Intellectual Property right risk No Yes Foreign exchange risk Yes No 5.3. The details of assets employed as on 31.3.2011 by assessee are as under:- Tangibie & Intengible Assets Amount (INR) Computer & Allied Equipment 4,031,308 Computer software 1,142,753 Office equipment and others 2,134,494 Furniture and fixtures 3,307,808 Motor car 34,156 Total 10,650,518 5.4. Based on the results of the functional, risk and asset analysis, the assessee concluded that it can be characterized as Software Service Provider bearing limited risks typically borne by captive service provider in IT industries. 5.5. For the international transaction under consideration, ASPL (i.e the assessee ) has been chosen as the tested party for the purposes of the Transfer Pricing Study due to the fact that it does not own any significant intangible and its profitability can also be reliably ascertained. 5.6. The parameters adopted by the assessee for rejecting the comparables are as under:- a) Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Limited 9.74% NA NA 9.74% 7 Larsen & Toubro Infotech Limited 15.84% 18.01% 15.22% 16.27% 8 LGS Global Limited 5.27% 14.95% 9.42% 9.52% 9 Maveric Systems Limited - 11.34% 12.65% 10.13% 0.85% 10 Mindtree Limited (Segmental) 9.17% 19.48% 4.58% 10.49% 11 Persistent Systems Limited 24.57% 28.92% 15.02% 22.64% 12 R S Software (India) Limited 15.91% 9.42% 10.63% 12.15% 13 R Systems International Limited(Segmental) 4.37% 15.49% 8.45% 9.34% 14 Sasken Communication Technologies Limited 26.24% 24.22% 13.77% 20.66% 15 Thinksoft Global Services Limited 0.60% 10.08% 17.48% 10.01% 16 Zylog Systems Limited 21.36% 14.47% 10.48% 15.56% Arithmetic Mean 7.73% 5.8. The assessee specifically stated in its Transfer Pricing Study Report that the risk profiles of independent companies usually differ from that of assessee , as they may undertake business risks, legal and contractual risks, etc. The effect of these functional and risk differences on profit margins, needs to be factored while determining the arm's length price. However, no adjustments have been made to account for such risk differenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies having turnover of less than Rs. 1 crore and more than Rs. 200 crores ; c) Rejecting companies having employee cost less than 20% of turnover ; d) Rejecting companies having related party transactions of more than 20% of sales ; e) Rejecting companies having service income less than 40% of the turnover. The TPO on his own identified certain comparables applying the aforesaid filters and arrived at the operating profit to operating cost of these companies and determined the arms length price of the international taxation as follows :- 6.2. The list of final comparables selected by the ld TPO, along with the margins is as follows : Sl. No. Name of the company PLI =OP/TC 1 8K Miles Software Services Ltd 41.77% 2 Aurum Soft Systems Ltd 19.35% 3 Lucid Software Ltd 41.98% 4 Sagarsoft (India) Ltd 26.79% 5 Spry Resources (India) Pvt Ltd 35.64% 6 Prelude Sys India Ltd 25.14% 7 R S Software Ltd 15.50% 8 Sankhya Infotech Pvt Ltd 29.08% 9 Zylog Systems (India) Ltd 33.21% 10 E-Infochips Bangalore Ltd 26.70% 11 ASM Technologies Ltd 18.52% 12 Onward Technologies Ltd 14.70% 13 Axis IT & T Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VAK Software & Exports Limited c. Goldstone Technologies Limited d. Helios & Matheson Information Technology Limited e. Larsen & Toubro Infotech Limited f. Mindtree Systems Limited g. Lucid Software Limited h. Sankhya Infotech Private Limited i. Prelude Sys India Limited j. 8K Miles Software Services Limited 7.1. The assessee submitted before the ld DRP that the ld TPO erred in computing profit margins of certain comparables . The ld DRP directed the ld TPO to verify the computational error if any and adopt the correct profit margins to arrive at the Arm's length margin of comparables. The ld TPO after incorporating the directions of ld DRP arrived at the final list of comparables as under:- Sl.No. Comparable PLI= OP/TC 1 Acropetal Technologies Ltd (segmented) 49.88% 2 Aurum Soft Systems Ltd 19.35% 3 Sagarsoft (India) Ltd 26.79% 4 Spry Resources (India) Pvt Ltd 21.62% 5 R S Software Ltd 15.50% 6 Zylog Systems (India) Ltd 41.60% 7 E-Infochips Bangalore Ltd 26.70% 8 ASM Technologies Ltd 18.36% 9 Onward Technologies Ltd 11.96% 10 Axis IT & T Ltd 25.36% 11 Thirdware Solutions Pvt Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and we hold that for the purpose of comparability, multiple year data i.e., the weighted average of three financial years of the comparable companies cannot be used in TP Analysis as per the laws that existed for AY 2010-11. The ld AR also fairly agreed that this ground is to be decided against the assessee. Accordingly, the Ground No. 6 raised by the assessee is dismissed. 9.1. The Ground No. 7 raised by the assessee was stated to be not pressed by the ld AR and the same is reckoned as a statement from the Bar. Accordingly, the Ground No. 7 raised by the assessee is dismissed as not pressed. 9.2. The Ground No. 8 raised by the assessee is with regard to comparables getting rejected solely on the basis of loss making enterpises or having diminishing profits. Since each of the comparable is addressed individually hereinbelow, we treat this ground to be general in nature. Hence we do not deem it necessary to address this Ground No. 8 and accordingly the same is dismissed. 10. The short point that arises for our consideration is the inclusion and exclusion of certain comparables against which both the assessee as well as the revenue are in appeal before us. Let u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. TPO, the assessee had stated that the employee cost was 15.91% of turnover of this comparable and that the same has been reduced to 11.51% of turnover before us, in any case, we find that the total employee cost is less than 20% of turnover in the case of this comparable, which remain undisputed before us. We find that the ld. DR vehemently opposed to various objections raised by the assessee with regard to different functions undertaken by the said comparable, however did not make any submissions for the employee cost filter not applied by the ld. TPO with regard to this comparable. We hold that the ld. TPO having applied the employee cost filter less than 20% turnover to reject the companies, ought to have rejected Acropetal Technologies Limited also in view of the aforesaid facts. Hence we direct the ld. TPO to reject from the list of the comparable. Since this comparable is sought to be excluded on the employee cost filter, no opinion is given herein in respect of other objections raised by the assessee. Accordingly, the Ground No. 9 raised by the assessee is allowed. 10.2. Zylog Systems (India) Ltd The assessee vide ground no. 13 prayed for exclusion of this comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies are concerned the facts are that admittedly the information regarding the financial statement of these two companies were not available in the public domain and the AO obtained the details about the financial results of these two companies by issuing notices u/s. 133(6) of the Act to these two companies. At the time of hearing the ld. Counsel for the assessee brought to our notice that E-Infochips Bangalore Limited was not considered as a comparable company by the Hon'ble ITAT in the case of another software development services company such as the assessee and that order of the tribunal is also in relation to A.Y.2010-11. Our attention was drawn to the decision of ITAT, Kolkata in the case of Labvantage Solution (P.) Ltd. v. Dy. CIT [2016] 76 taxmann.com 152 wherein the tribunal held that this company cannot be compared with a software service provider as this company was into both the business of Software Development Services (IT) as well as providing Information Technology Enabled Services (ITES) and also for the reason that segmental details of IT and ITES were not available. The following were the relevant observations of the Tribunal:- '8.3. Exclusion of Infin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgin as compared by the Ld. TPO should not be considered as comparable. The Ld. AR referred to page 591 of the Paper Book where the details of the fluctuation in the revenue, profit and margins has been provided. It is true that where company in which extraordinary events had taken place during the year like major acquisitions which had impact on profits of company, it could not be selected as comparable to assessee engaged in software development. We place reliance in this regard on the decision of Hyderabad Tribunal in the case of Excellance Data Research (P.) Ltd. v. i reported in [2016] 74 taxmann.com 13 (Hyd. - Trib.) dated 12.09.2016 for Asst Year 2010-11, wherein it was held that: 8. Having regard to the rival contentions and the material on record, we find that the DRP has directed the AO to consider whether the extra ordinary event of amalgamation during the year is found to have an impact on the profits of the company. We find that instead of carrying out the exercise, the AO has simply followed the order of the TPO in holding that the fact of amalgamation on the margin of the said company has no effect on the margin of the said company. This, in our opinion, is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany consequent to which, assets and liabilities of the erstwhile company were transferred and vested in the company w.e.f. 1st April, 2008 and the scheme has been given effect to in the accounts of the year. Therefore, it is clear that there is an extraordinary even in the case of Accentia Technologies Ltd., during the relevant financial year particularly since the approval of amalgamation has been given by the Hon'ble High Court of Mumbai vide orders dated 21st August, 2009 and by the Hon'ble Karnataka High Court vide orders dated 6th February, 2010. This event would definitely have an effect on the profit margins of the said company and therefore, has to be excluded from the list of comparables as rightly done by the DRP. Therefore, we do not see any reason to interfere with the order of the DRP on this company also. Accordingly, ground no. 3 of the Revenue is dismissed." Since, the order of the Tribunal in the case of Hyundai Motors India Engg. (P) Ltd. (supra) for the same A.Y., we direct the AO/TPO to exclude this company from the final list of comparables. 11. TCS e-Serve International Ltd. As regards the comparability of this company with the assessee, the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the ld TPO ought to have been excluded from the final list of comparables. No opinion is hereby given on the other objections raised by the assessee with regard to this comparable except related party transactions filter. Hence we hold that EInfochips Bangalore Limited should be excluded from the list of comparables for arriving at the arm's length margin. Accordingly, the Ground No. 10(a) raised by the assessee is allowed. 10.4. Sagarsoft (India) Limited The Ground No. 10(b) raised by the assessee is with regard to erroneous inclusion of Sagarsoft (India) Limited as a comparable while arriving at the arm's length margin. We find that the assessee had objected to the said inclusion on the ground that the same is functionally not comparable and the said comparable failing the related party filter. We find that the said comparable has related party transactions of 56.58% of operating revenue (540.86 lacs / 955.93 lacs*100) . The evidences in this regard are enclosed in pages 1213 and 1240 of Paper Book Volume II. We find that the ld TPO had applied one of the filters for rejecting the comparables where related party transactions are more than 20% of sales. In the instant cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses of Rs. 4904 lakhs which works out to 24.34% . This is only when the expenses considered separately vis a vis the related parties. But we find that the ld TPO had applied the filter for rejecting companies where the related party transactions are more than 20% of sales. Hence we reject the contention of the ld AR in this regard and accordingly RPT filter cannot be applied in the instant case. With regard to inclusion of this comparable by the ld. TPO, we find that there is absolutely no discussion in the order of the ld. TPO. From the annual report of the said comparable, we find that the said company provides consulting services in Enterprise Solutions for the packaged ERP implementation, Enterprise Product Development , Engineering Services and in Technology Solutions covering Embedded Systems and System Software to its global clientele. It also offers a broad spectrum of enteprise services such as configuration, implementation, customization , end-user training and documentation, post implementation support and maintenance across leading commercial off-theshelf products like SAP, Oracle Applications, PeopleSoft, JD Edwards and Microsoft Dynamics. Service offerings includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew client acquisitions will be through addition of specialized sales and delivery professionals across geographies, through new company acqusitions and specializations in more Industry Verticals which offer high growth. Hence we find that the said comparable was involved in acquistions during the year under consideration and also in the process of acquiring more companies in future to expand its business horizons thereby making it strictly not comparable with the assessee company herein. Hence in view of these extraordinary factors; in the absence of segmental data with different streams of revenue and especially in the absence of any discussions in the order of the ld TPO with regard to this comparable, we have no hesitation in directing the ld TPO to exclude this company from the list of comparables while arriving at the arm's length margin. Accordingly, the Ground No. 10(d) raised by the assessee is allowed. 10.7. Thirdware Solutions Private Limited The ld TPO included this company in the list of comparables while arriving at the arm's length margin. The company is engaged into software product sale and R&D functions. For financial year 2009-10 (Asst Year 2010-11), it is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral cases decided by various benches of the Tribunal on the comparability of this company with a software development service provider such as the Assessee. We deem it appropriate to make mention of onlyh one such decision rendered by the ITAT Ahmedabad Bench in the case of I-Many Software (P.) Ltd. IT (TP) 222/Ahd/2015 order dated 27.10.2016 which is in relation to AY 2010-11 and rendered in the context of a software development service provider such as the Assessee. 22. We have considered the submissions of the learned counsel for the Assessee as well as the learned DR who relied on the directions of the DRP. We find that in the case of I-Many Software (P.) Ltd. (supra) comparability of this company with a software development services company such as the Assessee was considered and it was held that this company is not a good comparable. The following were the relevant observations of the Tribunal. '10. We have heard the rival contentions and perused the material on record. Solitary" grievance of the assessee through this ground is against the order of Id. ORP for approving the selection of comparable namely Thirdware Solution Ltd. by TPO. We observe that assessee is en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;Sales' to the tune of Rs. 52,27 crore including from export from SEZlSTPI units. When we consider the figures of this company on an entity level as have been adopted by the TPO for comparison, it becomes vivid that it ceases to be comparable with the assessee's 'Software development and maintenance support services' segment. The reason hardly needs any highlighting, being the income of this company also largely including, revenues from exports from SEZlSTPI units apart from sale of licence. These distinguishing features make this company as non comparable. We, therefore, order for the removal of this company from the list of comparables." (Emphasis Supplied by us) Further the Co-ordinate Bench Delhi in the case of Avaya India (P.) Ltd. v. Addl. CIT (ITA No. 5528/Del.l2011) has observed that Thirdware Solutions has made income from sale of licence to the tune of more than Rs. 1 crore, which means the company is into production of software products and therefore, functionally different from contract software developer assessee. The relevant extract of the decision is reproduced below- "12. 1 . . . (xxv) . . . We have heard both the parties and perused the mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s with regard to erroneous inclusion of Axis IT & T Ltd as a comparable while arriving at the arm's length margin. With regard to inclusion of this comparable by the ld. TPO, we find that there is absolutely no discussion in the order of the ld. TPO. From the annual report of the said comparable, the ld AR drew our attention that the said company is more focused on engineering design services and had exited from software services in December 2010. We find that the assessee had objected to the said inclusion on the ground that the same is functionally not comparable; that the said comparable failing the related party filter and service income filter fixed by the ld TPO in his order. The ld AR argued that it could be seen from the annual annual report of the said company, more than 90% of the revenue is from engineering CAD services . There is no availability of segmental data and segmental margins in respect of each activity are not available in the annual report. There is no discussion about this comparable in the order of the ld TPO to ascertain whether any information has been gathered by the ld TPO u/s 133(6) of the Act separately from the said company during the course of trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. Accordingly, the Ground No. 11 raised by the assessee is dismissed. 11. Ancent Software International Limited (currently known as Nakshatra Infrastructure Limited) The Ground No. 14 raised by the assessee is with regard to the comparable chosen by the assessee but rejected by the ld TPO in respect of Ancent Software International Limited. The ld TPO rejected this comparable stating that it is a loss making company. The ld AR argued that persistent loss making companies was not one of the filters set by the ld TPO for rejecting a company from the list of comparables. Hence on that ground itself, he argued that the ld TPO ought to have included the same in the list of comparables. We find from the financials of the said company for the last three years enclosed in page 202 of Paper Book Volume I that the said company had made operating profits after depreciation of Rs. 6,54,936/- and Rs. 1,49,504/- for the years ended 31.3.2008 and 31.3.2009 respectively and had incurred operating loss after depreciation of Rs. 2,63,491/- during the year under consideration only. Hence it cannot be considered as company making persistent losses. Hence the rejection of this company from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO from the list of comparables. Accordingly, the Ground No. 15 raised by the assessee is dismissed. 11.2. CG-VAK Software and Exports Limited The Ground No. 16 raised by the assessee is with regard to the comparable chosen by the assessee but rejected by the ld TPO in respect of CG-VAL Software and Exports Limited. The ld TPO rejected this comparable stating that it is engaged into medical transcriptions which is different from the assessee and hence not functionally comparable. The ld AR argued that the company is engaged in the business of software services and also into medical transcription and that for the purpose of comparability, the assessee had only used the date for software segment of the said company. He referred to the relevant pages in the annual report of the said company in support of his contentions and pleaded that the same be included in the list of comparables while computing the arm's length margin. We find that in Asst Year 2010-11 in assessee's own case, the ld TPO had accepted the said company as functionally comparable but had finally rejected on the ground that it was incurring persistent losses during the said time. It was also pleaded at that time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is remanded to the file of ld TPO with similar directions that were given for Asst Year 2010-11 by this tribunal. Accordingly, the Ground No. 16 raised by the assessee is allowed for statistical purposes. 11.3. Maveric Systems Limited and Thinksoft Global Services Ltd We find that the ld TPO had rejected Maveric Systems Ltd on the ground that the services rendered by the said company include software testing services and not software development services and hence not functionally comparable with assessee. Similarly the ld TPO had rejected Thinksoft Global Services Ltd on the ground that the company is primarily engaged into delivering software validation and verification services to the banking and financial services industry. Such services are not in the category of software development services like assessee and hence not functionally comparable with assessee. The ld AR placed on record the order of the ld DRP passed in assessee's own case for the Asst Year 2012-13 (i.e the subsequent year) vide order dated 22.9.2016 wherein it had accepted these two companies as functionally comparable with assessee. He also argued that the same functions were performed by both the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied one of the filters that companies having different financial years with that of the assessee should be rejected. In order to maintain consistency in the said stand the ld AR fairly agreed for dismissal of this ground raised by the assessee. Accordingly, the Ground No. 18 raised by the assessee is dismissed. 11.6. Larsen &Toubro Infotech Limited This company was rejected by the ld TPO from the list of comparables by applying the turnover filter of INR 1 crore to INR 200 crores. The ld AR fairly stated that he is not pressing this ground before us as the same is in consonance with the filters applied by the ld TPO in his order. In order to maintain consistency in the said stand, the ld AR fairly agreed for dismissal of this ground raised by the assessee as not pressed. Accordingly, the Ground No. 19 raised by the assessee is dismissed as not pressed. 12. The Ground No. 20 is raised by the assessee with regard to incorrect computation of margins of (a) Acropetal Technologies Ltd (segmental) ; (b) ASM Technologies Limited ; (c ) Spry Resources India Private Limited and (d) Zylog Systems (India) Ltd without prejudice to the exclusion of the same from the list of comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the service providers like the Assessee. While calculating the operating profit margin, the financial expenses and financial income is removed. Thus, the effect of working capital/loans are negated while calculating the OPM and the said balance sheet item does not have any effect on the profit and loss account. In view of the above the decision of the TPO in not allowing working capital adjustment is upheld." 43. Before us the learned counsel for the Assessee has filed a decision of the ITAT Bangalore in the case of Unisys India (P.) Ltd. v. Dy. CIT [2015] 60 taxmann.com 26 (Bang. - Trib.). On the need for allowing working adjustment in determining ALP, the ITAT Mumbai in the case of Capgemini India (P.) Ltd. v. Asstt. CIT [2013] 33 taxmann.com 5/[2014] 147 ITD 330, held as follows: "35. The issue was taken before DRP before whom it was pointed out that the ITAT in its own case in 2007-08 has allowed the working capital Capgemini India Private Limited IT (TP) A 540/Mum/2014 adjustment. The DRP simply sustained the order of the AO on the issue, without referring to the decision of the ITAT in its own case. 36. Before us, on the issue of working capital adjustment, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as the comparables and allow adjustments in accordance with law, after affording opportunity of being heard to the Assessee. We may also add that the DRP in Assessee's own case for AY 2012-13 in its order dated 22.9.2016 allowed claim of the Assessee for adjustment on account of working capital. A copy of the said order is also placed on record. The assessee is also directed to furnish the relevant working capital adjustments and adjustments due to risk differences to be made in the final list of comparables as determined pursuant to this tribunal's order, before the ld TPO. The ld TPO is directed to verify the same and give suitable adjustments in the net margins of the final comparables while arriving at the arm's length margin. Accordingly, the Ground Nos. 21 & 22 raised by the assessee are allowed for statistical purposes. 14. Lucid Software Limited The assessee rejected this company in the list of comparables while benchmarking its international transactions. The ld TPO included this company in the list of comparables while computing the arm's length margin on the ground that the same is functionally comparable with the assessee. This was rejected by the ld D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivities. Against this, the revenue is in appeal before us. We find that the said comparable has related party transactions of 87.20% of operating revenue (11,33,13,326 / 12,99,41,874*100) . The evidences in this regard are enclosed in pages 665 and 696 of Paper Book Volume II. We find that the ld TPO had applied one of the filters for rejecting the comparables where related party transactions are more than 20% of sales. In the instant case, the said comparable is having related party transactions of 87.20% of sales. Hence the same even according to filters applied by the ld TPO ought to have been excluded from the final list of comparables. No opinion is hereby given on the other objections raised by the assessee with regard to this comparable except related party transactions filter. Hence we hold that Prelude Systems India Limited should be excluded from the list of comparables for arriving at the arm's length margin. Accordingly, the Ground No. 2 raised by the revenue in respect of Prelude Systems India Limited is dismissed. 14.2. 8K Miles Software Services Ltd The assessee rejected this company in the list of comparables while benchmarking its international transactions. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 298,67,66,057/-. We find that the ld TPO had applied one of the filters for rejecting companies having turnover more than Rs. 200 crores. Hence we hold that the ld TPO had rightly rejected this company from the list of comparables. Accordingly, the Ground No. 1 raised by the revenue is allowed. 15. The Ground Nos. 3 & 4 raised by the revenue are general in nature and does not require any specific adjudication. 16. The Ground Nos. 23 & 24 raised by the assessee are with regard to the disallowance u/s 14A of the Act under normal provisions of the Act. In view of the smallness of the amount, the ld AR did not press these grounds. Accordingly, the Ground Nos. 23 & 24 are dismissed as not pressed in view of smallness of the amount involved thereon. 17.The Ground No. 25 raised by the assessee is with regard to disallowance u/s 14A of the Act in the computation of book profits u/s 115JB of the Act. The assessee had earned dividend income of Rs. 17,83,937/- from mutual funds. The assessee had made suo moto disallowance u/s 14A of the Act by considering 10% of salary and other allowances of the Finance & Administrative Staff of the assessee and attributed the same as incurred for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is not one of the adjustments contemplated under Explanation 1 Section 115JB(2) of the Act and, therefore, could not have been added back to the book profits under Section 115JB. 37. The case-law relied upon by the Ld. Sr. DR i.e. decision of the Special Bench in the case of the Tribunal in Rain Commodities (supra) does not also advance the case of the Revenue. In that case the Special Bench was considering whether the AO can alter the net profits declared by an assessee. The Special Bench has, following the decision the apex Court in Apollo Tyres and HCL Comnet (supra), inter alia, held that the AO cannot travel beyond the net profits declared by the assessee unless (a) it is discovered that profit and loss account is not drawn up in accordance with Part II and Part III of Schedule VI of the Companies Act, or (b) the incorrect accounting policies, accounting standards have been adopted for preparing such accounts and the method/rate of depreciation has been incorrectly adopted for preparation of profit and loss account. 38. In the present case there is no allegation is the assessment order much less any finding that either that profit and loss account has not been drawn u ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
