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TMI Blog2021 (2) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act do not apply to the fact situation of the case. In the result, the second substantial question of law is answered against the revenue and in favour of the assessee. TP Adjustment - Disallowance of depreciation claimed on Software Expenses - direction issued by the Tribunal to the Transfer Pricing Officer to exclude depreciation from the cost of tax payer as well as comparables and directing the Assessing Officer / Transfer Pricing Officer to re-work the depreciation - Rule 10B of the Rules Applicability - method in which comparability analysis is to be conducted under the transactional net margin method - HELD THAT:- There is a need for making an adjustment to eliminate the differences in the accounting policies of the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 40(a)(ia) of the Act by following its earlier order in case of Kawasaki Micro Electronics in IT(TP)A No.1512/Bang/2010 dated 26.06.2015 even when assessing authority rightly held that payment for purchase of software was in the nature of 'royalty' in terms of Explanation 2 to Section 9 (1)(vi) of the Act? (2) Whether on the facts and in the circumstances of the case, the Tribunal is right in setting aside disallowance made under Section 14A of the Act without the same is made in accordance with Rule 8D of I.T. Rules? . Thereafter, additional substantial question of law was formulated which reads as under: Whether the direction issued by the Tribunal to the Transfer Pricing Officer to exclude depreciation from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 8,72,47,691/- and total income of the assessee was determined at ₹ 21,51,59,762/-. 3. The assessee filed objections before the Dispute Resolution Panel, which vide direction dated 23.12.2014 reduced the transfer price adjustment made by the Transfer Pricing Officer by granting an adjustment towards depreciation as prayed by the assessee and the disallowance made under Section 40(a)(i)(a) of the Act was confirmed whereas disallowance under Section 14A of the Act was deleted. The Assessing Officer thereafter passed a final order of assessment on 29.01.2015. The revenue thereupon filed an appeal before the Income Tax Appellate Tribunal. On receipt of notice of the appeal filed by the revenue, the assessee filed cross-objections to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A read with Rule 8D of the Rules. In support of aforesaid submission, reliance has been placed on the decision of this Court in 'THE COMMISSIONER OF INCOME-TAX Vs. M/s. KINGFISHER FINVEST INDIA LTD.' IN ITA NO.100/2015 DECIDED ON 29.09.2020. 5. On the other hand, learned counsel for the assessee submitted that Rule 10B of the Rules provides for the method in which comparability analysis is to be conducted under the transactional net margin method. It is pointed out that under sub-clause (i) of Rule 10B(1)(e) of the Rules, the net profit margin realized by the tax payer from an international transaction is computed having regard to a relevant base that is cost incurred and sales effected, etc. It is further submitted that sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not arise for consideration. Therefore, we need not deal with the same. Sofar as second substantial question of law is concerned, this Court in ITA No.416/2014 decided on 12.01.2021, has held that if no exempt income has accrued to the assessee the provisions of Section 14A do not apply. However, reliance placed by the learned counsel for the revenue on the decision in the case of KINGFISHER FINVEST LTD., supra, is concerned, suffice it to say that reliance was placed in the aforesaid decision on the decision in MAXOPP INVESTMENT LTD. Vs. COMMISSIONER OF INCOME-TAX, NEW DELHI' (2018) 402 ITR 640 (SC). It is pertinent to note that the decision MAXOPP INVESTMENT LTD, supra, does not deal with the issue of applicability of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealized under sub-clauses (1) and (ii) is done, the net margin realized under sub-clause (ii) must be adjusted to take into account the differences which could materially affect the net profit margin in the open market. So also, in terms of Rule 10B(3), an uncontrolled transaction shall be considered comparable if none of the differences between the comparable companies and the controlled transaction are likely to materially affect the profit arising from such transactions in the open market or reasonably accurate adjustments can be made to eliminate the material effect of such differences. Since the respondent has a policy of charging a higher rate of depreciation as compared to the companies selected by the TPO, there is a definite impact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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