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TMI Blog2025 (3) TMI 1381X X X X Extracts X X X X X X X X Extracts X X X X ..... in law in enhancing the income of the Appellant by INR 6,97,29,898/- pertaining to provision of information technology enabled services ("ITeS") and INR 54,08,684/- pertaining to provision of software development services ("SDS"), to associated enterprises ("AEs") that do not satisfy the arm's length principle envisaged under the Act and in doing so, have grossly erred in: 2.1. erroneously rejecting the economic analysis undertaken by the Appellant in the Transfer Pricing ("TP") documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ("Rules"); 2.2. conducting a fresh comparability analysis based on the application of erroneous additional/ revised filters in determining the arm's length price for the Appellant and rejecting the filters applied by the Appellant in the TP documentation; 2.3. excluding certain comparable companies on arbitrary/frivolous grounds; 2.4. erroneously including certain functionally dissimilar companies that are full-fledged risk-taking entrepreneurs and high profit making companies; 2.5. committing factual / computational errors while computing the Appellant's operating margin and working ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he working capital adjusted arm's length range of comparables as he has erroneously subtracted working capital adjustment percentage (i.e. difference of working capital ratio of tested party and comparable) from the operating margins (as computed by TPO in order dated July 26, 2021, instead of adding working capital adjustment percentage in margins earned by comparables. 5. Then, without prejudice to the above, Ld. AR has tried to build a case that that the operating margin of Appellant i.e. 9.18% (as computed by TPO) and 9.70% (as computed by the Appellant), falls within the range, thereby requiring no adjustment in the ITeS segment of the Appellant. As with regard to addition in SDS Segment it was submitted by the ld. AR that even if the correct working capital adjustment is computed on the margins used by TPO in initial order dated July 26, 2021, the working capital adjusted arm's length margin i.e median of the comparables (using margins computed by TPO for comparables) comes out to be 16.12% instead of 19.85% as computed by the TPO. It is also pleaded that there was erroneous computation of margin of comparables in SDS segments and that will lead to operating margin of appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing grounds:- "3. On facts and circumstances of the case and in law the Ld. AO/ Learned Dispute Resolution Panel ('Ld. DRP') erred in rejecting the deduction of INR 55,41,779 claimed under section 80G of the Act. The Ld. AO/ Ld. DRP has grossly erred in: 3.1. interpreting the provisions of section 80G of the Act in light of provisions of section 37 read with section 135 of the Companies Act, 2013, thereby, ignoring that the provisions of section 37 and section 80G of the Act are laid down on a different footing. 3.2. travelling beyond the provision laid under the Act and wrongly interpreting the provisions of section 135 under Companies Act, 2013 as putting a restriction on the deduction available under section 80G of the Act. 3.3. facts and circumstances of the case and in law by holding that for the payment to constitute a donation it must satisfy the test of voluntariness by placing reliance on the Hon'ble Supreme Court decision in the case of Commissioner of Expenditure Tax, Andhra Pradesh v. PVG Raju, Rajah of Vizianagaram [1976 SCR (1)1017], 3.4. facts and circumstances of the case and in law by ignoring the manner in which the law has been laid under section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 and other few other judgments. 10. In regard to the ground no. 3 with its sub-grounds we find that this issue has been extensively dealt by co-ordinate bench in ITA No. 95/DEL/2024, case titled Interglobe Technology Quotient Private Limited (supra), where one of us, judicial member, was also in quorum, and relevant part is reproduced as below: "7.1 Further, we like to observe that as a matter of fact as per Section 135 of the Companies Act, 2013 ('CA 2013), the qualifying Companies as mentioned therein are required to spend certain percentage of profits of last three years on activities pertaining to Corporate Social Responsibility (CSR). The expenditure on CSR, could be by way of expenditure on projects directly undertaken by said companies, such as setting up and running schools, social business projects, etc. Such expenditure would include expenditure otherwise falling for consideration under section 37(1) of the Act. On the other hand, companies, instead of undertaking or participating directly in a project, may choose to give donations to institutions that are engaged in undertaking such projects, which is also a recognized way of compliance of CSR obligation. 7.2 The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Section 80G(1) of the Act provides that in computing the total income of an assessee, there shall be deducted, in accordance with the provisions of this section, such sum paid by the assessee in the previous year as a donation. Further, section 80G(2) lists down the sums on which deduction shall be allowed to the assessee. Section 80G falls in Chapter VIA, which comes into play only after the gross total income has been computed by applying the computation provisions under various heads of income, including the Explanation 2 to section 37(1) of the Act. Thus, there is no correlation between suo-moto disallowance in section 37(1) and claim of deduction under section 80G of the Act. 7.5 As with regard to the reasoning that CSR expenditure are not voluntary but mandatory in nature due to penal consequences, we are of considered view that voluntary nature of donation is by nature of fact that it is not on the basis of any reciprocal promise of donee. The CSR expenditures are also without any reciprocal commitment from beneficiary being philanthropic in nature. The Act permits deduction of donations as per Section 80G of the Act, even though, assessee is not gaining any benefit out ..... X X X X Extracts X X X X X X X X Extracts X X X X
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