2019 (1) TMI 1580 - HC - Income Tax

Appeal dismissed for lack of legal questions. Upheld disallowance under Section 35D. Transfer pricing issues require evidence.

The Pr. Commissioner of Income Tax­6, Pune Versus John Deere India Pvt. Ltd.,  

The appeal was dismissed as no substantial questions of law were entertained. The Tribunal's decision to disallow the claim under Section 35D and not make ... Disallowance u/s 14A - addition u/s 35D already been made - double addition - HELD THAT:- Once an allowance claimed under Section 35­D of the Act has been disallowed, then the same is added to the income of the Assessee. Thus, there can be no occasion to disallow the same amount under Section 14­A of the Act and add it to the income of the Assessee. Allowing the disallowance under Section 14A of the Act as claimed by the Revenue, would amount to double disallowance as correctly held by the Tribunal. Disallowance of deduction u/s. 10A - ITAT deleted addition on account of disallowances made u/s. 40(a)(ia) and 43B - HELD THAT:- It is an agreed position between the parties that the issue raised herein stands concluded in favour of the Assessee and against Revenue by the decision of this Court in CIT v/s. Gem Plus Jewellery India Pvt. Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT] TP adjustment - computation of income from international transactions - comparable selection - HELD THAT:- VJIL Consulting Ltd., (VJIL) - The view taken by the Tribunal to include M/s. VJIL as a comparable on the ground that it is not a persistent loss making company, is not shown to be perverse. Thus, no interference is warranted. Thus, the proposed question is not entertained. M/s. FCS Software Solutions Ltd. - Tribunal on examination of facts found that the comparable M/s. FCS Software Solutions Ltd., had income from its software development service (comparable with the activity of the Respondent) to the extent of 99.99% of the total revenue. Thus, on the above facts, the Tribunal came to a finding of fact that M/s. FCS Software Company is a comparable to the Respondent for the purpose of arriving at the ALP on application of the TNM Method of the Respondent's transactions with its AE' - this finding of fact by the Tribunal does not give rise to any substantial question of law M/s. Infosys Technologies Ltd., cannot be held as a comparable. This on application on functions, assets and risks test. It being a giant company has larger profits and, therefore, is not a comparable with a company which is smaller in size. M/s. Transworld India Ltd. - revenue derived from exports of software was just 2.21% of its total revenue while Respondent derived 100% of its revenue for export of software. Thus, the filter which was adopted by the TPO of excluding companies having less then 25% of its earnings from export was adopted by the Tribunal. This resulted in M/s. Transworld India Ltd., being excluded from the list of comparables. KALS Information Solutions Ltd., (KALS) and M/s. Helios & Matherson Information Technology Ltd., (M/s. Helios & Matherson) - As relying on PTC SOFTWARE (I) PVT. LTD. [2016 (9) TMI 1282 - BOMBAY HIGH COURT] it is not functionally similar to the Respondent. IRCA Online Ltd. - was engaged in a functionally different business from that of the Respondent­Assessee company. This inasmuch as the ICRA Online Ltd., was engaged in the development of various products for mutual funds houses such as MFI Explorer. Respondent­Assessee provided business support services to its AE's. Thus, concluding that M/s. ICRA Online Ltd., has to be excluded from the list of comparables. Issues Involved:(a) Double addition under Section 14A and Section 35D.(b) Disallowance of deduction under Section 10A due to Sections 40(a)(ia) and 43B.(c) Inclusion of loss-making company VJIL as a comparable.(d) Inclusion of Quintegra as a comparable company.(e) Exclusion of Infosys as a comparable.(f) Exclusion of Transworld Infotech Ltd. as a comparable.(g) Exclusion of KALS Information Solutions Ltd. and Helios & Matherson Information Technology Ltd. as comparables.(h) Exclusion of ICRA Online as a comparable.Issue-wise Detailed Analysis:Re Question (a):(i) The Respondent incurred an expenditure of Rs. 33.17 lakhs for increasing its share capital and claimed deduction under Section 35D of the Act. The Assessing Officer disallowed the claim under Section 35D and also disallowed the same amount under Section 14A, which was objected to by the Respondent but rejected by the DRP.(ii) The Tribunal held that once a claim under Section 35D is disallowed, there can be no further addition under Section 14A as it would amount to double disallowance.(iii) The Court agreed with the Tribunal, stating that allowing disallowance under Section 14A would indeed result in double disallowance.(iv) The question did not give rise to any substantial question of law and was not entertained.Re Question (b):(i) The issue was agreed upon by both parties to be concluded in favor of the Respondent-Assessee by the decision in CIT v/s. Gem Plus Jewellery India Pvt. Ltd., 330 ITR 175.(ii) The question did not give rise to any substantial question of law and was not entertained.Re Questions (c) to (h):These questions pertain to the computation of income from international transactions and the inclusion/exclusion of certain companies as comparables. The Court reiterated its view from CIT v/s. Barclays Technology Centre India Pvt. Ltd., 409 ITR 138, emphasizing that appeals on transfer pricing issues should not be filed in a ritualistic manner unless there is evidence of perversity or failure to adhere to settled principles of law.Re Question (c):(i) The Tribunal included VJIL as a comparable, noting it was not a persistent loss-making company.(ii) The Revenue's new argument that VJIL is not comparable due to the cost+ method was not raised before the Tribunal and thus could not be considered.(iii) The Tribunal's view was not shown to be perverse, and the question was not entertained.Re Question (d):(i) The Tribunal included FCS Software Solutions Ltd. as a comparable, finding that 99.99% of its revenue was from software development services, similar to the Respondent.(ii) This finding of fact did not give rise to any substantial question of law and was not entertained.Re Question (e):(i) The Tribunal excluded Infosys Technologies Ltd. as a comparable due to disparity in size, turnover, assets, and risks.(ii) The Tribunal's decision was supported by the Delhi High Court's decision in CIT v/s. Agnity India Technologies Pvt. Ltd.(iii) The question did not give rise to any substantial question of law and was not entertained.Re Question (f):(i) The Tribunal excluded Transworld India Ltd. as a comparable because only 2.21% of its revenue was from software exports, while the Respondent derived 100% of its revenue from software exports.(ii) The Tribunal's finding was not shown to be incorrect, and the question was not entertained.Re Question (g):(i) The Tribunal excluded KALS Information Solutions Ltd. and Helios & Matherson Information Technology Ltd. as comparables, relying on a previous decision in PTC Software India Ltd.(ii) The issue was concluded by the decision in PTC Software India Ltd., and the question was not entertained.Re Question (h):(i) The Tribunal excluded ICRA Online from the list of comparables, finding it engaged in functionally different business activities.(ii) The Revenue could not point out any flaw in the Tribunal's finding, and the question was not entertained.Conclusion:The appeal was dismissed, and no substantial questions of law were entertained. No order as to costs.