2018 (12) TMI 1664 - AT - Income Tax

Tribunal dismisses Revenue's appeal, partly allows assessee's Cross Objection, and makes various modifications.

The Revenue's appeal was dismissed, and the Cross Objection by the assessee was partly allowed. The Tribunal upheld the exclusion of Accentia Technologies ... TP Adjustment - Comparable selection - HELD THAT:- Accentia Technologies Ltd. company is having its revenue from three sources, namely, medical transcription, coding and software development. Thus due to non-availability of segmental information and extraordinary events occurred during the year, this company cannot be considered as comparable. Cat Technologies Ltd. - this company is primarily a software development company and, therefore, in absence of segmental information, this cannot be compared with the assessee company as a comparable. The various decisions relied on by the ld. counsel also supports his case. Under these circumstances, we do not find any infirmity in the order of the CIT(A) in excluding this company from the list of comparables. Denial of opportunity to the TPO before admitting the additional evidence in case of Accentia Technologies Ltd., regarding acquisition, etc. - we find the same is without any merit. All these details are very much available in the audited accounts in the form of Notes to Accounts, therefore, there was no necessity of giving any opportunity to the Assessing Officer. Therefore, the ground No.2 raised by the Revenue is also dismissed. Disallowance u/s 14A r.w.r. 8D - HELD THAT:- It is an admitted fact that the assessment year involved in A.Y. 2007-08. Therefore, in view of various decisions, the provisions of Rule 8D are not applicable for assessment year 2007-08. Therefore, the action of the AO in applying the provisions of Rule 8D is incorrect. However, since the assessee has earned dividend income of ₹ 2,52,976/- and has substantial investment in shares of various companies, therefore, it cannot be said that no expenditure has been incurred by the assessee for making the investment and earning the exempt dividend income. Disallowance on estimate for this year under the facts and circumstances of the case will meet the ends of justice. We, therefore, modify the order of the CIT(A) and direct the Assessing Officer to disallow an amount of ₹ 30,000/- u/s 14A of the IT Act. Ground No.8 is accordingly partly allowed. Double disallowance being loss on sale of fixed assets since the said loss was suo moto disallowed by the assessee - HELD THAT:- We restore this matter to the file of AO with a direction to verify the claim of the assessee and adjudicate the issue afresh. Needless to say, the Assessing Officer shall give due opportunity of being heard to the assessee and decide the issue as per the fact and law. Ground of appeal No.9 is accordingly allowed for statistical purposes. Issues Involved:1. Exclusion of Accentia Technologies Ltd. and Cat Technologies Ltd. from the list of comparables.2. Disallowance under Section 14A of the IT Act.3. Double disallowance of loss on sale of fixed assets.4. Levy of interest under Section 234B.5. Admissibility of additional ground regarding working capital adjustment.Detailed Analysis:1. Exclusion of Accentia Technologies Ltd. and Cat Technologies Ltd. from the list of comparables:The Revenue's appeal challenged the CIT(A)'s decision to exclude Accentia Technologies Ltd. and Cat Technologies Ltd. from the list of comparables for determining the Arm's Length Price (ALP) of international transactions. The Tribunal upheld the CIT(A)'s decision, noting that Accentia Technologies Ltd. had revenue from medical transcription, coding, and software development without segmental details and had undergone significant acquisitions during the year. This made its financials non-representative of the medical transcription business. Similarly, Cat Technologies Ltd. had income from medical transcription, software development, and training, with no segmental details provided, making it primarily a software development company. The Tribunal found no merit in the Revenue's claim that the CIT(A) did not give the TPO an opportunity to examine additional evidence, as the necessary details were available in the audited accounts.2. Disallowance under Section 14A of the IT Act:The assessee contested the disallowance of Rs. 3,65,386 under Section 14A of the IT Act. The Tribunal noted that Rule 8D was not applicable for the assessment year 2007-08. However, since the assessee had earned dividend income and had substantial investments, some expenditure must have been incurred. The Tribunal modified the disallowance to Rs. 30,000 on an estimated basis.3. Double disallowance of loss on sale of fixed assets:The assessee claimed a double disallowance of Rs. 1,82,711 for the loss on the sale of fixed assets. The Tribunal restored the matter to the Assessing Officer for verification and directed that the issue be adjudicated afresh after giving the assessee an opportunity to be heard.4. Levy of interest under Section 234B:The Tribunal dismissed the ground related to the levy of interest under Section 234B, noting that it is mandatory and consequential in nature.5. Admissibility of additional ground regarding working capital adjustment:The assessee raised an additional ground for working capital adjustment to the operating margins of comparable companies. The Tribunal admitted this ground for adjudication, referring to the decisions of the Hon'ble Supreme Court in NTPC Ltd. vs. CIT and CIT vs. Nelliappan.Conclusion:The appeal filed by the Revenue was dismissed, while the Cross Objection filed by the assessee was partly allowed for statistical purposes. The Tribunal upheld the exclusion of Accentia Technologies Ltd. and Cat Technologies Ltd. from the list of comparables, modified the disallowance under Section 14A to Rs. 30,000, and restored the issue of double disallowance of loss on sale of fixed assets to the Assessing Officer for verification. The levy of interest under Section 234B was upheld as mandatory and consequential.