2017 (2) TMI 1471 - AT - Income Tax

Tribunal Orders Rectification of TDS, Tax Credits, and Interest, Upholds Exclusion of Companies for Functional Dissimilarity.

The ITAT upheld the exclusion of three companies from the TPO's list, agreeing with the DRP on functional dissimilarity. It directed the AO to delete ... TP Adjustment - comparable selection - HELD THAT:- TCS e-Serve Limited - Following the turnover filter as well as taking note of the fact that it owns and possesses brand value and intangibles as compared to the assessee which does not own such assets, we direct that this company be excluded from the list of final comparables. M/s. E-clerx Services Ltd is to be excluded on the ground that it is a KPO. M/s. Infosys Ltd to be excluded on exceptional circumstance and dissimilar functionality and operating in a different business strategy as relying on M/s Hyundai Motors India Engineering P. ltd [2015 (11) TMI 1648 - ITAT HYDERABAD] Disallowance of an amount towards TDS payable on contracts and towards salaries invoking the provisions of Section 43B - HELD THAT:- Disallowance made by the AO is not according to the provisions of law. The TDS if any not paid or short paid, the same can be recovered by separate proceedings but the same cannot be disallowed u/s. 43B, as the said TDS is not allowable deduction to assessee. It is out of the payments payable to contractors/salaries, TDS is being deducted on behalf of the government. Since the TDS amount itself is not a claim made u/s. 37(1), disallowance of the same does not arise. AO is directed to delete the same. Interest on short term deposit - contention of the Ld. Counsel that the amount as shown in Form 26AS was only ₹ 4,05,38,239/-, whereas assessee offered ₹ 4,09,27,183/- which was more than amount shown in Form 26AS - HELD THAT:- We have examined the petition u/s. 154 filed before the AO as well as the contentions before the DRP and the copy of the Form 26AS filed before us at page 76. The basis for the AO’s observation of higher amount is not forthcoming from the record. In spite of direction from the DRP, AO has not followed the verification or the petition u/s. 154 was disposed-off. We are of the opinion that there is no basis for making such addition, after verification of the details filed by the assessee. Accordingly, AO is directed to delete the amount. Short TDS credit - HELD THAT:- Assessee claimed an amount of ₹ 67,79,643/- in the return of income, whereas the AO allowed only ₹ 63,27,723/- in the final order without giving any basis for the same. AO is directed to verify the record and allow the claim after due verification. Ground is allowed for statistical purposes. Disallowing the claim of set off of brought forward losses - HELD THAT:- There is no discussion in the order about the set off of losses and inspite of directions from the DRP, the same were not allowed. Ld. Counsel fairly admitted that these losses are subject to the orders in earlier years, accordingly, we direct the AO to verify the past record and determine the losses to be brought forward and allow the set off as per the provisions of law. Ground is considered allowed. Levy of tax and interest on distributable profit u/s. 115-O - HELD THAT:- There is no basis for levy of interest on the amount as was done by the AO. Even if one day is excluded, then, the period of payment will be within the statutory provisions as provided. Further, as seen from the part B of Form 26AS placed on record, it indicate that amount of ₹ 5,77,830/- pertains to dividend tax was remitted on 6th January, 2010 itself. Since the payment was within the limits as provided, question of levy of interest does not arise. Accordingly, ground of assessee is allowed. AO is directed to withdraw the levy of taxes and interest. Levy of interest u/s. 234A, 234B & 234C - HELD THAT:- Inspite of specifically bringing it to the notice of the AO by way of an application u/s. 154 filed on 28th January, 2015, AO has not taken any steps to examine nor withdraw the interest so levied. Since the return filed was with in the due date, we are of the opinion that interest u/s. 234A is not leviable. With reference to other interests, AO is directed to examine whether any interest is leviable as per the provisions of the Act, after giving due credit to the taxes paid/claimed. This aspect should be examined by the AO in detail and if any interest is to be levied, the working should be provided so that assessee can have knowledge of the same, so as to contest if required. With these observations, the ground is considered allowed for statistical purposes. Issues Involved:1. Deletion of three comparable companies in Transfer Pricing adjustments.2. Disallowance of TDS payable on contractors and salaries under Section 43B.3. Addition of interest on short-term deposits.4. Short allowance of TDS credit.5. Non-allowance of set-off of brought forward losses.6. Levy of tax and interest on distributable profit under Section 115-O.7. Levy of interest under Sections 234A, 234B, and 234C.Issue-wise Detailed Analysis:1. Deletion of Three Comparable Companies in Transfer Pricing Adjustments:The Revenue appealed against the deletion of three comparable companies (Infosys BPO Ltd., TCS e-Serve Ltd., and Eclerx Services Ltd.) from the Transfer Pricing Officer's (TPO) list for determining the Arm's Length Price (ALP). The Dispute Resolution Panel (DRP) directed the exclusion based on functional dissimilarity and high turnover. The Tribunal upheld the DRP's decision, referencing previous ITAT rulings that supported the exclusion due to brand value, intangibles, and significant differences in turnover.2. Disallowance of TDS Payable on Contractors and Salaries under Section 43B:The Assessee contested the disallowance of Rs. 3,69,000 towards TDS on contractors and Rs. 41,809 towards TDS on salaries, arguing that these amounts were not claimed as deductions. The Tribunal agreed, stating that TDS amounts are not deductible under Section 37(1) and cannot be disallowed under Section 43B. The AO was directed to delete these disallowances.3. Addition of Interest on Short-term Deposits:The AO added Rs. 3,59,083 to the Assessee's income based on discrepancies in Form 26AS. The Assessee argued that the correct amount as per Form 26AS was Rs. 4,05,38,239, which was already declared. The Tribunal found no basis for the AO's higher amount and directed the deletion of the addition after verification.4. Short Allowance of TDS Credit:The Assessee claimed TDS credit of Rs. 67,79,643, but the AO allowed only Rs. 63,27,723. The Tribunal directed the AO to verify the records and allow the correct TDS credit after due verification.5. Non-allowance of Set-off of Brought Forward Losses:The Assessee's claim for set-off of brought forward losses of Rs. 30,38,954 was not allowed by the AO despite DRP's directions. The Tribunal directed the AO to verify past records and allow the set-off as per the law.6. Levy of Tax and Interest on Distributable Profit under Section 115-O:The Assessee contested the levy of tax and interest on distributable profit, arguing that the dividend tax was paid within the due date. The Tribunal found that the payment was made within the statutory period and directed the AO to withdraw the levy of taxes and interest.7. Levy of Interest under Sections 234A, 234B, and 234C:The Assessee argued that the return was filed within the extended due date, making the levy of interest under Section 234A incorrect. The Tribunal agreed and directed the AO to verify and withdraw the interest. For Sections 234B and 234C, the AO was instructed to examine the provisions and provide a detailed working if interest is to be levied.Conclusion:The Tribunal dismissed the Revenue's appeal and the Assessee's cross-objection. The Assessee's appeal was allowed for statistical purposes, with directions for the AO to verify and rectify the issues as per the Tribunal's observations.