Partial Appeal Success: Directions on Comparables, Crystal Voxx Ltd., Section 14A Disallowance, Tax Credit Verification

The appeal was partly allowed with directions for the exclusion and reconsideration of certain comparables, inclusion of Crystal Voxx Ltd., upholding the disallowance under Section 14A, and directing the AO to verify and allow the correct credit for taxes paid. The final assessment order determined the income at Rs. 9,93,98,783/-.

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Issues Involved:
1. Transfer Pricing Adjustments
2. Exclusion and Inclusion of Comparables
3. Disallowance under Section 14A r.w. Rule 8D
4. Charging of Interest under Sections 234B and 234C
5. Short Credit for Tax Paid

Detailed Analysis:

1. Transfer Pricing Adjustments:
The assessee, an Indian company providing ITES to its Associated Enterprises (AEs), filed its return for AY 2012-13 declaring an income of Rs. 5,68,16,900/-. The case was scrutinized, and the Assessing Officer (AO) referred the matter to the Transfer Pricing Officer (TPO) for determining the arm's length price (ALP) of international transactions. The TPO proposed an adjustment of Rs. 3,37,89,086/-, which was included in the draft assessment order. Upon objections by the assessee, the Dispute Resolution Panel (DRP) revised the TP adjustment to Rs. 4,18,48,488/-, leading to the final assessment order determining the income at Rs. 9,93,98,783/-.

2. Exclusion and Inclusion of Comparables:
- Exclusion of Comparables:
The assessee sought the exclusion of five companies from the final set of comparables: Universal Print System Ltd., Infosys BPO Ltd., BNR Udyog Ltd., TCS E-serve Ltd., and Excel Infoways Ltd. The Tribunal, following the decision in Mobility Infotech India Pvt. Ltd., directed the exclusion of Infosys BPO Ltd. and remanded the issue of comparability of the other four companies back to the TPO for reconsideration.

- Inclusion of Comparables:
The assessee pressed for the inclusion of Crystal Voxx Ltd. in the final set of comparables. The Tribunal, referencing the decision in FNF India Pvt. Ltd., held that Crystal Voxx Ltd. is functionally comparable to the assessee and directed its inclusion in the final set of comparables.

3. Disallowance under Section 14A r.w. Rule 8D:
The assessee contended that no disallowance under Section 14A was warranted as no expenditure had been incurred to earn exempt income. The AO, however, computed the disallowance as per Rule 8D(2)(iii), amounting to Rs. 7,33,395/-. The Tribunal upheld the AO's decision, finding no infirmity in the disallowance.

4. Charging of Interest under Sections 234B and 234C:
The assessee objected to the charging of interest under Sections 234B and 234C. The Tribunal noted that the charging of interest is consequential and mandatory as upheld by the Supreme Court in Anjum H. Ghaswala. The AO was directed to recompute the interest while giving effect to the Tribunal's order.

5. Short Credit for Tax Paid:
The assessee claimed a shortfall in the credit for tax paid, contending that the AO granted credit for only Rs. 1,21,46,000/- against the actual payment of Rs. 1,24,50,000/-. The Tribunal directed the AO to verify and allow the correct credit for taxes paid as per law.

Conclusion:
The appeal was partly allowed, with directions for the exclusion and reconsideration of certain comparables, inclusion of Crystal Voxx Ltd., upholding the disallowance under Section 14A, and directing the AO to verify and allow the correct credit for taxes paid. The order was pronounced on August 14, 2019.

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