2017 (8) TMI 225 - AT - Income Tax

Tribunal issues mixed decision on tax appeals, remands for fresh review. Key directions on transfer pricing, deductions.

The Tribunal partly allowed both the assessee's and the department's appeals for statistical purposes, remanding several issues back to the AO/TPO for ... Transfer pricing adjustment - difference in Arm’s Length Price (ALP) of the international transaction relating to IT enabled services - selection of comparabale - Held that:- The assessee is wholly owned subsidiary of Exl Holdings and was engaged in business of rendering of transaction processing services and internet & voice based customer care services for its worldwide clients. The assessee furnished TP study and selected TNMM as the most appropriate method to benchmark its international transaction, namely, Information Technology enabled (ITes) services, thus functionally dissimilar with that of assessee need to be deselected from final list of comparability. Transfer pricing adjustment on interest on delay in receipt of receivable from associated enterprises - Held that:- In the present case, it is an admitted fact that the receivable represented continuing debit balances and revealed that the payment, even though due had not be made by the debtor. However, the exact nature of the receivables is not clear. It is not clear as to whether these receivables represented lending or guarantee or these were against the sales or advance or represented the deferred payments. So, in the absence of clear facts on record, we are unable to reach at a just conclusion. We, therefore, deem it appropriate to remand this issue back to the file of the AO/TPO for fresh adjudication in accordance with law by providing due and reasonable opportunity of being heard to the assessee and by considering the various decisions cited by both the parties, mentioned in the former part of this order. Disallowance of differential depreciation of Voice Recording Software License- Held that:- Direct the AO to allow the claim of the assessee for depreciation @ 60%. See CIT Vs BSES Yamuna Powers Ltd.[2010 (8) TMI 58 - DELHI HIGH COURT] Addition u/s 14A - Held that:- In the present case, it is not clear as to whether the AO had considered the only investment which yielded the exempt income or the entire investment made by the assessee. It is also not clear as to whether the investments were made by the assessee in the shares of subsidiary company out of commercial expediency. We, therefore, in the absence of the clear fact on record, deem it appropriate to set aside this issue back to the file of the AO/TPO to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee. MAT computation - addition u/s 14A - Held that:- We direct the AO to exclude the amount of adjustment made u/s 14A of the Act r.w. Rule 8D of the Income Tax Rules, 1962 while computing the book profits u/s 115JB of the Act See Pr. CIT Vs Bhushan Steel Ltd. [2015 (9) TMI 1424 - DELHI HIGH COURT] Addition u/s 69C - Held that:- In the present case, it appears that during the course of assessment proceedings, the assessee was unable to produce the relevant documents in support of its claim. However, during the course of proceedings u/s 201(1)/201(1A) of the Act, the transaction was fully explained and clarified in detail. We, therefore, deem it appropriate to set aside this issue back to the file of the AO for verification and adjudication afresh. Deduction u/s 10A/10B in respect of income from sale of scrap - Held that:- The receipt from sale of scrap beng part & partial of the activity and being proximate thereto would also be within the ambit of gain derived from the industrial undertaking. We, therefore, do not see any infirmity in the directions of the ld. DRP on this issue and as such do not see any merit in the appeal of the department on this issue. See CIT Vs Sadhu Forging Ltd. [2011 (6) TMI 9 - DELHI HIGH COURT ] Disallowance proposed by the AO on account of depreciation on goodwill - Held that:- In the present case, it is noticed that the DRP directed the AO to allow the depreciation on the goodwill by following the decision of the ITAT wherein the case of CIT Vs Smifs Securities Ltd. [2012 (8) TMI 713 - SUPREME COURT] and the of Areva T&D India Ltd. Vs DCIT [2012 (4) TMI 79 - DELHI HIGH COURT] has been followed. We, therefore, by considering the totality of the facts, do not see any valid ground to interfere with the findings given by the ld. DRP on this issue. Issues Involved:1. Validity of the assessment order.2. Transfer Pricing adjustments.3. Treatment of outstanding receivables.4. Depreciation on software licenses.5. Disallowance under Section 14A.6. Unexplained expenditure under Section 69C.7. Deduction under Section 10A/10B.8. Set-off of business loss.9. Deduction under Section 80G.10. Credit of taxes paid.11. Interest under Sections 234B, 234C, and 234D.12. Penalty proceedings under Section 271(1)(c).Detailed Analysis:1. Validity of the Assessment Order:The assessment order passed by the Assessing Officer (AO) was challenged by the assessee as bad in law. However, specific grounds related to this issue (Ground Nos. 1, 8, 9, and 10) were dismissed as general in nature and not pressed.2. Transfer Pricing Adjustments:The assessee raised multiple objections regarding the Transfer Pricing Officer's (TPO) adjustments, including the rejection of certain comparables, the use of current year data, and the treatment of provision for doubtful debts. The Dispute Resolution Panel (DRP) upheld the TPO's use of current year data and turnover filter but directed the inclusion of CG-Vak Software and Exports Ltd. as a comparable. The Tribunal directed the exclusion of Accentia Technologies Ltd., TCS e-serve Ltd., and TCS e-serve International Ltd. from the list of comparables due to functional dissimilarity and extraordinary events like amalgamation.3. Treatment of Outstanding Receivables:The TPO re-characterized the delay in receipt of receivables as unsecured loans and imputed interest at 14.75%. The DRP upheld this approach but directed the AO to verify the amount of receivables and apply the Prime Lending Rate of SBI plus 150 or 300 basis points based on the aggregate amount of receivables. The Tribunal remanded the issue back to the AO/TPO for fresh adjudication, emphasizing the need for clear facts on the nature of the receivables.4. Depreciation on Software Licenses:The AO restricted the depreciation on Voice Recording Software License to 25% instead of 60% claimed by the assessee. The DRP upheld this view. However, the Tribunal directed the AO to allow depreciation at 60%, following the jurisdictional High Court's decision in CIT vs. BSES Yamuna Powers Ltd.5. Disallowance under Section 14A:The AO disallowed Rs. 16,90,576 under Section 14A read with Rule 8D. The Tribunal remanded the issue back to the AO/TPO to verify whether only investments yielding exempt income were considered and to re-adjudicate the matter. The Tribunal also directed the AO to exclude the Section 14A disallowance while computing book profits under Section 115JB, following the jurisdictional High Court's decision in Pr. CIT vs. Bhushan Steel Ltd.6. Unexplained Expenditure under Section 69C:The AO added Rs. 2,96,241 as unexplained expenditure under Section 69C. The Tribunal remanded the issue back to the AO for verification and fresh adjudication, considering the assessee's explanation provided during TDS proceedings.7. Deduction under Section 10A/10B:The AO excluded income from the sale of scrap from the deduction under Section 10A/10B. The DRP directed the AO to allow the deduction, considering the scrap income as part of the business receipts. The Tribunal upheld the DRP's decision, following the jurisdictional High Court's ruling in CIT vs. Sadhu Forging Ltd.8. Set-off of Business Loss:The issue of not allowing the set-off of business loss of Rs. 5,04,30,717 was remanded back to the AO for verification and fresh adjudication.9. Deduction under Section 80G:The issue of not allowing the deduction under Section 80G was also remanded back to the AO for verification and fresh adjudication.10. Credit of Taxes Paid:The issue of not allowing credit for taxes paid was remanded back to the AO for verification and fresh adjudication.11. Interest under Sections 234B, 234C, and 234D:The Tribunal noted that the interest under Sections 234B, 234C, and 234D is consequential in nature and ordered accordingly.12. Penalty Proceedings under Section 271(1)(c):The issue of initiating penalty proceedings under Section 271(1)(c) was not specifically addressed in the detailed analysis, implying it was not a focal point in the Tribunal's decision.Conclusion:Both the assessee's and the department's appeals were partly allowed for statistical purposes, with several issues remanded back to the AO/TPO for fresh adjudication. The Tribunal provided detailed directions to ensure proper verification and compliance with legal precedents.