Assessee appeal partly allowed; corporate guarantee commission rate restricted. Interest computation to be reworked. Disallowance under section 14A under review.

The appeal filed by the assessee was partly allowed. The Tribunal directed the Assessing Officer to give effect to the Dispute Resolution Panel's directions, restrict the corporate guarantee commission rate to 0.50%, and rework the interest computation on delayed receivables. The issue of disallowance under section 14A of the Income Tax Act was remanded to the Assessing Officer for further examination to determine if the assessee had earned any exempt income during the relevant assessment year.

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Issues Involved:
1. Validity of assessment order without giving effect to DRP directions.
2. Arithmetical error in computing operating margin of assessee.
3. Turnover filter.
4. Exclusion of comparables.
5. Working capital adjustment.
6. Rate of corporate guarantee fee.
7. Interest on outstanding receivables.
8. Disallowance u/s 14A of the I.T.Act.

Issue-wise Detailed Analysis:

1. Validity of Assessment Order Without Giving Effect to DRP Directions:
The assessee argued that the Assessing Officer (AO) did not give effect to the Dispute Resolution Panel (DRP) directions. The Tribunal observed that the Transfer Pricing (TP) adjustment for the software development (SWD) segment was completely deleted by the DRP. The AO, however, incorporated the adjustments proposed in the draft assessment order while completing the final assessment order. The Tribunal directed the AO to give effect to the DRP's directions and modify the final assessment order accordingly.

2. Arithmetical Error in Computing Operating Margin of Assessee:
The assessee contended that there was an arithmetical error in computing its operating margin. The Tribunal noted that the AO had not given effect to the DRP's directions and directed the AO to incorporate the relief granted by the DRP.

3. Turnover Filter:
The issue of turnover filter was raised, but the Tribunal did not provide specific observations on this matter, directing the AO to follow the DRP's directions.

4. Exclusion of Comparables:
The Tribunal did not provide specific observations on the exclusion of comparables, directing the AO to follow the DRP's directions.

5. Working Capital Adjustment:
The Tribunal did not provide specific observations on the working capital adjustment, directing the AO to follow the DRP's directions.

6. Rate of Corporate Guarantee Fee:
The TPO determined an adjustment of Rs.66,71,892 for the corporate guarantee fee, applying a rate of 1.715%. The DRP upheld this rate. The Tribunal, following its decision in the assessee's case for the previous assessment year (2016-2017), directed the AO/TPO to restrict the rate of corporate guarantee commission to 0.50% of the total loan amount for which the assessee stood as a guarantor.

7. Interest on Outstanding Receivables:
The TPO made an adjustment of Rs.1,95,78,321 for interest on delayed receivables, treating it as an international transaction. The DRP upheld this adjustment. The Tribunal, following its decision in the assessee's case for the previous assessment year (2016-2017), remanded the issue to the AO/TPO to rework the interest computation based on the delay of individual invoices.

8. Disallowance u/s 14A of the I.T.Act:
The assessee argued that it had not earned exempt income for the relevant assessment year, hence no disallowance u/s 14A was called for. The Tribunal remanded the matter to the AO to examine whether the assessee had earned any exempt income during the relevant assessment year. If the assessee proves that it had not earned any exempt income, no disallowance u/s 14A can be resorted to. The Tribunal also left open the issues related to adjustment of 14A disallowance while computing book profit u/s 115JB and re-computation of deduction u/s 10AA on higher profits after considering disallowance u/s 14A.

Conclusion:
The appeal filed by the assessee was partly allowed. The Tribunal directed the AO to give effect to the DRP's directions, restrict the corporate guarantee commission rate to 0.50%, and rework the interest computation on delayed receivables. The matter regarding disallowance u/s 14A was remanded to the AO for further examination.

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