TaxTMI 
TaxTMI 
2017 (11) TMI 1360
X X X X Extracts X X X X
X X X X Extracts X X X X
....a. not including Akshay Software Technologies Ltd. in the final set of comparables b. not excluding interest income in the cases Kuliza Technologies Pvt. Ltd. and Inteq Software Ltd. 2. For that the Assessing Officer erred in assessing the total income of the Appellant at Rs. 1,91,03,939/- as against the total income of Rs. 40,62,622 computed by the Appellant under the normal provisions of the Act. 3. For that the Authorities below erred in rejecting the transfer pricing documentation maintained by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ('Rules') and in making an adjustment of Rs. 14,741,337/- to the international transactions with Associated Enterprise. 4. For that the Transfer Pricing Officer erred in not providing the detailed search process for selecting his own set of companies which he considered as comparables during the transfer pricing proceedings and also erred in conducting fresh search and economic analysis. 5. For that the Authorities below erred in rejecting the use of multiple year data despite the Appellant demonstrating the circumstances warranting use ther....
X X X X Extracts X X X X
X X X X Extracts X X X X
....argins of the companies treated as comparable by failing to consider the functional and risk differences in accordance with the provisions of Rule 10B(1)(e). 3. The aforesaid revised grounds of appeal can be conveniently decided together with the grounds raised by the revenue which read as follows :- "1. Whether on the basis of facts and in circumstances of the instant case, the Ld. DRP, Kolkata has erred in directing to allow foreign exchange loss as nonoperating income for the purpose of computation of Profit Level indicators (PLI) of the comparables without appreciating the facts in case to case basis as to whether such loss has arisen in the normal course of business and not resulted from speculative transaction or otherwise. 2. Whether on the basis of facts and in circumstances of the instant case, the Ld. DRP, Kolkata has erred in directing to allow bad debts as non-operating income for the purpose of computation of Profit Level indicators (PLI) of the comparables without appreciating the facts in case to case basis as to whether bad debts has arisen in the normal course of business and not resulted from speculative transaction or otherwise. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2007-08, 2008-09 and 2009-10. By doing so the assessee arrived at an average OP/OC i.e., arithmetic mean of 6.54% of 21 comparable companies. Since the assessee's operating profit/operating cost was 21.64%, the assessee claimed that the transactions with the associated enterprises was at arms length. The profit margin of the comparable companies chosen by the assessee in its transfer pricing study is as follows :- Sl. No. Name of the company FY. 2007-08 FY. 2008-09 FY. 2009-10 Weighted average of operating profits on operating costs (%) 1 Akshay Software Technologies Limited 6.054% 10.993% NA 8.91% 2 Ancent Software International Ltd -19.356% -8.212% NA -13.88% 3 Aztecsoft Limited 2.502% 3.671% NA 3.16% 4 CG-VAK Software & Exports Limited (Segmental) -7.900% 3.993% -13.849% -5.46% 5 Goldstone Technologies Limited 20.037% -10.216% NA 8.52% 6 Helios & Matheson Information Technology Limited 30.145% NA 13.199% 19.64% 7 Indium Software (India) Limited -3.483% -13.391% NA -7.85% 8 Infosys Technologies Limited 36.442% 39.612% 44.47....
X X X X Extracts X X X X
X X X X Extracts X X X X
....more companies as comparable companies of the assessee and arrived at the operating profit to operating cost of these companies and determined the arms length price of the international taxation as follows :- (Quote from AO's order) "19. The list of final comparables selected by the TPO, along with the margins is as follows : Sr. NO. Name of the company OP/TC 1 Spry Resources India Pvt. Ltd. 33.25% 2 Kuliza Technologies Pvt. Ltd 30.75% 3 Evoke Technologies Pvt. Ltd 18.75% 4 CTIL Ltd. 19.56% 5 Infinite Data Systems Pvt. Ltd. [Merged] 88.25% 6 E-Infochips Bangalore Ltd. 71.92% 7 Thirdware Solutions Limited 33.36% 8 Thinksoft Global Services Ltd. 17.35% 9 Inteq Software Ltd 49.91% Average 40.34% 20. Therefore the calculation of the adjustment in the case of the assessee is as follows : Description Amount (Rs.) Software Development Service 14,01,82,916/- Operating Revenues 14,01,82,916/- Expenses debited to P&L account 11,52,45,297/- Operating Expenses 11,52,45,297/- Operating Profit 2,49,37,619/- OP/TC (PLI) 21.63% OP/OR ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the reason that the related party transaction carried out by this company during the relevant financial year and other data available for the purpose of carrying out comparability analysis properly, was insufficient. 9. Before the DRP the assessee demonstrated the existence of all the relevant data so far as this comparable company chosen by the assessee is concerned. The DRP was convinced with the arguments of the assessee and at page 19 of its order directed the TPO to consider the aforesaid company as a comparable company. The following were the relevant observations of the TPO :- "The same are being considered in respect of Akash Software Technologies Ltd. The AO has not given detailed reasons for holding that this company was functionally non-comparable. It is seen from its annual report that this company has revenue primarily from software services and only .07% revenue is earned from sale of products. Further this company has been taken as comparable in the case of SDS and has similar activities to that of E-Infochips Pvt. Ltd which has been taken by the TPO as comparable. The TPO is accordingly directed to include this company as a comparable provided it quali....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rder of the DRP clearly shows that the DRP has agreed with the contention of the assessee that interest income is not an operating income but the use of the word "not correct" and the use of the words "therefore the objection of the Assessee is accepted" shows that there is contradiction. On the issue whether interest income can be considered as part of operating profit, we find that the Hon'ble Delhi High Court in the case of Marubeni India Pvt. Ltd. Vs DIT in IT No.1042 of 2011 judgment dated 25.04.2013 has held that interest income earned from investments on surplus funds which are not required immediately for the business of the assessee cannot be considered to be part of its operating income. Apart from the above it is also seen that at page 8 para 5.2, the TPO himself in the last sentence has set out what are not operating income and has given some examples. One such example of income which is not operating in nature as set out by the TPO himself is interest income. It thus appears that even the TPO accepted the fact that the interest income in question cannot form part of the operating income of the assessee for the purpose of working operating profit to operating cost. Keep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....awn to the decision of ITAT, Kolkata in the case of Lab Vantage Solution Pvt. Ltd., in ITA No.1051/Kol/2015 in para 8.2. order dated 19.10.2016 wherein the tribunal held that this company cannot be compared with a software service provider as this company was into both the business of Software Development Services (IT) as well as providing Information Technology Enabled Services (ITES) and also for the reason that segmental details of IT and ITES were not available. The following were the relevant observations of the Tribunal:- "8.3. Exclusion of Infinite Date Systems Pvt. Ltd. (Merged) We find that this company had reported NCP of 88.25%. It is not in dispute that the assessee is engaged in software development. Hence, comparable should also be in the companies engaged in the similar section. We find that this company is having a different business model and engaged in providing entire gamut of solutions comprising of technical consulting, design and development of software, maintenance, system integration, implementation, testing and infrastructure management services. We find from the paper book that the Revenue is primarily derived from technical support and i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed 12.09.2016 for Asst Year 2010-11, wherein it was held that: 8. Having regard to the rival contentions and the material on record, we find that the DRP has directed the AO to consider whether the extra ordinary event of amalgamation during the year is found to have an impact on the profits of the company. We find that instead of carrying out the exercise, the AO has simply followed the order of the TPO in holding that the fact of amalgamation on the margin of the said company has no effect on the margin of the said company. This, in our opinion, is not a correct approach of the AO. Where a direction has been given by the DRP to follow a certain procedures, the AO has simply followed the TPO order. Therefore, order of the AO on this issue needs to be set aside. In the case of Hyundai Motors India Engg. (P) Ltd. (2015) 64 taxmann.com 442 (Hyd.- Trib), which is also engaged in rendering of ITES to its AEs, the Tribunal has taken note of the same at para 9.1. and 9.3 of its order. Therefore, the decision of the Tribunal in the said case is applicable to the case on hand, more particularly since the comparables adopted by the TPO in the said case are the same in the assessee'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the said company and therefore, has to be excluded from the list of comparables as rightly done by the DRP. Therefore, we do not see any reason to interfere with the order of the DRP on this company also. Accordingly, ground no. 3 of the Revenue is dismissed." Since, the order of the Tribunal in the case of Hyundai Motors India Engg. (P) Ltd. (supra) for the same A.Y., we direct the AO/TPO to exclude this company from the final list of comparables. 11. TCS e-Serve International Ltd. As regards the comparability of this company with the assessee, the learned Counsel for the assessee submitted that the TCS international also provides software testing, verification and validation which are different from ITES services providers by the assessee. It is also submitted that the segmental information of TCS international are not available in the annual report. The exceptional circumstances of the company reported in annual report such as acquisition of India based captive business outsourcing arm, resulting in acquisition of an aggregate amount of $ 2.5 billion over a period of 9.5 years and its impact on the financial implications of the company also brought to our notic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gain etc has been considered part of the operating profit. As we have already seen that this company has different segments and no segmental data has been provided by the TPO to the assessee. In these circumstances we are of the view that it would be safe to exclude Inteq Software Pvt. Ltd from the list of comparables. The process of computation of arms length price involves comparability of profit margins of similar transactions by unrelated parties and therefore correct and reliable data should be the basis on which such comparability exercise should be carried out. When there is an element of doubt on a particular data based on which comparability analysis is carried out, it would be safe not to act on such data. We do not wish to go into the question whether the TPO can rely on secret comparables. On the facts available on record it transpires that no reliable data have been brought on record to substantiate the margin of 49.91% determined by the TPO for this company. In these circumstances we direct that Inteq Software Pvt. Limited be excluded from the final list of comparable companies to be adopted by the TPO for arriving at the average margin of comparable companies. 19.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pany has been merged with its Holding Company - Infinite Computer Solutions (India) ltd during the financial year 2011- 12. The Id AR argued that the assessee company is a service provider in area of software development whereas the comparable company Infinite Data Systems Pvt Ltd w created for purposes of transfer of business. The services and business model of assessee company and comparable company is entirely different. He also argued that there e abnormal circumstances in the said comparable. During the last 3 years, variation m margins earned shows an abnormal circumstances leading to huge fluctuation an supernormal profit, the margin earned by Infinite is 88.25% which is abnormally his . Such companies which are making more than twice the arithmetical mean margin computed by the Id TPO should not be considered as comparable. The ld AR referred t page 591 of the Paper Book where the details of the fluctuation in the revenue, profit an margins has been provided. Accordingly, he prayed for rejection of this comparable." 20. The aforesaid reasoning of the Tribunal which decision was also rendered in a case relating to AY 2010-11 will equally apply to the case of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ware development services company such as the Assessee was considered and it was held that this company is not a good comparable. The following were the relevant observations of the Tribunal. "10. We have heard the rival contentions and perused the material on record. Solitary" grievance of the assessee through this ground is against the order of Id. ORP for approving the selection of comparable namely Thirdware Solution Ltd. by TPO. We observe that assessee is engaged in the business of providing software development evolution and production of computer software. Assessee also has not outsourced its business activities to third party and operates on the instructions of its associate enterprise. We further observe that assessee has referred and relied on various decisions of Co-ordinate Bench wherein it has been held that Thirdware Solution is not a good comparable for the purpose of T.P. adjustment with regard to the assessee engaged in the business of software development. We observe that Co-ordinate Bench Delhi in the case of ION Trading India Private Ltd. vs. ITO in ITA No.1 035/0el/2015 for Asst. Year 2010-11 has held as under :- "56. We have heard the rival ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 12. Further the Co-ordinate Bench Delhi in the case of Avaya India (P) Ltd vs. Addl.CIT (ITA No. 5528/0e1.l2011) has observed that Thirdware Solutions has made income from sale of licence to the tune of more than Rs. 1 crore, which means the company is into production of software products and therefore, functionally different from contract software developer assessee. The relevant extract of the decision is reproduced below"- "12. 1 ... (xxv) ... We have heard both the parties and perused the material available on record. A perusal of the annual report of Thirdware Solutions Ltd. reveals that the said company has made income from sale of licence to the tune of more than Rs. 1 crore, which means the company is into production of software products which apparently cannot be a comparable to assessee dealing with contract software development and not into sale of any product. Therefore, we direct TPO/AO to exclude this company from the list of comparables." (emphasis supplied by us) 13. Respectfully following the decision of the Co-ordinate Bench referred above in para 1 0,11 & 12, we find that the same are squarely applicable to the facts of the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h cannot be equated as 'Income from services'. The software development may include sale of products. In the absence of segmental information, this case cannot be selected as comparable. However, whether TPO could obtain any segmental information is not known to us. we are of the opinion that TPO should examine whether there are any segmental information which can be obtained from the company or available in the public domain so as to compare Assessee's software development services with that of software development services of Comp-U-Learn Tech India Ltd. Therefore, we :- 10 -: I.T.A. Nos. 1758 & 1936/Hyd/14 Pegasystems Worldwide India Pvt. Ltd., are of the opinion that the issue of selection of this company is a comparable should be restored to the file of AO/TPO to examine the available data in public domain/or obtaining information U/s. 133(6) of the Act for segmental information pertaining to software development services and then decide after giving due opportunity to Assessee whether the said company can be selected as comparable. For the time being, Assessee's objections are considered valid and issue is restored to the file of AO for undertaking analysis af....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ordingly. Thus Gr.No.9 is partly allowed. 28. As far as Gr.No.10 is concerned, the plea of the Assessee is that CG-VAK Software Exports Ltd., is a good comparable company for the purpose of determining ALP of the Assessee and was wrongly excluded by the TPO and DRP on the ground that it was a consistently loss making company. In this regard, the TPO has given the following reasons for not regarding this company as comparable. 14.2. CG-VAK Software and Exports Limited The objection of the assessee in respect of rejection of this entity is on account of the fact that this entity and made profits in the period corresponding to F.Y. 2008-09 and correspondingly it did not have persistent losses for the last three years; including the year under consideration. In this regard, it is seen that the analysis in respect of this comparable was made in the transfer pricing order for the assessee for last year, in respect of the margins of this entity and the same is reproduced below: Revenue in Lakhs Revenue in Lakhs Profit in Lakhs Profit Margin Mar-05 397.86 14.15 3.56% Mar-06 422.31 3.79 0.90% Mar-07 425.92 20.5 4.81....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(a) Software Services 709.38 789.78 (b) BPO Services 52.40 35.20 Total 761.79 824.98 It is seen that the TPO has considered the data, as available in the segmental accounts provided in the Annual report. The calculation of the assessee is as follows: Particulars Software Services BPO Services & Training Total (Rs.) Income Income as per segmental information 6,37,29,000 86,10,000 7,23,39,000 Operating Income as (per P & L) 7,80,87,817 Income to be allocated from P & L to segmental income (Allocation as a per cent of sales) 50,64,576 6,84,241 57,48,817 Total operating income 6,87,93.576 92,94,241 7,80,87,817 Segmental revenue Total operating revenue 88.10% 11.90% Segmental profit (Given) (15,00,000) (3,43,000) (18,43,000) Expenses Allocated expense (segmental) 6,52,29,000 89,53,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the assessee in respect of the observations made by the TP in show cause notice is concerned, it is pertaining to note that the TPO has not made a definite statement that the entity is on the verge of closure. In view of the persistent nature of losses, there are abnormal circumstances in this company for which "reasonably accurate" adjustment can't be made, as required under Rule 10B(3). The TPO merely identified many such factors which could have lead to such persistent losses in the company. On the basis of the above, the rejection of this company by the TPO is correct." 29. Before the DRP the principal contention of the Assessee was that the TPO accepted this company as functionally comparable but excluded only for the reason that it was consistently making losses. The Assessee had submitted before the TPO that this company earned operating margin of 5.29% in AY 2009-10 from its software services segment. Hence the basis assumption of the TPO that this company was consistently loss making company was incorrect. Another submission was that when the Assessee conducted the TP study the information available in the public domain was only financial information upto to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....istent loss making company is erroneous and therefore their orders are set aside. However, the question still remains as to whether the allocation of expenses and the attribution of the foreign exchange gain to the software development services segment of the comparable company CG-VAK software and Exports Ltd., has not been considered by the TPO or DRP. Further it has also to be seen as to what were the reasons for the losses in the case of this comparable company. If all these factors are considered and due adjustment can be given to the operating margins of this company, than the same should be considered as comparable company and added to the list of comparables for determining Arithmetic mean of profits of comparable companies. The TPO is directed to consider the comparability of this company afresh in the light of the aforesaid observations and also taking note of decision rendered on this aspect by Tribunals and Hon'ble High Courts if any. 32. As far as Gr.No.11 raised by the Assessee is concerned, it projects the grievance of the Assessee in rejecting Goldstone Technologies Ltd., as a comparable company on the ground that it is functionally not comparable. On the comparab....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "7. Companies with the ratio of advertising spend being more than 5% of the revenues were rejected. In the FAR analysis provided by you, it is submitted that the assessee did not market its services to the end customers as it only provide software development services to the associate enterprise. It is further stated that since it is a captive service provider and provides services only to the associate enterprise no market risk is being borne by it. Consequently, it is clear that the entities which are engaged in such additional function would be in comparable to you. Therefore, the TPO has rejected those entities whose advertising spend was more than 5% of the revenues. In order to determine the advertising spend the expenditure incurred and shown in Prowess database under advertising, marketing and distribution expenses were consolidated and the same was utilised. It must be mentioned that this filter was applied by you lost year but the some has not been applied in this year." 35. The DRP upheld the stand of the TPO. The submission of the Assessee before the DRP and the DRP's decision on such submission was as follows: "d) Rejecting companies with the rat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and Zylog Systems Ltd by applying this filter. Further, we submit that the clear breakup of marketing and selling expenses is not provided for these comparables in their annual reports. The Ld. TPO has considered the proportion of 5% on sales. It is pertinent to note that selling expenses does not always mean advertising and marketing expenses, hence in the absence of required details, the filter cannot be applied in generality. Decision : 5.2. Software industry is manpower intensive and significant part of their expenses relate to salaries and bonus. On an average, salary cost comprises 24% to 42% of the revenue in the case of software service providers. As p.er the data in Prowess database, the average employee cost works out to about 39'% on sales. This being so, low expenditure on salary/ ernplovee rco st is an indication that the company is either into further outsourcing of work or is in product development / trading. Therefore, we are of the opinion that the fiiter of 25% of sales as minimum salary expenses used by the TPO is fair and appropriate. PerSistently loss making companies or companies with declining revenue may have some exceptional ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red to be kept in different compartments. While expenses for the promotion of sales directly lead to brand building, the expenses directly in connection with sales are only sales specific. 18.4. Sub-section (3A) of sec. 37, before its omission, provided that where the expenses incurred by the assessee on anyone or more of the items specified in sec. 37(3B) exceed one lac of rupees, then twenty percent of such excess shall not be allowed as deduction in computing the income chargeable under the head 'Profits and gains of business or profession'. Clause (i) of sub-sec. (3B) referred to "advertisement, publicity and sales promotion". The Hon'ble jurisdictional High Court in the case of CIT Vs. Khetu Ram Bishambar Dass [(2008) 166 Taxman 273 (Del.)], has held that bonus paid to dealers is not in the nature of sales promotion expenses and hence the provisions of sec. 37(3A) cannot be applied to it. The Hon'ble Calcutta High Court in CfT Vs. The Statesman Ltd. [(1992) 198 fTR 582 (Cal.)] has enunciated that the expenses incurred by way of commission paid to sales agent do not attract disallowance under sub-sections (3A) & (3B) of sec. 37. The Hon'ble M.P. Hig....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ey should be included in the list of comparable companies, is acceptable. As rightly contended by him sales expenses should be excluded while arriving at the AMP expenses and only thereafter the same should be compared with the revenues before applying the filter of 5% AMP expenses to sales. We direct the TPO to ascertain this aspect after affording Assessee opportunity of being heard and decide the issue as per the directions given above. 39. As far as Gr.No.13 is concerned, the grievance of the Assessee is that Helios and Matheson Information Technology Ltd., ought not to have been excluded from the list of comparable companies by the TPO and DRP. The TPO and DRP rejected this company as not comparable because it had different financial year ending for preparation of their financial statements and the period of profit margins earned by these two companies therefore cannot be compared with the Assessee's profit margin which would be for a different period. The argument of the revenue is that change of financial year will have effect because of the business cycle and market and other economic conditions. The argument of the Assessee is that if those factors are same for the peri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es as well as in its own case the- claim of working capital adjustment is not automatic the issue of working capital is relevant when there is a situation of inventory remaining tide up or receivables being held up or delay however this situations would not be very relevant to the service providers like the Assessee. While calculating the operating profit margin, the financial expenses and financial income is removed. Thus, the effect of working capital / loans are negated while calculating the OPM and the said balance sheet item does not have any effect on the profit and loss account. In view of the above the decision of the TPO in not allowing working capital adjustment is upheld." 43. Before us the learned counsel for the Assesee has filed a decision of the ITAT Bangalore in the case of Unisys India (P) Ltd. Vs. DCIT (2015) 60 Taxmann.com26 (Bang.-Trib.). On the need for allowing working adjustment in determining ALP, the ITAT Mumbai in the case of Capgemini India P. Ltd. v. Assistant Commissioner of Income tax (2013)27ITR (Trib) 74 Mum., held as follows: "35. The issue was taken before DRP before whom it was pointed out that the ITAT in its own case in 2007-08 has a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee only on the ground that the assessee had not made any claim in the TP study if it is possible to make such adjustment." 44. Respectfully following the aforesaid ruling, we direct the TPO to make adjustments on account of working capital to the profit margin of the Assessee as well as the comparables and allow adjustments in accordance with law, after affording opportunity of being heard to the Assessee. We may also add that the DRP in Assessee's own case for AY 2012-13 in its order dated 22.9.2016 allowed claim of the Assessee for adjustment on account of working capital. A copy of the said order is also placed on record. 45. As far as the plea of the Assessee made in ground No.16 for allowing adjustment towards other risk is concerned, the claim of the Assessee in this regard was rejected by the TPO for the following reasons: "18.10 The summary of risk analysis for the assessee can be made as follows: * The assessee is totally dependent on the AE for business. Thus the assessee takes the risks associated with heavy dependence on a single customer. In common business parlance it is known as 'single customer risk'. * The assessee i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sk differential between the assessee and the comparable companies. * Different comparables can have different risk profiles and different profit margins. The proviso to Sec. 92C(2) of the Act provides for adopting arithmetical mean of the different prices This provision neutralizes the effect of difference in the risk profile, if any between the assessee and the comparables as realized risk may pull down the profitability below the risk free return. * It is not sufficient to merely spell out risks. But, it has to be shown which risk was actually undertaken by the comparables and to what extent it affected the profitability. The. assessee has not done so. 18.11 In view of the above discussion there is no merit in the claim of assessee for risk adjustment and the same is rejected. It may not be out of place to mention here that it has been held, in different judicial decision that the risk adjustment can't be granted as a rule. Some of such judgments are: i. As the 'A' failed to bring any evidence of record to show that there was any difference in risk profiles of comparable companies and since the 'A' failed to file the details....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f his order therefore considering the same and the above it is held that the assessee is not entitled to any risk assessment nor has the Assessee given details or quantification of the risk Assessment its objections cannot be accepted and the action of the A.O. is upheld." 47. The learned counsel for the Assessee has placed on reliance on several decisions rendered on the issue of risk adjustment to be given and the same are in CLPB vol-I. 48. We have considered the submissions and the decisions in this regard cited before us in which it has been held that appropriate adjustments have to be given for various risks, such as the one claimed by the Assessee in the present case. The following are the decisions in support of such proposition: 1. Hyundai Motors India Engineering Pvt. Ltd. vs. The ITO, Ward-2(2), (I.T.A. No. 1850/Hyd/2012) 2. M/s 3DPLM Software Solutions Ltd. Vs. DCIT, Circle-11(1), Bangalore (I.T.(T.P.) A. No. 1303/Bang/2012) 3. M/s Hellosoft India Pvt. Ltd. vs. DCIT, Circle-2(2), (I.T.A. No. 645/Hyd/2009) 4. M/s Motorola Solutions India Pvt. Ltd. vs. ACIT (I.T.A. No. 5637/Del/2011) 5. M/s Sony India (P) Limited, Appella....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s :- " 17. For that the Authorities below erred in disallowing a sum of Rs. 2,99,979/- under section 14A of the Act read with Rule 8D(2)(iii) of the Rules. " 53. As far as ground no. 17 raised by the assessee is concerned, the issue is with regard to disallowance of expenses incurred earning exempt income. The disallowance was made by the AO by invoking the provision of section 14A of the Act. The claim of the assessee was that the assessee received as dividend of only a sum of Rs. 33,79,674/- which was not chargeable to tax under the Act and exempt. The assessee computed the disallowance of expenses incurred for earning tax free income in terms of Sec.14A of the Act of a sum of Rs. 1,12,895/- being 10% of salary and allowances to the finance and administrative staff. According to the assessee this was only expenditure which can be attributable for earning tax free income. The AO however invoked the provision of Rule 8D(2)(iii) of the Rules and made disallowance of Rs. 4,12,874/- but restricted the disallowance of Rs. 2,99,979/- (4,12,874 - 1,12,895) since the assessee has already disallowed Rs. 1,12,895/-. 54. On objection by the assessee before DRP the DRP confirme....