TaxTMI 
TaxTMI 
2018 (3) TMI 540
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and observations relating thereto made by the Assessing Officer 1. In making addition of Rs. 59,76,025/- to the total income, on account of interest chargeable on delayed receipts from the associated enterprises following adjustment made in the transfer pricing order u/s 92CA(3) of the Income-tax Act. The learned transfer pricing assessing officer erred: a. In concluding that the sum of Rs. 59,76,025/- is to be the arm's length compensation receivable by the assessee on account of interest chargeable on the amounts due from the associate entities beyond the credit period stipulated under the contract. b. In not appreciating the facts obtained in the case and proposing adjustment without applying any specified method. c. In not appreciating that on the basis of CUP method, no interest is recoverable from AE's since no interest is charged / recovered on delayed recoveries from Non-AEs also. d. Without prejudice to the assessee's contention that no adjustment is required on account of delayed recoveries from AEs, in adding 3 basis points and 2 basis points towards guarantee cost to the average LlBOR rate for the purpose of computing the adjustment on account of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....68 u/s 40(a)(ia) in respect of datalink charges. 5. In making disallowance of Rs. 72,10,172 u/s 40(a)(i) in respect of overseas payment for purchase of software and related payments. 6. The assessee craves leave to add to, withdraw or modify any of the grounds of appeal at the time of hearing." 4. The ld. AR for the assessee at the outset pointed out that the issue raised in the present set of appeals filed by the assessee and the Revenue are covered by different orders of the Tribunal in assessee's own case. We proceed to take up the issues ground wise. 5. The first issue raised in the assessee's appeal is against the adjustment made under the transfer pricing provision on account of interest on delayed recoveries of debtors' balances from Associated Enterprises (AEs). 6. Briefly, in the facts of the case, the assessee for the year under consideration had furnished the original return of income at Rs. 1,24,88,80,670/-. The assessee thereafter, filed revised return of income at Rs. 1,26,38,51,747/-. The books profit computed under section 115JB of the Act as per the original return of income was Rs. 562,71 crores and that as per the revised return was Rs. 562,22 crores. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pect of delayed realization from AEs, taking interest at average six months LIBOR plus 300 basis point plus 200 basis point as guarantee commission. The assessee explained that it had filed an appeal before the Tribunal in respect of the adjustment proposed, which had allowed the claim of assessee, however, due to retrospective amendment in the definition of international transactions. The appeal filed by the Revenue before the Hon'ble Bombay High Court was set aside to the Tribunal. The assessee further explained that during the year there was no interest cost on borrowings. It also explained the status of interest charged to the profit and loss account. The assessee also pointed out that it had not charged any interest on delayed recoveries and thus there was no price which applied in a transaction between persons other than AEs, in uncontrolled conditions. Relying on different decisions of Tribunal the assessee pointed out that no adjustment of interest on account of delayed realization of debtors is to be made. The TPO rejecting the plea of assessee in view of similar issue being decided by the DRP held that the rate adopted for computing the proposed adjustment was 5.79% i.e. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce is being made to the findings of Tribunal, however, the same are not being reproduced for the sake of brevity. The AO/TPO is thus, directed to re-compute the adjustment, if any, on account of interest chargeable on the amounts due from AEs as per the directions of Tribunal in the earlier years. The ground of appeal No.1 raised by the assessee is thus, allowed for statistical purpose. 11. The second issue raised by the assessee is with regard to the denial of deduction u/s. 10A of the Act. 12. The brief facts relating to the issue are that the assessee had claimed deduction u/s. 10A of the Act in respect of 12 undertakings wherein one was a BPO and the deduction claimed was allowed u/s. 10A of the Act. Out of balance 11 undertakings, the deduction u/s. 10A was allowed in respect of 10 undertakings, however, no such deduction was allowed in respect of new undertaking as established at Hyderabad. The Assessing Officer and the Commissioner of Income Tax (Appeals) had denied the said deduction on the ground that the same was formed by splitting up by the earlier undertakings. 13. The ld. AR for the assessee pointed out that the undertaking at Hyderabad was established during the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... one undertaking established in assessment year 2007-08, one undertaking established in assessment year 2009-10 and TTC (BPO) undertaking established in assessment year 2009-10. The Tribunal in assessee's own case vide consolidated order dated 06.06.2016, in ITA No. 1338/PN/2010 relating to assessment year 2006-07, ITA No. 1451/PN/2011 relating to assessment year 2007-08, ITA No. 2507/PN/2012 relating to assessment year 2008-09 and ITA No. 282/PN/2014 relating to assessment year 2009-10 had individually considered the various undertakings established by the assessee from year to year and had also relied upon the order of Tribunal in assessment year 2005-06 and directed the Assessing Officer to allow the deduction u/s. 10A of the Act to the said eligible units. The only new undertaking which has been established in the current year is at Hyderabad. Following the parity of reasoning as in the earlier years, we direct the Assessing Officer to allow the deduction u/s. 10A of the Act in respect of various undertakings established by the assessee from year to year, except new undertaking at Hyderabad which we shall decide separately. As per the undertakings claimed as TTC (BPO) the same ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion, of a business already in existence. The proviso laid down that this condition shall not apply in respect of any undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section. Section 33B of the Act talks of a business of any industrial undertaking carried on in India was discontinued in any previous year by reason of extensive damage to, or destruction of, any building, machinery, plant or furniture owned by the assessee because of natural calamities i.e. riot, civil disturbance, accidental fire, explosion; or action by an enemy or action taken in combating an enemy. The section provides that thereafter, at any time before the expiry of three years from the end of such previous year, the business is re-established, reconstructed or revived by the assessee, he shall be allowed a deduction of a sum by way of rehabilitation allowance equivalent to the percentage provided therein. The case of the assessee before us is that it had established the new undertaking in Hyderabad because of the fall out....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndicate involvement or otherwise of human intervention in the DATA link process. In view thereof, in the absence of any human intervention between the assessee and the services provided by the DATA link provider, it cannot be said that the payment made by the assessee was for technical services. Merely because for maintenance purpose certain human intervention was provided, cannot lead to the surmise that the DATA link charges paid to various telecom service providers, were in the nature of technical services governed by the provisions of section 194J of the Act. The DATA link charges were paid for utilizing the standard facilities which were provided by the individual service providers by way of use of technical gadgets which were made available vide DATA link satellite link line established from one service provider to be carried over to the other service provider, does not involve technical services as there was only interconnection of the networks to the equipments of other service providers. In the absence of any human intervention for transmitting the DATA through such DATA link satellite link line, the payments made for utilizing such services was not in the nature of techni....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of appeal No. 5 raised by the assessee in appeal is thus, allowed. 23. Now, coming to the appeal filed by the Revenue. The Revenue in ITA No.360/PUN/2015 has raised the following grounds of appeal:- 1 The Ld. DRP has erred in directing the Assessing Officer to delete disallowance u/s 10A(7) r.w.s 80IA(10) when in fact the assessee has earned substantial excessive profits as discussed in Assessment Order. 2 The Ld. DRP erred in directing the Assessing Officer to delete the ESOP cost on the basis of the special Bench of ITAT Bangalore decision in the case of Biocon Limited even though the issue has not reached finality and being notional. 3 The Ld. DRP erred in directing the Assessing officer to delete the disallowance made u/s 14A r.w. Rule 8D even though the assessee has earned substantial amount of tax free dividend and has disallowed meager amount u/s 14A on estimated basis. 4 The Ld. DRP has erred in directing the AO to grant set off of losses from undertaking eligible to claim deduction u/s.10A with the assessee's other business income before setting it off against the profits of undertaking eligible to claim deduction u/s.10A. 5 The Ld. DRP has erred in allowing ded....
X X X X Extracts X X X X
X X X X Extracts X X X X
....more than ordinary profits out of such arrangements in order to invoke the applicability of section 10A(7) r.w.s. 80IA(10) of the Act. The Assessing Officer however, rejecting the plea of assessee recomputed the profits of BPO business and worked out the disallowance under section 10A(7) of the Act on protective basis at Rs. 83,09,16,123/-. The disallowance under section 10A of the Act in respect of BPO business was worked out at Rs. 85,95,207/-. The DRP deleted the disallowance made under section 10A(7) r.w.s. 80IA(10) of the Act, against which the Revenue is in appeal before us. 27. We find that the issue is squarely covered by the order of Tribunal in the case of M/s. Honeywell Automation India Ltd. Vs. DCIT (supra) and also in the case of assessee. The Assessing Officer has invoked the provisions of section 10A(7) of the Act while comparing margins shown by the assessee with mean margins of comparables. Admittedly, there is no arrangement of earning more than ordinary profits pointed out by the Assessing Officer and in the absence of such arrangement, the provisions of section 10A(7) of the Act, are not attracted. We find no merit in ground of appeal raised by the Revenue in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n redemption of such mutual fund units was taxable either as long term or short term capital gain. In the case of growth scheme, the assessee claimed not to be entitled to receive any dividend. The assessee further pointed out that the dividend was received / reinvested only in case of dividend option schemes of mutual funds. However, in such case also, capital gains were taxable. The assessee had disallowed sum of Rs. 50 lakhs being expenditure incurred relating to exempt income earned as per provisions of section 14A of the Act. The assessee explained that no part of interest was attributable to earning of exempt income except interest of Rs. 1,89,990/-. The said computation of disallowance under section 14A of the Act was filed on without prejudice basis. The assessee also gave working under Rule 8D of the Rules and pointed out that no disallowance is to be made in this regard. The Assessing Officer however, computed the disallowance under section 14A of the Act read with Rule 8D of the Rules at Rs. 5,18,32,323/-. The Assessing Officer observed that apart from the investments in overseas subsidiaries where the dividend was taxable, investments made by the assessee in mutual fund....
X X X X Extracts X X X X
X X X X Extracts X X X X
...."I have gone through the submissions made by the assessee. It is observed that apart from investments in the overseas subsidiaries (where there is no tax-free income since the dividend is also taxable) the investments made by the assessee are in mutual funds. The entire investment in mutual fund is in non-equity scheme. In respect of investment in mutual funds, except for growth funds, the company receives tax free dividend. The amount of dividend received by the company is substantial. This is a clear case for application of Rule 8D. Hence, the contention of the assessee cannot be accepted. The disallowance u/s 14A is required to be made by applying Rule 8D. As per the working of disallowance u/s 14A as per Rule 8D, the amount of disallowance comes to Rs. 5,68,32,323/-. The assessee has already disallowed Rs. 50,00,000/- in the computation of income." 35. The requirement of section 14(2) of the Act is that the Assessing Officer is to record as to why the disallowance made by the assessee i.e. Rs. 50 lakhs under section 14A of the Act is not correct. The Assessing Officer takes note of the disallowance, considers the explanation of assessee and holds that the contention of assesse....