AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (4) TMI 1347
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....appreciating the fact that the TPO had put a cap on the basis of the average cost of working capital of the comparables selected by the TPO and that the accurate details of debtors and creditors of the assessee and the comparables were not available 3. The DRP erred in allowing the alternate claim of the assessee that the assessee would be eligible for deduction u/s 10A on the enhanced income due to the disallowance u/s. 40(a)(ia) of the Act without appreciating that the Ahmedabad bench of the Hon'ble ITAT has held in the case of DCIT v. Rameshbhai C. Prajapati [2013] 29 taxmann.com 64 that an amount disallowed under section 40 (a)(ia) cannot be taken into account to determine the profit of business for purpose of computing deduction under section 80IB as it is a settled principle that the deeming fiction created under any provisions of the Act cannot be imported into the beneficial provisions and that while computing deduction under section 80IB(10), the plain meaning of the language of the act has to be given effect and, therefore, the legal fiction created by virtue of section 40(a)(ia) cannot be extended to determine the profit of the business for the purpose of co....
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.... the relevant material on record. At the outset we note that an identical issue has been considered by this Tribunal in assessee's own case for the assessment year 2010-11 vide order dated 06.01.2017 in IT(TP) Nos. 267 & 222/Bang/2015 in para 10 as under: "10, The next issue is On the Working Capital Adjustment : The Revenue objected to the restriction of working capital adjustment to the 1.01% as against the actual working capital adjustment carried out by TPO at 2.23%, The TPO has in principle agreed to the claim of the assessee for granting the working capital adjustment and has consequently granted the same. However it is seen that the working capital adjustment was restricted to 1.01% which is the average cost of capital of the comparable companies selected by the TPO, In this regard, the DRP held as under : We have considered the submissions of the assessee as well as the reasons of the TPO. The argument propounded by the TPO that the average cost of comparables should provide the upper cap on the working capital adjustment is not the correct position. This implies that the average working capital of the industry is being forced upon the assesse....
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....nue's appeal is dismissed. 6. Ground nos. 3 to 5 are regarding the alternative claim of assessee that the income enhanced due to disallowance u/s. 40(a)(ia) of the Act is eligible for deduction u/s. 10A. The AO has made a disallowance u/s. 40(a)(ia) in the draft assessment for want of deduction of tax source in respect of the expenses which are claimed to be reimbursement towards power and fuel expenses. The AO held that these expenses are incurred against the services rendered and, therefore, liable for TDS. Since the assessee did not deduct the TDS therefore the AO disallowed this amount of Rs. 6,08,46,978/-. 7. Before the DRP the assessee contented that these expenses are not incurred towards any service rendered by M/s. Golflinks Software Park Pvt. Ltd. But these were only reimbursement of the expenses towards power and fuel. The DRP while adjudicating the objection on this issue directed the AO to verify whether any service has been rendered by M/s. Golflinks Software Park Pvt. Ltd. or the expenditure is purely in the nature of reimbursement on account of power and fuel. Since the assessee also raised an alternative plea that even in the case of disallowance u/s. 40(....
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....rom the business of developing housing project Whatever be the ultimate profit of assessee as computed even after making disallowance under section 40(a) (ia) of the Act, would qualify for deduction as provided under the law." 11. Following the decision of Hon'ble Gujarat High Court we upheld the directions of the DRP on this issue. Since the alternative claim of the assessee is allowed therefore we do not propose to go into the issue of nature of payment in question. The same becomes infructuous. 12. Ground nos. 6 & 7 regarding the issue of exclusion of communication expenses from the export turnover as well as total turnover while computing the deduction u/s. 10A. 13. We have heard the Id. DR as well as Id. AR and considered the relevant material on record. At the outset we note that this issue is covered by the decision of jurisdiction High Court in case of CIT v. Tata Elxsi Ltd. [2012] 349 ITR 98/204 Taxman 321/17 taxmann.com 100 (Kar.). The DRP has directed the AO to exclude the communication expenses both from export turnover as well as total turnover while computing the deduction u/s. 10A by following the decision of Hon'ble jurisdictional High Court in case....
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.... the following 2 additional comparable companies by the learned TPO without considering the detailed submissions made by the Respondent: 1. Accentia Technologies Limited; and 2. eClerx Services Limited. 7. The Honorable DRP and learned AO/TPO have erred in law and on facts in rejecting several companies chosen as comparable to the ITES segment of the Respondent, for the purpose of determining the ALP for the international transaction of the Respondent, on account of inappropriate reasons including the reason that the said companies failed the filters erroneously applied by the learned TPO. Computation of operating mark up on cost 8. The Honorable DRP has erred in law in upholding the learned TPO's action of treating the foreign exchange gain/loss arising on account of foreign currency fluctuation to be non-operating in nature. 9. The Honourable DRP and the learned AO/TPO have erred in treating the provision of doubtful debts as non-operating in nature thereby wrongly computing the operating mark upon cost of the comparable companies after excluding the provision for doubtful debts. Risk adjustment ....
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..... have powers to issue directions for further inquiry of an issue as per section 144C(8) of the Act; 16. The learned AO has erred in taw. by relying on the decision of the Honourable Ahmedabad Income-tax Appellate Tribunal ("ITAT") in the case of Rameshbhai C. Prajapati 29 taxmann.com 64 of 2013 which was pronounced prior to the superseding decision of the relevant jurisdictional High Court of Gujarat in the case of Keval Construction (354 ITR 13 of 2013) wherein it has been held that ultimate profit of the assessee as computed after making disallowance under section 40(a)(ia) of the Act would qualify for deduction under section 80IB of the Act. Disallowance under section 14A of the Act 17. The Honourable DRP and learned AO have erred in law and on facts in upholding the disallowance under section 14A of the Act read with Rule 80 of the Rules in connection with the investment of Rs. 3,25,66,000 in the share capital of its subsidiary. 18. The Honourable DRP and learned AO have erred in law and on facts in not considering the contention of the Respondent that there was no exempt income earned in the first place during the relevant AY and henc....
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.... the coordinate bench of this Tribunal in case of Unisys India (P.) Ltd. v. Dy. CIT [2015] 64 taxmann.com 459 (Bang. - Trib.). He has also relied upon the decision of Hon'ble Delhi High Court in case of Rampgreen Solutions (P.) Ltd. v. CIT [2015] 377 ITR 533. On the other hand, the Id. DR has relied upon the orders of the authorities below and submitted that the functional comparability has been examined by TPO as well as DRP and therefore these two companies are found as functionally comparable to the assessee. 5. Having considered the rival submissions as well as relevant material on record, at the outset we note that the functional comparability of these two companies have been examined by the coordinate bench of this Tribunal in case of Unisys India (P.) Ltd. (supra) in para 49 to 51 and 53 to 54 as under: 'Accentia Technologies Ltd.: 49. The comparability of this company was again considered by the Bangalore Bench of the Tribunal in the case of Symphony Marketing Solutions (supra) and it was held by this Tribunal as follows: "(1) Accentia Technologies Ltd. (Seg.) 10. This was considered as a comparable by the TPO and listed at Sl.....
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....s the effective date of the scheme of merger and demerger was 26th August, 2008, The Annual Report supported the argument of the assesses that there were merger and demerger in the financial year and it was an exceptional year of performance as financial statements were revised by this company much after the closure of the previous year. The Panel agrees with the contention of the assessee that it is an exceptional year having significant impact on the profitability arising out of merger and demerger." 11. On careful consideration of the matter, we also agree with the aforesaid view of the DRP that extra-ordinary event like merger and de-merger will have an effect on the profitability of the company in the financial year in which such event takes place. It is the contention of the assessee that in case of the aforesaid company, there is amalgamation in December, 2006, which has impacted the financial result. This fact has to be verified by the TPO. If it is found upon such verification that the amalgamation in fact that taken place, then the aforesaid comparable has to be excluded." 50. The learned DR however put forth an argument that the case decided by the Tribunal w....
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.... of ITES found that these two companies are not good comparables of ITES segment of the assessee. The Hon'ble Delhi High Court in case of Rampgreen Solutions (P.) Ltd. (supra) while dealing with the issue of comparability of eClerx Services Ltd. has upheld the exclusion of eClerx Services Ltd. from the set of comparables. Accordingly, in view of the above facts and circumstances as well as the decision of the coordinate benches of this Tribunal we direct the AO / TPO to exclude these two companies namely Accentia Technologies Limited and eClerx Services Limited from the set of comparables. 7. Ground nos. 8 and 9 regarding the foreign exchange gain / loss was treated as non-operating in nature. 8. We have heard the ld. AR as well as the ld. DR. and considered the relevant material on record. There is no quarrel on this aspect that if the foreign exchange gain / loss arising on account of fluctuation of foreign exchange rate in respect of export realization then the same would be part of operating profit or cost as case may be. However, for the purpose of computing the margins for the assessment year under consideration only the gain or loss which pertains to the export mad....
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.... that when no exempt is received or receivable in the year under consideration no disallowance is called for u/s. 14A. Thus, the ld. AR has submitted that when the assessee has not earned any exempt income then the provisions of section 14A will not apply. 13. On the other hand, the ld. AR has submitted that the Hon'ble High Court in the case of Cheminvest Ltd. (supra) was dealing with the question of disallowance u/s, 14A on account of interest expenditure attributable to long term investment. Whereas in the case of the assessee the disallowance has been made by the AO on account of administrative expenses which is only 0.5% of the average investment as per rule 8D(2)(iii) of IT Rules. Thus he has submitted that the decision relied upon by ld. AR is not applicable. 14. Having considered the rival submissions as well as relevant material on record, we note that for the year under consideration, the assessee has made fresh investment in the shares and therefore the earlier order of this Tribunal in assessee's own case is not applicable for the year under consideration. As regards the decision of the Hon'ble Delhi High Court in case of Cheminvest Ltd. (supra) the is....