Income Tax Appellate Tribunal - Cochin
Suntech Business Solutions P. Ltd, ... vs The Acit, Trivandrum on 30 September, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
Before Shri Waseem Ahmed, Accountant Member and
Shri Soundararajan K., Judicial Member
IT(TP)A No. 01/Coch/2021: AY - 2016-17
IT(TP)A No. 04/Coch/2022: AY - 2017-18
SA No. 10/Coch/2021: AY - 2016-17
Sun Tec Business Solutions P. Ltd. ACIT, Circle - 1
TC4/2399-1, Kuravankonam 1st Floor, Aayakar Bhavan
vs.
Trivandurm 695003 Kowdiar
[PAN: AAICS8020K] Thiruvananthapuram 695003
(Appellant) (Respondent)
Appellant by: Shri Sharath Rao, CA
Respondent by: Shri Sanjit Kumar Das, CIT-DR
Date of Hearing: 26.09.2024
Date of Pronouncement: 30.09.2024
ORDER
Per Bench These appeals filed by the assessee are directed against the orders of the National e-Assessment Centre, Delhi under section 144C of Income Tax Act, 1961 (hereinafter "the Act") dated 30.03.2021 & 16.04.2021 for Assessment Years (AY) 2016-17 & 2017-18 respectively. Assessee has also field stay application SA No. 10/Coch/2021 for AY 2016-17.
2. The assessee vide letter dated 15-10-2022 has raised fresh grounds of appeal detailed as under:
"Ground No. 1 - Assessment and Reference to Transfer Pricing Officer are bad in law 1.1 The Final assessment Order passed by the AO under section 143(3) read with section 144C (13) of the Act, the directions issued by the Dispute Resolution Panel ("DRP") 2 IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
under section 144C(5) and the order passed by the TPO under section 92CA(3) of the Act, to the extent prejudicial to the Appellant are not in accordance with the law and made in violation of the principle of equity and natural justice and are contrary to the fats and circumstances of the present case.
1.2 The AO/DRP/AO has erred in law and on facts in making transfer pricing adjustment to the international transactions of provision of software development and loans and advances granted to branches/subsidiaries outside India. Ground No. 2-Erroneous determination of transfer pricing adjustment when India entity earns more than consolidated global profits 2.1. The AO/DRP erred in making transfer Pricing adjustment when the profit margin earned by the India entity exceeds the profit margin of the group entity. Ground No. 3-Erroneous rejection of Internal Transactional Net Margin Method (Internal TNMM") 3.1. The TPO/DRP erred in rejecting the segmental margin prepared by the Assessee and in rejecting the Internal TNMM adopted by the Assessee.
Ground No. 4 Erroneous computation of adjustment value on the total operating revenue of the Company 4.1 The TPO erred in computation of adjustment on the total operating revenue instead of international transaction value.
4.2 The AO/DRP/TPO ought to have restricted the Transfer Pricing adjustment to international transaction with Associated Enterprise. Ground No. 5 - Determination of arm's length price by the TPO in relation to the 'SWD Services' 5.1 The AO/DRP/TPO erred on facts and in law in conducting a fresh benchmarking analysis using non contemporaneous data and substituting the Appellant's TNMM analysis with fresh benchmarking analysis on his own conjectures and surmises. 5.2 The TPO/AO/DRP grossly erred on facts in benchmarking the transactions without considering the differences in the functions performed, assets employed, and risk undertaken by the Appellant vis à-vis comparable companies; 5.3 The AO/DRP/TPO have erred in rejecting the TP study of the Appellant and conducting fresh search process with additional and/or modified filters for selecting the companies comparable to the Appellant.
5.4 The AO/DRP/TPO have erred in rejecting companies if the data pertaining to FY 2017-18 arc unavailable in the public databases.
5.5 The AO/DRP/TPO have erred in law in rejecting certain comparable companies merely on the ground that the financial year ending of the Appellant and the comparable company are different.
5.6 The AO/DRP/TPO have erred in law in rejecting the application of upper turnover filter without appreciating the fact that the lower turnover filter of Rs. 1 Crore have been applied on the comparable companies.3
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5.7 The AO/DRP/TPO have erred in law in applying the export earning filter with a threshold limit of 75% in selecting the comparable companies. 5.8 The AO/DRP/TPO have erred in law in rejecting comparable companies having employee cost of less than 25% of the turnover.
5.9 The AO/DRP/TPO have erred in law in not excluding certain comparable companies which fail the TPO filter of Related Party Transaction (RPT). 5.10 The AO/DRP/TPO have erred in law in not excluding companies having significant onsite operations.
5.11 The AO/DRP/TPO have erred in wrongly computing the margins of the certain comparable companies.
5.12 The AO/DRP/TPO have erred in not granting working capital adjustment while computing the arm's length price/net margin of the comparable companies. 5.13 The AO/DRP/TPO have erred in law and on facts in considering the following companies in the Software development Segment (SWD) as comparable to the Appellant without appreciating that the said companies are not comparable to the Appellant due to multiple reasons including functionality, business model, onsite revenue, product sales, presence of brand and Intangibles led revenue, lack of segmental data, inadequate financial information, extraordinary events etc 5.13.1 Aspire Systems India Private Limited 5.13.2 Larsen and Toubro Infotech Limited 5.13.3 Infobeans Technologies Limited 5.13.4 Persistence Systems Limited 5.13.5 Nihilent Technologies Limited 5.13.6 Inteq Software Private Limited 5.13.7 Infosys Limited 5.13.8 Thirdware Solutions Limited 5.13.9 Cybage Software Private Limited 5.14 The AO/DRP/TPO have erred in law and on facts in not including the following companies in the final list of comparable in the Software development Segment (SWD) which are functionally similar and qualifies all the filters.
5.14.1 Akshay Software Technologies Limited 5.14.2 Evoke Technologies Private Limited 5.14.3 Maveric Systems Limited 5.14.4 Nucleus Software Exports Limited 5.15 The TPO has erred in law in not following the direction of the DRP to include Sasken Communication Technologies Limited in the final list of comparable companies. Ground No 6 - Erroneous imputation of interest on transactions with branches outside the purview of Transfer Pricing regulations in India 6.1 The TPO/DRP has erred in law by considering transactions with branch as international transaction and imputed interest on the same.
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6.2 The TPO/DRP erred on facts in treating short term advances of temporary nature provided in the ordinary course of business based on commercial expediency as loans and advances, and 6.3 The TPO/ DRP erred on facts in computing interest at the rate of 17.45% per annum (SBI PLR) instead of the Internal Comparable (i.e.5%) accepted by the Hon'ble Cochin bench in Appellant's own case for AY 2011-12, AY 2012-13 and AY 2013-14 Ground No.7 - Erroneous imputation of interest on advances given to subsidiaries 7.1 The TPO/ DRP erred on facts in treating short term advances of temporary nature provided in the ordinary course of business based on commercial expediency as loans and advances.
7.2 TPO/DRP erred on facts in computing interest at the rate of 17.45% per annum (SBI PLR) instead of the Internal Comparable (i.c.5%) accepted by the Hon'ble Cochin bench in Appellant's own case for AY 2011-12, AY 2012-13 and AY 2013-14 Ground No.8 - Erroneous adjustments in the book profit under section 115JB 8.1 On the facts and in the circumstances of the case and in law, the Learned AO has not granted the claim of deferred tax income to the extent of INR 21,395,921 against the book profit under section 115JB of the Act which relates to provision for deferred tax and interest on income tax and TDS.
8.2 On the facts and in the circumstances of the case and in law the Learned AO has erred in non- considering the fact that deferred tax credited to profit and loss account is a specified adjustment as per Section 115JB of the Act. Ground No.9 - Erroneous levy of interest under section 234C of the Act 9.1 On the facts and in the circumstances of the case and in law, the learned AO has erred in computing consequential interest under section 234C of the Act, where the same is levied on the returned income and not on the assessed income. Hence the interest under section 234C charged against the Appellant is erroneous. The Appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal."
3. At the outset, we note that the issue raised by the assessee in ground Nos. 1 to 4 of its appeal and 5.1 to 5.5 and 5.7 to 5.12 and 5.15 were not pressed before us. Therefore, the issues raised in those grounds of appeal are hereby dismissed as not pressed.
4. The only issue raised by the assessee in ground Nos. 5.6 and 5.13 to 5.14 is that the learned DRP/TPO/AO erred in rejecting the TP study of the assessee by 5 IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
conducting fresh benchmarking and selecting fresh comparable including certain comparable which should be excluded.
5. The necessary facts as arising from the order of the authorities below are that the assessee in the present case is a service provider of relationship based pricing and centralized billing solution for banking, financial services& insurance, communication, media and entertainment and utilities industries. The assessee develops and exports the computer software. The assessee in the year under consideration has carried out certain international transactions such as software development services with its AE which was claimed to be carried out at the arm length price based on internal TNMM. However, the TPO was not satisfied with the transfer pricing study of the assessee with respect to the international transactions carried out by it (the assessee) with the AE. Accordingly, the TPO rejected the TP study filed by the assessee and conducted a fresh TP study. The TPO in the fresh TP study by applying certain filter selected 13 comparable for working out the ALP of software development segment (SWD-segment)using the external TNMM and operating profit/ operating cost as profit level indicator. The TPO worked out the PLI of the assessee for SWD segment at 8.77% and worked the arithmetic mean of PLI of the comparable companies at 28.20% and thus made an upward adjustment of Rs. 25,00,23,890.00 by adding to the total income of the assessee. The assessee raised the objection before the ld. DRP which dismissed the objections of the assessee with the direction of recomputing the correct value of the margins of the comparable. Accordingly, the AO in the final assessment order computed median of the comparable after taking correct value of margin at 28.57%. Thus, the AO in the final assessment order increased the upward adjustment from Rs. 25,00,23,890.00 to Rs. 25,47,84,779.00 with respect to the international transactions carried out by the assessee in SWD segment with its associated enterprises.
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6. Being aggrieved by the order of ld. DRP/AO, the assessee is in appeal before us.
7. The learned AR before us filed a paper book running from pages 1 to 444, case law compilation running from pages 1 to 1692, synopsis of arguments running from 1 to 19 pages and contended that certain comparable selected by the TPO should be rejected based on the turnover filter. As per the ld. AR the turnover of the assessee company at entity level is at Rs. 142 crores and international transactions stand at Rs. 64 crores only. Therefore, the assessee company is a small size company and accordingly the comparable company should have turnover between Rs. 1 crore to Rs. 200 crores only. Accordingly, the comparable outside the said range of turnover should be excluded. There were 8 companies selected by the TPO having turnover exceeding Rs. 200 crores, hence these 7 companies should not be considered as comparable for working out the ALP of the assessee. In contending so, the ld. AR relied on the order of Bangalore ITAT in the case of Autodesk India private limited versus DCIT reported in 96 taxmann.com 263. Such lists of the comparable companies having turnover more than 200 crores with the associated enterprises is reproduced on page 12 of the synopsis of arguments of the assessee.
7.1 Regarding the exclusion of the margins of AY 2014-15 and 2015-16 with respect to comparable company namely M/s RS Software India Ltd., the learned AR for the assessee before us contended that the margins of AY 2014-15 and 2015- 16 of the impugned company should not be considered as the company had turnover in these years exceeding the sum of Rs. 200 crores. In holding so, the ld. AR relied on the order of this Tribunal in the case of In App Information Technologies India Private Limited in IT(TP)A No. 07/Coch/2021 order dated 24-06-2022. As such, the 7 IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
ld. AR submitted that margins for the AY 2016-17 of the impugned company should only be taken into consideration.
7.2 Besides the above, the ld. AR also submitted that there were comparable companies namely M/s Inteq Software Pvt Ltd and M/s Infobeans Technologies Ltd which are functionally dissimilar to the assessee and accordingly it should be excluded from the list of the comparable. The ld. AR to this effect has made a detailed submission in the synopsis of arguments.
7.3 The ld. AR further submitted that the TPO excluded 3 companies namely M/s Akshay Software Technology Ltd, M/s Evoke Technologies Pvt Ltd and M/s Maveric Systems Ltd selected by the assessee as comparable on different grounds. The ld. AR submitted that these three companies should be included in the comparable companies as these companies are functionally comparable to the activity of the assessee.
7.4 In view of the above, the ld. AR submitted the final list of the comparable to be adopted for working out the ALP of the international transaction carried out by the assessee with its AE.
8. On the other hand, the ld. DR before us vehemently supported the order of the authorities below.
9. We have heard the rival contentions of both the parties and perused the materials available on record. The facts of the case have been elaborated in the preceding paragraph which are not in dispute, therefore for the sake of brevity and convenience, we are not inclined to repeat the same. The 1st controversy arises 8 IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
whether the companies having turnover exceeding ₹ 200 crores should be excluded while calculating the ALP of the assessee. In this regard, we find pertinent to refer the order of this tribunal in the case of Autodesk India Private limited (supra) wherein it was held as under:
17.7 We have considered the rival submissions. The substantial question of law (Question No.1 to 3) which was framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt. Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non-jurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of Pentair Water India (P.) Ltd. (supra) has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases.
There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee.
17.8 In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating Systems (I) (P.) Ltd. (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating Systems (I) (P.) Ltd. (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating Systems (I) (P.) Ltd. (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India (P.) Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in 9 IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon'ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra).
9.1 Based on the above finding of the ITAT, we are inclined to exclude the companies having turnover exceeding ₹ 200 crores as comparable while calculating the ALP for the transactions international transactions carried out by the assessee with the AE. As per the assessee the list of such companies having turnover exceeding Rs. 200 crore stands as under:
(i) Larsen and Toubro Infotech
(ii) Persistent System Ltd
(iii) Nihilent Analytics
(iv) Infosys Limited
(v) Thirdware Solutions Ltd
(vi) Aspire Systems India Pvt Ltd.
(vii) Cybage Software Ltd.
9.2 Hence, we direct the TPO/AO to exclude the companies stated above from the
list of comparable while calculating the ALP with respect to the international transaction carried out by the assessee if they are having turnover exceeding Rs. 200 crores after necessary verification.
9.3 Regarding the exclusion of the margins of AY 2014-15 and 2015-16 with respect to comparable company namely RS Software India Ltd., we find that this Tribunal in the case of In App Information Technologies India Private Limited in 10 IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
IT(TP)A No. 07/Coch/2021 vide order dated 24-06-2022 has decided the issue in favour of the assessee. The relevant extract is reproduced as under:
10.4 In view of the above order of the Tribunal, we direct the AO / TPO to exclude the seven companies, referred supra, from the final list of companies on the basis of application of turnover filter. Further, we direct the A.O. to exclude the margin of R S Software India Limited for the financial year 2013-2014 and 2014-2015 by applying turnover filter (since turnover for F.Y. 2013-2014 and 2014-2015 exceeded Rs.200 crore) while re-determining the arm's length price of the international transaction. It is ordered accordingly.
9.4 Regarding the exclusion of the comparable companies namely M/s Inteq Software Pvt Ltd and M/s Infobeans Technologies Ltd., the learned AR for the assessee before us contended that M/s Inteq Software Pvt Ltd is engaged in diversified activities such as data warehousing, EI & EDI Services, Healthcare BPO and consultancy services including end to end solution in the nature of Back-office services, MIS and analytical reporting etc. Besides the above, the impugned company M/s Inteq Software Pvt Ltd holds considerable amount of intangible and earn fluctuating margin year on year. Likewise, M/s Infobeans Technologies Ltd specialized in software engineering services, custom application development, content management system, enterprise mobility, big data analytics, UX and UI, automation engineering etc. On the other hand, the activity of the appellant assessee is confined to SWD activity only. Hence, these companies are functionally different. Accordingly, such companies cannot be taken as comparable for the purpose of computing ALP. In this regard, we note that the provision of Rule 10B(2) of the IT rule specifies that while selecting comparable it is necessary to consider the specific characteristics of transactions carried out, the functions performed, amount of assets employed, risk taken etc and these factors should be similar. However, in the case present case, the business activity of the assessee and the said comparable companies are dissimilar, therefore these companies cannot be included in the comparability analysis. At this juncture, it is also pertinent to note that this Tribunal in the case of 11 IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
SanDisk India Device Design Centre Pvt. Limited Vs. JCIT in ITA No. 288/Bang/2021 order dated 30-06-2022 held that the companies are not comparable with the assessee which is engaged in software development services on account of functionality differences. The relevant finding of the Tribunal reads as under:
"Infobeans Technologies Ltd. (Infobeans)
49. The assessee sought exclusion of Infobeans on the ground that it is also functionally dissimilar being into providing business IT services (CAD) (application development and maintenance, Big Data, UX and UI, Automation engineering services, including product engineering and lifestyle solutions and business process management) in verticals of storage and virtualization, media and publishing, HR and Payroll and e-commerce. It is also providing software engineering services primarily in Custom Application Development (CAM), enterprise mobility and Big Data Analytics (BDA). 50. Perusal of financials available at page A303, A418 to A421, Infobeans shows that it is into diversified services but its segmental financials are not available without which it is difficult to compute the correct profit margin of the relevant segment. So Infobeans is also ordered to be excluded as a comparable being not a comparable to the assessee."
17.10 Perusal of the annual report, filed before us in respect of the above two comparables, we note that the segmental financials are not available in respect of Nihilent and Infobeans and the RPT in respect of Aspire Systems India Pvt. Ltd. is more than 25% being the threshold limit considered by the Ld.TPO. Nothing has been placed before us by the Ld. DR in order to take a different view. Respectfully following the Hon'ble Mumbai Tribunal, we direct the Ld.TPO to exclude Nihilent, Infobeans and Aspire Systems from the final set."
9.5 Similarly, this Tribunal in the case of Finastra Software Solutions(India) P. Ltd. v. Dy. CIT reported [2023] 147 taxmann.com 515 has observed as under:
Inteq Software Pvt. Ltd. ("Inteq") The company is functionally dissimilar to the assessee. The company is engaged in diversified business lines such as Microsoft dynamics, data warehousing, EI & EDI services, Healthcare BPO and consulting services including provision of end-to-end solutions to clients in the nature of back office services, transaction-based services, MIS and analytical reporting services. Thus, Inteq is not comparable to the software development functions of the assessee. It is further submitted that the segmental details attributable to the various services rendered by the company is not available and is instead shown as "software development and service charges" under one head. Detailed submissions are available at pages 1911-1914 of the paper book.
Significant related party transactions:12
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The company's related party transactions (sales) for the FY 2013-14 stand at 79.49% of sales, and therefore the company ought to be excluded.
Wide fluctuation in the margin:
It is submitted that the company's margin fluctuate widely, suggesting that there exists a peculiar economic circumstance. For the FY 2013-14, the company's margin stood at 47.21%, for the FY 2014-15 32.14% and for the FY 2015-16 7.56%. Detailed submissions in this regard are placed at pages 419-436 of the paper book. In view of the above, it is submitted that Inteq ought to be excluded from the final list of comparables.
9.6 Thus, in view of the above discussion, we hold that the companies namely M/s Inteq Software Pvt Ltd and M/s Infobeans Technologies Ltd are functionally different with the assessee company which engaged in software development services.
Therefore, the same cannot be included in comparability analysis.
9.7 Regarding the inclusion of the companies, namely M/s Akshay Software Technology Ltd, M/s Evoke Technologies Pvt Ltd and M/s Maveric Systems Ltd as comparable, we note that the learned AR at the time of hearing before has not pressed the issue of inclusion of company namely M/s Akshay Software Technology Ltd and M/s Maveric Systems Ltd as comparable therefore we hereby dismiss the same as not pressed.
9.8 Now coming to the issue of inclusion of a company namely M/s Evoke Technologies Pvt Ltd as comparable, we note that the AO/TPO excluded the same for the reason that financial of one of the branches of impugned company was not audited. The learned AR before us claimed that the financials of the company M/s Evoke Technologies Pvt Ltd. were duly audited. As per the learned AR, a company which is functionally similar cannot be rejected as comparable merely for the reason that the financials of the branch are not audited unless some error and deficiency is pointed out. It was further contended that if the financial of one of branches situated outside India and its accounts are not audited, then the figure of such branch should 13 IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
be excluded from consolidated financial and accordingly margin should be computed. In this context, we find relevant to refer the order of Hyderabad Tribunal in the case of ADP (P.) Ltd vs. DCIT reported in 135 taxmann.com 44. The assessee ADP (P.) Ltd is also engaged in the activity of SWD and to benchmark the international transaction sought inclusion of company namely Evoke Technology Pvt Ltd as comparable. In the case of ADP (P) Ltd also the revenue authority rejected the contention of the assessee on similar reasoning that that financials of the party were not audited. The Hyderabad Tribunal in such facts and circumstances which is identical to present case set aside the issue to the file of the TPO with following observation:
12.3 We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The co-ordinate bench in the assessee's own case ADP (P.) Ltd. (supra), directed the AO to include this company as comparable to the assessee for determining ALP by observing as under:
"31. As far as Evoke Technologies Ltd is concerned, the TPO has rejected the said company as a comparable on the ground that from the annual report of the said company, it is noticed that the stand alone financials reported from 2013-14 include revenue and net profit figures of one Branch outside India also. The learned Counsel for the assessee brought to our notice that in the case of Infor (India) (P.) Ltd, the Co- ordinate Bench of this Tribunal in ITA No. 2307/Hyd/2018 has held as under:
73. As regards Evoke Technologies is concerned, the contentions of the assessee are that this company is functionally similar to the assessee, whereas the TPO & DRP have held that the financials of this company include the revenue of one branch outside India which are unaudited and hence are not reliable. The learned Counsel for the assessee however, drew our attention to page 963 of the Paper Book, which is part of the Annual Report of Evoke Technologies Ltd. wherein the revenue of Indian Branch of assessee is separately shown. Taking the same into consideration, we direct the AO/TPO to reconsider the comparability of this company by taking the revenue from Indian Branch only. Thus, the ground for Maveric Systems Ltd is rejected and for Evoke Technologies Ltd is allowed for statistical purposes.
32. Since the issue is similar, we direct the AO/TPO to reconsider the comparability of this company to the assessee by taking the revenue from Indian Branch only."
12.4 We observe that this company is functionally comparable to assessee company and accepted in earlier years as comparable as there is no change in nature of business and engaged in IT decision and development services. Therefore, following the decision of the co-ordinate bench in assessee's own case for AY 2014-15 cited supra, we direct the AO/TPO to reconsider the comparability of this company to the assessee by taking the revenue from Indian Branch only.
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9.9 Therefore, in accordance with the above discussion, we hereby set aside the issue to the file of the AO/TPO to reconsider the comparability of the company namely M/s Evoke Technologies Pvt Ltd by taking the data of Indian branch.
9.10 In view of the above and after considering the facts in totality, we direct the authorities below to exclude the comparable and include the comparable in terms of the discussion stated above but after necessary verification as per the provisions of law. Hence, with the observation discussed above, the grounds of appeal of the assessee are partly allowed for the statistical purposes.
10. The interconnected issue raised by the assessee in ground Nos. 6 and 7 is that the ld. TPO/DRP erred in computing interest at the rate of 17.45% per annum being SBI PLR on the advances given to the associated enterprises.
11. The assessee during the year under dispute has extended loan and advances to its AEs and foreign branches based in US and UK. The assessee on such loans and advances to AEs has charged interest @ 5% whereas no interest charged on loan and advances given to branch offices. The TPO was not in agreement with the treatment of the assessee. Thus, the TPO proposed to benchmark the interest on loan and advances to AEs and branch office at SBI PLR + 3% spread on monthly outstanding balance. The TPO finally in the present case has calculated the interest rate on the international transaction being loans provided to the associated enterprises at the rate of 17.45% per annum (SBI PLR) which was subsequently confirmed by the ld. DRP.
12. Being aggrieved by the order of the TPO/the DRP, the assessee is in appeal before us.
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13. The learned AR before us contended that the Tribunal in the own case of the assessee in the earlier years has benchmarked the same transaction at the interest rate 5% on the advances given to the associated enterprises. Accordingly, the ld. AR contended that same benchmark can also be adopted for the year in dispute.
14. On the other hand, the learned DR could not controvert the arguments of the ld. AR appearing on behalf of the assessee. However, the ld. DR left the issue at the discretion of the Bench.
15. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that this Tribunal in the own case of the assessee in the earlier assessment years 2011-12, 2012-13 and 2013-14 has taken the interest at the rate of 5% as benchmark on the loans given to the associated enterprises while calculating the ALP. The relevant extract of the order of the ITAT for the assessment year 2013-14 in IT(TP) A No. 607/Coch/2017 order dated 15.11.2018 is extracted as under:
"7. We have heard the rival contentions and perused the record. We find that a similar issue cme up for consideration before the Tribunal in assessee's own case in ITA Nos. 113 & 509/Coch/2016 for the assessment years 2011-12 and 2012-13 wherein vide order dated 12/09/2018, it was held as under:
"3.9 We have heard the rival submissions and perused the record. We find that a similar issue came up for our consideration in assessee own case in ITA No. 167/Coch/2015 dated 13/10/2015 wherein it was held as under:
"9. We have heard the rival contention and perused the facts of the case. We are not in agreement with the submissions made by the Ld. AR. The Ld. AR has failed to bring on record any distinguishing feature between the present case and case of the assessee for the assessment year 2008-09. In the assessment year 2008-09, an identical issue came up for consideration before the ITAT, Cochin Bench in assessee's own case wherein the assessee had charged interest at the rate of 5% on the advances made to its AE Suntec Germany and charged no interest on the advances made to its AEs in USA and UK. The Bench in para 9.4 (extracted above) held that commercial expediency cannot be a ground for not charging interest on the advances given to Suntec US and Suntec UK and upheld the charge of interest at the rate of 5% on the advances made to its AEs in USA and UK.16
IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
10. The question raised in the present appeal is identical to the question that came up for consideration for the assessment year 2008-09 in IT(TP)A No. 01/Coch/2013 in the case of Suntec Business Solutions Pvt. Ltd. dated 29/11/2013 (supra). We are bound by the previous decision of the ITAT, Cochin Bench rendered in the case of the assessee which is covered against the assessee vide its order dated 29/11/2013. We see no reason to interfere with the same in the present appeal. The interest rate of 5% chosen as an internal comparable is correctly applied. Ground No. 2 is therefore dismissed."
3.9.1 In view of the above order of the Tribunal, we are inclined to decide the issue against the assessee and in favour of the department. Hence, this ground of appeal of the assessee for both the assessment years is dismissed."
7.1 In view of the above order of the Tribunal, we direct the Assessing Officer to consider the interest rate at 5% per annum on the advances made to subsidiaries and branches. These grounds of appeal of the assessee are partly allowed."
15.1 Respectfully following the order of this Tribunal in the own case of the assessee as discussed above, we direct the TPO to adopt the interest at the rate of 5% per annum on the amount of loan advanced to the associated parties. Hence, the ground of appeal of the assessee is hereby partly allowed.
16. The issue raised by the assessee in ground No. 9 is that the CPC/AO erred in making the upward adjustment of Rs. 2,13,95,921.00 representing the deferred tax, provision for wealth tax and interest on TDS while calculating the book profit under the provisions of section 115 JB of the Act.
17. The ld. AR before is submitted that there is a double addition made by the CPC/AO while calculating the book profit under the provisions of section 115JB of the Act. As such the AO has not considered the deferred tax income amounting to Rs. 2,14,12,000.00 along with other allowances of Rs. 16,079.00 only. To this effect, the ld. AR also drawn our attention on pages 1182- 1183 of the paper book along with other details. As such, the ld. AR before us requested to restore the issue of MAT calculation under section 115 JB of the Act to the file of the AO for fresh adjudication as per the provisions of law.
17IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
18. On the other hand, the ld. DR raised no objection for restoring the issue to the file of the AO for fresh adjudication as per the provisions of law.
19. We have heard the rival contentions of both the parties and perused the materials available on record. Considering the facts stated above, we are inclined to hold that the issue on hand needs to be verified at the level of the AO and therefore in the interest of justice and fair play we are restoring the issue to the file of the AO for fresh adjudication as per the provisions of law. Hence the ground of appeal of the assessee is hereby by allowed for statistical purposes.
20. The issue raised by the assessee in ground No. 9 is that the AO has calculated the interest under the provisions of section 234C of the Act on the assessed income instead of return income. Accordingly, the ld. AR requested to give the appropriate direction to the AO for calculating the interest under section 234C of the Act as per the law. On the other hand, the ld. DR raised no objection if the direction is given to the AO for the calculation of the interest under section 234C of the Act on the return income. After hearing both the sides and perusal of the materials available on record, we direct the AO to recalculate the interest under section 234C of the Act at the return income as per the law. Hence, the ground of appeal of the assessee is hereby allowed for statistical purposes.
21. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
18IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
Coming to IT(TP)A No. 4/Coch/2022 for A.Y. 2017-18
22. The assessee has raised fresh grounds of appeal detailed as under:
"Ground No. 1 - Assessment and Reference to Transfer Pricing Officer are bad in law 1.1 The final order issued by the Assistant Commissioner of Income Tax, Circle 1(1) ('Assessing Officer' or 'AO') is bad on facts and in law, and is in violation of the principles of natural justice that the AO did not issue to the Appellant, a show cause notice, as per proviso to section 92C(3) of the Act;
1.2 The AO has erred in making a reference to the Deputy Commissioner of Income-tax, (Transfer Pricing) ('TPO'), inter alia, since the TPO has not recorded an opinion that any of the conditions in section 92C(3) of the Act, were satisfied in the instant case. Accordingly, the order passed by the TPO is without jurisdiction; 1.3 On the facts and in the circumstances of the case and in law, the learned TPO and accordingly, the learned AO erred in not demonstrating that the motive of the Appellant was to shift profits outside of India by manipulating the prices charged in its international transactions, which is a pre-requisite condition to make any adjustment under the provision of Chapter X of the Act; and 1.4 The final order passed by the AO is without jurisdiction, inter alia, insofar as it purports to give effect to an invalid order of the TΡΟ.
Ground No. 2-Erroneous determination of transfer pricing adjustment when India entity earns more than consolidated profits 2.1. The AO/DRP erred in making transfer Pricing adjustment when profits earned by the India entity exceeds the global profits.
Ground No. 3-Erroneous rejection of Internal Transactional Net Margin Method (Internal TNMM') 3.1. The AO/DRP erred in rejecting the segmental margin prepared by the Appellant and rejected the Internal TNMM adopted by the Appellant.
Ground No. 4- Erroneous computation of adjustment value on the total operating revenue of the Company 4.1 The AO/DRP erred in computation of adjustment value on the total operating revenue instead of international transaction value.
Ground No. 5-Determination of arm's length price by the TPO in relation to the 'IT Services' 5.1. The AO/DRP erred on facts and in law in conducting a fresh benchmarking analysis using non contemporaneous data and substituting the Appellant's TNMM analysis with fresh benchmarking analysis on his own conjectures and surmises. 5.2. The AO/DRP grossly erred on facts in benchmarking the transactions without considering the differences in the functions performed, assets employed, and risk undertaken by the Appellant vis- à-vis comparable companies;19
IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
5.3. The Learned AO/ TPO erred on facts in arbitrarily rejecting the following comparable companies selected by the Appellant in the transfer pricing documentation without considering the functional and risk analysis of the Appellant.
a) Akshay Software Technologies Limited
b) Evoke Technologies Private Limited
c) Sasken Communication Technologies Limited
d) E-zest Solutions Ltd.
5.4. The Learned TPO erred in law in rejecting the Transfer Pricing study maintained by the Appellant by proposing new filters.
5.5. The Learned AO/DRP erred in law in applying an arbitrary filter to reject companies having related party transactions greater than 25% of sales. The appellant seeks 0%- 15% RPT filter as judicially upheld in various appeals to consider any comparable as an "uncontrolled transaction" and accordingly seek rejection of the following companies.
Company Name FY 2014-15 FY 2015-16 FY 2016-17
Persistent Systems Ltd 31.21% 32.02% 39.13%
Cygnet Infotech Private Limited - 16.65% 18.41%
Threesixty Logica Testing Services - - 18.23%
Pvt. Ltd.
Harbinger Systems Pvt ltd - 18.87% 16.19%
5.6. The Ld. AO/DRP erred in rejecting the comparable, Maveric Systems Limited stating that it fails TPO's filter of income from software development segment >75% for FY 2015-16 and FY 2016-17, when it actually qualifies all the filters. 5.7. The Ld. AO/DRP erred in accepting the comparable, Aptus Software Labs Pvt. Ltd.
and OFS Technologies that fails TPO's own filters viz.
a) Employee cost filter, and
b) Export turnover filter 5.8. The Learned AO/DRP erred in including the following comparables, despite these companies being functionally dissimilar to the Appellant. The Learned Panel also erred in confirming the same.
a) Great Software Laboratory Pvt Ltd
b) Larsen & Toubro Infotech Ltd
c) Mindtree Ltd
d) Tata Elxsi Ltd.
e) Persist Systems Ltd.
f) Indbeans Technologies Ltd
g) Aptus Softwer Labs Pvt Ltd.
h) Cygnet Infotech Pvt Ltd
i) Nihilent Ltd.
j) OFS Technologies Ltd
k) Infosys Ltd
1) Threesixty Logica Testing services Pvt Ltd 20 IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
m) Cybage Software Pvt Ltd
n) Consilient Technologies Pvt Ltd 5.9 The Learned AO/DRP erred in considering the following companies with significant Intangibles.
a) Larsen & Tourbo Infotech Ltd
b) Mindtree Ltd
c) R Systems International Ltd
d) Persistent Systems Ltd
e) Tata Elxsi Ltd
f) Cygnet Infotech Pvt Ltd
g) Infobean Technologies Ltd
b) Threesixty Logica Testing Services Pvt Ltd
1) Infosys Ltd
1) Cybage Software Pvt Ltd
k) Consilent Technologies Pvt Ltd 5.10. The Learned AO/DRP erred in considering the following companies which operate under different business model with significant onsite activities;
a) Larsen & Toubro Infotech Limited
b) Mindtree Ltd
c) Persistent Systems Limited
d) Tata Elxsi Lad
e) Nihilent Limited
f) Infosys Limited 5.11. The Learned AO/TPO erred in not applying the turnover filter at the upper limit so as to reject high turnover companies (10 times turnover of the Company).
a) Mindtree
b) Larson & Toubro Infotech Lid
c) Persistent Systems Ltd
d) Tata Elxsi Ltd
c) Infosys Ltd
f) Cybage Software Pvt Ltd The following Companies ought to be rejected since it fails lower turnover filter computed at 1/10th of Assessee's turnover;
a) OFS Technologies Ltd
b) Kals Information System Pvt Ltd
c) Rheal Software Pvt Ltd
d) Informile Technologies Ltd
e) Aptus Software Labs Pvt Ltd
f) Consilient Technologies Pvt Ltd 5.12. The AO/DRP has erred on facts in wrongly computing the margins of certain companies identified as comparable by the TPO;
a) Harbinger Systems Pvt ltd 21 IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
b) CG-VAK Software & Exports Ltd
c) Great Software Laboratory Ltd
d) Mindtree Ltd
c) Aptus Sofwtare Labs Pvt Ltd
f) Nihilent Ltd
g) Infosys Ltd
h) Threesixty Logica Testing Services Pvt Ltd.
5.13. The AO/ DRP erred in selecting the following companies having exceptional year of operation/Abnormal Margins/peculiar economic circumstances. AO erred in accepting the action of ΤΡΟ.
a) Larsen & Toubro Infotech Ltd
b) Mindtree Ltd
c) Persistent Systems Ltd
d) Nihilent Ltd
e) Threesixty Logica Testing Services Pvt ltd
f) Consilient Technologies Pvt. Ltd.
g) Cybage Software Pvt Ltd
h) OFS Technologies Ltd Ground No. 6-Erroneous data used by the TPO 6.1 The AO/DRP has erred in law in using data, which was not contemporaneous and which was not available in the public domain at the time of conducting the transfer pricing study by the Appellant.
Ground No. 7 - To provide appropriate adjustments to the comparable companies 7.1. The Appellant request the Hon'ble Tribunal to provide appropriate adjustments under Rule 108 to account for, inter alia, differences in (a) marketing expenditure adjustment, (b) research and development expenditure adjustment, (c) Depreciation Adjustment (d) risk profile between the Appellant and the comparable companies. Ground No.8 - Erroneous imputation of interest on advances given to subsidiaries 8.1. The AO/DRP erred on facts in treating short term advances of temporary nature provided in the ordinary course of business based on commercial expediency as loans and advances.
8.2 Without prejudice to the above, the AO/ DRP erred on facts in computing interest at the rate of SBI PLR plus 3% per annum instead of the Internal Comparable (i.e. 5%) accepted by the Hon'ble Cochin bench in Appellant's own case for AY 2011-12, AY 2012-13 and AY 2013-14.
Ground No.9 - Erroneous disallowance under section 14A of the Act-INR 23,92,660 9.1. Based on the facts and circumstances of the case and in law, the learned AO/DRP has erred in making an addition under Section 14A of the Income Tax Act 1961 ('the Act') read with Rule 8D of the Income-tax Rules, 1962 ('the Rules'). 9.2. Based on the facts and circumstances of the case and in law, the learned AO/DRP has erred in holding that the disallowance u/s 14A is required to be computed in 22 IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
accordance with Rule 8D on the average of current and non-current investments at 1% amounting to INR 23,92,660 (1% of INR 23,92,65,986). 9.3. The learned AO/DRP has failed to consider the fact that the disallowance under section 14A of the Act is applicable only when the Assessee has earned exempt income.
9.4. The learned AO/DRP has erred in making an addition under section 14A of the Act in the computation of book profit under section 115JB of the Act. 9.5. Without prejudice to other objections and based on the facts and circumstances of the case in law, the amount of investments which could have yielded an exempt income is INR 2,36,49,990 as against INR 23,92,65,986 computed by the Learned AO.
Ground No.10-Erroneous adjustments made to the book profit computed under section 115JB of the Act-INR 85,49,500 10.1 On the facts and in the circumstances of the case and in law, the Learned AO has adjusted INR 85,49,500 against the book profit under section 115JB of the Act which relates to provision for deferred tax.
10.2 On the facts and in the circumstances of the case and in law the Learned AO has erred in non- considering the fact that deferred tax credited to profit and loss account is a specified adjustment as Section 115JB of the Act, and the Appellant had suo moto adjusted same in the computation of book profit. 10.3 On the facts and in the circumstances of the case and in law, the Appellant prays your good self to kindly consider the fact and delete the adjustment. Ground No.11 - Erroneous non granting of Long-term Capital Loss for the year - INR 34,19,385 11.1. Based on the facts and circumstances of the case and in law, the learned AO has erred in not granting long term capital loss claimed incurred in relation to liquidation of subsidiary amounting to INR 34,19,385. 11.2. The AO has failed to appreciate the fact that Appellant did not receive any consideration in pursuance to the liquidation of the subsidiary company and failed to appreciate the fact that accordingly, consideration for the purpose of computation of capital gain/loss is Nil.
11.3. In view of the above, the Appellant prays that the learned AO be directed to grant the long-term capital loss amounting to INR 34,19,385.
Ground No.12 - Non-consideration of submission in response to intimation under section 143(1)(a) of the Act.INR 19,79,632 12.1. Based on the facts and circumstances of the case and in law, the learned AO has erred in passing the order without considering objections submitted by appellant against intimation under section 143(1)(a) of the act with respect to disallowances under section 43B and section 36(1)(va) of the Act 23 IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
12.2. In view of the above, the Appellant prays that the learned AO be directed to delete the erroneous disallowances under section 43B and section 36(1)(va) of the Act which was disallowed in the intimation under section 143(1)(a) of the Act. Ground No.13 - Erroneous computation of Interest under section 234B of the Act 13.1. Based on the facts and circumstances of the case and in law, the learned AO has factually and legally erred, in computing interest amounting to INR 2,85,52,138 under section 234B of the Act.
13.2. On the facts, and in the circumstances of the case and in law, the learned AO has failed to appreciate the fact that the consequential interest has arisen on account of erroneous additions made as mentioned above.
13.3. In view of the above, the Appellant prays that the learned AO be directed to delete the erroneous levy of interest under section 234B of the Act (being consequential in nature).
Ground No.14 - Erroneous computation of Interest under section 234C of the Act 14.1. Based on the facts and circumstances of the case and in law, the learned AO has factually and legally erred, in computing interest amounting to INR 11,13,121 under section 234C of the Act.
14.2. Based on the facts and circumstances of the case and in law, the learned AO has failed to appreciate the fact that the Company in its return of income had calculated and paid INR 10,81,608 on account of interest under section 234C of the Act on its returned income.
14.3. Based on the facts and circumstances of the case and in law, the learned AO has failed to appreciate a fact that interest under section 234C of the Act is levied on the returned income and not on the assessed income.
14.4. In view of the above, the Appellant prays that the learned AO be directed to delete the erroneous levy of interest under section 234C of the Act."
23. At the outset, we note that the issue raised by the assessee in ground No. 1 of its appeal is general in nature and does not require separate adjudication. Hence the same is hereby dismissed as infructuous.
24. At the outset, we note that the issue raised by the assessee in ground Nos. 2 to 4,5.1, 5.2, 5.4 to 5.7 and in ground Nos.6 to 7 of its appeal werenot pressed before us. Therefore, the issues raised in those grounds of appeal are hereby dismissed as not pressed.
24IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
25. The issue raised by the assessee in ground No. 5.3 is that the learned DRP/TPO/AO erred in rejecting/excluding the comparable companies detailed as under:
i. Akshay Software Technologies Ltd
ii. Evoke Technologies Pvt Ltd
iii. Sasken Communication Technologies Limited
iv. E-zest Solutions Ltd
26. At the outset, we note that the learned AR for the assessee before us has not pressed the issue of inclusion of comparable companies namely Akshay Software Technologies Ltd, Sasken Communication Technologies Limited and E-zest Solutions Ltd. therefore we hereby dismissed the same as not pressed.
27. As far as issue of inclusion of comparable company namely Evoke Technology is concerned, we note that the identical issue was raised by the assessee in IT(TP)A No. 1/Coch/2021 for the assessment year 2016-17. Therefore, the findings given in IT(TP)A No. 1/Coch/2021 shall also be applicable for the assessment years 2017-18. The ground of appeal of the assessee for the A.Y. 2016-17 has been decided by us vide paragraph No.9.8 to 9.9 of this order in favour of the assessee for statistical purpose. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2016-17 shall also be applied for the assessment years 2017-
18. Hence, the ground of appeal filed by the assessee to the extent of inclusion of Evoke Technologies Pvt Ltd is allowed for statistical purposes. In the result ground of filed by the assessee is hereby partly allowed for statistical purposes.
28. The next interconnected issue raised by the assessee in ground Nos. 5.8to 5.13 is that the learned DRP/TPO/AO erred in conducting fresh benchmarking and selecting fresh comparable including certain comparable which should be excluded 25 IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
on account of difference in functionality, business model, intangibles, turnover filter etc.
29. The assessee has sought exclusion of comparable selected by the TPO on account of turnover filter i.e. turn over exceeding Rs. 200 crore and such comparable companies are detailed as under:
(i) Larsen and Toubro Infotech
(ii) Persistent System Ltd
(iii) Nihilent Analytics
(iv) Infosys Limited
(v) Cybage Software Ltd
(vi) Mindtree Ltd
(vii) Tata Elxsi ltd
30. As far as issue of exclusion of comparable companies mentioned above is concern, we note that the identical issue was raised by the assessee in IT(TP)A No. 1/Coch/2021 for the assessment year 2016-17 which has been decided in favour of the assessee. Therefore, the findings given in IT(TP)A No. 1/Coch/2021 shall also be applicable for the assessment years 2017-18. The ground of appeal of the assessee for the A.Y. 2016-17 has been decided by us vide paragraph No.9 to 9.2 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2016-17 shall also be applied for the assessment years 2017-18. Hence, the ground of appeal filed by the assessee to the extent of exclusion of above mentioned comparable on account of turnover filter exceeding Rs. 200 crores are allowed.
31. Coming to the other issue raised in the captioned ground in relation to exclusion of comparable companies selected by the AO/TPO, at the outset, we note that the learned AR for the assessee before us has not pressed the other issues in the 26 IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
captioned grounds of appeal. Therefore, we hereby dismissed the same as not pressed.
32. Thus, in view of the above the issue raised by the assessee in ground Nos. 5.8 to 5.13 of its appeal are hereby partly allowed.
33. The next issue raised by the assessee vide ground No. 8 of its appeal is that the learned DRP/AO/TPO erred in benchmarking/computing the interest on loans advances given to AE @ SBI PLR + 3% on the loan amount.
34. At the outset, we note that the issue raised by the assessee in its grounds of appeal for the AY 2017-18 is identical to the issue raised by the assessee in IT(TP)A No. 01/Coch/2021 for the assessment year 2016-17. Therefore, the findings given in IT(TP)A No. 01/Coch/2011 shall also be applicable for the assessment year 2017-18. The appeal of the assessee for the A.Y. 2016-17 has been decided by us vide paragraph No.15 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2016-17 shall also be applied for the assessment year 2017-18. Hence, the ground of appeal filed by the assessee is hereby allowed.
35. The next issue raised by the assessee vide ground No. 9 is that the learned DRP/AO erred in making disallowance under section 14A of the Act and further making addition to book profit under section 115JB of the Act.
36. The necessary facts are that the AO during the assessment proceeding found that the assessee has made significant investments capable of yielding exempted income. Therefore, the invokes the provisions of section 14A of the Act r.w. rule 8D of IT rule and worked out the amount of disallowance at Rs. 23,92,660/- and added to the total income of the assessee. The AO further made addition to book profit by the 27 IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
amount of disallowance under section 14A of the Act in pursuance to the provision of explanation (f) to sub-section (2) to section 115JB of the Act.
37. On objection raised by the assessee, the learned DRP also confirmed the addition made by the AO.
38. Being aggrieved by the direction of learned DRP and the final assessment order, the assessee is in appeal before us.
39. The learned AR for the assessee before us contended that the assessee has not earned or claimed any exempted income in the year under dispute. Therefore, no disallowances either under section 14A or under explanation (f) to section 115JB(2) of the Act is required to made.
40. On the other hand, the learned DR before us vehemently supported the finding of the authorities below.
41. We have heard the rival contention of both the parties and perused the materials available on record. Admittedly, the assessee has not claimed any exempted income in the year under consideration. The question arises whether disallowance under section 14A of the Act can be made in the absence of exempted income earned/claimed by the assessee. This question has been settled by the various Hon'ble High Court including Hon'ble Delhi High Court in the case of Cheminvest Ltd vs. CIT reported in 378 ITR 33 that the provision of section 14A of the Act will not apply in the absence of exempted income. The relevant finding of Hon'ble Delhi High Court (supra) extracted as under:
23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression 'does not form part of the total income' in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.28
IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
41.1 In view of the above, we hold that no disallowance under section 14A of the Act is required to be made in the facts of the present case and accordingly, we direct the AO to delete the addition made by him.
41.2 Moving ahead to the issue of addition made to the book profit in pursuance to explanation (f) to section 115JB(2) of the Act. The provision of explanation (f) to section 115JB(2) of the Act mandate to increase the amount of book profit by the amount of expenditure relatable to income which was exempted under section 10, 11 and 12 of the Act. In the present case, it undisputed that the assessee has not earned/claimed income exempted under section 10, 11 and 12 of the Act. Therefore, in our considered opinion, no addition to the book profit is required to be made. Thus, we direct the AO to delete the addition made to the book profit. Hence, the ground of appeal raised by the assessee is hereby allowed.
42. The issue raised by the assessee in ground No. 10 is that the AO erred in making the upward adjustment of ₹ 85,49,500.00 representing the deferred tax, provision for tax and interest expenses while calculating the book profit under the provisions of section 115 JB of the Act.
43. At the outset, we note that the issue raised by the assessee in its grounds of appeal for the AY 2017-18 is identical to the issue raised by the assessee in IT(TP)A No. 01/Coch/2021 for the assessment year 2016-17. Therefore, the findings given in IT(TP)A No. 01/Coch/2021 shall also be applicable for the assessment year 2017-18. The appeal of the assessee for the A.Y. 2016-17 has been decided by us vide paragraph No. 19 of this order in favour of the assessee for statistical purpose. The learned AR and the DR also agreed that whatever will be the findings for the 29 IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
assessment year 2016-17 shall also be applied for the assessment years 2017-18. Hence, the ground of appeal filed by the assessee is hereby allowed for statistical purposes.
44. The issue raised by the assessee in ground No. 11 is that the AO has not granted long-term capital loss for ₹ 34,19,385.00 ignoring the fact that there was no consideration received by the assessee on the transfer of shares of the subsidiary company due to the liquidation of subsidiary company.
45. The learned AR at the outset submitted that the AO has not considered the fact that there was no consideration received by the assessee on the transfer of shares and therefore the assessee has rightly claimed the long-term capital loss. At the time of hearing, the ld. AR submitted that the matter can be restored to the file of the AO for fresh adjudication as per the provisions of law. On the other hand, the learned DR did not raise any objection if the matter is set aside to the file of the AO for fresh adjudication as per law. After hearing both the sides and perusal of the materials available on record, we are inclined, in the interest of justice and fair play, to give one more opportunity to the assessee to represent its case before the AO. Accordingly, we set aside the issue to the file of the AO for fresh adjudication as per the provisions of law. Hence the ground of appeal of the assessee is hereby allowed for statistical purposes.
46. The issue raised by the assessee in ground No. 12 is that the AO has not considered the submissions raised with respect to the deduction of leave encashment and employee's contribution to provident fund.
30IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
47. The learned AR submitted that there were adjustments made in the intimation generated under section 143(1) of the Act with the respect to the deduction of leave encashment and employee's contribution to provident fund. However, the assessee raised objection for such adjustment during the assessment proceedings. But the AO framed the draft order without considering such adjustments made in the intimation generated under section 143(1) of the Act. Therefore, the assessee did not raise any objection during the proceedings before the learned DRP. However, the AO in the final assessment order has incorporated such adjustments. Therefore, the ld. A.R. contended that the assessee was deprived of raising the objections during the ld. DRP. Accordingly, the ld. A.R. prayed to set aside the issue to the file of the AO for fresh adjudication as per the provisions of law. On the other hand, the learned DR did not raise any objection if the matter is set aside to the file of the AO for fresh adjudication as per law. After hearing both the sides and perusal of the materials available on record, we are inclined, in the interest of justice and fair play, to give one more opportunity to the assessee to represent its case before the AO. Accordingly, we set aside the issue to the file of the AO for fresh adjudication as per the provisions of law. Hence the ground of appeal of the assessee is hereby allowed for statistical purposes.
48. The issue raised by the assessee in ground No. 13, i.e. regarding of charging the interest under section 234B of the Act is consequential in nature and therefore we set aside the issue to the file of the AO for fresh adjudication as per the outcome of the issues discussed above. As such, the ground of appeal of the assessee is allowed for statistical purposes.
49. The issue raised by the assessee in ground No. 14 is that the AO has calculated the interest under the provisions of section 234C of the Act on the assessed income 31 IT(TP)A No. 01, 04 & SA-10/Coch/2021 Sun Tec Business Solutions P. Ltd.
instead of return income. Accordingly, the ld. AR requested to give the appropriate direction to the AO for calculating the interest under section 234C of the Act as per the law. On the other hand, the ld. DR raised no objection if the direction is given to the AO for the calculation of the interest under section 234C of the Act on the return income. After hearing both the sides and perusal of the materials available on record, we direct the AO to recalculate the interest under section 234C of the Act at the return income as per the law. Hence, the ground of appeal of the assessee is hereby allowed for statistical purposes.
50. Since we have decided the appeals, the stay application becomes infructuous.
51. In the combined results, both appeal of the assessee are partly allowed for statistical purposes and the stay application is dismissed as infructuous.
Order pronounced on 30th September, 2024 under Rule 34 of The Income Tax (Appellate Tribunal) Rules, 1963.
Sd/- Sd/-
(Soundararajan K.) (Waseem Ahmed)
Judicial Member Accountant Member
Cochin, Dated: 30th September, 2024
n.p.
Copy to:
1. The Appellant
2. The Respondent
3. The Pr. CIT concerned
4. The Sr. DR, ITAT, Cochin
5. Guard File
By Order