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2017 (4) TMI 1484 - AT - Income TaxDisallowance u/s 10A on the enhanced income - Mandation of recording the satisfaction for the compilation of Rule 8D - HELD THAT:- AO has merely mentioned that he is not satisfied with the explanation, therefore, in our view, the AO has recorded the satisfaction for the compilation of Rule 8D. No specific format is provided under the act for recording the satisfaction. Assessee has failed to discharge his primary onus of proving nexus of interest free funds available at the time of making the investment that has yielded the interest free income , in our view, in the absence of discharge of initial onus the burden is not shifted to AO to establish nexus between the interest bearing funds and the investment made by the assessee. As the AO has recorded his dissatisfaction regarding the correctness of the claim of the assessee in respect of expenditure (Nil) which the assessee claimed to have been incurred in relation to the income which does not form part of the total income. After recording dissatisfaction, the AO is left with no other option but to adopt the methodology provided in Rule 8D r.w.s 14A(2) of the Act. In the present case, the AO has only applied 0.5% of the total income as expenditure. AO has rightly applied the Rule 8D and no error has been pointed out by the ld AR on working out of the expenditure by applying the Rule 8D. In our view, the AO has worked out the expenses after due application of the methodology, therefore, the ground raised by the assessee is required to be rejected. Non granting the relief u/s 10A of the Act on the enhanced income - HELD THAT:- In Gem Plus Jewellery India Ltd., [2010 (6) TMI 65 - BOMBAY HIGH COURT] wherein it was held that the assessee was entitled to exemption u/s 10A with reference to addition or disallowance of various payments as the plain consequence of disallowance and add back made by the AO is increased in the business profit of the assessee. We find force in the submissions of the learned AR of the assessee on this issue because if part of expenses claimed by the assessee against business income is considered as expenses incurred for earning tax free income and is disallowed u/s 14A, the business income stands increased by that amount and only such increased business income should be considered for computing the amount of deduction u/s 10A. A. O. is directed accordingly. TP Adjustment - comparable selection - HELD THAT:- Assessee is providing specialized services and is not simply into BPO services provider as projected by the assessee. The work scope and the agreement of the assessee with its AE clearly provides that the assessee is providing high end technical services to its AE and for that purposes has engaged various technical staffs in the form of IT Team Leader, Program Manager, Project Manager, Enterprise Architect/Application Architect/Design Architect, Business Analyst/Project Leader, Product Developer/Senior Product Developer, Product Quality Engineer/Senior Product Quality Engineer, Technical Author/Senior Technical Author, Team Lead (Development), Team Lead (QA) and various functions of these persons are provided in detail in the agreements thus companies functionally dissimilar with that of assessee need to be deselected from final list. Exclusion of telecommunication expenses from the total turnover also while computing the deduction u/s 10A - HELD THAT:- Hon’ble Karnataka High Court rendered in the case of Tata Elxsi, [2011 (8) TMI 782 - KARNATAKA HIGH COURT] supports the case of the assessee because in this case, it was held by Hon’ble Karnataka High Court that the total turnover is sum total of export turnover and domestic turnover and, therefore, if an amount is excluded from export turnover, the total turnover is also reduced by the same amount as a consequences of deduction from export turnover. In this view of the matter, we find no infirmity in the order of the learned CIT(A) on this issue.
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