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2017 (7) TMI 1438 - AT - Income TaxTP Adjustment - comparable selection - HELD THAT:- Assessee company is engaged in the business of export of information technology enabled services, thus companies functinally dissimilar with that of assessee need to be deselected. DRP excluded comparables, Viz., (a) Informed Technologies Ltd (b) Microgenetics Ltd (c) Cosmic Global Ltd. - The finding of DRP that Cosmic Global Ltd. has sub-contracted the ITES Services to the extent of 41% whereas assessee has not dealt with any of the sub-contract work of its ITES services and hence it cannot be compared with the assessee. With regard to Informed Technologies, DRP has noticed that sales and services income is only Rs. 1.75 crores to that of gross revenue of Rs. 4.08 crores of the company which fails the services revenue filter of 75% applied by the TPO. With regard to Microgenetics, the DRP noticed that total expenses of Rs. 1.08 crores debited to P&L A/c. The company has incurred Rs. 24.98 lakhs in outsourcing on medical transcription activity, which is 23% of the total expenditure. Since the assessee has not entered into any sub-contracting business, this company also cannot be compared with the assessee. In our considered view, DRP has excluded all the above three companies as non-comparables with the proper justification that these companies cannot be considered as comparables to that of the assessee. Accordingly, we sustain the finding of the DRP for exclusion of above three companies. As profit margin of the assessee is at arm's length as the same falls within tolerance band of 5% of arm's length margin of 21.46% of the comparable companies, it is observed that when the TPO arrives the ALP, if it falls within the range of +/- 5%, he has to give advantage to the assessee. Therefore, we direct the TPO/AO to extend this benefit to the assessee as per TP guidelines. Disallowance of interest on unsecured loan taken from own 100% subsidiary and extending to its step down foreign subsidiary - HELD THAT:- It is observed that the assessee has taken loan from one of its subsidiary and invested the same funds in the step down foreign subsidiaries as investment in shares and in application money. As decided the case of SA Builders [2006 (12) TMI 82 - SUPREME COURT] where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans. This case is squarely applicable to the facts of the case of the assessee, as the assessee has borrowed from the Indian sister concern and invested in foreign sister concern as in share capital and share application money. The money invested in the sister concerns are considered to be for the purpose of business as per the ratio of Hon'ble Supreme Court because the holding company has deep interest in the subsidiary company, and hence, borrowed funds invested by the assessee in the sister concern are to be considered to be for the purpose of business. Therefore, the AO cannot disallow any expenditure on the ground that the same is not related to business of the assessee company. Accordingly, this ground is allowed.
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