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2021 (9) TMI 1463 - AT - Income TaxTP adjustment to back office support service segment - Comparable selection - TPO made adjustment to transaction of merchanting trade of Agri-comodities and provision of back office support services - HELD THAT:- Companies functionally dissimilar with that of assessee need to be deselected. Addition of outstanding receivable - Classifying the international transaction of merchandising trade as a finance arrangement - assessee has alternatively requested to take interest rate of 2.74%, which the assessee had used to pay interest on advance received from associated enterprises - As per DR assessee has paid money out of Indian rupees and, therefore, suffered loss on interest in Indian Rupees and, thus, learned TPO justified in holding the arrangement as financial arrangement and benchmarking invoking the SBI prime lending rate +300 basis point - HELD THAT:- Since the payment from ‘LD Asia’ was received after a delay of 65 days, it is in international transaction in the nature of outstanding receivable simpliciter without any allegation of arrangement of colluded finance transaction. TPO has though alleged it as financial arrangement to benefit AE, but benchmarked it is outstanding receivable. But in both ways, the currency of transaction is US Dollar. In first way, it is US Dollar have been sent to AE; in second way, US Dollar was outstanding to be received for 65 days. Neither the loan has been given in Rupees, nor outstanding was to be received in Rupees. Benchmarking of the transaction we agree with the learned Counsel of the assessee that in view of transaction of sale in US dollar, adjustment for interest should be benchmarked on the basis of currency of transaction following the decision of Cotton Naturals (I) P Ltd [2015 (3) TMI 1031 - DELHI HIGH COURT] accordingly the Learned TPO is directed to recompute the adjustment. The ground No. 4 of the appeal is dismissed, however, the alternative ground 4.1 is allowed for the statistical purposes. Disallowance u/s 14A - Whether addition should be made on average investment and not on turnover? - HELD THAT:- During the year under consideration, assessee has made purchase and sale of mutual funds of huge amounts and, therefore, incurring of expenditure for earning exempt income cannot be denied in terms of section 14A of the Act. However, if Rule 8D of the Rules is invoked, there would not be any disallowance in view of no opening and closing stock value of mutual funds. In the circumstances, we accept the alternative claim of the assessee to restrict the disallowance to the extent of exempted income following the decision of Joint Investment Private Limited [2015 (3) TMI 155 - DELHI HIGH COURT] and accordingly direct to restrict the disallowance to the amount of ₹ 94,929/-. The ground of the appeal of the Revenue is accordingly allowed partly.
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