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2017 (11) TMI 1360 - AT - Income TaxTPA - Rejection and inclusion of comparable companies - good comparable company for the purpose of determining ALP - Held that:- Assessee is engaged in the business of rendering software development services, thus companies functionally dissimilar with that of assessee need to be deselected from final list of comparability. Disallowance under section 14A of the Act read with Rule 8D(2)(iii) - computation of disallowance u/s 14A of the Act was done by the assessee by attributing 10% of the salary and allowances of the finance and administrative staff. This disallowance was made having regard to the books of accounts of the assessee - Held that:- This disallowance made by the assessee has taken care of the activities of the assessee and the probable time that needs to be spent for managing the investments which are likely to be tax free income. Neither the AO nor the DRP have found fault with this calculation made by the assessee. The provision of Rule 8D(1) as also the provision of section 14A(2) of the Act mandate disallowance in accordance with Rule 8D(2) of the Rules, only where having regard to the accounts of the assessee, the AO is not satisfied with the correctness of the claim of the assessee regarding expenditure incurred to earn tax free income. In the absence of any reason in given for rejecting the claim of the assessee, we hold that disallowance u/s 14A of the Act should be restricted only to the sum of ₹ 1,12,895/- as disallowed by the assessee in its computation. - Decided in favour of assessee. MAT computation - adding back depreciation as per the Appellant’s books of account and in granting deduction of depreciation as per Rules - Held that:- While computing the book profits u/s 115JB of the Act, the AO is not empowered to make any adjustment which is not permitted by the explanation below section 115JB of the Act. The depreciation to be allowed while working the book profits is always as per the Companies Act and the depreciation should not be reduced as is done in the normal assessments by substituting the depreciation claimed under the Companies Act by the depreciation allowable under the Act. The action of the AO is per se unsustainable and the AO is directed to deduct depreciation only as per the Companies Act as done by the Assessee in its computation of book profits for the purpose of Sec.115JB of the Act.
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