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2019 (3) TMI 401 - AT - Income TaxTransfer pricing adjustment - selection of comparables - election of comparables by the TPO whose results are not available in the public domain - HELD THAT:- As rightly held by the CIT(Appeals) in this regard, the restriction stipulated in Rule 10D is applicable only to the auditor and not to the TPO, who has an inherent power to make enquiry and collect and use the information and material, which is found to be relevant for the purpose of transfer pricing analysis in order to determine the arm's length price of the relevant international transactions between the AEs. He has also discussed and relied upon various judicial pronouncements, which support this view. We, therefore, find no merit in Ground No. 1 of the assessee's appeal and dismiss the same. Exclusion of comparable - Not functionaly similar - Selection of M/s. South India Surgical Co. Limited (SISCO) as comparable by the TPO - HELD THAT:- catalogue was filed by the assessee before the ld. CIT(Appeals) under letter dated 24.12.2005 and although the ld. D.R. has contended that this general catalogue cannot conclusively establish the manufacturing activity of SISCO, we are of the view that the same coupled with the other relevant details reflected in the financial statements and annual report of SISCO are sufficient to establish that the SISCO was engaged in manufacturing also as a significant activity and in the absence of segmental details, the same cannot be taken as comparable to the assessee-company, which is mainly engaged in trading activity. We accordingly direct the TPO to exclude SISCO from the list of final comparables and allow Ground No. 2 of the assessee's appeal. We accordingly direct the AO/TPO to re-compute the arm's length price of the international transactions of the assessee-company with its AE by excluding SISCO from the list of final comparables and if the same is found to be within the tolerance limit of 5%, the AO/TPO is directed to delete the addition made on account of transfer pricing adjustment. Addition of bad debts written off - claim disallowed by AO on the ground that there was a failure on the part of the assessee to establish that the relevant debts had actually become bad and irrecoverable during the year under consideration - HELD THAT:- The assessee's appeal now stands squarely covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of TRF Limited [2013 (10) TMI 1316 - SUPREME COURT] wherein it was held that the legal position relating to the allowability of bad debts written off has changed after the amendment made by the Direct Taxes laws (Amendment) Act, 1987 in section 36(1)(vii) with effect from 01.04.1989 and it is no more necessary for the assessee to establish that the debt, in fact, has become irrecoverable. As further held by the Hon'ble Supreme Court, it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Respectfully following the said decision of the Hon'ble Apex Court, we delete the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of assessee's claim for deduction on account of bad debts written off. Disallowance on account of interest paid on capital borrowings - HELD THAT:- In the present case, the borrowed funds having been utilized by the assessee-company for acquiring a going concern and the profits from the business of the said concern having been offered to tax in the year under consideration, we find ourselves in agreement with the CIT(Appeals) that the borrowed funds were utilized by the assessee-company for the purpose of its business and interest paid thereon was eligible for deduction u/s 36(1)(iii) as applicable to the year under consideration. We accordingly uphold the impugned order of the CIT(Appeals) on this issue and dismiss Ground No. 2 of the Revenue's appeal. Penalty u/s 271(1)(c) - transfer pricing adjustment Quantum addition deleted - HELD THAT:- we agree with the reasons given by the ld. CIT(Appeals) for cancelling the penalty imposed by the Assessing Officer u/s 271(1)(c) in respect of addition made on account of transfer pricing adjustment, it is pertinent to note that even the addition made on account of transfer pricing adjustment to the extent of ₹ 2,60,32,000/- as sustained by the ld. CIT(Appeals) is found to be not sustainable by us while disposing of the quantum appeals as held in the foregoing portion of this order. Consequently the penalty imposed u/s 271(1)(c) in respect of the said addition is not sustainable and the impugned order of the ld. CIT(Appeals) cancelling the penalty imposed by the Assessing Officer deserves to be upheld on this ground also.
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