2019 (9) TMI 1702 - ITAT AHMEDABAD

Disallowance u/s 14A - expenditure incurred on earning exempt income - HELD THAT:- It is seen that the lower authorities dealt with interest expenditure and that too on proportionate basis in the said case than direct one whereas the issue before us is that of administrative expenditure disallowance. We observe in this facts that the impugned administrative expenses disallowance is not alike former two limbs since falling in different head as well as the fact that it has to be based on computation formula only. There is no dispute that we are dealing with assessment year 2008-09 i.e. starting point of application of Rule 8D of IT Rules. The assessee admittedly has not challenged the relevant computation @ 5% given in the above statutory computation formula. We conclude in these facts that both the lower authorities have acted as per law in invoking the impugned disallowance in relation to assessee's exempt income amounting to Rs.7.7 crores.More so when the assesses has not discharged prima facie onus even to justify its suo-motu lump sum disallowance of Rs.2 lakhs only. The impugned disallowance is accordingly confirmed in principle.

Alternate contention that both the lower authorities have erred in not excluding the average investment made in growth oriented debt funds and fixed maturity plan funds - We find that this is more a computation exercise wherein investment made in relation to taxable income has to be excluded for the purpose of computing disallowance in question. We thus direct the Assessing Officer to frame consequential computation as per law.

TP Adjustment - Financial Guarantee given by the appellant on behalf to its Associate Enterprise (A.E) - HELD THAT:- We find that recent Co-ordinate Bench in M/s Suzlon Energy Ltd.- [2017 (4) TMI 1406 - ITAT AHMEDABAD] wherein as holds that such a guarantee does not amount to an international transaction under section 92BTPO had himself taken financial guarantees given by various institutions as the relevant bench mark for the performance guarantee adjustment in question. We hold in these facts and circumstance assessee’s second substantive ground is accepted.

Disallowance of recruitment and training expenses - Revenue challenged the order passed by CIT (A) in deleting 20% of such expenses - HELD THAT:- As perused the records including the order passed by the co-ordinate Bench in [2013 (4) TMI 995 - ITAT AHMEDABAD] in assessee’s own case whereby and whereunder the issue has been decided in favour of the assessee as held that there is no evidence in the possession of the AO to hold that a particular expenditure on training was not business related. In fact, the argument of the appellant appears to be logical that considering the nature of the services provided a training of the technical staff is always a business necessity and because of the trained staff the appellant's revenue has substantially gone up - direct the AO to delete the disallowance on account of recruitment and training expenses.

Disallowance by restricting the deduction u/s.10A - HELD THAT:- It appears that the issue is squarely covered by the Hon’ble Apex Court in the matter of CIT v/s. Yokogawa India Ltd [2016 (12) TMI 881 - SUPREME COURT] wherein it has been held that “section 10A is a deduction section. However, the stage of the deduction would be while computing the gross total income of the eligible undertaking under chapter IV of the Act and not at the stage of computation of the total income under chapter VI”.

It is an undisputed fact that the issue in the present appeal is identical to that of earlier assessment year and the exchange fluctuation gain was held to be arising from export business in assessment year 2001- 02 to 2005-06. Nothing has been brought on record by Revenue to controvert the findings of Ld. CIT(A) and, therefore, we find no reason to interfere in order of CIT(A) on this issue.

Upward adjustment by recomputing the ALP of the international transactions of software services distributed by MUK - HELD THAT:- Based on the facts and evidences provided by the appellant for AY 07-08 [2013 (4) TMI 995 - ITAT AHMEDABAD] and the conclusions of the ITAT Ahmedabad bench for identical facts for AY 06-07 [2012 (5) TMI 206 - ITAT AHMEDABAD] the appellant's contentions find favour. Therefore, MUK's operations can be considered to be correctly characterized as a distributor and a return based on sales which incentives MUK to generate more revenue appears to be appropriate. Decided against revenue.

Disallowance on account of Human Resource Management function - HELD THAT:- As decided in assessee own case [2012 (5) TMI 206 - ITAT AHMEDABAD] A. V. 2006-07 facts and figures have revealed that following the said business strategy the business growth as a whole was much higher than the impugned compensation amount. This allegation is also to be ruled out that those very employees were otherwise regular employees of the assessee-company and they have been absorbed after their return for the period for which they were sent abroad and worked "offshore" with AEs. It is true that such employees are the regular group of experts but they have been paid by AEs when worked on-site abroad, which means the burden of salary for the "offshore" period was in fact borne by AEs, otherwise to maintain bunch of trained employees the MIL had to incur the expenditure on salary. Therefore, there was an argument of counter claims and in support reliance was placed on Boston Scientific International VV [2010 (4) TMI 876 - ITAT MUMBAI]. For these reasons we also hold that the secondee-provider is not akin to recruitment service-provider or that "secondment" is different from "recruitment". Finally, we hold that there was no legal basis for the impugned upward adjustment and the same is hereby directed to be deleted. This ground is allowed.

Disallowance computed u/s.14A r.w.Rule 8D(2)(iii) while computing the Book Profit u/s 115JB - HELD THAT:- We note that in the recent judgment passed in the case of ACIT vs. Vireet Investment Pvt. Ltd. [2017 (6) TMI 1124 - ITAT DELHI] has held that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of disallowances while determining the net profit u/s 115JB of the Act.

Thus it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the expenses as mentioned under clause (f) to explanation 1 to section 115JB.

TP Adjustment - Comparable selection - determining the arm’s length price of the international transaction of provision of software services rendered by P &C Division of the appellant to its AE - HELD THAT:- As decided in Revenue’s appeal [2018 (3) TMI 1881 - ITAT AHMEDABAD] excluding two entities M/s. Accentia Technologies Limited and M/s. Cross Domain Solutions Limited. very entities are not to be taken as comparables since the former one underwent extra ordinary merger event whereas the latter entity provided high-end KPO services.