TMI Blog2013 (9) TMI 339X X X X Extracts X X X X X X X X Extracts X X X X ..... ting or property, not facilitating the carrying on of the assessee's business in any manner, the rental income so realized by the assessee in the present circumstances cannot be considered as 'Business income' - In such a situation, it was directed that the same should be included under the head 'Income from other sources' - The impugned order on the issue was set aside and the matter was restored to the file of the AO for doing the needful accordingly - The Assessing Officer will allow eligible deductions and allowances as per the relevant provisions under Chapter IV-F - While allowing such deductions, the Assessing Officer will also ensure that no deduction is doubly claimed/allowed, firstly, in computing of income under the head "Profits and gains of business or profession" and then under the head "Income from other sources". Transfer pricing adjustments – ALP - Reimbursement of expenses - Held that:- A pure reimbursement of expenses by one AE to another AE is very much a 'transaction' as per section 92F(v) and consequently was equally an international transaction as per section 92B requiring consideration as per section 92 of the Act - Be that as it may, the learned Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t no expenditure was incurred for earning such exempt income. The Assessing Officer, relying on the prescription of section 14A read with Rule 8D, computed the disallowance in the draft order. When the matter came up before the Dispute Resolution Panel, it directed the Assessing Officer to compute the disallowance by considering the details of direct and indirect expenses to be furnished by the assessee before him. No disallowance was made towards interest in the final order passed by the AO u/s 143(3) read with section 144C. However, the disallowance was computed towards expenditure at the rate of 0.5% of the investment. Such disallowance was made by considering the mandate of Rule 8D. The assessee is aggrieved against this disallowance. 3. After considering the rival submissions and perusing the relevant material on record, we find that the Hon'ble jurisdictional High Court in the case of Godrej Boyce Mfg. Co. VS. DCIT[(2010) 328 ITR 81 (Bom)] has held that the disallowance u/s 14A is required to be made as per Rule 8D in relation to the assessment year 2008-09 and subsequent years. For the earlier years, the direction is to compute the disallowance on some 'reasonable basis' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, the Assessing Officer treated the sum of Rs. 2.20 crore earned from subletting of leasehold premises as "Income from house property". The expenses so claimed by the assessee were consequently disallowed. 5. We have heard the rival submissions and perused the relevant material on record. On a specific query, the learned AR submitted that the premises were taken on lease by the assessee for a period of three years. It is seen that only one floor was subleased to M/s. Accenture Services Private Limited for a short period from August 2005 to April 2006 as it was not required by the assessee at the relevant time. Now the question before us is as to whether the rental income so realized from subletting of first floor is of the nature of income given under the head 'Income from house property'. Section 22 of the Income-tax Act, 1961 clearly provides that the annual value of a property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, shall be chargeable to income-tax under the head "Income from house property". The expression "Owner of house property" has been defined in section 27. Admittedly clauses (i), (ii), (iii) and (iiia) of section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the learned AR. The same is, therefore, dismissed. 7. Last ground of the appeal is against the confirmation of transfer pricing adjustment of Rs. 2,20,39,947. Before proceeding to decide this ground on merits, it is imperative to note that the assessee modified ground no.4 also to encompass the challenge to the inclusion of certain comparable cases. The ld. DR raised objection to such modification of the ground by arguing that the amendment having been carried out after the time limit for filing appeal, should be rejected and the ground as taken in memo of appeal be considered. There is hardly any substance in the argument. Admittedly the appeal was filed in time, inter alia, taking up ground on this issue in the original memo of appeal. Now the assessee has simply amended the ground already taken. It cannot even be called as an additional ground of appeal empowering the opposite side to take objection to its admission. This contention is sans merit and hence repelled. 8. Briefly stated the facts of the case are that the assessee is engaged in the business of providing IT enabled services to Stream US and Stream Europe through its call centre located in Mumbai. It entered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vishal Information Technologies Ltd. 25.64 48.03 Average 24.00% 9. Applying the OP/TC at 24%, the TPO recommended an adjustment of Rs. 2.20 crore which came to be made by the A.O. in the final order, after due consideration of the matter by the DRP. 10. At the very outset, the learned Counsel for the assessee submitted that the realm of his objections is restricted only to the inclusion of four cases in the list of comparables given above at Sr. Nos. 6, 8, 9 and 13. We will espouse these cases for consideration one by one by noting the objections raised on behalf of the assessee against their inclusion and the reply tendered by the learned Departmental Representative in favour of the inclusion. 11. The first is M/s. Datamatics Financial Services Limited. It can be observed that the TPO applied filter of "Companies with less than 25% related party transactions". The learned Counsel for the assessee took us through the Annual accounts of Datamatics Financial Services Limited, and submitted that the gross income of this company for the year ending on 31.03.2006 was at Rs. 2.31 crore as against total expenses of Rs. 1.84 crore. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... element should not be construed as a transaction, is taken to a logical conclusion, it would mean that all such dealings will cease to be transactions for the purposes of Chapter-X of the Act. Once these dealings are not considered as 'transactions', these will also cease to be international transactions, going out of the purview of section 92 itself. Obviously, such a view point is contrary to the clear intention and the language of the relevant provisions. A pure reimbursement of expenses by one AE to another AE is very much a 'transaction' as per section 92F(v) and consequently is equally an international transaction as per section 92B requiring consideration as per section 92 of the Act. Be that as it may, the learned Departmental Representative could not demonstrate the fact that such reimbursement of expenses was without any markup. As the so called comparable case of Datamatics Financial Services Limited was included by the TPO in the final list of comparables, in our considered opinion, the same is liable to be excluded as it involves related party transactions at much higher level, as against the filter adopted by the TPO himself, being companies with less than 25% related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his rights. The Hon'ble Bombay High Court in court in the case of Nirmala L. Mehta v. A. Balasubramaniam, CIT [2004] 269 ITR 1 has held that there cannot be any estoppel against the statute. Article 265 of the Constitution of India clearly provides that no tax shall be levied or collected except by authority of law. Similar view has been taken recently by the Hon'ble jurisdictional High Court in Sanchit Software Solutions P. Ltd. VS. CIT (2012) 349 ITR 404 (Bom). In our considered opinion there can be no escape from the proposition that the assessee is entitled to argue at least before the appellate authorities that a wrong stand taken at the time of filing the return of income should be allowed to be modified. The ld. AR has rightly relied on order passed by the Mumbai bench of the Tribunal in the case of A.M. Tod Company India Pvt. Ltd. v. ITO (ITA No. 492/Mum/2006). Vide order dated 24.06.2009, the Tribunal accepted the assessee's contention for exclusion of certain cases which were wrongly included in the Transfer pricing study but were actually not comparable. It is observed that the Special Bench of the Tribunal in the case of Dy. CIT v. Quark Systems (P.) Ltd. [2010] 38 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned Departmental Representative contended that no such objection was taken by the assessee before DRP/TPO. It was argued that the case of Satyam Computers was excluded by the TPO on the ground of mala fides on the part of the company itself whereas in the case of Maple eSolutions Limited, the entire doubt was over the management and not the company. 18. We are unable to uphold the contention raised by the learned Departmental Representative. It is apparent from two orders passed - one by the Delhi Bench and the other by the Hyderabad Bench of the Tribunal - that the case of Maple eSolutions Limited has been directed to be excluded from the list of comparables. As the assessment year under consideration is 2006-2007 and the Delhi Bench of the Tribunal has also considered the same assessment year while directing the exclusion of the case of Maple eSolutions Limited from the list of comparables, we are unable to accept the contention of the ld. DR in this regard. It is more so because no contrary view has been brought by the ld. DR to our notice. Respectfully following the precedents, we direct the exclusion of this case from the final list of comparables. 19. Last case whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VITL should continue to be included as it is likely to show lesser percentage of profits than the assessee, which is rendering the services at its own. 20. Having regard to the facts and circumstances of the instant case, we find that the predominant view taken by various Bench of the Tribunal including Mumbai, Bangalore and Hyderabad is to exclude the case of VITL on the reasoning that profit margin in self-provision and outsourcing the services is different. The ld. DR has focused on the inclusion of this case on the ground that the profit margin in the case of the entities outsourcing services is less than that of the providing in-house services. In our considered opinion the contention of the ld. DR has the effect of changing the very criterion for selection of comparable cases. Comparability is judged primarily by seeing the functional similarity and then the capital employed and risks undertaken. Higher or lower profit rate is not and can never be a relevant criteria to judge the comparability. In fact, under the TNMM, it is the eventual profit which is sought to be determined at an arm's length by considering all the relevant comparable cases. It is the similarity of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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