TMI Blog2014 (10) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... low 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" – Decided in favour of assessee. Exempt income earned as dividend disallowed u/s 14A – Held that:- Following the decision in GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] - application of Rule 8-D is prospective and is applicable from AY 2008-09 - the DRP has considered the disallowance of 5% to be reasonable - the AO has not appreciated the directions of the DRP correctly, may be directions was not clear – the AO is directed to restrict the disallowance u/s 14A of the Act to 5% of the exempt income – Decided in favour of assessee. Transfer pricing adjustment – Determination of ALP – Selection of comparables – directors of companies selected involved in serious fraud cases - Held that:- Assessee rightly contended that the company deserves to be excluded as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directions u/s 144C(5) of the Income Tax Act, 1961 dated 16-8-2011. 2. In ground No. 1, the assessee is aggrieved by the treatment of rental income earned on leasehold premises from M/s Accenture Services Pvt. Ltd. as Income from House Property . 3. At the outset, the ld. Counsel for the assessee stated that an identical issue was considered by the Tribunal in A.Y. 2006-07 in ITA No. 8997/Mum/2010 qua ground No. 2 of that appeal and directed the A.O. to treat the rental income under the head income from other sources . The ld. D.R. fairly conceded to this. 4. We have carefully perused the order of the Tribunal in ITA No. 8997/Mum/2010. We find that the Tribunal has considered this issue at para 4 of its order and after considering the facts and the submissions, the Tribunal finally concluded by holding that in such a situation, it is directed that the same should be included under the head income from other sources . With this direction, the Tribunal restored the matter to the file of the A.O. for computing the income after allowing the eligible deductions and allowances as per the relevant provisions under Chapter IV-F. The Tribunal has further directed that while al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the directions of the DRP correctly, may be directions was not clear. Therefore, modifying the directions of the DRP, we direct the A.O. to restrict the disallowance u/s 14A of the Act to 5% of the exempt income. Ground No. 3 is accordingly allowed. 8. Ground No. 4 relates to the transfer pricing adjustment of ₹ 6,40,58,995/-. 9. During the course of assessment proceedings, the A.O. noted that the assessee has entered into various international transactions with its Associated Enterprises (AEs). A reference u/s 92C(1) of the Act was made to the Transfer Pricing Officer, Mumbai for the determination of the Arm s Length Price in relation to the international transactions. The assessee has reported the following international transactions in its Form 3CEB:- Sr No. Nature of International transactions Amount (Rs) Method 1 Rendering eCRM services 54,16,75,364/- TNMM 2 Reimbursement of expenses received 36,22 ,707/- CUP 10. In so far as rendering eCRM services, the assessee has selected the following companies as its comparables and their updat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 Apollo Healthstreet Limited -13.55 12 Asit C Mehta Financial Services Limited 24.21 13 Datamatic Financial Services Limited (seg) 5.07 14 Flextronics Software Systems Limited (seg) 14.54 15 Genesys International Corporation Limited 13.35 16 Infosys BPO Limited 28.78 17 Iservices India Private Limited 50.27 18 R Systems International Limited (seg) 20.18 19 Spanco Limited (seg) 25.81 20 Triton Corp. Limited 34.93 21 Bodhtree Consulting Limited 29.58 22 Caliber Point Business Solution 21.26 23 Eclerx services Ltd. 90.43 24 Informed Technologies Ltd. 35.56 25 Moldtec technologies Ltd. 113.49 26 Vishal Informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n fraud, the co-ordinate Benches have taken a consistent view of excluding such company from the final list of comparables as the financial results are not reliable. Respectfully following this consistent view taken by the Tribunal, we direct the exclusion of this company from the final list of comparables. (iii) CMC Limited (Seg):- The OP/TC of this company is at 31.92%. At the outset, the ld. Counsel for the assessee stated that the related party transaction of this company is 58% to 59%. The ld. Counsel for the assessee further argued that this company has low employee cost to sales, therefore, should not be considered as a comparable. We find that this company s related party transactions are in the range of 58% to 59%. It is also a fact that this company has low employee cost to sales at 17.66% as compared to that of the assessee which is 49.34%. On both count, in our considered opinion, this company deserves to be excluded from the final list of comparables. We direct accordingly. (iv) Accentia Technologies Ltd.:- The OP/TC of this company is 38.26%. The ld. Counsel for the assessee stated that this company amalgamated with two of its subsidiaries pursuant to the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of ₹ 54.17 crores which is almost 12 times of the assessee. Infosys BPO Ltd. is a joint company and it assumes significant business risks unlike the assessee who does not assume significant risks therefore deserves to be excluded from the final list of comparables. We direct accordingly. A similar view was taken by the Hyderabad Bench of this Tribunal in the case of C3i Support Services Pvt. Ltd. in ITA No. 2183/Hyd/2011. (vii) Spanco Ltd. (seg.):- The OP/TC of this company is 25.81%. The ld. Counsel for the assessee stated that the TPO has not provided report of this company and requested for necessary direction. The ld. Counsel for the assessee further stated that the company also has very low employee cost to sales as compared to that of the assessee. In our considered opinion, this company needs to be restored back to the file of the A.O./TPO with a direction to provide report of this company to the assessee and decide the issue afresh whether this company passes the test of being in the final list of the comparables. (viii) Triton Corp. Ltd.:- This Company has been repeated again. We have considered this company at Sl No. 2 hereinabove, therefore, requires no sep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the objection by the DRP in line with the observations of the Tribunal in assessee s own case for A.Y. 2006-07. We direct for the exclusion of this company from the final set of comparable. (xi) eClerx Services Ltd. Mold-Tek Technologies Ltd.:- For both these companies, the ld. Counsel for the assessee stated that these companies are functionally different, therefore, cannot be considered as comparables. We find that the Mumbai Special Bench of the Tribunal in the case of Maersk Global Centres (India) Pvt. Ltd. in ITA No. 7466/Mum/2012 has rejected eClerx Services Limited because solutions offered by this company included data analytics, operations, management, audits and reconciliation, metrics management and reporting services. The Special Bench opined that if these functions actually performed by the assessee company for its AEs are compared with the functional profile of M/s eClerx Services Limited and Mold-Tek Technologies Ltd., it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparable for the purpose of determining ALP of the transactions of the assessee company with its AEs. Facts being identical, resp ..... 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