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2016 (5) TMI 1080 - ITAT DELHI

2016 (5) TMI 1080 - ITAT DELHI - TMI - Deduction u/s 10A - interest receipts from FDRs - Held that:- There was no business exigency or condition to make short Term FDRs therefore, the investment in FDRs cannot be regarded as inextricably connected with business of the assessee. Accordingly, the interest receipts from such FDRs constitute income from other sources and are not eligible for deduction u/s 10A of Income Tax Act, 1961.

Addition of excess payment u/s 40A(2)(b) r.w.s 92CA - H .....

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round of the Revenue that the addition of ₹ 1,90,00,000/- excess payment u/s 40A(2)(b) r.w.s 92CA of the Act should have been sustain by the DRP does not survive. - I.T.A .No.-1427/Del/2014, I.T.A .No.936/DEL/14 - Dated:- 2-12-2015 - SHRI R. S. SYAL, ACCOUNTANT MEMBER AND SMT SUCHITRA KAMBLE, JUDICIAL MEMBER For The Appellant : Sh.Harpreet Singh Ajmani, Adv. Ms. Ananya Kapoor, Adv. For The Respondent : Sh.S.L. Anuragi, Sr. DR ORDER PER SUCHITRA KAMBLE, JM This appeal is filed by the assess .....

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ion Panel-II ( DRP ), by the Ld. Assessing Officer are bad in law and void abinitio. 2. The Ld. Assessing Officer has erred in law and on the facts of the case in determining the total income of the Appellant at ₹ 8,77,18,381/- as against a returned income of ₹ 8,47,480/-. Part 1- Transfer Pricing Grounds 3. That on facts and in law, the Ld. Assessing Officer /TPO/DRP erred in making/upholding an upward adjustment of ₹ 73,880,694/- in respect of the international transaction of .....

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conomic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ( the Rules ) and conducting a fresh economic analysis for the determination of Arm s Length Price ( ALP ) of the Appellant s international transaction and holding that the international transaction is not at an arm s length. 6. That on facts and in law, the Learned Assessing Officer /TPO/DRP have erred in using single year date of companies. 7. The Learned Assessing Off .....

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he final set of comparable companies. In doing so, the Learned AO/TPO/DRP haves resorted to cherry picking of comparables to determine arm s length price for the impugned transaction. 9. The Learned AO/TPO/DRP have erred in selecting certain companies which are earning super normal profits. 10. That on facts and in law, the Learned AO/TPO/DRP have failed to make appropriate adjustments to account for the differences in the risk profile of the Appellant vis-à-vis the comparables and in the .....

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/TPO/DRP have grossly erred in passing an order without providing the basis of determination of operating cost of the Appellant which has used as a base for determining the quantum of transfer pricing adjustment. 14. That on facts and in law, the Learned TPO/Assessing Officer have erred in passing an order which has computational errors in the margin of the comparable companies used in determination of arm s length margin. 15. That on facts and in law, the Learned AO/TPO/DRP have erred by not co .....

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and not business income. 16. That on facts and in law, the Learned Assessing Officer /DRP has erred in holding that such interest income earned on short term deposits is not eligible for deduction under Section 10A of the Act. 17. That on facts and in law, the Learned Assessing Officer has erred in initiating penalty under section 271 (1) (c) of the Act, as consequences of the additions made in the assessment order passed under section 143(3) read with Section 144C of the Act. 18. That on facts .....

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xport Oriented Unit under the Software Technology Park Scheme in Gurgaon, Harayan. The income of the Assessee was exempt from tax under Section 10A. The Assessee has entered into an agreement with XL Services Switzerland ( XLSS ) and Cybersettle Inc., USA (collectively referred as Associated Enterprises ( AEs )) for rendering information technology ( IT ) enabled services. As per the terms of the agreement, XL India provides IT enabled services such as interim financial reporting; external finan .....

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rowings CUP 13,315,144 Reimbursement of expenses paid to associated enterprises - 47,587,726 Reimbursement of expenses received from associated enterprises 3,648,929 7. The assessee submitted following comparables 1. Allsec Technologies Ltd. 2. C G VAK Software & Exports Ltd. 3. Cosmic Global Ltd. 4. Informed Technologies Ltd. 5. R Systems International Ltd. 6. Vishal Information Technologies Ltd. 7. Aditya Birla Minacs Worldwide Ltd. 8. Cepha Imaging Pvt. Ltd. 8. The TPO finalized the compa .....

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calculation of a working capital adjustment. 10. The Assessing Officer vide order dated 27.01.2014 has made an addition of ₹ 7,38,90,694/- under Section 92CA of the Income Tax Act, 1961. The Assessing Officer further made an addition of ₹ 1,30,23,015/- as interest on FDRs as Income from other sources as after verification the Assessing Officer found that the interest of ₹ 1,30,23,015/- is included in the business income. As relates to excess payment under Section 40A(2)(b) read .....

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ntal revenue of BPO segment is very low. The AR further submitted that there should be inclusion of R systems as the same cannot be rejected only for having a different financial year ending, it can be seen from the audited accounts of the company that audited data for each quarter is available and hence data for financial year ending 31.03.2009 can be complied. Allsec Technologies Limited should have been included as it passess the exports earning filter rule-there can be no hard and fast rule .....

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ns of tested party with that of the comparables, adjustment be made for working capital for which the reliable data is to be provided by the taxpayer. Working capital is measured by trade receivables/debtors, trade payables/creditors and inventories. Interest cost will be high if the trade receivable time cycle is large. Interest cost will be low if the company can pay its liabilities after a larger period of gap then pay it in a shorter period. Holding of inventory has also interest costs. If i .....

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ntory management through backward & forward linkages, the efficiency of holding inventory. Further, interest cost is a financial cost. In order to cover the interest cost, the margin may seem to be high in absolute term, but when interest cost is accounted for, the margin changes its luster. Therefore, working capital requirements do affect the margins or prices, costs or profits because this an implicit cost which is recovered/recoverable from the customers. 12. The AR further submitted tha .....

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ration, the assessee placed its unutilized funds in short term fixed deposits with banks in order to effectively manage the working capital requirements of its business. Such funds were placed with banks in form of short term fixed deposit instruments yielding interest income so as to better manage the unutilized funds which can be deployed in the business on liquid basis. The interest income earned by XL India during the year under consideration has been classified as business income since the .....

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essee company has done FDR only for short term 9 ITA No.1427 &936/Del/2014 period for capital to be used in day to day business activities of the assessee. The AR also relied upon the judgment of Hon ble Delhi High Court in case CIT vs. Hritinik Exports Pvt. Ltd. (ITA Nos. 219/2014 and 239/2014 decided on 13.11.2014). 13. The DR relied upon the order of the Assessing Officer and TPO. The DR submitted that the TPO has rightly taken into consideration and allowed the proper comparables. As rel .....

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easons set out in para 10 and 11 of the said judgment. In view of this, the issues relating to the comparables and working capital adjustment before us are identical for A.Y. 2009-2011. Hence, it will be proper to remit both these issues to the assessment stage for fresh adjudication. Needless to say that the assessee be given opportunity to be heard. 15. As relates to the issue of Corporate Tax as set out in Part II- Ground 15 to 16, the Assessing Officer has rightly held that interest on FDRs .....

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o. 15 and 16 are dismissed. As relates to Ground No. 17 and 18 the same are consequential to ground No. 15 and 16 (Part II). I.T.A .No.-3634/DEL/13 (ASSESSMENT YEAR-2006-07) 17. This cross appeal is filed by the Revenue against the Assessment Order dated 27.01.2015 for A.Y. 2009-2010 passed under Section 143(2) read with Section 144C of the Income Tax Act, 1961. 18. The ground of appeal raised herein, is as follows:- (i) On the facts and circumstances of the case and in law, Ld. DRP, Panel-II, N .....

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