TMI Blog2016 (1) TMI 1273X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance u/s.14A with rule 8D as expenditure incurred in relation to exempt income earned - Held that:- Sisallowance u/s.14A r.w. Rule 8D should not exceed the exempt income. The alternative claim of the assessee was that disallowance if at all should be made, it should be restricted to exempt income earned and not beyond that. Accordingly, the AO is directed to look at this issue on this angle and decide it afresh . - ITA No. 906/Mds/2015 - - - Dated:- 6-1-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER, AND, SHRI G. PAVAN KUMAR, JUDICIAL MEMBER For the Appellant : Shri K.R.Vasudevan, Advocate For the Respondent : Dr. B. Nischal, JCIT ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER This appeal by the assesse is directed against the order of the Commissioner of Income-tax(Appeals) dated 7.11.2014. 2. The first ground in this appeal is that the CIT(Appeals) has erred in upholding the order of the TPO in rejecting two of the comparable selected by the assesse (i.e. M/s. Quintegra Solutions Ltd. and M/s. Vama Industries Ltd.) 3. Regarding M/s. Quintegra Solutions Ltd., the ld. AR submitted that there is no extra ordinary event taken place. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al held in paragraph 26.1 as follows: 26.1 Bodhtree Consulting Ltd.:- As far as this company is concerned, it is not in dispute that in the list of comparables chosen by the assessee, this company was also included by the assessee. The assessee, however, submits before us that later on it came to the assessee s notice that this company is not being considered as a comparable company in the case of companies rendering software development services. In this regard, the ld.counsel for the assessee has brought to our notice the decision of the Mumbai Bench of the Tribunal in the case of Nethawk Networks Pvt. Ltd. v. ITO, No. 7633/Mum/2012, order dated 6.11.2013. In this case, the Tribunal followed the decision rendered by the Mumbai Bench of the Tribunal in the case of Wills Processing Services (I) P. Ltd., ITA No.4547/Mum/2012. In the aforesaid decisions, the Tribunal has taken the view that Bodhtree Consulting Ltd. is in the business of software products and was engaged in providing open end to end web solutions software consultancy and design development of software using latest technology. The decision rendered by the Mumbai Bench of the Tribunal in the case of Nethawk Netw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the amount of expenses capitalized in respect of incomplete work at the end of the year. On the next date of hearing, the ld. DR failed to specifically point out any amount of such capitalized expenses with the opening or closing balance. This prima facie shows that the expenses incurred in respect of incomplete projects of software development at the end of the year, but billed in the subsequent year, were, in fact, treated as expenses for the current year alone. In the same manner, expenses incurred in the preceding year for the contracts of software development remaining incomplete at the end of the year, also must have been included in the expenses of the last year alone, but, the income getting recognized on the raising of bills in the current year. This albeit, patently deforms the correct profitability on year to year basis, yet, but we cannot help the situation. When the position of accounts of Bodhtree is such that it does not properly match expenses with revenue, it loses its credibility for making a logical comparison with a company that accounts for expenses matching with the revenue. Once it is held that the profits of Bodhtree Consulting Ltd. do not represent fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal in the case of M/s. Daga Global Chemicals Pvt. Ltd. (supra), we find that an identical issue has been decided by the Tribunal holding that disallowance under section 14A read with rule 8D cannot exceed the exempt income. While holding so, the Tribunal observed as under:- 2. At the time of hearing, Dr. K.Shivaram along with Shri Rahul Hakani, ld. counsels for the assessee advanced their arguments which are identical to the ground raised by submitting that no expenditure directly or indirectly was incurred by the assessee for earning exempt income and further the investment in shares was made in earlier years out of own funds and not out of borrowed funds, therefore, no disallowance u/s 14A r.w. Rule 8D is to be made. 2.1. On the other hand, Shri Akhilendra Yadav strongly defended the conclusion arrived at by the ld. Commissioner of Income tax (Appeals) by contending that a well reasoned order has been passed by the ld. First Appellate Authority as apportionment of expenditure for earning the dividend income was done as per the provisions of the Act. It was pleaded that section 14A r.w. Rule 8D of the Rules is clearly applicable to the facts of the present app ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
