TMI Blog2018 (6) TMI 1039X X X X Extracts X X X X X X X X Extracts X X X X ..... ces Limited which was specifically taken for the purpose of financing the vehicles and, therefore, the disallowance with respect to this interest under Rule 8D(2)(ii) could not be invoked - thus this issue needs to be adjudicated afresh by the AO/TPO Addition of disallowance u/s 14A while computing the book profit u/s 115JB - This issue is covered in favour of the assessee by the judgment of the Hon’ble Delhi High Court in the case of Pr. CIT vs. Bhushan Steel Ltd. (2015 (9) TMI 1424 - DELHI HIGH COURT) wherein it was held that disallowance u/s 14A r/w Rule 8D cannot be added while computing book profits u/s 115JB of the Act. - ITA No. 2559/Del /2014 And C.O. No. 165/Del/2014 - - - Dated:- 18-6-2018 - SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER For The Appellant : Shri Sanjay I. Bara, CIT DR For The Respondent : Shri Vishal Kalra, Adv. And Shri Ankit Sahni, Adv. ORDER PER SUDHANSHU SRIVASTAVA, J.M. This appeal has been preferred by the department against the final assessment order passed u/s 144C of the Income Tax Act, 1961 (hereinafter referred to as the Act ) read with 143(3) passed subsequent to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 14,34,861/-. 2.3 Now, the department is in appeal before the ITAT and has challenged the action of the Ld. DRP in deleting the addition of ₹ 72,36,07,916/- being transfer pricing adjustment. The grounds raised by the department are as under:- On the facts and the circumstances of the case and in law, Hon'ble DRP has erred in deleting the addition of ₹ 72,36,07,916/- being adjustment on account of Arm's length price by directing to remove one comparable case of M/s Genesys International Ltd. from the final list of comparables on the ground of functional differences, without appreciating the fact that this comparable was selected by assessee itself in its Transfer Pricing Documents. 2.4 The assessee has preferred cross objection and is challenging the upholding of disallowance u/s 14A of the Income Tax Act, 1961 (hereinafter referred to as the Act ). The grounds raised by the assessee in the C.O. are as under:- That on the facts and in the circumstances of the case, and in law: 1. the Learned Assessing Officer ( Ld. AO )/ Ld, Transfer Pricing Officer ( Ld. TPO ) erred in not following the directions issued by the Ld. Dispute R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain companies considered by the Respondent in its TP documentation/ fresh search on arbitrary/ frivolous grounds even though they are comparable to the Respondent in terms of functions performed, assets employed and risks assumed; 4.6 erroneously retaining companies having abnormal margins/ volatile operating margins in the final comparables set, that signify high element of entrepreneurial risk as opposed to the Respondent who is a captive service provider bearing limited risk; 4.7 upholding the contradictory approach followed by the Ld. TPO in considering companies demonstrating supernormal growth/ profit while rejecting companies with persistent losses; 4.8 denying the adjustment on account of differences in the risk profile of the Respondent and the comparables; 4.9 not appreciating the fact that in the relevant assessment year the Respondent was entitled to a tax holiday on its profits from provision of IT enabled services and therefore did not have any motive of deriving any tax advantage by manipulating the transfer prices of its international related party transactions; 4.10 without prejudice to the above, not appreciating that in the instan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the Hon ble Tribunal. The aforesaid cross-objections are mutually exclusive and without prejudice to each other. 3. The Ld. CIT DR submitted that the department was challenging exclusion of one comparable i.e. Genesys International Corporation Ltd. by the Ld. DRP. The Ld. CIT DR submitted that from the profile of the assessee, it was evident that the assessee was also an IT enabled service provider company. It was further submitted that this company was selected as a comparable initially by the assessee itself and, subsequently, the assessee had pleaded for exclusion of this comparable. It was also submitted that the assessee had not objected to inclusion of this company before the TPO as this company fell squarely within the parameters/filters being applied by the TPO and now the assessee should not be allowed to plead exclusion of this company. It was also submitted that there cannot be an exact replica of a comparable under the TNMM and what was required under the statute was a general comparability. Reliance was placed on the findings of the TPO in this regard. 4. In response, the Ld. AR submitted that Genesys International Corporation Ltd. is engaged in div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments held in the mutual funds and subsidiary and the same had been claimed as exempt u/s 10(35)/10(34) of the Act. It was further submitted that the assessee had not incurred any expenditure in relation to the earning of this exempt income. It was further submitted that investment made in mutual funds like ICICI Prudential Institutional Liquid Plan and Birla Sunlife Cash Plus Institutional Plan handed out dividends on a daily basis and since these were dividend plans, the amount of dividend was automatically reinvested in the same mutual funds and hence no expense can be said to have been incurred for earning dividend income. It was also submitted that the provision of Section 14A read with Rule 8D of the Income Tax Rules, 1962 was arbitrarily invoked as the provision requires incurrence of expenditure having a proximate nexus with the income earned and not some notional expenditure for the purpose of disallowance. It was also submitted that the disallowance made u/s 14A had been made in a mechanical manner by applying the formula without bringing out any actual incurrence of expenditure. It was further submitted that the assessee had incurred an expenditure of ₹ 1,049,687/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sensoring services, image processing, utility services, business geographics and logistics, surveying etc. The assessee, on the other hand, is only engaged in providing back office IT enabled services to its AE and is also engaged in rendering transaction processing services, internet, consulting and voice based customer care services and, therefore, on functional dissimilarity itself, Genesys cannot be cannot be taken as a comparable to the assessee company. 7.1 We also note that Genesys is engaged in doing pioneering research in the area of image intelligence and recognition, mobile mapping as well as LIDAR whereas the assessee is not involved in any research and development activity and, therefore, this company cannot be considered a comparable on this account also. 7.2 We further note that Genesys operates as a full-fledged risk taking entrepreneur whereas the assessee is a limited risk provider as it renders services to the customers of the Exl group only and is assured of a specified return on its costs. The comparability fails on this count also. Further, from the Annual Report, it is also seen that Genesys has significant intangibles in the form of computer software ..... X X X X Extracts X X X X X X X X Extracts X X X X
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