TMI Blog2020 (12) TMI 724X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance u/s 14A - assessee earned exempt dividend income and offered suo-moto disallowance in its computation of income - Non recording of satisfaction by AO - HELD THAT:- AO has not faulted with the suo-moto disallowance made by the assessee. The assessee estimated the same @60% of salary of two employees which were stated to be engaged in investment activity. - AO did not demonstrate as to how the said disallowance was inadequate. We find that it was incumbent for Ld. AO to record a satisfaction as to why the disallowance offered by the assessee was not sufficient and this said satisfaction was to be arrived at having regard to assessee s books of accounts. The recording of the said satisfaction was sine qua non before proceeding to apply Rule 8D. Although there is no particular format or manner in which the satisfaction was to be recorded but at least the same should have been discernible from the order of Ld. AO. We find that there is no discussion whatsoever as to sufficiency or insufficiency of suomoto disallowance offered by the assessee. No fault has been pointed out in assessee s methodology of arriving at the said disallowance. The application of Rule 8D was not mech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making transfer pricing adjustment of ₹ 58,31,458/- in respect of technical support services rendered by appellant to its overseas associated enterprise (' AE ). The appellant humbly submits that no transfer pricing adjustment is warranted in its case and wishes to raise the following grounds of appeal, which are without prejudice to each other: 1.1 The Hon'ble DRP/ Ld. Transfer Pricing Officer ('TPO')/ Ld. AO erred in law and in facts by wrongly rejecting the systematic benchmarking analysis carried out by the appellant. 1.2 The Hon'ble DRP / Ld. TPO / Ld. AO erred in law by adding comparables without a proper search process merely because they were selected in the previous year, which tantamount to cherry picking of comparables. 1.3 The Hon'ble DRP / Ld. TPO / Ld. AO erred in law by rejecting comparable company viz Tutis Technologies Ltd. by giving reason of diminishing revenue without showing how diminishing revenue affects profitability. 1.4 Further, Hon'ble DRP/ Ld. TPO / Ld. AO erred grossly in both facts in law in confirming the acceptance of Coral Hub Limited and Acropetal Technologies Limited as a comparable compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,55,141/-: 2.1 On the facts and circumstances of the case and in law, the learned AO has erred in making further addition under section 14A to the extent of ₹ 3,55,141. 2.2 The Learned AO has erred in applying rule 8D without pointing out any defect in the correctness of disallowance u/s 14A offered by the Appellant having regard to the accounts of the appellant. 2.3 Without prejudice to the above ground, the AO has erred in incorrectly applying the provision of rule 8D without excluding the investments which earn partly taxable income and partly exempt income. 2.4 The DRP-1 erred in stating that the assessee has not provided the details of investment from which taxable income has generated. 2.5 In view of the above, the appellant respectfully prays that the additional disallowance of ₹ 3,55,141/- made u/s. 14A r.w. rule 8D be deleted. GROUND NO 3: ADDITION ON ACCOUNT OF TDS (CASS-ITS) ₹ 16,38,500/-: 3.1 On the facts and circumstances of the case and in law, the learned AO has erred in making the addition of ₹ 16,38,500 on the ground that there are differences between the income reflected in ITS TDS statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 244A of the Act. 6.2 The appellant prays Your Honor that the appellant be granted interest under section 244A of the Act. GROUND 7: PENALTY PROCEEDINGS The Hon'ble DRP / Ld. TPO / Ld. AO erred in law and in initiating penalty proceedings under section 271(1)(c) of the Act. The assessee has also raised an additional ground vide petition dated 29/01/2020 in which it has pleaded for inclusion of an entity namely M/s Allsec Technologies Limited in the final list of comparables. The same shall be taken up while adjudicating Transfer Pricing Adjustments. 2. The Learned Authorized Representative for Assessee (AR), Shri Vijay Mehta, contested Transfer Pricing Adjustment as confirmed in the final assessment order specifically by pressing ground nos. 1.4 1.10. In other words, Ld. AR restricted his argument to the extent of inclusion / exclusion of three comparable entities viz. (i) M/s Coral Hub Limited; (ii) M/s Acropetal Technologies Limited; (iii) M/s Cosmic Global Limited. In support of inclusion / exclusion of these entities, reliance has been placed on various decisions rendered in the case of similarly placed assessee. The copies of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee, through its Global Service Centre (GSC), provided technical and related support services to the customers of the overseas AE and raised bills for such services on overseas AE. It is undisputed position that the assessee was remunerated at cost plus mark-up of 10%. However, it has offered additional mark-up of 5% in its computation of income. In nutshell, the assessee has offered aggregate margin of 15% against these services which are stated to be in the nature of call centre services. 4.4 In its TP study report (TPSR), the assessee benchmarked this transaction using Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) using Profit Level Indicator (PLI) as operating profit / cost (OP/Cost) and the assessee being the tested part. In its TPSR, the assessee pitied its margin of 15% against mean margin of 7.62% as reflected by 20 comparable entities and therefore, no further adjustment were proposed while filing its return of income. While doing so, the assessee had applied certain filters. However, during the course of proceedings before Ld. TPO, it was directed to apply other filters which were used in AY 2008-09. These filters were with respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the final assessment order dated 20/12/2013. However, this order has subsequently been revised on 11/02/2014 wherein additional TP adjustment of ₹ 17.90 Lacs has been made to incorporate correct margins of M/s Acropetal Technologies Limited. Aggrieved, the assessee is in further appeal before us. 5. After careful consideration, our adjudication with respect to 3 comparable entities as argued before us would be as given in succeeding paragraphs. (i) M/s Acropetal Technologies Limited; The exclusion of this entity has been sought on the ground that this entity has low employee cost of 10.40% of the operating revenue in comparison to assessee s cost of 42.35% which would imply that this entity was not employing its own sources while rendering the services. Therefore, the entity could not be held to be a comparable entity. It has also been submitted that this company has established a wholly owned subsidiary company in Dubai which has contributed to its higher turnover and higher profitability. Further this entity has made strategic investments in another entity and therefore, it could not be held to be a comparable entity. Upon perusal of financials of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apparently, this entity was not disputed by the assessee before Ld. DRP. However, the assessee seek exclusion of this entity in terms of decision of Special Bench of Tribunal DCIT V/s Quark Systems Pvt. Ltd. (SB Chandigarh 22/10/2009) (38 SOT 307). The Ld. AR submitted that this entity has been excluded on account of functional dissimilarity in assessee s own case for AY 2008-09, ITA No.7725/Mum/2012 order dated 27/07/2020 which has followed the decision of Hon ble Bombay High Court in Pr. CIT V/s Aptara Technology P. Ltd.(303 CTR 805). We find that similar facts exist during the year. No change in the business model of this comparable entity has been shown before us. Therefore, we direct for exclusion of this entity on the ground of functional dissimilarity. Since we have directed for exclusion of these 3 entities, the finding with respect to last comparable entity as enumerated in additional ground of appeal has been rendered infructuous, as submitted by Ld. AR. The Ld. AO / TPO is directed to re-compute the TP adjustment, if any, after excluding these 3 entities. The ground thus raised as well as argued before us stand allowed which makes other ground infructuous. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the additional disallowance as made by Ld. AO in terms of Rule 8D was to be rejected rather the assessee s suo-moto disallowance was to be accepted. By deleting the same, we allow this ground of appeal. 8. Ground No.3: Addition on account of TDS for ₹ 16,38,500/- 8.1 It so transpired that the assessee claimed TDS credit of ₹ 1621.95 Lacs against receipts of ₹ 190.99 Crores. The assessee was directed to reconcile the TDS so deducted with data contained in Form 26AS / TDS statements. After going through reconciliation statement filed by the assessee, it was noted that the assessee could not reconcile receipts to the tune of ₹ 16.38 Lacs. Since the assessee, in the opinion of Ld.AO, could not offer satisfactory explanation or documentary evidences against nonreconciled items, the same was to be treated as unexplained income. Therefore, the same was added to the income of the assessee. The Ld. DRP confirmed the addition so made by observing that the income certainly accrued to the assessee though the same may not have been received. Aggrieved, the assessee is in further appeal before us. 8.2 The Ld. AR took us through reconciliation sta ..... 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