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TMI Blog2023 (12) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... ome exempt from tax is a necessary pre-requisite before making disallowance under Section 14A(1) of the Income Tax Act, 1961? 2.2 Whether the Ld. ITAT was justified in deleting the disallowance made under Section 14A of the Income-tax Act, 1961 read with Rule 8D(2)(iii) of the Income-tax Rules, 1962 of the Act, on the basis that the Assessee was a debt free company, ignoring the fact that the debt position of the Assessee is irrelevant with regard to expenditure calculated under Rule 8D(2)(iii)? 2.3 Whether the Ld. ITAT was erred in holding that receivables from the AE are not international transaction by ignoring subclause (c) of clause (i) of Explanation below Section 92B of the Act which clearly provides that receivables are international transactions? 2.4 Whether receivable beyond due date of payment as agreed under the contract with the AE is legally an international transaction under sub-clause (c) of clause (i) of Explanation below Section 92B of the Act requiring determination of Arm's Length Price? 2.5 Whether the Ld. ITAT erred in excluding TCS E-Serve Ltd. from the list of comparables especially when the authorities below had established functional similarity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent/assessee qua upward adjustment, the Assessing Officer (AO) passed the Draft Assessment Order dated 14.03.2016, making an addition of Rs. 13,25,22,487/- to the total income of the respondent/assessee, which amount included a sum of Rs. 4,90,839/- towards disallowance under Section 14A of the Act. 3.6 The objections filed by the respondent/assessee before the Dispute Resolution Panel (DRP) were disposed of vide order dated 18.11.2016, wherein the DRP upheld the selection of Accentia Technologies Ltd and TCS E-Serve Ltd as comparables and also held that deferred receivables from AE being an international transaction, the respondent/assessee had failed to establish that adjustment towards overdue receivables was not justified. On these grounds, the DRP upheld the view of the Assessing Officer and upheld the disallowance of expenses under Section 14A of the Act. 3.7 Accordingly, the Assessing Officer passed Final Assessment Order dated 28.12.2016, thereby making an addition of Rs. 16,79,45,649/- to the income of the respondent/assessee. 3.8 On 11.01.2017, the TPO passed rectification order under Section 154 of the Act correcting the adjustment on account of provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the investments were made in the mutual funds in ICICI Liquidity Plan wherein the dividend was automatically reinvested with weekly frequency without any efforts for earning dividend income and that it did not have any borrowings, the Tribunal examined the balance sheets of the respondent/assessee from which it came to a definite conclusion that there were no borrowed funds in the books of the respondent/assessee pertaining to the relevant year, therefore there was no question of using borrowed funds for investments in mutual funds and consequently the impugned disallowance under Section 14A of the Act was unwarranted. 5.2 That being so, in our view the questions 2.1 and 2.2 proposed by the appellant/revenue cannot be treated as substantial question of law for present purposes. 6. As regards the proposed questions 2.3 and 2.4 pertaining to adjustments on account of delay in realization of receivables, the DRP held that in view of explanation (i)(c) to Section 92B of the Act, deferred receivables from AE is an international transaction and that aggregation of transaction is possible only when the transactions are continuous and closed linked but the respondent/assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a finding of fact to the effect that the assessee was a debt free company and a question of receiving any interest on receivable did not arise. Against the said judgment, Special Leave Petition No. CC4956/2017 preferred by the revenue was dismissed vide order dated 21.07.2017. 6.5 In the case of PCIT vs Kusum Healthcare Pvt. Ltd., (2018) 99 taxmann.com 431, a coordinate bench of this court also dealt with the amendment brought in Section 92B of the Act by way of insertion of an explanation and held thus: "8. Aggrieved by the said order, the assessee filed an appeal before the Income-tax Appellate Tribunal. By the impugned order dated March 31, 2015, the Income-tax Appellate Tribunal set aside the assessment order. The Income-tax Appellate Tribunal noted that the assessee had undertaken working capital adjustment for the comparable companies selected in its transfer pricing report. It was further noted that "the differential impact of working capital of the assessee vis-a-vis its comparables had already been factored in the pricing/profitability" which was more than the working capital adjusted margin of the comparables and, therefore, "any further adjustment to the margins of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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