CAPITA INDIA PRIVATE LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX 1(2)(1), MUMBAI, MUMBAI

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ITA 3581/MUM/2026Status: DisposedITAT Mumbai21 July 2026AY 2017-187 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal directed the Assessing Officer to dispose of the assessee's rectification applications concerning Section 14A disallowance and foreign tax credit expeditiously. The grounds related to procedural invalidities and transfer pricing adjustments were dismissed as infructuous.

What were the facts?

The assessee appealed against an assessment order. Several grounds were raised, including procedural invalidities, transfer pricing adjustments, disallowance under Section 14A, and non-grant of foreign tax credit. The Tribunal noted that some grounds were rendered academic or infructuous due to subsequent events.

What were the issues?

Whether procedural defects in the assessment rendered it invalid, and whether the disallowance under Section 14A and foreign tax credit were correctly computed and granted.

Which sections of the Income-tax Act were involved?

Section 14A,Section 92C,Section 153,Section 234B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “K” BENCH; MUMBAI

Before: SHRI VIKRAM SINGH YADAV & SHRI SIDDHARTHA NAUTIYAL

Hearing: 13.07.2026Pronounced: 21.07.2026

IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH; MUMBAI BEFORE SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER AND SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER ITA No. 3581/Mum/2026 (Assessment Year: 2017-18)

Capita India Private Limited Deputy Commissioner of 4th Floor, Unit no 401, Godrej Income tax 1(2)(1), Mumbai Two, Vikhroli East, Mumbai, vs. Aayakar Bhawan, Maharshri Maharashtra, 400079. Karve Road, Mumbai, Maharashtra, 400020 PAN: AABCE7046A (Appellant) (Respondent) For Assessee : Palak Mehta For Revenue : Shri Ajay Uke, Sr AR Date of Hearing : 13.07.2026 Date of Pronouncement : 21.07.2026 O R D E R PER VIKRAM SINGH YADAV, A.M :

This is an appeal filed by the Assessee against the order of the Assessing Officer passed u/s. 143(3) r.w.s. 144C(3) of the Income Tax Act, 1961 [‘the Act’], dated 27.01.2026, pertaining to Assessment Year (AY) 2017-18, wherein the Assessee has taken the following grounds of appeal: “Based on the facts and in the circumstances of the case and in law, the Appellant respectfully craves leave to prefer an appeal against the order passed by the Deputy Commissioner of Income tax 1(2)(1) ('learned AO'), Mumbai issued under Section 143(3) read with Section 144C(13) read with Sections 144(B), ('Assessment order'), in pursuance to the Directions issued by the Dispute Resolution Panel- CIT(DRP-1) ('Hon'ble DRP'), Mumbai, on the following grounds: On the facts and circumstances of the case and in law, the learned AO / Transfer Pricing Officer ('TPO'), based on the directions of the Hon'ble DRP has:

ITA No. 3581/Mum/2026; A.Y. 2017-18 Capita India Private Limited

General Ground 1. erred in assessing the total taxable income of the Appellant at Rs 55,70,31,880/- as against a total income of Rs 39,76,97,490/- as computed by the Appellant in its Return of Income ('ROI'); Initiation and procedure of assessment invalid, bad in law and void-ab-initio 2. erred in passing the second final assessment order dated 27 January 2026 pursuant to transfer pricing order passed on 11 January 2025 and draft assessment order passed on 05 March 2025, without appreciating that the Ld. AO vide assessment order dated 2 March 2023 has already given effect to order of the ITAT dated 18 August 2022, thus the second assessment order passed by the Ld. AO is bad in law and liable to be quashed; 3. erred in issuing the transfer pricing order dated 11 January 2025, draft assessment order dated 5 March 2025 and the second final assessment order dated 27 January 2026 beyond the time limit prescribed under Section 153 of the Act and thus, the aforesaid orders are time barred and liable to be quashed; 4. erred in passing the manually signed impugned final assessment order, ITNS Computation and demand notice under Section 156 of the Act ignoring the binding CBDT instructions [viz CBDT Instruction No. 8/2017 dated 29 September 2017; CBDT Instruction No. 1/2018 dated 12 February 2018; and Letter (F. No. System/ITBA/Digital Signature/16-17/181) dated 16 February 2018] which requires all the department orders/communications/ notices being issued through the 'e-proceeding' facility to be signed digitally, and hence, the impugned order passed is invalid and liable to be quashed; 5. erred in passing the impugned order dated 27 January 2026 without following the mandatory requirements mentioned in the CBDT Circular 19/2019 dated 14 August 2019 in as much as the final assessment order have been manually passed and signed and a manual DIN has been communicated without obtaining the approval from the learned Chief Commissioner/Director General of Income Tax, thereby rendering the impugned order as null and void, invalid and liable to be quashed; Reference to the TРО 6. erred in making a reference dated 22 March 2024 of the Appellant's case (by technical unit) to the Ld. TPO, without complying to provisions of Section 92CA, and then making a transfer pricing ('TP') adjustment of Rs. 15,87,81,900 to the total income of the Appellant which is bad in law; Rejection of comparable selected by the Appellant in its TP documentation

ITA No. 3581/Mum/2026; A.Y. 2017-18 Capita India Private Limited 7. erred in rejecting the comparable R Systems International Limited, on the ground that it has different financial year end, does not satisfy various filters and is functionally different as compared to the Appellant; 8. erred in disregarding the Hon'ble Tribunal order in Appellant's own case for year under consideration, wherein it is held that such a difference in financial year end does not warrant rejection of the comparable; Erroneous consideration of margin by the learned TPO 9. erred in not considering the correct updated margins submitted by the Appellant during the course of original transfer pricing proceedings; Working Capital Adjustment 10. erred in not allowing the Appellant the benefit of the working capital adjustment which is required to be undertaken in its case to account for the difference in working capital levels between the comparable companies and the Appellant; Risk Adjustment 11. erred in not allowing the Appellant the benefit of the risk adjustment to account for the difference between the risks assumed by the Appellant and the risks assumed by the comparable companies; Benefit of +1-3% 12. erred in not considering that the adjustment to arm's length price, if any, should be limited to the lower end of the 3 percent range as the Appellant has the right to exercise this option under the proviso to Section 92C of the Act; Corporate Tax Disallowance under Section 14A 13. erred in making disallowance under Section 14A amounting to Rs. 5,52,490 without appreciating the fact that the Appellant has already made suo moto disallowance under Section 14A of the Act of Rs. 4,29,529, thereby disallowance should be restricted to Rs. 1,22,961 (Rs.5,52,490- Rs. 4,29,529); Non-grant of Foreign Tax Credit (FTC) 14. erred in not granting the Foreign Tax Credit ('FTC') of Rs 1,10,460 under Sections 90/90A(2) read with Rule 128; Levy of interest under Section 234B of the Act of Rs.

ITA No. 3581/Mum/2026; A.Y. 2017-18 Capita India Private Limited 15. erred in levying consequential interest of Rs.4,63,87,374 under Section 234B of the Act. Each of the above grounds of appeal is without prejudice to and independent of one another. The Appellant craves leave to add, alter, amend or delete the above grounds of appeal at or before the time of hearing of the appeal, so as to enable the Hon'ble Income tax Appellate Tribunal to decide this appeal according to law.” 2. Ground no. 1 is general in nature and does not require any separate adjudication. Ground no. 2 to 5 relates to initiation and procedure of assessment being invalid, it was submitted that the same being legal in nature and therefore, treated as academic in nature. Hence, the same are dismissed as infructuous.

3.

Ground nos. 6 to 12 relates to international transaction of IT enabled services and related transfer pricing adjustment. In this regard, the ld. AR submitted that in view of the rectification order dated 03.07.2026, passed by the TPO, the entire transfer pricing adjustment stands deleted and therefore, the ground no. 6 to 12 related to transfer pricing be treated as academic or infructuous in nature. The same are thus dismissed as infructuous.

4.

Ground no. 13 relates to disallowance u/s. 14A of the Act. Briefly, facts of the case are that the assessee had made suo-moto disallowance u/s. 14A of the Act, amounting to Rs. 4,29,529/-. However, the AO in the draft assessment order, in the first round of proceedings, has made disallowance u/s. 14A of the Act of Rs. 1,11,48,437/-. The Ld. DRP confirmed the order of the Assessing Officer. Against the final assessment order, the assessee came before this Tribunal on 19.04.2022, and the matter was disposed off vide order dated 18.08.2022 [ITA no. 732/Mum/2022] wherein the Coordinate Bench restricted the disallowance u/s. 14A to Rs. 5,52,490/-. However, in the order giving effect dated 02.03.2023, the Assessing Officer erroneously considered the

ITA No. 3581/Mum/2026; A.Y. 2017-18 Capita India Private Limited disallowance u/s. 14A of Rs. 5,52,490/- instead of Rs. 1,22,961/-. The assessee thereafter has filed a rectification application dated 06.07.2026, seeking rectification of the mistake apparent from record and the same is currently pending.

5.

In the aforesaid factual matrix, during the course of hearing, the ld. AR requested that the Assessing Officer be directed to dispose off the rectification application dated 06.07.2026, at the earliest and grant necessary relief to the assessee. The ld. DR has been heard, who has been relied on the orders of the lower authorities.

6.

We have heard the rival contentions and perused the material available on record. The matter has already been examined by the Coordinate Bench earlier wherein disallowance u/s 14A was restricted to Rs 552,490/-. It is the claim of the assessee that where suo-moto disallowance of Rs 429,529/- made by the assessee is considered, the net disallowance should be restricted to Rs 1,22,961/- which the AO has apparently failed to appreciate while giving effect to the order of the Coordinate Bench and the assessee has since brought the same to the notice of the AO and has moved a rectification application. The AO is accordingly directed to examine the matter in light of the directions of the Coordinate Bench and the suo-moto disallowance made by the assessee and re-compute the disallowance u/s 14A and disposed off the assessee’s rectification application expeditiously. In the result, the ground of appeal is allowed for statistical purposes.

7.

Ground no. 14 relates to non-grant of foreign tax credit. In this regard, the brief facts of the case are that the assessee has filed return of income for the year under consideration, where the assessee had claimed a foreign tax credit of Rs. 1,10,460. The FTC credit was allowed to assessee in the intimation dated 29.03.2019. In the assessment order dated 25.02.2022, in the first round of proceedings, in the ITNS

ITA No. 3581/Mum/2026; A.Y. 2017-18 Capita India Private Limited Computation annexed to the assessment order, the AO has granted credit of foreign tax credit amounting to Rs. 1,10,460/-. However, in the second round of proceedings, while giving effect to the ITAT order dated 18.08.2022 [ITA no. 732/Mum/2022], it was noticed that the FTC of Rs. 1,10,460/- claimed in the ROI, has not been granted to the assessee in the ITNS Computation annexed to the assessment order dated 27.01.2026.

8.

During the course of hearing, the ld. AR submitted that non-grant of FTC is a mistake apparent from record. In this regard, the assessee has also filed a rectification application dated 06.07.2026 seeking rectification of the mistake apparent from record and the same is pending for disposal. It was requested that the Assessing Officer be directed to dispose off the rectification application dated 06.07.2026, at the earliest and grant relief to the assessee. The ld. DR has been heard, who has been relied on the orders of the lower authorities.

9.

We have heard the rival contentions and perused the material available on record. Admittedly, there is no dispute regarding the assessee’s eligibility for foreign tax credit of Rs 110,460/- as allowed by the AO in the original proceedings however, while giving effect to the Coordinate Bench’s order and computing the tax liability, the said credit has apparently not been given to the assessee and the assessee has since moved a rectification application before the AO. The AO is accordingly directed to dispose off the assessee’s rectification application expeditiously. In the result, the ground of appeal is allowed for statistical purposes.

10.

Ground no. 15 relates to levy of interest u/s. 234B of the Act, the same being consequential in nature, doesn’t require any separate adjudication.

ITA No. 3581/Mum/2026; A.Y. 2017-18 Capita India Private Limited 11. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.

Order pronounced on 21.07.2026 Sd/- Sd/- SIDDHARTHA NAUTIYAL VIKRAM SINGH YADAV (JUDICIAL MEMBER) (ACCOUNTANT MEMBER)

Mumbai, Dated: 21.07.2026 Karishma J. Pawar, SR. PS

Copy to : 1) The Appellant 2) The Respondent 3) The CIT concerned 4) The D.R, ITAT, Mumbai 5) Guard file

By Order

Dy./Asst. Registrar I.T.A.T, Mumbai

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