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Income Tax Appellate Tribunal, AHMEDABAD D BENCH, AHMEDABAD
Per Pramod Kumar, Vice President:
By way of this appeal, the assessee appellant has challenged correctness of the order dated 28th December 2016, passed by the learned CIT (A), in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2012-13.
The assessee has filed concise grounds of appeal, in conformity with rule 8 of the Appellate Tribunal (Income Tax) Rules 1963, and prayed that the same be substituted for the original grounds of appeal – prayer granted.
In the first ground of appeal, the assessee has raised the following grievance:-
“(1) The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming the upward adjustment of Rs.47,11,618/- under section 92C of the Act.”
So far as this grievance of the assessee is concerned, the relevant material facts are like this. The assessee is engaged in the business of providing software development services. The Assessing Officer had made an arm’s length price adjustment in respect of services provided to associated enterprises, amounting to
ITA No.677/Ahd/2017 Assessment Year: 2012-13 Page 2 of 4 Rs.2,11,46,680/- but it was subsequently rectified and then quantified at Rs.47,11,618/-. The method of ascertaining arm’s length price was adopted at Transactional Net Margin Method (TNMM). There was no dispute on this aspect but the dispute was confined to comparables and to foreign exchange being excluded from operating revenue. The grievance of the assessee was also rejected by the learned CIT(A) and the impugned ALP adjustment was thus confirmed in appeal as well. The assessee is not satisfied and is in further appeal before us.
We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of applicable legal position.
We have noted that so far as assessee’s grievance against exclusion of CGA- AVK Software & Export Limited is concerned, it has been rejected as consistently loss making concern which is clearly incorrect, because once foreign exchange gains are to be included as operating income – which is what ought to be done, the figures at page 33 of CIT(A)’s order itself show profitability in the financial year 2008- 09, 2010-11 and 2012-13. In our considered view, therefore, CGA-AVK Software & Export Limited was wrongly excluded. We direct the Assessing Officer to include the same in the list of comparables. As regards the question as to whether foreign exchange gains are to be included in operating profits or net, the issue is settled in favour of the assessee by a co-ordinate bench decision in the case of ITO vs. EDAG Engineers & Design India Limited [(2014) 52 taxmann.com 398 (Del)] and Hon’ble jurisdictional High Court’s judgement in the case of CIT vs. Alps Chemicals Pvt. Ltd. (367 ITR 594). Quite clearly, therefore, the assessee deserves to succeed on both the issues. The foreign exchange gains are, in our opinion, required to be treated as part of operating profits and CGA-AVK Software & Export Limited is required to be included in the comparables. We accept the plea, and remit the matter to the file of the Assessing Officer to verify whether, upon the above directions being implemented, margin will be less than 5%. If so, the entire ALP addition will stand deleted. In any other case, the ALP adjustment will stand modified suitably. With these directions, matter stands restored to the assessment stage.
Ground no.1 is thus allowed for statistical purposes in the above terms.
In ground no.2, the assessee has raised the following grievance:
“(2) The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming the addition of Rs.1,98,429/- made u/s.36(1)(va) r.w.s. 2(24(x) of the Act towards late payment of employees’ contribution to PF & ESIC.”
Learned Representative fairly agree that this issue is covered, in favour of the assessee, by a co-ordinate bench decision in the case of Suzlon Energy Limited vs. DCIT (ITA Nos.764 & 765/Ahd/2018; order dated 27.06.2018 wherein the co- ordinate bench have observed as follows :-
“3. Learned representatives fairly agree that the aforesaid issue is squarely covered against the assessee by Hon’ble jurisdictional High Court’s judgment in the case of CIT vs. Gujarat State Road Transport Corporation, 366 ITR 170 (Guj.), wherein it is categorically held that in
ITA No.677/Ahd/2017 Assessment Year: 2012-13 Page 3 of 4 the case of delayed deposit of employees’ contribution to PF, the same will not be deductable in computing income under section 28 of the Act. The law so laid down by the Hon’ble jurisdictional High Court is binding on us. The mere fact that an appeal against the said decision is pending before the Hon’ble Supreme Court does not dilute binding nature of this judicial precedent. As regard dismissal of SLP in the case of Rajasthan State Beverages Corporation Ltd (2017) 84 taxmann.com 185 (SC), it is only elementary that when a SLP is dismissed by a non-speaking order, it does not constitute a law declared by Hon’ble Supreme Court, and as such, it is not binding under Article 141 of the Constitution of India. The authority, for this proposition, is contained in a series of judgments of Hon’ble Supreme Court, including, inter alia, in the cases of State of Manipur vs. Thingujam Brojen Meetai, (1996) 9 SCC 29; Om Prakash Gargi v. State of Punjab, (1996) 11 SCC 399 and Sun Export Corpn v. Collector of Customs, AIR 1997 SC 2658. We, therefore, see no legally sustainable merit in the case of the assessee and, respectfully following the judgment of Hon’ble jurisdictional High Court in the case of Gujarat State Road Transport Corporation (supra), dismiss the grievance of the assessee in principle. We may, however, add that a co-ordinate bench of this Tribunal, in the case of Rajjratna Metal Industries Ltd Vs. ACIT (ITA No.940/Ahd/2015; order dated 22.09.2017), has observed as follows:-
“3. Assessee's latter substantive ground challenges correctness of both the lower authorities' action disallowing/adding a sum of Rs.3,85,810/- u/s. 36(1)(va) r.w.s. 2(24) of the Act on account late payment of employees' contribution to PF & ESI in question. There is no dispute that hon'ble jurisdictional high court's decision in CIT vs. Gujarat State Road Transport Corporation (2014) 366 ITR 170 (Guj) upholds such a disallowance in principle. The assessee's case however is that relevant due date has to be seen not from the relevant month of salary but the one pertaining to its payment. He then files a computation chart indicating it to have paid above employees' PF/ESI contributions on 22.05.2009 and 28.05.2009 as against the due dates thereof following on 20.06.2009. The Revenue fails to dispute this factual position. We therefore quote this tribunal's co- ordinate bench decision in Kanoi paper & Industries Ltd. vs. ACIT 75 TTJ 448 that the relevant date in such case is that of month of the actual payment of wages/salaries. We therefore rely on the above co-ordinate bench decision and direct the Assessing Officer to delete the impugned disallowance as well.”
In effect thus while any delayed deposit of PF/ESI is to be disallowed, in terms of Hon’ble Gujarat High Court’s judgment in the case of Gujarat State Road Transport Corporation (supra), the question as to whether there is a delay or not may be decided by the Assessing Officer in the light of above observations by the coordinate bench. The assessee will get relief, if found admissible, on that basis”
ITA No.677/Ahd/2017 Assessment Year: 2012-13 Page 4 of 4 10. Following the co-ordinate bench decision, we remit this issue also to the file of the Assessing Officer for readjudication in the light of above observations which will apply mutatis mutandis here as well. Ordered, accordingly.
Ground no.2 is also allowed for statistical purposes in the above terms.
In ground no.3, the assessee has raised the following grievance:-
“(3) The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming disallowance under section 14A of the Act to the extent of Rs.1,04,115/-.”
So far as the above grievance of the assessee is concerned, it is sufficient to take note of the fact that the Assessing Officer has also included the investments not yielding tax exempt income, i.e. Mutual Funds – Debt Funds, in computation of 0.5% amount being treated as administrative expenses. This action of the Assessing Officer has been confirmed by learned CIT(A) as well. The assessee is not satisfied and is in further appeal before us.
We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of applicable legal position.
It is, in our considered view, only elementary that for the purpose of computing administrative expenses to be disallowed under rule 14A r.w.r. 8D, only such investments are to be taken into account as yield tax exempt income. The 0.5% of investments is to be treated as inadmissible administrative expenses under rule 8D must therefore be computed with respect to equity funds Mutual Funds only. The plea of the assessee is thus indeed well taken and meets our approval. We remit this issue also to the file of the Assessing Officer for recomputation of disallowance under section 14A r.w.r. 8D in the light of above observations. Ordered, accordingly.
Ground no.3 is also thus allowed for statistical purposes.
In the result, the appeal is allowed for statistical purposes. Pronounced in the open court today on the 22nd day of October, 2018.
Sd/- Sd/- Madhumita Roy Pramod Kumar (Judicial Member) (Vice President) Ahmedabad, dated the 22nd day of October, 2018 Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) DR (6) Guard File By order
Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad