KPIT TECHNOLOGIES LTD.,,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,,

The assessee has raised the following grounds of appeal:-

The first issue raised in the present appeal is against adjustment made on account of arm's length price in relation to interest received / receivable on loans extended to associated enterprises.

The learned Authorized Representative for the assessee at the outset pointed out that the issue raised in the present appeal stands covered in favour of assessee by the order of Tribunal in assessee’s own case in M/s. KPIT Cummins Infosystems Ltd. Vs. ACIT in ITA No.247/PN/2013, relating to assessment year 2008-09 and ITA No.526/PN/2014, relating to assessment year 2009-10, order dated 24.02.2016. The learned Authorized Representative for the assessee pointed out that the assessee was earlier known as KPIT Cummins Infosystems Ltd. and now the name has been changed to KPIT Technologies Ltd.

The learned Departmental Representative for the Revenue relied on the orders of authorities below.

We have heard the rival contentions and perused the record. The assessee was engaged in onsite and offsite software development. The assessee was providing software solutions and support services to its associated enterprises and in respect of same, no issue has been raised. However, in the TP proceedings, the Transfer Pricing Officer (TPO) also noted that the assessee had granted loans to its associated enterprises and had earned interest on the said loans granted. The loans were granted in foreign currency and were also repayable in foreign currency. Hence, the assessee contended that most appropriate rate comparison would be the rates prescribed by RBI for foreign currency deposits for residents of India. However, the TPO noted that similar adjustment has been made in earlier years and following the same reasoning, arm's length price computed by the assessee in respect of international transactions relating to provision of interest was found to be not acceptable. The TPO based on the rate of BPLR of State Bank of India applied the rate of 12.25% and worked out the adjustment at ₹ 74,38,465/-. Against the said adjustment, the Assessing Officer issued draft assessment order and the assessee filed objections before the Dispute Resolution Panel (DRP), which rejected the same. The Assessing Officer thus, in the final assessment order passed under section 143(3) r.w.s. 144C(13) of the Act, made addition on account of same at ₹ 74,38,465/-.

The assessee is in appeal against the same.

We find that similar issue of adjustment made on account of international transactions of interest received / receivable on loans extended to associated enterprises arose before the Tribunal in assessee’s own case in assessment years 2008-09 and 2009-10. The Tribunal in turn, relying on the ratio laid down

The issue in the present assessment year has also to be decided in line with the issue decided in earlier years and following the same parity of reasoning, we direct the Assessing Officer to verify whether the loans were advanced to associated enterprises on LIBOR+ or WIBOR+ rates, as the case may be, and if so, then the said transaction was within arm's length price; otherwise; the TPO can re-compute the arm's length price of international transactions. Accordingly, the matter is set aside to the file of Assessing Officer/TPO to compute adjustment, if any, in the hands of assessee after verifying the claim of assessee. The ground of appeal No.1 raised by the assessee is thus, allowed for statistical purposes.

The issue in ground of appeal No.2 raised by the assessee is against disallowance made under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (in short ‘the Rules’).

Brief facts relating to the issue are that the assessee on its own motion suo moto disallowed ₹ 50,000/- as expenses relating to earning of exempt income under Rule 8D(iii) of the Rules. The Assessing Officer on the other hand, applied provisions of Rule 8D(iii) of the Rules and disallowed sum of ₹ 15,50,542/-.

The assessee is in appeal against the same on the ground that the Assessing Officer had failed to record satisfaction as required under section 14A(2) of the Act before making aforesaid disallowance. The learned Authorized Representative for the assessee in this regard, placed reliance on the ratio laid down by the Hon'ble Supreme Court in Godrej & Boyce Manufacturing Company Ltd. Vs. DCIT (2017) 81 taxmann.com 111 (SC) and in Maxopp Investment Ltd. Vs. CIT (2018) 91 taxmann.com 154 (SC).

The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of authorities below and provisions of the Act.

We have heard the rival contentions and perused the record. The basic issue which arises in the present appeal is against non-recording of satisfaction by the Assessing Officer before invoking provisions of section 14A of the Act. The assessee is aggrieved by the order of Assessing Officer in working the disallowance under Rule 8D(iii) of the Rules at ₹ 15,50,542/-.

We find that similar issue of non-recording of satisfaction by the Assessing Officer arose before the Tribunal in the case of Capgemini Technology Services India Limited Vs. DCIT in ITA No.216/PUN/2015 and

The Hon'ble Supreme Court in Maxopp Investment Ltd. Vs. CIT (supra) has held as under:- “41. Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares / making the investment in shares is to be examined by the AO.”

In the present case, the Assessing Officer has failed to record necessary satisfaction as to why suo moto disallowance made by the assessee was not correct and in the absence of the same and applying the ratio laid down by the Hon'ble Supreme Court in Godrej & Boyce Manufacturing Company Ltd. Vs. DCIT (supra) and in Maxopp Investment Ltd. Vs. CIT (supra), we find no merit in the disallowance worked out by the Assessing Officer by invoking provisions of Rule 8D(iii) of the Rules. In the absence of recording of satisfaction under section 14A(2) of the Act, the action of Assessing Officer is not as per law and the same is reversed. Consequently, the ground of appeal No.2 raised by the assessee is thus, allowed.

The plea raised vide ground of appeal No.3 is alternate to the ground of appeal No.2 and since we have allowed the ground of appeal No.2, the alternate plea does not stand.

Now, coming to the issue raised vide ground of appeal No.4 i.e. while computing book profit under section 115JB of the Act, the disallowance worked out under section 14A of the Act read with Rule 8D of the Rules amounting to ₹ 15,50,542/- not to be added.

The learned Authorized Representative for the assessee pointed out that this issue was also decided by the Tribunal in assessee’s own case in assessment years 2008-09 and 2009-10.

The learned Departmental Representative for the Revenue placed reliance on the order of Assessing Officer.

We have heard the rival contentions and perused the record. The issue of adjustment of book profit under section 115JB of the Act does not arise since we have already directed the Assessing Officer to delete disallowance made under section 14A of the Act read with Rule 8D(iii) of the Rules. In any case, even if the disallowance is to be upheld, the same is not to be added to the book profits under section 115JB of the Act. The Tribunal in assessee’s own case has decided the issue as under:- “20. The next issue vide ground of appeal No.6 is whether while computing the book profits under section 115JB of the Act, disallowance under section 14A is to be added back. 21. The learned Authorized Representative for the assessee pointed out that the said issue is also covered by the ratio laid down by the Pune Bench of Tribunal in Varroc Engineering Pvt. Ltd. Vs. ACIT (supra) that while computing book profits under section 115JB of the Act, no addition is to be made on account of disallowance under section 14A of the Act. In view of the decision of Pune Bench of Tribunal, we find no merit in the reliance placed upon by the learned Departmental Representative for the Revenue. The Tribunal while deciding the issue in para 42 had held as under:- “42. The issue before us is identical to the issue before the Chandigarh Bench of the Tribunal in Nahar Industrial Enterprises Ltd., Vs. DCIT (supra) and following the same parity of reasoning we direct the Assessing Officer to exclude the disallowance made under section 14A of the Act, while computing the book profits u/s 115JB of the Act. Accordingly, we direct the Assessing Officer to re-compute the book profits under section 115JB of the Act. The ground of appeal No.5 is thus, allowed.” 22. In respect of ground of appeal No.6, the learned Departmental Representative for the Revenue pointed out that the issue was decided against the assessee by the Mumbai Bench of Tribunal in Dabur India Ltd. Vs. ACIT (2013) 37 taxmann.com 289 (Mumbai – Trib). However, the issue is covered in favour of the assessee by the decision of Pune Bench of Tribunal.

Accordingly, we direct the Assessing Officer not to include the disallowance under section 14A of the Act read with Rule 8D of the Rules, if any, as part of book profits under section 115JB of the Act. The ground of appeal No.4 is thus, allowed.

In the result, appeal of assessee is partly allowed.