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Facts
This case involves cross-appeals by the assessee and revenue concerning assessment years 2009-10 and 2010-11. The appeals arise from orders of the CIT(A) related to assessment orders passed under Section 143(3) and 143(3) read with Section 144C(3) of the Income Tax Act, 1961. The core issues revolve around Section 10B deductions and transfer pricing adjustments, specifically the exclusion/inclusion of comparable companies.
Held
The Tribunal allowed the assessee's claim for deduction under Section 10B of the Act, dismissing the revenue's grounds related to it. The Tribunal also directed the exclusion of several companies from the set of comparables in the transfer pricing analysis. For issues concerning Section 14A disallowances, the Tribunal directed the Assessing Officer to delete the disallowance due to lack of valid satisfaction. The appeal regarding transfer pricing adjustments on corporate support services was remitted to the CIT(A).
Key Issues
Whether the CIT(A) was justified in deleting disallowances related to Section 10B deductions and whether certain companies should be excluded/included in the transfer pricing comparables. Additionally, the validity of Section 14A disallowances and adjustments to Book Profit under Section 115JB were examined.
Sections Cited
10B, 14A, 143(3), 144C(3), 115JB, 92C(3), 92D, 139(5)
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Income Tax Appellate Tribunal, “H” BENCH, DELHI
Before: SHRI S RIFAUR RAHMAN
common order for the sake of convenience.
2 Grounds of Appeal raised by revenue appellant are as under:
1. Whether on the facts and circumstances of the case, the Ld. CIT(A) is legally justified in deleting disallowances of Rs. 24,75,02,103 u/s 10B of the Income Tax Act (hereinafter referred to as “the Act”) without considering the findings of the Assessing Officer (hereinafter referred to as “the AO”) in assessment order that the assessee had failed to maintain separate books of accounts for the respective units alleged to be eligible for deduction u/s 10B of the Act?
2. Whether on the facts and circumstances of the case, the Ld. CIT(A) is legally justified in deleting disallowances of Rs. 24,75,02,103 u/s 10B of the Act without any basis from composite accounts of all the undertaking and the eligible profit was highly disproportionate as compared to the total profit earned by the assessee during the year and also by ignoring the fact that the assessee failed to explain the basis of appropriation of profits?
3 Whether on the facts and circumstances of the case, the Ld. CIT(A) is legally justified in directing to exclude M/s Apitco Limited, M/s Cameo Corporate Services Limited, M/s Global Procurement Consultants Limited and M/s Killick Agencies and Marketing Limited & M/s Orient Engineering and Commercial Co. Limited from the final set of comparables even when the entities were functionally comparable to the assessee company?
4 Whether on the facts and circumstances of the case, the Ld. CIT(A) is legally justified in deleting the addition of Rs. 90,36,787/- on account of disallowance u/s 14A of the Act made while calculating Book Profit u/s 115JB of the Act by ignoring the fact that clause (f) of Explanation 1 to section 115JB(2) of the Act, introduced by Finance Act 2006 is applicable to the assessee for the year under consideration ?
5. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any grounds of appeal at any time before or during the hearing of this appeal.”
3 We have heard the rival submissions made by the respective parties. We have further perused the records, materials placed before us including decisions of Coordinate bench in assessee’s own case.
3.1 Ground Nos. 1 and 2 of appeal raised by revenue in respect of deduction claimed by assessee under Section 10B of the Act. It is evident from perusal of order of the Learned CIT(A) that she has allowed the grounds raised before her by relying upon the finding of her predecessor in assessment year 2011-12. We find that the said order of the Learned CIT(A) was further affirmed by Coordinate Bench in appeal preferred by the revenue. Copy of the same is placed before us.
Coordinate bench has considered that the issue is covered in favour of assessee by the order of the Delhi Bench of the Tribunals for Ays 2006-07, 2007-08 and 2008- 09 and infact order of Delhi Bench of the Tribunals for Ays 2006-07, 2007-08 and 2008-09 were affirmed by Hon’ble Delhi Court in their order dated 29.08.2024.
Respectfully following the order of Delhi Bench we allow the claim of the assessee under section 10B of the Act and in the result ground Nos. 1 and 2 of revenue’s appeal are dismissed.
4 Ground No. 3 of revenue appeal is in respect of action of the Learned CIT(A) in excluding M/s Apitco Limited, M/s Cameo Corporate Services Limited, M/s Global Procurement Consultants Limited and M/s Killick Agencies and Marketing Limited & M/s Orient Engineering and Commercial Co. Limited from the final set of comparables while computing ALP for Corporate Support Service Segment.
4.1 We have perused the order of the lower authorities and written synopsis filed by the revenue. Learned CIT(A) in respect of the issue under consideration has held as under: “Ground No.9 : Corporate support Services:
5.38 The appellant also provides certain back office and centralised corporate services like accounting, legal, IT/network support, MIS, internal audit support etc. in its group companies with the stated aim to enable the AEs to focus on their core operations and therefore function in an efficient manner. The appellant has stated that such services are also provided to its Indian entities. The appellant charges the AEs on the basis of total operating cost plus a markup of 15%. In it's transfer pricing study the appellant had selected TNMM as the most appropriate method and OP/TC as the suitable PLI and claimed that the corporate's support services were at arm's length.
5.39 The TPO did not except the contention of the appellant and carried out his own transfer pricing analysis which has been discussed in detail in the body of the order. The ΛΟ/ΤΡΟ chose nine comparables in the final set and calculated the OP/OC at 23.25%. Accordingly a transfer pricing adjustment of Rs. 34,81,315 was made to the income of the appellant.
5.40 The appellant has objected to the application/modification/rejection of various filters applied by the TPO for choosing comparables.I do not agree with the contention of the appellant. The TPO has given a detailed analysis regarding his inclusion/modification/rejection of various filters; use of current year data rather than multiple year data used by the appellant in the body of his impugned order hence the contention of the appellant is dismissed.
5.41 The contention of the appellant regarding the choice of comparables in the final set of comparables for corporate support services is discussed in the following paragraphs. The appellant has argued that the following companies should be excluded from the final set of comparables: -
(i) Apitco Ltd.
10 The main contention of the appellant’s that the above-mentioned company is functionally different because it provides high end diversified services and the segmental details are not available for AY 2010-11. It is seen that the company is engaged in activities including asset reconstruction and management services, project related services, micro-enterprise development, tourism and research studies, skill development, environment management, entrepreneurship development and training cluster development, energy-related services as evident from extract of the Annual Report placed on the paper book for AY 2010-11 at pages 39-41.
(b) The Hon'ble Delhi Tribunal in the case of Adobe Systems Private Lad in & 1163/Del/2015 for AV 2009-10 has stated as follows: “4. Addressing the arguments for exclusion of APTICO Ltd.it wassubmitted that as a comparable the said company had been excluded by the DRP in 2011-12 AY holding that this company is a functionally different entity and it hence does not make a good comparable to the assessee in MSS function". Copy of the order dated 21.09.2013 of the DRP in 2011-12 AY it was submitted is at pages 1501-1508 and the relevant discussion is at page 1516. Apart from that it was submitted that for the exclusion of the said comparables, reliance was also placed upon the order of the ITAT dated 14.08.2014 in Stay Petition No. 130/Bang/2014 IT(TP)A No. 271/Bang/2014 in the case of Cisco Systems (India) (P) Ltd. v. Dy. CIT [2014] 66 SOT 82/50 taxmann.com 280 wherein the issue has been discussed at page 59 para 53.27. The ITAT in the facts it was his submission held that the company engaged in the activities of skill development. tourism research, environment etc, was held to be functionally different and thus not comparable to the assessee. The facts of the present assessee and that of Cisco Systems (India) (P) Ltd. case (supra) it was submitted were identical. The assessee was rendering software development services and also handling marketing support service sector","
(c) It is seen that the above-mentioned company is engaged in diverse activities which is not comparable to the corporate support services rendered by the appellant. In view of the same and relying upon the order of the Hon'ble Delhi Tribunal in the case of Adobe Systems Private Ltd (supra), the AO/TPO is directed to exclude Apitco from the final set of comparables.
(ii) Cameo Corporate Services Ltd:
(a)The main contention of the appellant during the course of appellate proceeding is that the above-mentioned company provides medical transcription services and hence it is functionally not comparable to the appellant.
(b) The above comparable has been discussed in detail at pages 94-96 of the impugned order of the TPO. The TPO has stated that the above-mentioned company provides registry and transfer agency services; archival and retrieval services as well as medical transcription division. The TPO has made the following observation regarding his contention for including the above-mentioned company in the final set of comparables:-
"It can be seen from the study of underlined portions that the activities of the company are in the data of business surveys which are outsourced by companies in India. It is therefore a correct comparable. The AE of the taxpayer has also outsourced some of its services to the taxpayer. However, the comparison has to be with a company which is providing services by dealing in the domestic market and not to overseas clients in the form of call centres and other outsourcing Services catering to the foreign customers. The beneficiary in both cases is a foreign client. Butthe difference is that in one case, the services are being provided entirely in local market and in the case of ITES companies, services are being provided by interacting with foreign clients or customers of foreign clients on day to day basis. ITES companies have the advantage of location savings while the business service companies do not have that advantage. Since, in this case services are being provided in India for the predominant businesses, the company is a correct comparable."
(c) It is seen that the Hon'ble Delhi Tribunal in its order in the case of Vestegaard Asia Private Ltd in 2017 88 taxmann.com 313/Delhi Trib for AY 2011-12 has held as follows:
"iii) Cameo Corporate Services Limited
This comparable was included by the TPO by holding that it was performing business services. He rejected the contentions of the assessee regarding its functional dissimilarity. The Id. DRP also rejected the objections of the assessee against the company's inclusion.
Before us, the learned AR relied on the extracts of the company's annual report given onpage 23 of the TPO's order and submitted that like TSR Darashaw Ltd., this compare is alsoprimarily engaged in the business of registry and share transfer and was therefore notcomparable to the assessee. He relied on the decision of the coordinate Bench in the caseof Adidas Technical Services (P.) Lad. v. Dy. CIT (ITA No. 862/Del/2016)
The learned DR relied on the order of the TPO and referred to the functional profile of the company. It was submitted that the company is engaged in providing business services and is comparable to the assessee. He vehemently submitted that the company should be included in the list of comparables.
We have considered the rival submissions and the extracts from the company's Annual Report. In our view, the functional profile of Cameo Corporate Services Ltd. is similar to the profile of TSR Darashaw Ltd. As we have already rejected TSR Darashaw Ltd. from the list of comparables, Cameo Corporate Services Ltd. is also directed to be excluded from the list of comparables. We find support from the decision of the coordinate Bench in the case of Adidas Technology Services (P) Ltd. (supra), wherein on identical facts, the company was excluded by observing as under:
"6. In the case of Cameo Corporate Services Ltd. the DRP is of the view that, the functions are comparable with that of TSR Drawshaw Ltd. As the Tribunal in its order for the A.Y. 2010-11 has directed exclusion of TSR Drawshaw Ltd. from the list of comparables, for the same reasons, we direct the A.OJT.P.O. to exclude Cameo Corporate Services Ltd. from the list of comparablesin this year.
In the result, ground No. 6 of the appeal is allowed."
(d) It is seen that the above-mentioned company is engaged in diverse activities which is not comparable to the corporate support services rendered by the appellant. In view of the above and relying upon the order of the Hon'ble Delhi Tribunal in the case of Vestegaard Asia Private Ltd(supra) the AO/TPO is directed to excludeCameo Corporate Services Ltd from the final set of comparables.
(iii) Global Procurement Consultants Ltd:
(a) The appellant has stated that the above company is functionally different as it is engaged in diversified activities like valuation consultancy, bid support services and that it has high/volatile profit margin.
(b) The main contention of the TPO at pages 97 of the impugned order is as follows:-
"It can be seen from study of underlined portion that the main services provided are procurement management services to government department and their project execution agencies. Since procurement services are in the nature of business services, it is a correct comparable.
Further, taxpayer has argued that this company has abnormally high and volatile profit margins. The arguments in respect of abnormally high profit margins have been dealt in the section "discussion on arguments against use of comparable's with supernormal profits". Further any company can have a good or a bad year. Business conditions of that year will have to be examined to find whether there are any abnormal conditions. Companies cannot simply be rejected on the ground that it is not having same margin in all years. No such abnormality in business conditions has been pointed out by the taxpayer"
(c) It is seen that the Hon'ble Delhi Tribunal in its order in the case of Marubeni Itochu in 2016 67 taxmann.com 52/Delhi Trib for AY 2007-08 has held as follows:
"11.2 After considering the rival submissions and perusing the relevant material on record, we consider it expedient to first discuss the nature of activities carried by Global Procurement Consultants Ltd. A copy of Annual report of this company for the relevant year is available on record. As per this Report, this company is promoted by Export-Import Bank of India in association with leading Indian Public Sector and Private Sector consultancy organisations on the basis of Public-private partnership model that offers collective Indian experience and expertise through the provision of a range of advisory services with particular focus on 'Procurement'. This company provides technical assistance in enhancing quality, transparency, efficiency and effectiveness of procurement and implementation service to help attain desired institutional and corporate objectives. The expertise of this company isavailable to various sectors including power, water resources, transportation, industries, etc. From the services rendered by this company, as outlined in the Annual report, it can be noticed that it is conducting Independent Procurement Review of multilaterally funded projects spread across the globe. It also undertakes Procurement audits. This company is providing full time advice on procurement and contract related aspects to several agencies across the globe. For example, in Georgia, it provided advice on procurement and contract related services to Municipal Development Fund (MDF), Republic of Georgia. In Iran, this company provided procurement advisory services to international forums, such as, Bam Reconstruction Office of Ministry of Housing, Tehran. In Guyana, this company was selected through an international competitive process in assisting the Government of Guyana in 'strengthening of its procurement administration' under Technical Assistance Credit from the World Bank. In India, it provided Procurement Advisory Services to IIT, Baramathy, Pune, India in the implementation of World Bank administered 'Empowering Poor: A pilot ICT programme for rural areas of Pune District' funded by Japan Social Development Fund Grant. It has also carried out review of Procurement Systems and Organisation in the State of Madhya Pradesh, particularly, covering the health, public health, engineering and women and child developmentdepartments. When we go through the kind of services provided by this company, which basically aim at giving advice on procurement and also carrying out procurement audits, it becomes vivid that there is an absolute mismatch with the kind services rendered by the assessee. The work done by Global Procurement Consultants Ltd. is miles apart from that done by the assessee. which, in turn, is largely confined to assisting AEs in identifying customers/suppliers and, then, facilitating sale/purchase of goods. By no standard, Global Procurement Consultants Ltd., can be considered as comparable to the assessee company. We, therefore, order for the elimination of this company from the final list of comparables.
(d) Is seen that the above-mentioned company is engaged in procurement services which is not comparable to the corporate support services rendered by the appellant. In view of the same and relying upon the order of the Hon'ble Delhi Tribunal in the case of Marubeni Itochu (supra) the AO/TPO is directed to excludeGlobal Procurement Consultants Ltd from the final set of comparables. ….
(V) Killick Agencies and Marketing Lad:
(a)The main contention of the appellant is that the above-mentioned company in functionally different as it is the agent of various foreign principals for sale of dredgers, dredging recruitments, maritime and aviation lighting and that there is no segmental information available. The appellant has also stated that the above-mentioned company has high/volatile profit margins. It has also been stated that it fails the advertisement and marketing filter as the ratio of expenditure on advertising and marketing to total sales is 3.8%.
(b) The advertisement and marketing filter has been applied by the appellant in it's TP study but has been rejected by the TPO. I do not agree with the appellant regarding the application of thisfilter and I uphold the contention of the TPO given at page 76 of the impugned order at para 7 of the table where he has explained why it is not necessary to use such a filter.
(c) The main contention of the TPO for including the above mentioned company is given at page 99 of the impugned order is as follows: - "Taxpayer has argued that the company has not given segmental information and so its results cannot be used. However, it is seen that the company earns commission and service charges for providing agency services. Since, both of them form part of business services, company as a whole is providing business services and therefore there is no requirement of segmental financials"
(d) It is seen that the above-mentioned company is a commission agent and also earns income from agency services which is not comparable to the corporate support services segment of the appellant. In view of the above, the AO/TPO is directed to exclude Killick Agencies and Marketing Ltd. from the final set of comparables.
(vi) Orient Engineering and Commercial Company Limited:
(a) The main contention of the appellant is that the above-mentioned company is functionally different as it is a commission agent of machine tools and segmental information is also not available. It has also been stated that it fails the advertisement and marketing filter as the ratio of expenditure on advertising and marketing to total sales is 6.08%.
The main contention of the TPO given at page 100 of the impugned order is as follows: -
"Taxpayer has argued that the company has not given segmental information and so its results cannot be used. However, it is seen that the company earns commission and service charges for providing agency services. Since both of them form part of business services, company as a whole is providing business services and therefore there is no requirement of segmental financials.
Taxpayer has argued that the company fails advertising, marketing and distribution expenses to sales ratio less than or equal to 3% filter. This filter has not been accepted by this office as per reasons given while discussing various filters. Hence this argument is not acceptable.” It is seen that the above-mentioned company is a commission agent which is not comparable to the corporate support services segment of the appellant. In view of the above, the AO/TPO is directed to exclude Orient Engineering and Commercial Company Limited from the final set of comparables.”
4.2 Having gone through the finding of the Learned CIT(A) in respect of five comparables whose exclusion has been challenged by revenue, we find the analysis and reasoning of the Learned CIT(A) in exclusion of comparable is just and proper and even the Learned DR also could not pointed out any flaws therein, thus, finding of the Learned CIT(A) does not warrant any inference. In the result ground No. 3 of revenue’s appeal is dismissed.
5 Ground 4 of revenue appeal is in respect of issue of the action of the Learned CIT(A) in deleting the addition of Rs. 90,36,787/- on account of disallowance u/s 14A of the Act made while calculating Book Profit u/s 115JB of the Act.
5.1 Learned AR of the assessee at the outset pointed out that identical issued has been dealt by Delhi Bench of Tribunal in assessee’s own case for Assessment Year 2011-12. It is evident from the said decision that the Bench by referring to the judgment of Hon’ble High Court of Delhi in the case of PCIT vs. Bhushan Steel dated 29.09.2015 and Special bench of Delhi Tribunal in the case of ACIT vs. Vireet Investments (P) Ltd. in 167 ITD 27 (Del-Trib.) held that there is no requirement to make any upward adjustment under Section 14A read with Rule 8D while computing ‘book profit’ as per Explanation 1 to Section 115JB of the Act. In view thereof ground No. 4 raised by the revenue is dismissed.
AY 2009-10 (Assessee Appeal):
6 Grounds of Appeal raised by assessee appellant are as under Corporate-Tax
1. That the Commissioner of Income-Tax (Appeals) erred on facts and in law in upholding the disallowance of Rs. 90,36,787/- made by the assessing officer under section 14A of the Act r.w.s. Rule 8D of Income Tax Rules, 1962 (“the Rules”) after reducing the suo moto disallowance of Rs. 7,84,013/- made by the appellant, without appreciating that conditions precedent for applying the said Rules as prescribed in sub sections (2)/(3) of the said section were not satisfied.
1.2 That the Commissioner of Income-Tax (Appeals) erred on facts and in law in upholding disallowance of interest expenditure to the tune of Rs. 22,83,212/- without appreciating that no fresh investment, yielding exempt income, was made during the year and the opening investments were made out of interest free/surplus funds available with the appellant.
1.3 That the Commissioner of Income-Tax (Appeals) erred on facts and in law in disallowing administrative expenses to the tune of Rs. 75,37,588/-, without appreciating that the suo moto disallowance, amounting to Rs. 7,84,013/- made by the appellant was reasonable.
1.4 Without prejudice to the above, the Commissioner of Income-Tax (Appeals) erred on facts and in law in not appreciating that out of the total investments of Rs. 108.62 Crores, investments to the tune of Rs. 80.23 Crores made in foreign subsidiaries could not be considered for the purpose of computing disallowance under section 14A of the Act.
1.5 Without prejudice to the above, the Commissioner of Income-Tax (Appeals) erred on facts and in law in not appreciating that the investments in mutual funds made with growth option and not dividend option, could not be considered for the purpose of disallowance under section 14A of the Act read with Rule 8D of the Rule.
2 That the Commissioner of Income-Tax (Appeals) erred on facts and in law in not allowing deduction under section 10B of the Act on enhancement of profits of eligible undertaking through suo moto disallowance of provision for doubtful advances of provision for doubtful advances of Rs. 45,21,874/- on the ground that the said enhanced claim was barred by limitation, being made through a revised return/computation of income filed beyond the stipulated period under section 139(5) of the Act.
2.1 Without prejudice, that the Commissioner of Income-Tax (Appeals) erred on facts and in law in not allowing the aforesaid claim raised as an additional ground of appeal during the appellate proceedings holding that the powers of CIT(A) were co-terminus with that of the assessing officer.
The appellant craves to leave add, alter, amend or vary from the above grounds of appeal at or before the time of hearing.”
Additional Ground “Re: Ground of Appeal No. 1
1.5 “The on facts and circumstances of the case, the disallowance of Rs. 98,20,800 (including suo-moto disallowance) computed/made under section 14A of the Act read with Rule 8D of the Rules is erroneous.
1.6 That on the facts and circumstances of the case, disallowance under section 14A of the Act should be directed to be restricted to Rs. 44,500, being ½% of average investment resulting in earning of dividend income.
1.7 That on the facts and circumstances of the case, the lower authorities erred in not considering only investment actually resulting in exempt income for the purpose of computing disallowance under section 14A of the Act read with rule 8D.
Re: Ground of Appeal No. 3
3. “That on facts and circumstances of the case, the disallowance of Rs. 7,84,013 (being suo-moto disallowance) computed/made under section 14A of the Act read with Rule 8D could not have been imported while computing book profit under section 115JB of the Act.”
6.1 Having heard the Ld. counsels of both the sides and perused the materials on record, additional grounds raised by assessee being legal in nature does not require any further materials are admitted. In respect of disallowance under section 14A of the Act made by the Learned Assessing Officer to the tune of Rs. 98,20,800/- as against suo moto disallowance by assessee, first contention is that no satisfaction as required under Section 14A of the Act that suo moto disallowance made by the appellant was incorrect is missing the order of assessment.
6.2 We have gone through the order of assessment and it is evident from the same that the Learned Assessing Officer has proceeded to made disallowance by stating that “since the assessee has not made disallowance as per the provision of section 14A r.w. rule 8D, therefore, the disallowance made by the assessee are not acceptable.”, this in our opinion is not a valid satisfaction as required under the statute. In fact the Hon’ble High Court of Delhi in the assessee’s own case for Assessment Years 2007-08 and 2008-09 reported in 436 ITR 546(Del) has held as under:
“13. Therefore, what emerges is, if the assessee claims a certain amount of expenditure was incurred by him to earn the income which does not form part of the total income, the AO is required to examine the accounts, and thus, satisfy himself as to the correctness of the claim made by the assessee about the expenditure incurred in that regard. It is when an AO is not satisfied as to the correctness of the claim made by the assessee, about the expenditure said to have been incurred by him on such income which does not form part of the total income under the Act, he then proceeds to determine the amount of expenditure, by following such method as is prescribed, i.e., rule 8D of the Rules.
13.1 This methodology, as envisaged under rule 8D of the Rules, is required to be followed even where the assessee claims that no expenditure was incurred by him concerning income which does not form part of the total income under the Act.
13.2 The approach of the Tribunal has been that, since a disallowance was made, it follows logically, that the AO was not satisfied. This, according to us, is not what is envisaged under the provisions of section 14A of the Act. The satisfaction has to be arrived at by the AO having regard to the assessee's accounts and not otherwise. Concededly, there is nothing in the record to suggest that the AO examined the accounts from this perspective.
13.3 Furthermore, in our view, because the appellant/assessee had itself offered an amount which could be disallowed under section 14A of the Act, the onus shifted onto the revenue to ascertain, after examination of the accounts, as to whether or not the appellant's/assessee's claim was correct. It is only after the aforesaid exercise was conducted, could the AO have taken recourse to the prescribed method i.e. rule 8D of the Rules, for determining the expenditure, which, according to him, needed to be disallowed under section 14A of the Act.
13.4 We would assume, for the moment, that the revenue could take recourse to rule 8D of the Rules in both AYs, i.e. 2007-08 and 2008-09, although, as indicated above, it could have been triggered perhaps only in AY 2008-09.”
6.3 Thus respectfully following the order of the High Court of Delhi in assessee’s own case, in absence of valid satisfaction recorded by the Learned Assessing Officer, we direct the learned Assessing Officer to delete the disallowance made under Section 14A of the Act. In the result the ground raised by the appellant is allowed.
7 Ground 2 to 2.1 of grounds of appeal is in respect of issue that the lower authorities has not allowed the deduction under section 10B of the Act on enhancement of profits of eligible undertaking through suo moto disallowance of provision for doubtful advances of provision for doubtful advances of Rs. 45,21,874/-.
7.1 It is evident from the perusal of the order of assessment that the assessee has claimed deduction of Rs. 82,06,23,550/- vide revised return of income furnished on 31.11.2011. Thereafter the assessee filed revised computation vide letter dated 26.12.2012 wherein the assessee has suo motu disallowed provision for doubtful advances amounting to Rs. 45,21,874/- thereby increasing the Gross Total to Rs. 97,35,32,703/- and consequently deduction u/s 10B was increased to 82,39,79,483/- , in nutshell increase of Rs. 33,55,933/- in the claim of deduction under Section 10B of the Act. However, the Learned Assessing Officer in view of judgment of Hon’ble Apex Court in case of Goetze (India) Ltd. vs. CIT (SC) reported in 284 ITR 323 has not accepted the additional claim. Further in appeal raised by appellant before the Learned CIT(A) remain unsuccessful on the reasoning of the Learned CIT(A) that the contention of the appellant is not accepted as the power of the CIT(A) are coterminous with that of the AO.
7.2 Having regard to the facts under consideration, we remit the issue back to the Learned Assessing Officer to decide afresh on merit and the assessee is at liberty to submit supporting documents in respect of its claim. In the result the ground of the assesse is allowed for statistical purposes.
8 Grounds of Appeal raised by revenue appellant are as under:
1. Whether on the facts and circumstances of the case, the Ld. CIT(A) is legally justified in deleting disallowances of Rs. 19,60,85,745/- u/s 10B of the Income Tax Act (hereinafter referred to as “the Act”) without considering the findings of the Assessing Officer (hereinafter referred to as “the AO”) in assessment order that the assessee had failed to maintain separate books of accounts for the respective units alleged to be eligible for deduction u/s 10B of the Act?
2. Whether on the facts and circumstances of the case, the Ld. CIT(A) is legally justified in deleting disallowances of Rs. 19,60,85,745 u/s 10B of the Act without any basis from composite accounts of all the undertaking and the eligible profit was highly disproportionate as compared to the total profit earned by the assessee during the year and also by ignoring the fact that the assessee failed to explain the basis of appropriation of profits?
3 Whether on the facts and circumstances of the case, the Ld. CIT(A) is legally justified in directing to exclude M/s Apltco Limited, M/s Cameo Corporate Services Limited, M/s Global Procurement Consultants Limited and M/s Killick Agencies and Marketing Limited & M/s Orient Engineering and Commercial Co. Limited from the final set of comparables even when the entities were functionally comparable to the assessee company?
4 Whether on the facts and circumstances of the case, the Ld. CIT(A) is legally justified in deleting the addition of Rs. 25,87,3357/- on account of disallowance u/s 14A of the Act made while calculating Book Profit u/s 115JB of the Act by ignoring the fact that clause (f) of Explanation 1 to section 115JB(2) of the Act, introduced by Finance Act 2006 is applicable to the assessee for the year under consideration ?
The appellant craves leave for reserving the right to amend, modify, alter, add or forego any grounds of appeal at any time before or during the hearing of this appeal.”
9 Ground Nos. 1 and 2 of the grounds of appeal preferred by the revenue for Assessment Year 2010-11 are identical to ground Nos. 1 and 2 raised by the revenue for assessment year 2009-10. Thus finding of ground Nos. 1 and 2 raised by the revenue for Assessment Year 2009-10 will be applied mutatis mutandis in these two grounds preferred by the revenue before us considering the identical facts and circumstances of the matter and thus, these two grounds are dismissed.
10 Ground No. 3 of appeal preferred by the revenue is in respect of action of the learned CIT(A) in excluding M/s Apltco Limited, M/s Cameo Corporate Services Limited, M/s Global Procurement Consultants Limited and M/s Killick Agencies and Marketing Limited & M/s Orient Engineering and Commercial Co.
Limited from the final set of comparables while computing ALP for Corporate Support Service Segment 10.1 It is evident from the order of the Learned CIT(A) that she has relied upon the order passed by her for Assessment Year 2009-10; which has been upheld by us in appeal raised by revenue for Assessment Year 2009-10 (supra). However, out of five comparables exclusion challenged by the revenue, we are inclined to accept the contention of the assessee that as far as comparables namely M/s Killick Agencies and Marketing Limited & M/s Orient Engineering and Commercial Co., these were not in the final set of comparables considered by TPO. Therefore, contention of the revenue in respect of exclusion of the same does not arise and thus, dismissed. As far as exclusion of remaining three comparables finding for ground raised by the revenue for Assessment Year 2009-10 will be applied mutatis mutandis and thus, in the result ground raised by the revenue is dismissed.
11 Ground No. 4 of appeal preferred by the revenue for Assessment Year 2010- 11 is identical to ground 4 raised by revenue for Assessment Year 2009-10 and thus finding for ground raised by revenue for assessment year 2009-10 will be applied mutatis mutandis and thus, in the result ground raised by revenue is dismissed.
AY 2010-11 (Assessee Appeal) :
12 Grounds of Appeal raised by assessee appellant are as under “Transfer Pricing
1. The Commissioner of Income-Tax (Appeals) erred in enhancing the income of the Appellant in relation to the corporate support service segment by holding that the said international transactions do not satisfy the arm’s length principle envisaged under the Act and in doing so have grossly erred in:
1.1 not appreciating that none of the condition set out in section 92C(3) of the Act are satisfied in the present case:
1.2 disregarding the Arm’s Length Price (‘ALP’) as determined by the Appellant in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of Rules as well as fresh search; and in particular modifying/rejecting the filters applied by the Appellant;
1.3 disregarding multiple year/prior years data as used by the Appellant in the TP documentation and holding that current year (i.e. FY 2009-10) data for comparable companies should be used despite the fact that the same was not necessarily available to the Appellant at the time of preparing its TP documentation;
1.4 rejecting comparability analysis undertaken by the Appellant in the TP documentation/fresh search and conducting a fresh comparability analysis based on application of the following additional/revised filters in determining the ALP: i exclusion of companies having other operating income / total income (i.e. income other than manufacturing and trading income) to sales less than 75% of their sales (instead of 50%); ii exclusion of companies with diminishing revenues/persistent losses for last three years upto and including FY 2009-10; iii exclusion of companies having different FY ending (i.e. not March 31, 2010); iv. exclusion of companies with related party transactions more than 25% operating revenue instead of a filter of 10% applied by the Appellant; v. exclusion of companies having employee cost to total cost less than 25% for the year under consideration;
1.5 including companies having abnormal margins/volatile margins in the final comparables set and resorting to arbitrary rejection low profit/loss making companies based on erroneous and inconsistent reasons;
1.6 exclusion certain companies on arbitrary/frivolous/inconsistent grounds even though they are comparable to the corporate support services segment of the Appellant in terms of functions performed, asset employed and risks assumes;
1.7 committed a number of factual errors in accept-reject of comparables and/or in the computation of the operating profit margins of the comparable companies;
1.8 disregarding judicial pronouncements in India in undertaking the TP adjustment.
2 The Commissioner of Income-Tax (Appeals) erred in enhancing the income of the Appellant by applying the mark-up on the reimbursement of expenses received by holding that the said international transactions do not satisfy the arm’s length principle envisaged under the Act and in doing so have grossly erred in: a. holding that the Appellant is engaged in providing services in the nature of network/communication charges, software, infrastructure support services etc.; b. not appreciating the fact that the Appellant’s core business is to provide software development services and routine corporate support services and cost reimbursement are non-core and non-value adding pass through transactions of the Assessee on which mark-up cannot be applied.
Corporate-Tax
That the Commissioner of Income-Tax (Appeals) erred on facts and in law in upholding the disallowance of Rs. 25,87,335/- made by the assessing officer under section 14A of the Act r.w.s. Rule 8D of Income Tax Rules, 1962 (“the Rules”) after reducing the suo moto disallowance of Rs. 6,90,736/- made by the appellant, without appreciating that conditions precedent for applying the said Rules as prescribed in sub sections (2)/(3) of the said section were not satisfied.
3.1 That the Commissioner of Income-Tax (Appeals) erred on facts and in law in upholding disallowance of interest expenditure to the tune of Rs.70,733/- without appreciating that no fresh investment, yielding exempt income, was made during the year and the opening investments were made out of interest free/surplus funds available with the appellant.
3.2 That the Commissioner of Income-Tax (Appeals) erred on facts and in law in disallowing administrative expenses to the tune of Rs.32,07,338/-, without appreciating that the suo moto disallowance, amounting to Rs.6,90,736/- made by the appellant was reasonable.
3.3 Without prejudice to the above, the Commissioner of Income-Tax (Appeals) erred on facts and in law in not appreciating that out of the total investments of Rs. 161,09,23,940/-, investments to the tune of Rs.86,18,88,617/- made in foreign subsidiaries could not be considered for the purpose of computing disallowance under section 14A of the Act.
3.4 Without prejudice to the above, the Commissioner of Income-Tax (Appeals) erred on facts and in law in not appreciating that the investments in mutual funds made with growth option and not dividend option, could not be considered for the purpose of disallowance under section 14A of the Act read with Rule 8D of the Rule.
That the above grounds are mutually exclusive and without prejudice to each other.
The appellant craves to leave add, alter, amend or vary from the above grounds of appeal at or before the time of hearing.”
Additional Ground “Re: Ground of Appeal No. 1
1.5 “The on facts and circumstances of the case, the disallowance of Rs. 32,78,071 (including suo-moto disallowance) computed/made under section 14A of the Act read with Rule 8D of the Rules is erroneous.
1.6 That on the facts and circumstances of the case, disallowance under section 14A of the Act should be directed to be restricted to Rs. 44,500, being ½% of average investment resulting in earning of dividend income.
1.7 That on the facts and circumstances of the case, the lower authorities erred in not considering only investment actually resulting in exempt income for the purpose of computing disallowance under section 14A of the Act read with rule 8D.
Re: Ground of Appeal No. 3
3. “That on facts and circumstances of the case, the disallowance of Rs. 6,90,736 (being suo-moto disallowance) computed/made under section 14A of the Act read with Rule 8D could not have been imported while computing book profit under section 115JB of the Act.”
13 Having heard the counsel of both the sides and upon perusal of the materials on record, additional grounds raised by assessee being legal in nature, and as does not require any further material, are admitted.
14 Additional Ground No. 1 and ground Nos. 3 to 3.4 of grounds of appeal preferred by the assessee for Assessment Year 2010-11 are identical to ground Nos. 1 to 1.5 and additional grounds of appeal preferred by the assessee for Assessment Year 2009-10. We have gone through the order of assessment for Assessment Year 2010-11, identical reasoning has been stated by the Learned Assessing Officer for making disallowance under Section 14A of the Act. Thus, finding for grounds raised by the assessee for Assessment Year 2009-10 will be applied mutatis mutandis to these grounds and thus, in result ground raised by the assessee is allowed.
15 Ground Nos. 1 to 1.8 of the grounds of appeal preferred by the assessee are in respect of issue of TP adjustment on account of Corporate Support Services. On perusal of the orders of the authorities below and synopsis filed by the appellant, issue is limited to exclusion of two comparables namely HCCA Business Services (P) Ltd. and Quadrant Communications Ltd. and inclusion of six comparables, which, as contended by the assessee, has been rejected by the Learned CIT(A) without any basis. Having regard to the facts of the appellant and contention of the appellant we remit the issue to the learned CIT(A) to decide afresh in respect of these comparables upon hearing the assessee and upon considering the evidence on record or any other evidence which the assessee may choose to file at the time of hearing of the matter. In result this ground of appeal is allowed for statistical purposes.
To sum up the Revenue’s appeals in & 2863/Del/2018 for A.Yrs. 2009-10 & 2010-11 are dismissed and the assessee’s appeal in ITA Nos.
2889 & 2890/Del/2018 for A. Yrs. 2009-10 & 2010-11 are partly allowed for statistical purposes.
Order pronounced in open court on 28.11.2025.