Case Law Details
Emerson Electric Company (India) Pvt. Ltd. Vs Addl. Commissioner of Income Tax National Faceless Appeal Centre (ITAT Mumbai)
ITAT Mumbai held that since the assessee has not earned any dividend income from its equity investment during the year disallowance of expenditure under section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules is not sustainable.
Facts- The assessee is engaged in the business of developing and exporting software, providing engineering services and IT enabled services, and manufacturing of horns and electric motors for elevator application.
Notably, AO vide draft assessment order, observed that though the assessee has not earned any exempt income from such dividends, it remains a fact that such investments are long-term investments and the basic purpose of equity investments is to increase the stake in companies and therefore being claimant of the profits of the said companies by way of dividends. It was further observed that equity investments made by the assessee being long-term investments, they do not necessarily result into dividend every year. Accordingly, the AO computed the disallowance of Rs.75,18,750, under section 14A read with Rule 8D. The learned DRP vide its directions rejected the objections filed by the assessee. In conformity with the learned DRP’s directions, the AO passed the impugned final assessment order. Being aggrieved, the assessee has preferred the present appeal.
Conclusion- Held that during the year the assessee received no dividend income from its investments. The aforesaid fact has also not been disputed by the Revenue. We find that the Hon’ble Delhi High Court in Cheminvest Ltd. v. CIT has held that section 14A will not apply if no exempt income is received or receivable during the relevant previous year. Since, in the present case, the assessee has not earned any dividend income, therefore, respectfully following the aforesaid judicial pronouncements, disallowance of expenditure under section 14A read with Rule 8D is not sustainable.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. The present appeal has been filed by the assessee challenging the impugned final assessment order dated 29/01/2022, passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 (“the Act”), pursuant to the directions dated 27/12/2021, issued by the learned Commissioner of Income Tax (DRP–1), Mumbai–3, [“learned DRP”], issued under section 144C(5) of the Act for the assessment year 2017–18.
2. The brief facts of the case are: The assessee is engaged in the business of developing and exporting software, providing engineering services and IT enabled services, and manufacturing of horns and electric motors for elevator application. For the year under consideration, the assessee filed its return of income on 30/11/2017, declaring gross total income of Rs. 203,94,21,362. The return filed by the assessee was selected for scrutiny and statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee. Pursuant to the reference by the Assessing Officer (“AO”) under section 92CA(1) of the Act, the Transfer Pricing Officer (“TPO”) proposed a total transfer pricing adjustment of Rs. 12,42,61,908 vide order dated 19/01/2021, passed under section 92CA(3) of the Act. In conformity, the AO passed the draft assessment order dated 28/03/2021, under section 143(3) r/w section 144C(1) of the Act after making various additions/disallowances. While deciding assessee’s objections against the addition/disallowances made by the TPO/AO, the learned DRP vide its directions dated 27/12/2021, granted partial relief to the assessee. In conformity with the directions issued by the learned DRP, the AO passed the impugned final assessment on 29/01/2022 under section 143(3) r/w section 144C(13) of the Act. Being aggrieved, the assessee has raised the following grounds:-
“1. Ground no. 1 General ground
On the facts and in the circumstances of the case and in law, the Learned Assessing Officer (Ld. AO) based on the directions of the Dispute Resolution Panel (DRP), erred in making total addition of Rs. 14.52.72,061 as per the order passed by the Ld. AO (Rs. 14,93.58.395 as per computation sheet) to the total income of the Appellant.
2. Ground no. 2 Income from business or profession – Transfer pricing adjustment
On the facts and circumstances of the case and in law, the Ld. AO has erred in overstating the total income of the Appellant by Rs. 40,86,334 in the computation sheet to the order, even though the LA. DRP had granted relief of Rs. 40,86,332 in the transfer pricing adjustment made by the Ld. TPO. The Appellant prays that the AO be directed to compute the total taxable income as Rs. 2.18,46,93.421/-instead of Rs. 2,18,87.79,755.
3. Ground no. 3 TP adjustment on account of provision of IT Support and related services (ITeS) segment – INR 4,56,43,738
On the facts and in the circumstances of the case and in law, the Learned AO/ TPO erred in making an adjustment for provision of ITeS by:
a) Disregarding the TP Study maintained by the Appellant in good faith and with due diligence;
b) Rejecting the search process carried out by the Appellant in the TP Study;
c) Not following a structured search process and thus resorting to cherry picking of comparable companies;
d) Applying filters for selecting companies by disregarding the reasoning provided by the Appellant;
e) Selection of companies which are functionally not comparable and rejection of functionally comparable companies selected by the Assessee;
f) Inconsistency in use of updated margins of comparable companies. The Appellant prays that the aforesaid adjustment be deleted.
4. Ground no. 4-TP Adjustment on account of provision of facilitation support services (Marketing support services (MSS)) – INR 65,62,162
On the facts and in the circumstances of the case and in law, the Learned AO/TPO erred in making an adjustment for provision of MSS by:
a) Disregarding the TP Study maintained by the Appellant in good faith and with due diligence;
b) Rejecting the search process carried out by the Appellant in the TP Study:
c) Not following a structured search process and thus resorting to cherry picking of comparable companies: d) Selection of companies which are functionally not comparable and rejection of functionally comparable companies selected by the Assessee;
e) Inconsistency in use of updated margins of comparable companies. The Appellant prays that the aforesaid adjustment be deleted.
5. Ground no. 5 – TP Adjustment on account of provision of engineering and related services (Engineering) segment – INR 6,79,69,676
On the facts and in the circumstances of the case and in law, the Learned AO/TPO erred in making an adjustment for provision of engineering and related services by:
a) Disregarding the TP Study maintained by the Appellant in good faith and with due diligence; and
b) Disregarding the aggregation approach adopted by the Appellant by segregating the three divisions of the Appellant within the engineering and related services segment and thereafter applying the same benchmarking analysis to such segregated three divisions.
The Appellant therefore submits and prays that the aforesaid adjustment be deleted.
6. Ground no. 6 – Disallowance of expenses under Section 14A of the Act r.w. Rule 8D – INR 75.18,750
a) The Ld. AO erred in facts, circumstances and in law in disallowing expenses amounting to Rs.75.18,750 under section 14A of the Actr.w. Rule 8D(2) by considering such expenses related to exempt income.
b) Without prejudice to above, the Ld.AO erred in not appreciating that the Appellant has not earned any exempt income during the year and accordingly no disallowance u/s 14A of the Act is warranted
The Appellant prays that the aforesaid addition be deleted.
7. Ground no. 7- Addition under provisions of Section 36(1)(va) of the Act 1.75-77-735 INR
On the facts and circumstances of the case and in law, in treating the contributions of the employees towards the provident fund amounting to INR 1,75.77.375, not remitted within the due date prescribed by respective Act as income of the Appellant without appreciating the fact that the amounts were deposited before the due date of filing of return of income for AY 2017-18 and hence should be allowable under section 43B of the Act.
The Appellant prays that the aforesaid addition be deleted.
8. Ground no. 8 – Incorrect computation of interest under Section 234B
On the facts and circumstances of the case and in law, the Ld. AO has erred in computing and levying interest of Rs. 3,41,68,010 under section 234B of the Act. The Appellant prays that the Ld. AO be directed to recompute the interest under Section 234B as per law.
9. Ground no. 9 – Incorrect computation of interest under Section 234C
On the facts and circumstances of the case and in law, the Ld. AO erred in levying interest of Rs. 13.98,175 under Section 234C instead of Rs.11,91,466. The Appellant prays that the Ld. AO be directed to recompute the interest under Section 234C as per law.
10. Ground no. 10- Penalty proceedings
On the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 270A of the Act. The Appellant prays that the Ld. AO be directed to drop the penalty proceedings.
All of the above Grounds of Appeal are independent of and without prejudice to each other.
Furthermore, the Appellant craves leave to add to, alter, amend, delete, modify or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.”
3. Ground no.1, raised in assessee’s appeal is general in nature and therefore, needs no separate adjudication.
4. The issue arising in ground no.2, raised in assessee’s appeal, is pertaining to overstating the total income of the assessee in the computation sheet forming part of the final assessment order.
5. During the hearing, the learned Authorised Representative (“learned AR”) submitted that the AO computed the total taxable income on page 17 of the final assessment at Rs.218,46,93,421, however, while computing the total demand payable in the computation sheet annexed along with the final assessment order, the AO has considered the total income of Rs.218,87,79,755. We find that pursuant to the DRP’s direction the total transfer pricing adjustment was reduced to Rs.12,01,75,576 from the original adjustment of Rs.12,42,61,908, accordingly the total taxable income as proposed by the AO vide draft assessment order of Rs 218,87,79,753, was reduced to Rs.218,46,93,421, vide final assessment order. Since while computing the total demand payable by the assessee, the AO has considered the total taxable income of 218,87,79,755, therefore, we direct the AO to consider the correct amount of total taxable income for computing the total demand payable. Accordingly, ground no.2, raised in assessee’s appeal is allowed for statistical purposes.
6. The issue arising in ground no.3, raised in assessee’s appeal is pertaining to transfer pricing adjustment in relation to the provision of IT support and related services (ITeS) segment.
7. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a subsidiary of Emerson Electric (Mauritius) Ltd which is the wholly owned subsidiary of Emerson Electric Co, USA. The assessee is, inter-alia, engaged in providing Information Technology and related support services (“ITeS”) for the in-house consumption of the associated enterprises. The services rendered by the assessee under the aforesaid segment are primarily in the nature of database management, administration, and helpdesk support service. In its transfer pricing study, the following functions have been stated to have been performed by the assessee in relation to the aforesaid international transaction:-
“8.1.1.2. Functions performed by Emerson India
Emerson India is engaged in providing IT and related support services (hereinafter referred as ‘ITeS’) for the in-house consumption of the AES
The services rendered by Emerson India are primarily in the nature of database management, administration and help desk support services. The services provided by the Company includes the following:
i. Application support, database support and maintenance, IT helpdesk support, support integration portals etc.
ii. Email server administration and management of applications such as Unix, Linux etc.
iii. Operating systems and network administrations
iv. Oracle ERP application database administration and management services
v. Oracle ERP application usage and troubleshooting support services and product lifecycle management applications.
vi. Datacentre support such as Unix admin services, Windows admin services, messaging support service, support for administration of server hosting and related services, etc.”
8. For benchmarking this transaction, the assessee used Transactional Net Margin Method (“TNMM”) as the most appropriate method with the Profit Level Indicator (“PLI”) of Operating Profit to Total Cost (“OP/TC”). By considering itself as the tested party, the assessee identified 10 comparable companies which had a working capital adjusted range of weighted average OP/TC of 6.16% to 15.15%, with a median of 10.03%. As the assessee computed its own PLI at 13.87%, accordingly, it claimed that the international transaction of “Provision of IT support and related services” is at arm’s length price (“ALP”).
9. During the transfer pricing assessment proceedings, the TPO objected to the selection of filter of turnover less than Rs. 1 crore and introduced three new filters, i.e. (i) turnover filter of minimum 1/10th and maximum 10 times the turnover of tested party, (ii) export filter of more than 75%, (iii) availability of segmental account. By applying the aforesaid 3 additional filters, the TPO rejected three comparable companies selected by the assessee finding them same to be not satisfying the turnover filter. The TPO also introduced five new comparable companies, i.e. Comviva Technologies Ltd, XS Cad India Private Limited, Nihilent Ltd, Infobeans Technologies Ltd, and Cygnet Infotech Pvt. Ltd, claiming them to be satisfying all the filters. By rejecting the contentions raised by the assessee against the selection of aforesaid new filters as well as the companies included/excluded, the TPO vide order dated 19/01/2021, passed under section 92CA(3) of the Act arrived at a set of following 12 comparables for benchmarking the international transaction of “Provision of IT support and related services”:-
| Sr. No. | Name of Company | PLI (OP/OC) |
| 1. | Akshay Infotech Ltd. | 23.79 |
| 2. | Avantha Business Solutions Ltd. | 7.71 |
| 3. | Jindal | 5.07 |
| 4. | Surevin BPO | 20.73 |
| 5. | Omega healthcare management | 12.5 |
| 6. | R systems | 15.5 |
| 7. | Ultramarines & Pigments | 37.63 |
| 8. | Comviva Technologies | 18.94 |
| 9. | X S CAD India | 19.78 |
| 10. | Nilhilent | 22.03 |
| 11. | Infobeans | 25.17 |
| 12. | Cygnet | 30.19 |
| 13. | 35th percentile | 18.94 |
| 14. | Median | 20.26 |
| 15. | 65th Percentile | 22.03 |
10. Since the average OP/TC of the aforesaid comparables selected by the TPO was in the range of 18.94% to 22.03%, with a median of 20.26%, therefore, the TPO by applying the arm’s length margin, inter-alia, proposed an upward adjustment of Rs.5,27,39,977, in respect of international transaction of “Provision of IT support and related services”.
11. During the hearing, the learned AR submitted that if the five companies, e. Comviva Technologies Ltd, XS Cad India Private Limited, Nihilent Ltd, Infobeans Technologies Ltd, and Cygnet Infotech Pvt. Ltd, included by the TPO are directed to be excluded, then the international transaction of “Provision of IT support and related services” will be at arm’s length and the entire transfer pricing adjustment made in respect thereof will be deleted. Accordingly, in view of the submissions made by the learned AR, we are confining our findings in ground no. 3 only in respect of the aforesaid five comparables. Further, the other issues raised in ground no. 3 are treated as not pressed and are kept open for adjudication if they arise in assessee’s case in the future.
(i) Comviva Technologies Ltd.
12. The first comparable challenged by the assessee is Comviva Technologies Ltd. This company was included as comparable by the TPO vide order passed under section 92CA(3) of the Act on the basis that it is functionally comparable to the assessee and satisfies all the filters. Before the learned DRP, the assessee submitted that this company is into diversified activities and no segmental data is available. The assessee further submitted that this company is involved in software publishing, consultancy, and supply and engaged in the writing of software of any kind following the directive of the users; software maintenance, and web page design. The DRP vide its directions rejected the objections filed by the assessee on the basis that the data of the company shows that it is engaged in ITeS. Being aggrieved, the assessee has challenged the inclusion of this company as comparable.
13. During the hearing, the learned AR submitted that this company is functionally dissimilar as it is involved in software development services and the sale of licences. The learned AR further submitted that the relevant segmental data of this company is not available. On the other hand, the learned Departmental Representative (“learned DR”) vehemently relied upon the order passed by the lower authorities.
14. We have considered the submissions of both sides and perused the material available on record. From the perusal of the annual report of Comviva Technologies Ltd for the financial year 2016-17, forming part of the paper book from pages 378-737, we find that the principal business activities of the company comprise of software services, revenue sharing arrangements, annual maintenance contracts services and sale of equipment and software licenses. We also find that this company has earned income from Comviva products and has earned license fees during the year. Further, we find that there are no reportable segments in respect of revenue earned from various business activities in its financial statement. On the contrary, as noted above, the services rendered by the assessee under the ITeS segment are primarily in the nature of database administration and management, operating systems, and network administration. In this regard, the assessee has made relevant segment reporting in the notes to its financial statements, forming part of the paper book on page 57. Therefore, it is evident that this company is earning income from various business activities including income from the sale of products/license fees without any operating segment which is functionally comparable to the assessee. Accordingly, we direct the TPO/AO to exclude Comviva Technologies Ltd while benchmarking the international transaction pertaining to “Provision of IT support and related services”.
(ii) XS Cad India Private Limited
12. The next comparable challenged by the assessee is XS Cad India Private Limited. This company was included as comparable by the TPO vide order passed under section 92CA(3) of the Act on the basis that it is functionally comparable to the assessee and satisfies all the filters. Before the learned DRP, the assessee submitted that this company is engaged in diversified activities and has not provided segmental information bifurcating revenue generated from IT support and related services vis-à-vis revenue generated from other activities. The DRP vide its directions rejected the objections filed by the assessee. Being aggrieved, the assessee has challenged the inclusion of this company as comparable.
16. During the hearing, the learned AR submitted that this company is functionally dissimilar to the assessee as it is involved in diversified activities, manpower recruitment, training and coaching. Further, it was submitted that there is no segmental data available to compare the same with the assessee. On the contrary, the learned DR vehemently relied upon the order passed by the lower authorities.
17. We have considered the submissions of both sides and perused the material available on record. From the perusal of the annual report of XS Cad India Private Limited for the financial year 2016-17, forming part of the paper book from pages 892-910, we find that this company earned income from the export and import of computer-aided design, training & coaching, manpower recruitment, web design, and development, during the year under consideration. From the segmental reporting in Note 23(v) to the financial statement of this company, we find that the segmental reporting of the company is based on the geographical location of the customer and accordingly country-wise, namely for USA, Canada, Australia, UK, Germany, and India reporting has been made by this company. Further, the company treats its complete operations as a single segment, i.e. “Information Technology Services”. As noted above, the assessee has made relevant segment reporting in the notes to its financial statements. Since this company is earning revenue from various streams, therefore, in the absence of relevant segmental information, this company cannot be said to be functionally comparable to the assessee. Accordingly, we direct the TPO/AO to exclude XS Cad India Private Limited while benchmarking the international transaction pertaining to “Provision of IT support and related services”.
(iii) Nihilent Ltd.
18. The next comparable challenged by the assessee is Nihilent Ltd. This company was included as comparable by the TPO vide order passed under section 92CA(3) of the Act on the basis that it is functionally comparable to the assessee and satisfies all the filters. Before the learned DRP, the assessee submitted that this company has not provided segmental information bifurcating revenue generated from IT support and related services vis-à-vis revenue generated from other activities. It was further submitted that this company is engaged in the business of transformation, digital transformation, branding & marketing information, and data science & analytics services. Further, it was submitted that this company is involved in other computer-related activities like maintenance of websites of other firms/creation of multimedia presentations for other firms, etc. The learned DRP vide its directions rejected the objections filed by the assessee on the basis that the business activities of this company is functionally comparable and satisfies all the filters. Being aggrieved, the assessee has challenged the inclusion of this company as comparable.
19. During the hearing, the learned AR that submitted that this company is functionally dissimilar to the assessee and is involved in application development, development of integrated solutions, and re-engineering. On the other hand, the learned DR vehemently relied upon the order passed by the lower authorities.
20. We have considered the submissions of both sides and perused the material available on record. From the perusal of the annual report of Nihilent Ltd for the financial year 2016-17, forming part of the paper book from pages 738-891, we find that this company is engaged in the development of applications across a wide range of hardware and software platforms, develop solutions to integrate various applications across platforms, provide migration, re-engineering, and software maintenance services. Further, the company has claimed itself to be a global business consulting and IT service solutions integration company. We further find that 100% of the total turnover of the company is from IT consulting, software development, and related services. However, there is neither any bifurcation of revenue nor the availability of relevant segmental data. Further, we also find that the activities relating to exports are limited to software development and consultancy. Since, as noted above, the services rendered by the assessee under the ITeS segment are primarily in the nature of database administration and management, operating systems, and network administration, therefore, Nihilent Ltd cannot be said to be functionally comparable to the assessee. Accordingly, we direct the TPO/AO to exclude Nihilent Ltd while benchmarking the international transaction pertaining to “Provision of IT support and related services”.
(iv) Infobeans Technologies Ltd.
21. The next comparable challenged by the assessee is Infobeans Technologies Ltd. This company was included as comparable by the TPO vide order passed under section 92CA(3) of the Act on the basis that it is functionally comparable to the assessee and satisfies all the filters. Before the learned DRP, the assessee submitted that this company is not functionally comparable as it is engaged in diversified services such as automation engineering, big data, UX, UI, data modelling, etc. It was further submitted that no segmental financials are available for this company. The learned DRP vide its directions rejected the objections filed by the assessee. Being aggrieved, the assessee has challenged the inclusion of this company as comparable.
22. During the hearing, the learned AR submitted that this company is functionally dissimilar as it is engaged in customised software development in diversified activities. On the other hand, the learned DR vehemently relied upon the order passed by the lower authorities.
23. We have considered the submissions of both sides and perused the material available on record. From the perusal of the annual report of Infobeans Technologies Ltd for the financial year 2016-17, forming part of the paper book from pages 911-1030, we find that this company has claimed to be a leading player offering customised software, digital transformation and enterprise mobility solutions for clients across the globe. Further, it is also claimed that the company specialised in software services and is primarily engaged in providing custom-developed services to offshore clients. It is also claimed that Infobeans Technologies Ltd provides software engineering services primarily in Custom Application Development, Content Management Systems, Enterprise Mobility, and Big Data Analytics. In the annual report, it is claimed that this company earned 99.26% of its total turnover from computer programming, consultancy, and related activities. We find that the entire revenue from operations, in the financial statement of this company, comprises of income from software services, without any further bifurcation of this revenue and segmental information. We find that even before the learned DRP the assessee raised this objection that no segmented financials of this company are available. Further, this fact was also accepted by the learned DRP that this company has only one segment, i.e. sale of software. However, the learned DRP proceeded to reject the objections filed by the assessee and held this company to be comparable to the assessee. Therefore, we are of the view that in the absence of relevant segmental information, this company cannot be held to be functionally comparable to the assessee. Accordingly, we direct the TPO/AO to exclude Infobeans Technologies Ltd while benchmarking the international transaction pertaining to “Provision of IT support and related services”.
(v) Cygnet Infotech Pvt. Ltd.
24. The next comparable challenged by the assessee is Cygnet Infotech Pvt. Ltd. This company was included as comparable by the TPO vide order passed under section 92CA(3) of the Act on the basis that it is functionally comparable to the assessee and satisfies all the filters. Before the learned DRP, the assessee submitted that the company has not provided segmental information by bifurcating revenue generated from IT support and related services vis-à-vis revenue generated from other activities. It was submitted that this company’s functional profile is different from the assessee and the services are not comparable to that of the assessee. The learned DRP rejected the objections filed by the assessee and held that this company is functionally comparable to the assessee and satisfies all the filters. Being aggrieved, the assessee has challenged the inclusion of this company as comparable.
25. During the hearing, the learned AR submitted that Cygnet Infotech Pvt. Ltd. is not functionally comparable to the assessee as it is providing software development services and the relevant segmental data is not available. On the other hand, the learned DR vehemently relied upon the order passed by the lower authorities.
26. We have considered the submissions of both sides and perused the material available on record. From the perusal of the annual report of Cygnet Infotech Pvt. Ltd. for the financial year 2016-17, forming part of the paper book from pages 1031-1218, we find that the company has claimed to be engaged in the business of providing enterprise solutions, application, content management services, and IT enabled services. Further, we find that this company has declared its revenue from the sale of products as well as revenue from the sale of services in its profit and loss account. However, there is no description of the revenue from the sale of services. We further find that the company has determined its business segment as “Software Development”, which is the only reportable segment and there are no other primary reportable segments. The services rendered by the assessee are in the nature of ITeS and the same cannot be compared with software development. Therefore, we are of the view that in the absence of relevant segmental information, this company cannot be held to be functionally comparable to the assessee. Accordingly, we direct the TPO/AO to exclude Cygnet Infotech Pvt. Ltd. while benchmarking the international transaction pertaining to “Provision of IT support and related services”.
27. To sum up, we direct that the five companies, i.e. Comviva Technologies Ltd, XS Cad India Private Limited, Nihilent Ltd, Infobeans Technologies Ltd, and Cygnet Infotech Pvt. Ltd, be excluded while benchmarking the international transaction pertaining to “Provision of IT support and related services”. Ground no. 3 raised in assessee’s appeal is decided accordingly.
28. The issue arising in ground no. 4, raised in assessee’s appeal, is pertaining to transfer pricing adjustment in relation to the provision of facilitation support services (Marketing Support Services).
29. The brief facts of the case pertaining to this issue are: The assessee is also engaged in providing marketing support services in India in relation to products of the associated enterprises. The assessee functions as a communication channel between the associated enterprises and the customers in India. The associated enterprises support the assessee by providing an overview and understanding of the products dealt with so as to enable the assessee to promote these products in the Indian market. Once the customers are identified, the associated enterprises negotiate and conclude the price and other terms and conditions of the contract directly with the customers. The assessee is not involved in the acquisition process. The associated enterprises subsequently supplied products to the customers based on their requirements. For benchmarking this transaction, the assessee used TNMM as the most appropriate method with PLI of OP/TC. By considering itself as the tested party, the assessee identified five comparable companies with an average margin of 10.49%. As the assessee computed its own PLI at 10.98% accordingly, it claimed that the international transaction of “Provision of Facilitation Support Services” is at ALP.
30. The TPO vide order passed under section 92CA(3) of the Act rejected the two companies selected by the assessee as comparables, namely I Media Corp Ltd and MCI Management India Private Ltd. The TPO further included two new companies as comparables, namely Focus Suites Solutions & Services Ltd and Axience Consulting Private Limited. Accordingly, the TPO arrived at a final set of the following five comparables with an average OP/TC of 17.55%:-
| Sr. No. | Name of Company | OP/OC |
| 1. | Majestic research services & solutions Ltd. | 38.12% |
| 2. | Kestone integrated marketing services ltd. | 10.60% |
| 3. | Priya International Ltd. | 0.64% |
| 4. | Focus suites solutions & services Ltd. | 18.35% |
| 5. | Axience consulting Pvt. Ltd. | 20.04% |
| Arithmetic Mean | 17.55% |
31. By applying the arm’s length margin, the TPO, inter-alia, proposed an upward adjustment of Rs.66,12,468, in respect of the international transaction of “Provision of Facilitation Support Services”.
32. During the hearing, the learned AR sought the exclusion of one company, i.e. Axience Consulting Private Ltd, which was included as a comparable by the TPO, and the inclusion of one company, i.e., MCI Management India Private Ltd., which was excluded by the TPO. Accordingly, in view of the submissions made by the learned AR, we are confining our findings in ground no.4, only in respect of the aforesaid two companies. Further, the other issues raised in ground no.4, are treated as not pressed and are kept open for adjudication, if they arise in assessee’s case in the future.
(a) Axience Consulting Private Ltd.
33. The first comparable challenged by the assessee in respect of an international transaction of “Provision of Facilitation Support Services” is Axience Consulting Private Ltd. This company was included as comparable by the TPO vide order passed under section 92CA(3) of the Act. Before the learned DRP, the assessee submitted that this company is not functionally comparable to the assessee as it is engaged in a diversified range of services. It was further submitted that there is no information relating to segmental breakup in the annual report of this company. The learned DRP vide its directions rejected the objections filed by the assessee and held that this company is also engaged in market research analysis for its clients and experience in business intelligence of specialised nature is rendered for its clients, and thus is functionally similar to the assessee. Being aggrieved, the assessee has challenged the inclusion of this company as comparable.
34. We have considered the submissions of both sides and perused the material available on record. It is undisputed that under the “Facilitation Support Services” segment the assessee is engaged in providing marketing support services in India in relation to the products of the associated enterprises. Under this segment, the assessee promotes the products of the associated enterprises in the Indian market, and once the customers are identified the associated enterprises negotiate and conclude the price and other terms and conditions of the contract directly with the customers. Thus, the assessee functions as the communication channel between the associated enterprises and customers in India. From the perusal of the annual report of Axience Consulting Private Ltd for the financial year 2016-17, forming part of the paper book from pages 1424-1451, we find that this company has earned 100% of its total turnover from market research and public opinion polling. Further, this company has declared total revenue from operations from the sale of services. The assessee in the submission filed before the TPO has placed reliance upon the website extracts of this company in support of its submission that this company is involved in diversified services. It was submitted that this company is involved in the provision of business intelligence, research and consulting, financial analytics, modelling and data services to major investment banks, asset managers, hedge funds, private equity, rating agencies and issuers of securitizable products such as Morgan Stanley, Lehman Brothers, Bank of America and Standard & Poor. However, we do not find any such description in the annual report of this company. Further, there is nothing available on record to prove the relevance of the information available on the website for the year under consideration. Therefore, we find no merits in the reliance placed by the assessee on the website extracts of this company. No other material has been brought on record to prove that this company is functionally dissimilar to the assessee. As noted above, this company is in market research and public opinion polling, while the assessee is engaged in providing Marketing Support Services to its associated enterprises. Therefore, we find no infirmity in orders passed by the AO/TPO/learned DRP in treating Axience Consulting Private Ltd to be functionally similar to the assessee. Further, since 100% of the turnover of Axience Consulting Private Ltd is only from one stream, i.e. market research and public opinion polling, therefore we find no merit in the submission of the assessee that no segmental information pertaining to various services rendered by this company is available. Accordingly, we uphold the inclusion of Axience Consulting Private Ltd for benchmarking the international transaction of “Provision of Facilitation Support Services”.
(b) MCI Management India Private Ltd.
35. The next comparable challenged by the assessee in respect of international transaction of “Provision of Facilitation Support Services” is MCI Management India Private Ltd. This company was included as comparable by the assessee, however the same was excluded by the TPO vide order passed under section 92CA(3) of the Act on the basis that the same is functionally different. Before the learned DRP, the assessee submitted that this company is involved in the provision of event management services which is in the nature of marketing support services. The assessee further submitted that this company was included as a comparable to the assessee in the assessment year 2014-15 and there is no change in the business activities of this company in this year. The learned DRP, vide its directions, rejected the objections filed by the assessee and held that the activities conducted by this company, i.e. event management activity, cannot be said to be similar in any manner to the facilitation services rendered by the assessee. Being aggrieved, the assessee has challenged the exclusion of this company as comparable.
36. During the hearing, the learned AR submitted that this company was accepted as a comparable in assessee’s own case for the earlier year, i.e. assessment year 2014-15, by the TPO and the learned DRP. It was further submitted that there is no change in the functional profile of this company. On the contrary, the learned DR vehemently relied upon the order passed by the lower authorities.
37. We have considered the submissions of both sides and perused the material available on record. From the perusal of the annual report of MCI Management India Private Ltd. for the financial year 2016-17, forming part of the paper book from pages 1319-1331, we find that this company has claimed to be a globally renowned Event Management Company and is engaged in the provision of Meeting & Events, Association Management, Congress & Exhibition, and Performance Improvement Programs. It is also claimed that this company is arranging various conferences/meetings etc. From the financial statement of this company, we find that revenue was received from the provision of aforesaid services. From the perusal of the annual report of this company for the financial years 2014-15 and 2015-16, we find that there is neither any change in the functional profile of this company nor there is any change in the revenue earning stream of this company as compared to the year under consideration. We further find that in the assessment year 2014-15 this company was proposed as comparable by the assessee in respect of international transaction pertaining to the provision of marketing services and the same was accepted by the TPO as well as the learned DRP for benchmarking the aforesaid international transaction. In view of the fact that the functional profile of this company remains the same this year, we find no merits in the findings of the TPO/learned DRP in excluding this company as a comparable for benchmarking the international transaction of “Provision of Facilitation Support Services”. Further, since this company is also engaged in marketing support services, we are of the view that it is functionally comparable to the assessee. Accordingly, we direct the AO/TPO to include this company as a comparable for benchmarking the aforesaid transaction.
38. To sum up, we uphold the inclusion of Axience Consulting Private Ltd, while we direct the inclusion of MCI Management India Private Ltd. as a comparable for benchmarking the international transaction pertaining to “Provision of Facilitation Support Services”. Ground no. 4 raised in assessee’s appeal is decided accordingly.
39. The issue arising in ground No. 5, raised in assessee’s appeal, is pertaining to transfer pricing adjustment in relation to the provision of engineering and related services segment.
40. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the year, the assessee provided engineering and related services to its associated enterprises in respect of products manufactured and sold by the associated enterprises. Once the associated enterprises receive orders from the customers, the engineering and related services are outsourced by the associated enterprises to the assessee. In the transfer pricing study report, the ALP of the international transaction pertaining to the “Provision of Engineering and related services” was determined by aggregating and applying TNMM as the Most Appropriate Method upon considering OP/TC as the PLI and treating the assessee as the tested party. The assessee selected five companies as comparable for benchmarking this transaction with an average PLI of 10.93%. Since assessee’s OP/TC margin was 23.13%, the international transaction pertaining to “Provision of Engineering and related services” was claimed to be at arm’s length. During the transfer pricing assessment proceedings, the assessee was asked to show cause as to why the transactions of “Provision of Engineering and related services” be benchmarked separately for FCEC, EEC, and EIC divisions. In response thereto, the assessee submitted that functions performed by FCEC, EEC, and EIC divisions are the same, personal cost incurred as a percentage of total operating cost is almost the same across all three divisions, and the quantum of administrative and selling expenses incurred as a percentage of total operating cost is similar across all the three divisions. The TPO vide order passed under section 92CA(3) of the Act did not agree with the submissions of the assessee and held that the aggregation approach followed by the assessee is flawed. The TPO further held that the transfer pricing charged for all the three divisions being different clearly proves that the functions performed for all the three divisions, i.e. FCEC, EEC, and EIC, are not the same and hence aggregated approach as adopted by the assessee cannot be followed. Thus it was held that the arm’s length price of the international transaction pertaining to “Provision of Engineering and related services” needs to be determined separately since there is no interlinking of the transaction between these three divisions and the price setting mechanism for each division is not dependent on other division. Accordingly, the TPO proposed an upward adjustment of Rs. 6,49,09,463 in respect of international transaction pertaining to “Provision of Engineering and related services”. The learned DRP, vide its directions, after noting that the issue involved is recurring in nature and the grounds raised are similar to that of earlier years rejected the objections filed by the assessee by following the directions as rendered in preceding assessment years in order to keep the issue alive since the decision of the DRP cannot be challenged by the Department. In conformity with the learned DRP’s directions, the AO passed the impugned final assessment order. Being aggrieved, the assessee is in appeal before us.
41. We have considered the submissions of both sides and perused the material available on record. We find that a similar issue came up for consideration before the coordinate bench of the Tribunal in assessee’s own case in M/s. Emerson Electric Company (India) Private Ltd. v/s ACIT, in ITA No.6098 and 531/Mum./2018, for the assessment years 2014-15 and 201314. Vide its order dated 14/06/2019, the Co–ordinate Bench upheld the benchmarking of international transaction pertaining to “Provision of Engineering and related services” by adopting an aggregate approach for all three divisions, i.e. FCEC, EEC, and EIC. The relevant findings of the coordinate bench, vide aforesaid order, are reproduced as under:-
6.1. We find that the primary argument of the Id. AR was that in the case of the assessee, the segmental data of each of the divisions i.e., EIC, EEEC, and FCEC were available, whereas the very same data is not available with the comparable companies. Hence, the assessee was justified in adopting aggregated or bundled approach in respect of aforesaid three divisions in its engineering and related services segment. The Id. AR also argued that the assessee had followed a similar approach of determining ALP of international transactions pertaining to engineering and related services segment on an aggregated basis from A.Yrs. 2006-07 to 2012-13 and the same has been accepted by the Id. TPO in earlier years after due examination of the international transactions of the assessee. It was pleaded that there is no change in the functions performed, assets employed and the risks assumed by the assessee in A.Y.2014-15 i.e. the year under appeal vis-à-vis the previous assessment years. Hence, it was pleaded that the Id. TPO was not justified in taking the divergent view during the year under appeal alone.
6.2. It was pleaded that the Id. TPO had taken conflicting views, as on one hand, he alleged that the services under three divisions of engineering and related services segment are different and the benchmarking approach of the assessee is flawed, but at the same time, the Id. TPO selected the assessee’s own comparable company i.e. Axis IT & T Ltd., in the final set of comparables selected by him. Thus, the Id. TPO himself had taken comparables chosen by the assessee and compared each division with the same set of comparables which are into engineering and related services segment. In this regard, the business divisionwise overview on engineering and related services segment would be relevant to note together with the detailed nature of services rendered under each of the said business divisions falling under the common umbrella which is engineering and related services segment as under:-
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6.3. The Id. AR pleaded that the Emerson Group is structured in a manner that generally each entity focuses on one business platform. The AEs receive orders from customers for products in the business platforms they deal with. In relation to this, the AES thereafter outsource the engineering and related services to the assessee’s business divisions. During FY 2013-14, the AEs have availed engineering and related services. In many instances, the services are provided to one AE from different divisions of the assessee. For instance, Asco Power Technologies LP, an AE of the assessee engaged in manufacture and sale of switches, power control systems such as UPS, DCS etc., availed services from both EEEC and EIC divisions during FY 2013-14. Thus, the services rendered by these business divisions of the assessee were utilized by Asco Power Technologies LP for designing, manufacturing and supplying products in the power control segment to the customers. Similarly, in case of Emerson Process Management Valve Automation Inc, an AE of the assessee, engaged in manufacture and sale of valve automation products, availed services from both EIC and FCEC divisions during FY 2013-14. Thus, the services rendered by these business divisions of the assessee were utilized by Emerson Process Management Valve Automation Inc. for designing, manufacturing and supplying products in the industrial automation product segment to the customers. Thus, the above clearly substantiates that the engineering and related services rendered by the business divisions are towards a common end use/ application.
6.4. Yet another important point which was pleaded before us by the Id. AR was that common pool of funds were used for all the three divisions and that the funds of all the three divisions under the engineering services segment were interlaced as they are drawn from a common pool of funds maintained by the assessee company. The evidences were also furnished by the Id. AR by specific reference to the bank statement of the assessee maintained with Citi Bank which are enclosed in pages 406 & 407 of the paper book indicating fund transfer from each of the divisions as above.
6.5. We find that in all the aforesaid three divisions, manufacturing activity were only done by the AE and assessee company merely provides engineering and related services to its AE thereon. Hence, the Indian company i.e., assessee assumes lesser risks in all the three divisions. Hence, we hold that the Id. DRP had proceeded on an incorrect assumption of fact that assessee in EIC division is engaged in manufacturing activity. From the table reproduced above, it is very clear that assessee in EIC division subsequent to AES approval, develops proto type for testing purposes. The assessee does not manufacture the proto type. The third party divisions identified by the AES are engaged to manufacture the proto type and the proto types are tested by the assessee in its EIC division falling under engineering and related services segment. Later these designs and test reports are shared with the AES and the AE in turn shares the same with the customers for approvals. Post customer approvals, the AEs manufacture and supply the products to the ultimate customers. Hence, the observation made by the Id. DRP that assessee in EIC division is engaged in manufacturing activity is incorrect and not emanating from the facts available on record. In any case, we find that even if the observation of the Id. DRP that EIC division is completely different from ECEC and EEC division is to be accepted, still we hold that there is no segmental data available for comparables having EIC division alone for the purpose of benchmarking. Hence, the comparison made by the Id. TPO and upheld by the Id. DRP ignoring the aggregated approach deserves to fail on this account itself.
6.6. From the reading of provisions of Section 92C(1) of the Act, we find that the expression “class of transaction” is mentioned thereon. We hold that the assessee in the instant case had aggregated ‘class of transactions’ falling in engineering and design services. From the reading of provisions of Section 92C(1) of the Act, we find that the Section uses the expression “class of associated persons”. From the background of the assessee and the AEs reflected in the TP study report, various documents available on record which are not disputed, we find that all the AES are engaged in manufacturing of industrial automated products.
6.7. From the bank statement of the assessee which are enclosed on sample basis in pages 406 and 407 of the paper book, we find that the funds for all the three divisions in the engineering services segment are interlaced as they are drawn from a common pool of funds maintained by the assessee company. We find that all the three divisions under the engineering services segment are engaged in rendering design and engineering services falling under the common administration and management control of the company and funds for the three divisions are interlaced as they are drawn from a common pool of funds maintained by the company. In these circumstances, adoption of aggregated approach for benchmarking the international transaction should be accepted. We also find that the co-ordinate bench of Delhi Tribunal had endorsed our view in the case of Birla Soft India Ltd., in ITA No.4001/Del/2009 and 4713/Del/2011 dated 06/05/2014 wherein it was held as under:
“The assessee was engaged in rendering software development and related services with operations in three STPI units in different locations. The assessee had aggregated the services rendered under all the three segments while determining ALP considering that the services rendered were identical and there were no significant functional differences. The TPO, while evaluating the transactions, chose to segregate and benchmark each of the units separately by assuming that the functions, assets and risks undertaken by each of the STPI units were distinct from each other. The Delhi Tribunal, observed that the TPO totally disregarded the unity of business, administrative control, and unity of funds for the three units. The Tribunal also stated that independent FAR analysis of each unit with existing comparables is practically not possible due to the common management and interlacing of funds.”
6.8. We also find that when the transactions are closely linked to each other, as in the case of the assessee before us, under the engineering and related services segment, it would be relevant in this regard to go into provisions of Indian transfer pricing regulations and other regulations as under:-
Indian TP regulations
Rule 10A of the Income Tax Rules, 1962 (‘the Rules’) defines transactions as – “includes number of closely linked transaction”
17. Other guidelines and regulations
Further, we referred to other guidelines and regulations for guidance on aggregation of the international transactions and the relevant paras are reproduced below for your reference.
a) Organisation for Economic Co-operation and Development Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Guidelines)
Para 3.9 of the OECD Guidelines state that “Ideally, in Order to arrive at the most precise approximation of fair market value, the arm’s length principle should be applied on a transaction-by-transaction basis. However, there are often situations where separate transactions are so closely linked or continuous that they cannot be evaluated adequately on a separate basis”
b) Guidance Note issued by Institute of Chartered Accountants of India
The Guidance Note on Report under section 92E of the Income Tax Act, 1961, issued by ICAI (August 2013 version), also supports the view on aggregation of transactions, wherein it has been mentioned as follows: “Para 3.8 It may be noted that in Order to be closely linked transactions. it is not necessary that these transactions need be identical or even similar. For example, a collaboration agreement may provide for import of raw materials, sale of finished goods, provision of technical services and payment of royalty. Different methods may be chosen as the most appropriate methods for each of the above transactions when considered on a standalone basis. However, under particular circumstances., one single method may be chosen as the most appropriate method covering all the above transactions as the same are closely linked.”
c. US TP Regulations
In respect of the aggregation of transactions, reference is also invited to the US TP Regulations. The relevant extract from the US TP regulation is provided below:
“(i) Aggregation of transactions – (A) In general The combined effect of two or more separate transactions (whether before, during, or after the taxable year under review) may be considered, if such transactions, taken as a whole, are so interrelated that consideration of multiple transactions is the most reliable means of determining the arm’s length consideration for the controlled transactions. Generally, transactions will be aggregated only when that involve related products or services, as defined in 1.603A-3(c)(7) (vii).
6.9. We hold that the transactions under all the three divisions pertain to same class falling under engineering and related services segment. In this regard, the relevant legal provisions are to be looked into which are as under:-
Rule 10C (2) of the Rules reads as follows:
“(2) In selecting the most appropriate method as specified in sub-rule (1), the following factors shall be taken into account, namely:-
(a) the nature and class of the international transaction; (b) the class or classes of associated enterprises entering into the transaction and the functions performed by them taking into account assets employed or to be employed and risks assumed by such enterprises;
Rule 10D of the Rules inter-alia states as follows: “10D (i) Every person who has entered into an international transaction shall keep and maintain the following information and documents, namely:
(a)….
(b)….
(i) a description of the methods considered for determining the arm’s length price in relation to each international transaction or class of transaction, the method selected as the most appropriate method along with explanations as to why such method was so selected, and how such method was applied in each case;”
Section 92C of the Act reads as follows:
“92C. (1) The arm’s length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe namely….”
6.10. Based on above extracts from the Rules and the Act, it can be concluded that international transactions can be aggregated when the transactions pertain to the same class. Further, Section 92C and Rule 10C state that for selecting the most appropriate method to determine arm’s length price (ALP) among other factors, the nature and class of transaction and functions performed in respect of the transactions are critical. Where (1) the nature and class of the international transactions; (ii) the class or classes of AEs entering into the international transactions; as well as (iii) the FAR analysis in relation to the transactions are similar, it would be prudent to aggregate the international transactions while determining the most appropriate method as per the Indian TP regulations.
6.11. Hence, we hold that the provisions of the Act and the rules permit aggregation of similar class of transactions if the FAR is the same when the services are rendered to a class or classes of AES while determining MAM. Therefore, we hold that it would be rational to apply this aggregated approach of considering the three business divisions together for determining the ALP.”
42. As noted above it is undisputed that this issue is recurring in nature and the ground raised is similar to that of earlier years. Further, the learned DR could not show us any material to deviate from the conclusion so reached by the coordinate bench in the preceding year. Thus respectfully following the judicial precedent in assessee’s own case cited supra, we direct the TPO/AO to benchmark the international transaction pertaining to “Provision of Engineering and related services” by adopting an aggregate approach for all three divisions. As a result, ground no. 5 raised in assessee’s appeal is allowed.
43. The issue arising in ground no. 6, raised in assessee’s appeal, is pertaining to disallowance of expenditure under section 14A of the Act.
44. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceedings, it was observed that the assessee has its investments in equities where returns from investments are in the nature of dividends, which is an exempt income. The AO vide draft assessment order dated 28/03/2021, observed that though the assessee has not earned any exempt income from such dividends, it remains a fact that such investments are long-term investments and the basic purpose of equity investments is to increase the stake in companies and therefore being claimant of the profits of the said companies by way of dividends. It was further observed that equity investments made by the assessee being long-term investments, they do not necessarily result into dividend every year. Accordingly, the AO computed the disallowance of Rs.75,18,750, under section 14A read with Rule 8D. The learned DRP vide its directions rejected the objections filed by the assessee. In conformity with the learned DRP’s directions, the AO passed the impugned final assessment order. Being aggrieved, the assessee is in appeal before us.
45. We have considered the submissions of both sides and perused the material available on record. From the perusal of the financial statement of the assessee for the financial year 2016-17, forming part of the paper book from pages 1-67, we find that the total investment declared is Rs.19,55,53,800, as on 31/03/2017. We further find that during the year the assessee received no dividend income from its investments. The aforesaid fact has also not been disputed by the Revenue. We find that the Hon’ble Delhi High Court in Cheminvest Ltd. v. CIT: [2015] 378 ITR 33 (Delhi) held that section 14A will not apply if no exempt income is received or receivable during the relevant previous year. We further find that the Hon’ble jurisdictional High Court in Pr.CIT v/s Kohinoor Project (P) Ltd., [2020] 121 taxmann.com 177 (Bom.), rendered similar findings and dismissed the Revenue’s appeal on a similar issue. Since, in the present case, the assessee has not earned any dividend income, therefore, respectfully following the aforesaid judicial pronounce– ments, disallowance of expenditure under section 14A read with Rule 8D is not sustainable.
46. We further find that vide amendment by the Finance Act, 2022, the non-obstante clause and explanation were inserted in section 14A of the Act to the effect that the section shall apply even if no exempt income has accrued or arisen or has been received during the year. We find that while dealing with the issue of whether the aforesaid amendment by the Finance Act, 2022 is prospective or retrospective in operation, Hon’ble Delhi High Court in PCIT vs M/s Era infrastructure (India) Ltd, [2022] 288 Taxman 384 (Delhi) held that the amendment by Finance Act, 2022 in section 14A is prospective and will apply in relation to the assessment year 2022–23 and subsequent assessment years. Thus, even in view of the aforesaid amendment also, the disallowance under section 14A read with Rule 8D is not permissible in the present case.
47. Thus, in view of the above, the disallowance computed under section 14A read with Rule 8D is directed to be deleted. Accordingly, ground no. 6 raised in assessee’s appeal is allowed.
48. The issue arising in ground No. 7, raised in assessee’s appeal, is pertaining to disallowance on account of the alleged delay in payment of Provident Fund (P.F) under section 36(1)(va) r/w section 2(24) of the Act.
49. The learned AR, at the outset, agree that this issue is covered against the assessee by the decision of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. v/s CIT, [2022] 448 ITR 518 (SC). We find that in the aforesaid decision, the Hon’ble Supreme Court held that payment towards employee’s contribution to P.F. / E.S.I.C. after the due date prescribed under the relevant statute is not allowable as a deduction under section 36(1)(va) of the Act. Accordingly, respectfully following the aforesaid decision of the Hon’ble Supreme Court ground no. 7 raised in assessee’s appeal is dismissed.
50. The issue arising in ground no. 8 is pertaining to the levy of interest under section 234B of the Act, which is consequential in nature. Accordingly, ground no. 8 is allowed for statistical purposes.
51. The issue arising in ground no. 9, raised in assessee’s appeal, is pertaining to incorrect computation of interest under section 234C of the Act.
52. The learned AR submitted that the interest under section 234C of the Act should be computed on the “returned income” of the assessee and not the “assessed income”. We have considered the submissions and perused the material available on record. As per provisions of section 234C of the Act, interest is levied either on failure to pay the advance tax by the assessee or on shortfall in payment of advance tax as compared to tax due on returned income. Thus, it is pertinent to note that section 234C refers to the term”“returned income” in comparison to section 234B which refers to the term “assessed tax” for imposing interest. Accordingly, we direct the AO to compute the interest under section 234C of the Act on the “returned income” of the assessee. As a result ground no. 9 raised in assessee’s appeal is allowed for statistical purposes.
53. Ground no. 10 is pertaining to the initiation of penalty proceedings, which is premature in nature and therefore is dismissed.
54. In the result, the appeal by the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court on 14/08/2023
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