Appeal details
Counselvise Citation
142720114 RSA 2014
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 8 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
02-12-2015
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
I2
Next Hearing Date
27-11-2015
Assessment Year
2009-2010
Appeal Filed On
10-03-2014
Judgement Text
1 ITA NO.1427 &936/DEL/2014 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I NEW DELHI BEFORE SHRI R. S. SYAL, ACCOUNTANT MEMBER AND SMT SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.- 1427/DEL/2014 (ASSESSMENT YEA R-2009-10) XL INDIA BUSINESS SERVICES PRIVATE LIMITED, FF-101, BUILDING NO. G-11, SARINES SONIA SADAN, COMMUNITY CENTRE, VIKAS PURI, NEW DELHI 110 018 (APPELLANT) VS I.T.O., WARD 18(4), NEW DELHI (RESPONDENT) I.T.A .NO.936/DEL/14 (ASSESSMENT YEAR-2009-10) I.T.O., WARD 18(4), NEW DELHI (APPELLANT) VS XL INDIA BUSINESS SERVICES PRIVATE LIMITED, FF-101, BUILDING NO. G-11, SARINES SONIA SADAN, COMMUNITY CENTRE, VIKAS PURI, NEW DELHI 110 018 (RESPONDENT) APPELLANT BY SH.HARPREET SINGH AJMANI, ADV. MS. ANANYA KAPOOR, ADV. RESPONDENT BY SH.S.L. ANURAGI, SR. DR ORDER PER SUCHITRA KAMBLE, JM DATE OF HEARING 27.11.2015 DATE OF PRONOUNCEMENT 02.12.2015 2 ITA NO.1427 &936/DEL/2014 I.T.A .NO.-1427/DEL/2014 (ASSESSMENT YEA R-2009-10) THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE AS SESSMENT ORDER DATED 27.01.2015 FOR A.Y. 2009-2010 PASSED UNDER SECTION 143(2) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961. 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS:- 1. THE ORDER PASSED BY THE LD. ADDITIONAL DIRECTOR OF INCOME TAX, TRANSFER PRICING OFFICER-II (4) (LD. TPO), DRAFT A SSESSMENT ORDER PASSED BY LD. INCOME-TAX OFFICER, WARD 18(4), NEW D ELHI (LD. ASSESSING OFFICER ) AND THE FINAL ASSESSMENT ORDER PASSED, PURSUANT TO THE DIRECTIONS OF THE HONBLE DISPUTE R ESOLUTION PANEL-II (DRP), BY THE LD. ASSESSING OFFICER ARE BAD IN L AW AND VOID AB- INITIO. 2. THE LD. ASSESSING OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DETERMINING THE TOTAL INCOME OF THE APPELLA NT AT RS.8,77,18,381/- AS AGAINST A RETURNED INCOME OF RS .8,47,480/-. PART 1- TRANSFER PRICING GROUNDS 3. THAT ON FACTS AND IN LAW, THE LD. ASSESSING OFFI CER /TPO/DRP ERRED IN MAKING/UPHOLDING AN UPWARD ADJUSTMENT OF RS.73,8 80,694/- IN RESPECT OF THE INTERNATIONAL TRANSACTION OF THE APP ELLANT PERTAINING TO PROVISION OF IT ENABLED SERVICES TO ITS ASSOCIATED ENTERPRISES (AES) 4. THAT ON FACTS AND IN LAW, THE LD. TPO HAS ERRED IN NOT DISCHARGING HIS STATUTORY ONUS TO ESTABLISH THAT ANY OF THE CON DITIONS SPECIFIED IN CLAUSE (A) TO (D) OF SECTION 92C (3) OF THE ACT HA VE BEEN SATISFIED BEFORE DISREGARDING THE ARMS LENGTH PRICE DETERMIN ED BY THE APPELLANT AND PROCEEDING TO DETERMINE THE ARMS LEN GTH PRICE HIMSELF. 5. THE LEARNED AO/TPO/DRP HAVE ERRED BY NOT ACCEPTI NG THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME TAX RULE S, 1962 (THE RULES) AND CONDUCTING A FRESH ECONOMIC ANALYSIS FO R THE DETERMINATION OF ARMS LENGTH PRICE (ALP) OF THE APPELLANTS INTERNATIONAL TRANSACTION AND HOLDING THAT THE INTE RNATIONAL TRANSACTION IS NOT AT AN ARMS LENGTH. 6. THAT ON FACTS AND IN LAW, THE LEARNED ASSESSING OFFICER /TPO/DRP HAVE ERRED IN USING SINGLE YEAR DATE OF COMPANIES. 7. THE LEARNED ASSESSING OFFICER /TPO/DRP HAVE ERRE D BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPE LLANT BY INCORRECTLY USING THE FOLLOWING COMPARABILITY CRITE RION (A) TURNOVER LESS THAN INR 1 CRORE (B) DIMINISHING REVENUE TREND 3 ITA NO.1427 &936/DEL/2014 (C) EXPORT EARNINGS LESS THAN 75 PERCENT OF SALES FROM IT ENABLED SERVICES. (D) DIFFERENT FINANCIAL YEAR 8. THE LEARNED AO/TPO/DRP HAVE ERRED IN REJECTING C ERTAIN COMPANIES WHICH ARE FUNCTIONALLY COMPARABLE TO THE APPELLANT AND ADDING CERTAIN FUNCTIONALLY DISSIMILAR COMPANIES TO THE FI NAL SET OF COMPARABLE COMPANIES. IN DOING SO, THE LEARNED AO/ TPO/DRP HAVES RESORTED TO CHERRY PICKING OF COMPARABLES TO DETERMINE ARMS LENGTH PRICE FOR THE IMPUGNED TRANSACTION. 9. THE LEARNED AO/TPO/DRP HAVE ERRED IN SELECTING C ERTAIN COMPANIES WHICH ARE EARNING SUPER NORMAL PROFITS. 10. THAT ON FACTS AND IN LAW, THE LEARNED AO/TPO/DR P HAVE FAILED TO MAKE APPROPRIATE ADJUSTMENTS TO ACCOUNT FOR THE DIF FERENCES IN THE RISK PROFILE OF THE APPELLANT VIS--VIS THE COMPARA BLES AND IN THE PROCESS ALSO NEGLECTED THE INDIAN TRANSFER PRICING REGULATIONS, OECD GUIDELINES ON TRANSFER PRICING AND JUDICIAL PRECEDE NCE. 11. THAT ON FACTS AND IN LAW, THE LEARNED DRP HAS E RRED IN NOT PROVIDING ANY BASIS FOR REJECTING CERTAIN COMPANIE S CONSIDERED COMPARABLE BY THE APPELLANT AND IN DOING SO VIOLATE D THE PRINCIPLES OF NATURAL JUSTICE. 12. THAT ON FACTS AND IN LAW, THE LEARNED AO/TPO/DR P ERRED IN CONSIDERING INCORRECT PROFIT MARGIN OF THE APPELLAN T. 13. THAT ON FACTS AND IN LAW, THE LEARNED AO/TPO/DR P HAVE GROSSLY ERRED IN PASSING AN ORDER WITHOUT PROVIDING THE BAS IS OF DETERMINATION OF OPERATING COST OF THE APPELLANT WH ICH HAS USED AS A BASE FOR DETERMINING THE QUANTUM OF TRANSFER PRICIN G ADJUSTMENT. 14. THAT ON FACTS AND IN LAW, THE LEARNED TPO/ASSES SING OFFICER HAVE ERRED IN PASSING AN ORDER WHICH HAS COMPUTATIONAL E RRORS IN THE MARGIN OF THE COMPARABLE COMPANIES USED IN DETERMIN ATION OF ARMS LENGTH MARGIN. 15. THAT ON FACTS AND IN LAW, THE LEARNED AO/TPO/DR P HAVE ERRED BY NOT CONSIDERING THAT THE ADJUSTMENT OF THE ALP, IF ANY, SHOULD BE LIMITED TO THE LOWER END OF THE 5 PERCENT AS THE AP PELLANT HAS THE RIGHT TO EXERCISE THIS OPTION UNDER THE PROVISO TO SECTION 92C OF THE ACT. PART II- CORPORATE TAX GROUNDS 15. THAT ON FACTS AND IN LAW, THE LEARNED DRP/ASSES SING OFFICER ERRED IN HOLDING THAT THE INTEREST INCOME OF RS.1,30,23,0 15/- EARED IN SHORT TERM DEPOSITS MADE OUT OF SURPLUS FUNDS FROM EXPORT ACTIVITIES OF THE APPELLANT, BE TREATED AS INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME. 16. THAT ON FACTS AND IN LAW, THE LEARNED ASSESSING OFFICER /DRP HAS ERRED IN HOLDING THAT SUCH INTEREST INCOME EARNED O N SHORT TERM DEPOSITS IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTIO N 10A OF THE ACT. 4 ITA NO.1427 &936/DEL/2014 17. THAT ON FACTS AND IN LAW, THE LEARNED ASSESSING OFFICER HAS ERRED IN INITIATING PENALTY UNDER SECTION 271 (1) (C) OF THE ACT, AS CONSEQUENCES OF THE ADDITIONS MADE IN THE ASSESSMEN T ORDER PASSED UNDER SECTION 143(3) READ WITH SECTION 144C OF THE ACT. 18. THAT ON FACTS AND IN LAW, THE LEARNED ASSESSING OFFICER HAS ERRED IN CHARGING INTEREST UNDER SECTION 234B AND 234C OF THE ACT, AS CONSEQUENCES OF THE ADDITIONS MADE IN THE ASSESSMEN T ORDER PASSED U/S 143(3) READ WITH SECTION 144C OF THE ACT. 3. GROUND NO. 1 AND 2 OF THE ASSESSEES APPEAL ARE GENERAL IN NATURE AND NOT PRESSED BY THE ASSESSEE HENCE ACCORDINGLY, DISM ISSED. 4. THE MAIN GROUNDS CONTESTED BY THE ASSESSEE ARE T HAT OF TRANSFER PRICING AND CORPORATE TAX. 5. XL INDIA WAS INCORPORATED AS A 100 PERCENT EXPOR T ORIENTED UNIT UNDER THE SOFTWARE TECHNOLOGY PARK SCHEME IN GURGAON, HAR AYAN. THE INCOME OF THE ASSESSEE WAS EXEMPT FROM TAX UNDER SECTION 10A. THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH XL SERVICES SWITZERLAND (XL SS) AND CYBERSETTLE INC., USA (COLLECTIVELY REFERRED AS ASSOCIATED ENTERPRISE S (AES)) FOR RENDERING INFORMATION TECHNOLOGY (IT) ENABLED SERVICES. AS PER THE TERMS OF THE AGREEMENT, XL INDIA PROVIDES IT ENABLED SERVICES SU CH AS INTERIM FINANCIAL REPORTING; EXTERNAL FINANCIAL REPORTING; CREDIT CON TROL; ETC. TO XLSS. FURTHERMORE, THE COMPANY PROVIDES SERVICES SUCH AS PROVISION OF ACCOUNTING AND OTHER BACK-OFFICE SUPPORT, IT SUPPORT FOR THE W EB-PORTAL ETC. TO CYBERSETTLE INC. 6. THE INTERNATIONAL TRANSACTIONS ENTERED INTO, BY THE ASSESSEE ARE TABULATED BELOW: 5 ITA NO.1427 &936/DEL/2014 NATURE OF INTERNATIONAL TRANSACTION METHOD SELECTED AMOUNT (IN INR) PROVISION OF IT ENABLED SERVICES TNMM 742,318,028 PURCHASE OF STATIONARY MATERIAL TNMM 31,607 PAYMENT OF INTEREST ON EXTERNAL COMMERCIAL BORROWINGS CUP 13,315,144 REIMBURSEMENT OF EXPENSES PAID TO ASSOCIATED ENTERPRISES - 47,587,726 REIMBURSEMENT OF EXPENSES RECEIVED FROM ASSOCIATED ENTERPRISES 3,648,929 7. THE ASSESSEE SUBMITTED FOLLOWING COMPARABLES 1. ALLSEC TECHNOLOGIES LTD. 2. C G VAK SOFTWARE & EXPORTS LTD. 3. COSMIC GLOBAL LTD. 4. INFORMED TECHNOLOGIES LTD. 5. R SYSTEMS INTERNATIONAL LTD. 6. VISHAL INFORMATION TECHNOLOGIES LTD. 7. ADITYA BIRLA MINACS WORLDWIDE LTD. 8. CEPHA IMAGING PVT. LTD. 8. THE TPO FINALIZED THE COMPARABLES AND USED IN TH E ASSESSEES CASE AS BELOW: SL. NO. NAME OF COMPARABLE OP/TC(%) 1. COSMIC GLOBAL LTD. 48.2 6 ITA NO.1427 &936/DEL/2014 2. INFORMED TECHNOLOGIES LTD. 23.13 3. VISHAL INFORMATION TECHNOLOGIES LTD. 38.69 4. ADITYA BIRLA MINACS WORLDWIDE LTD. 25.7 AVERAGE 33.93 THE TPO REJECTED THE OTHER COMPARABLES GIVEN BY THE ASSESSEE FOR THE REASONS STATED IN THE ORDER. 9. ABOUT THE WORKING CAPITAL ADJUSTMENT, THE TPO DENI ED THE SAME AS THE ASSESSEE DID NOT POSSESS REASONABLE AND ACCURATE RA TE THAT WOULD ALLOW FOR THE CALCULATION OF A WORKING CAPITAL ADJUSTMENT. 10. THE ASSESSING OFFICER VIDE ORDER DATED 27.01.20 14 HAS MADE AN ADDITION OF RS.7,38,90,694/- UNDER SECTION 92CA OF THE INCOM E TAX ACT, 1961. THE ASSESSING OFFICER FURTHER MADE AN ADDITION OF RS.1, 30,23,015/- AS INTEREST ON FDRS AS INCOME FROM OTHER SOURCES AS AFTER VERIFICA TION THE ASSESSING OFFICER FOUND THAT THE INTEREST OF RS.1,30,23,015/- IS INCL UDED IN THE BUSINESS INCOME. AS RELATES TO EXCESS PAYMENT UNDER SECTION 40A(2)(B ) READ WITH SECTION 92CA OF THE INCOME TAX ACT, 1961, THE ASSESSING OFFICER HEL D THAT SINCE THE DRP DIRECTED THE ASSESSING OFFICER TO DROP THE PROPOSED DISALLOWANCE FOR THE REASONS STATED IN THE ORDER OF THE DRP AND DID NOT ADD THE SAME. 11. THE AR SUBMITTED THAT THE COMPARABLE COSMIC GLO BAL LTD. SHOULD HAVE BEEN EXCLUDED BY THE TPO AS THE SAME IS ENGAGED IN OUTSOURCING ACTIVITY. VISHAL INFORMATION TECHNOLOGIES (CORAL HUB) WAS REJ ECTED AS COMPARABLE ON SIMILAR LINE (OUTSOURCING ACTIVITY) BY DRP. SEGMENT AL REVENUE OF BPO SEGMENT IS VERY LOW. THE AR FURTHER SUBMITTED THAT THERE SH OULD BE INCLUSION OF R 7 ITA NO.1427 &936/DEL/2014 SYSTEMS AS THE SAME CANNOT BE REJECTED ONLY FOR HAV ING A DIFFERENT FINANCIAL YEAR ENDING, IT CAN BE SEEN FROM THE AUDITED ACCOUN TS OF THE COMPANY THAT AUDITED DATA FOR EACH QUARTER IS AVAILABLE AND HENC E DATA FOR FINANCIAL YEAR ENDING 31.03.2009 CAN BE COMPLIED. ALLSEC TECHNOLOG IES LIMITED SHOULD HAVE BEEN INCLUDED AS IT PASSESS THE EXPORTS EARNING FIL TER RULE-THERE CAN BE NO HARD AND FAST RULE IN APPLYING 75% EARNING. AS RELATES T O CG-VAK SOFTWARE & EXPORTS LTD. THE SAME PASSES ALL THE FILTERS AND TU RNOVER CANNOT BE THE SOLE BASIS OF REJECTING A COMPANY, WHICH IS OTHERWISE CO MPARABLE. THUS, THE SAME SHOULD HAVE BEEN ACCEPTED. ON THE ISSUE OF WORKING CAPITAL ADJUSTMENT THE AR SUBMITTED THAT THE FINDING OF DRP ARE NOT PROPER. T HE FINDINGS OF THE DRP ARE AS FOLLOWS: ..IN VIEW OF THE RULE 10B(3), TO IMPROVE THE COMPA RABILITY, IN THE FACTS OF THE PRESENT CASE, WHILE COMPARING THE MARGINS OF TE STED PARTY WITH THAT OF THE COMPARABLES, ADJUSTMENT BE MADE FOR WORKING CAP ITAL FOR WHICH THE RELIABLE DATA IS TO BE PROVIDED BY THE TAXPAYER. WO RKING CAPITAL IS MEASURED BY TRADE RECEIVABLES/DEBTORS, TRADE PAYABL ES/CREDITORS AND INVENTORIES. INTEREST COST WILL BE HIGH IF THE TRAD E RECEIVABLE TIME CYCLE IS LARGE. INTEREST COST WILL BE LOW IF THE COMPANY CA N PAY ITS LIABILITIES AFTER A LARGER PERIOD OF GAP THEN PAY IT IN A SHORTER PERIO D. HOLDING OF INVENTORY HAS ALSO INTEREST COSTS. IF INVENTORY TURNOVER IS FOR A SHORTER PERIOD, INTEREST COST WILL BE LOWER. THESE PARAMETERS AFFE CTED THE OVERALL RESULTS OF THE COMPANY. BUT IN REALITY, THE IMPACT IS FINANCI AL IN NATURE DUE TO THE REQUIREMENT OF WORKING CAPITAL. FINANCIAL RESULTS OR INTEREST BURDEN PRIMARILY DEPENDS ON FOLLOWING:- (I) HOW THE WORKING CAPITAL IS FINANCED, EITHER THR OUGH OWN SOURCE OR THROUGH BORROWED FUNDS. (II) TERMS AND CONDITIONS OF RECEIPTS AND PAYMENTS I.E. TERMS OF PAYMENTS OF DEBTORS AND CREDITORS 8 ITA NO.1427 &936/DEL/2014 (III) INVENTORY MANAGEMENT THROUGH BACKWARD & FORWA RD LINKAGES, THE EFFICIENCY OF HOLDING INVENTORY. FURTHER, INTEREST COST IS A FINANCIAL COST. IN ORD ER TO COVER THE INTEREST COST, THE MARGIN MAY SEEM TO BE HIGH IN ABSOLUTE TERM, BU T WHEN INTEREST COST IS ACCOUNTED FOR, THE MARGIN CHANGES ITS LUSTER. THER EFORE, WORKING CAPITAL REQUIREMENTS DO AFFECT THE MARGINS OR PRICES, COSTS OR PROFITS BECAUSE THIS AN IMPLICIT COST WHICH IS RECOVERED/RECOVERABLE FRO M THE CUSTOMERS. 12. THE AR FURTHER SUBMITTED THAT THE COMPAR ABLE IN RESPECT OF COSMIC GLOBAL LTD. SHOULD HAVE NOT BEEN INCLUDED BY THE TP O AND THERE SHOULD HAVE BEEN INCLUSION OF R SYSTEMS INTERNATIONAL LTD., ALL SEC TECHNOLOGIES LTD. AND C G VAK SOFTWARE & EXPORTS LTD. THE AR SUBMITTED THA T IN MANY CASES THESE THREE INCLUSIONS STATED HEREIN ABOVE WERE HELD AS P ROPER COMPARABLES AND HELD THE SAME BY THE VARIOUS HIGH COURTS AS WELL AS THIS VERY TRIBUNAL. AS RELATES TO CORPORATE TAX GROUND, THE AR SUBMITTED THAT DURI NG THE YEAR UNDER CONSIDERATION, THE ASSESSEE PLACED ITS UNUTILIZED F UNDS IN SHORT TERM FIXED DEPOSITS WITH BANKS IN ORDER TO EFFECTIVELY MANAGE THE WORKING CAPITAL REQUIREMENTS OF ITS BUSINESS. SUCH FUNDS WERE PLACE D WITH BANKS IN FORM OF SHORT TERM FIXED DEPOSIT INSTRUMENTS YIELDING INTER EST INCOME SO AS TO BETTER MANAGE THE UNUTILIZED FUNDS WHICH CAN BE DEPLOYED I N THE BUSINESS ON LIQUID BASIS. THE INTEREST INCOME EARNED BY XL INDIA DURIN G THE YEAR UNDER CONSIDERATION HAS BEEN CLASSIFIED AS BUSINESS INCOM E SINCE THE SOURCE OF SUCH TERM DEPOSITS IS INEXTRICABLY LINKED TO THE BUSINES S OF THE ASSESSEE. HENCE SUCH INTEREST INCOME WAS CONSIDERED AS PROFIT OF THE BUS INESS OF THE UNDERTAKING ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE INC OME TAX ACT, 1961. IN RESPECT OF THIS THE ASSESSEE CITED CASE OF ABB GLOB AL INDUSTRIES AND SERVICES LTD PASSED BY ITAT, BANGALORE BENCH AS WELL AS DELH I HIGH COURTS JUDGMENT IN CASE OF RIVIERI HOME FURNISHING VS. ADDL. COMMISSIO NER OF INCOME TAX. HE FURTHER STATED THAT THE ASSESSEE COMPANY HAS DONE F DR ONLY FOR SHORT TERM 9 ITA NO.1427 &936/DEL/2014 PERIOD FOR CAPITAL TO BE USED IN DAY TO DAY BUSINES S ACTIVITIES OF THE ASSESSEE. THE AR ALSO RELIED UPON THE JUDGMENT OF HONBLE DEL HI HIGH COURT IN CASE CIT VS. HRITINIK EXPORTS PVT. LTD. (ITA NOS. 219/2014 A ND 239/2014 DECIDED ON 13.11.2014). 13. THE DR RELIED UPON THE ORDER OF THE ASSESSING O FFICER AND TPO. THE DR SUBMITTED THAT THE TPO HAS RIGHTLY TAKEN INTO CONSI DERATION AND ALLOWED THE PROPER COMPARABLES. AS RELATES TO THE ISSUE OF 10A, THE DR RELIED UPON THE DRPS FINDINGS. 14. WE HAVE PERUSED ALL THE RECORDS AND PROCEEDINGS . WE HAVE ALSO HEARD BOTH THE PARTIES. IN RESPECT OF GROUNDS RELATING TO TRANSFER PRICING AS SET OUT IN PART I -GROUND NO. 3 TO 15 ON COMPARABLES AND WORKI NG CAPITAL ADJUSTMENT, THE ITAT, NEW DELHI IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-2009 (BEING ITA NO. 6448/DEL/12 DECIDED ON 18.02.2015) HAS REMITTED THE MATTER TO THE ASSESSMENT STAGE FOR FRESH ADJUDICATION FOR THE REASONS SET OUT IN PARA 10 AND 11 OF THE SAID JUDGMENT. IN VIEW OF THIS, TH E ISSUES RELATING TO THE COMPARABLES AND WORKING CAPITAL ADJUSTMENT BEFORE U S ARE IDENTICAL FOR A.Y. 2009-2011. HENCE, IT WILL BE PROPER TO REMIT BOTH T HESE ISSUES TO THE ASSESSMENT STAGE FOR FRESH ADJUDICATION. NEEDLESS T O SAY THAT THE ASSESSEE BE GIVEN OPPORTUNITY TO BE HEARD. 15. AS RELATES TO THE ISSUE OF CORPORATE TAX AS SET OUT IN PART II- GROUND 15 TO 16, THE ASSESSING OFFICER HAS RIGHTLY HELD THAT INTEREST ON FDRS AS INCOME FROM OTHER SOURCE. THERE WAS NO BUSINESS EXIGENCY O R CONDITION TO MAKE SHORT TERM FDRS THEREFORE, THE INVESTMENT IN FDRS CANNOT BE REGARDED AS INEXTRICABLY CONNECTED WITH BUSINESS OF THE ASSESSE E. ACCORDINGLY, THE INTEREST 10 ITA NO.1427 &936/DEL/2014 RECEIPTS FROM SUCH FDRS CONSTITUTE INCOME FROM OTHE R SOURCES AND ARE NOT ELIGIBLE FOR DEDUCTION U/S 10A OF INCOME TAX ACT, 1 961. 16. IN RESULT, PART I - GROUND NO. 3 TO 15 OF THE A PPEAL OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE AND PART II - GROUND NO. 15 AND 16 ARE DISMISSED. AS RELATES TO GROUND NO. 17 AND 18 THE S AME ARE CONSEQUENTIAL TO GROUND NO. 15 AND 16 (PART II). I.T.A .NO.-3634/DEL/13 (ASSESSMENT YEAR-2006-07) 17. THIS CROSS APPEAL IS FILED BY THE REVENUE AGAIN ST THE ASSESSMENT ORDER DATED 27.01.2015 FOR A.Y. 2009-2010 PASSED UNDER SE CTION 143(2) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961. 18. THE GROUND OF APPEAL RAISED HEREIN, IS AS FOLLO WS:- (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. DRP, PANEL-II, NEW DELHI ERRED IN DELETING THE ADDITION OF RS.10,98,436/- (RS.7,49,79,130-7,38,80,694) DISALLOWED BY A.O U/S 92CA OF THE ACT. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, LD. DRP, PANEL-II, NEW DELHI ERRED IN DELETING THE ADDITION OF RS.1,90,00,000/- EXCESS PAYMENT U/S 40A(2)(B) R.W.S 92CA OF THE ACT. 19. IN RESPECT OF DEPARTMENTS APPEAL, THE FIRST GROUND WAS NOT PRESSED BY THE DR HENCE DISMISSED. 11 ITA NO.1427 &936/DEL/2014 20. THE DR SUBMITTED THAT ABOUT THE SECOND GROUND T HAT ONE MR. POPPS SALARY WAS TOO HIGH AND THE ASSESSING OFFICER RIGHT LY DISALLOWED THE SAME. THE AR RELIED ON THE DRPS FINDINGS. 21. WE HAVE PERUSED ALL THE RECORDS AND PROCEEDINGS . WE HAVE ALSO HEARD BOTH THE PARTIES. THE DRP OBSERVED THAT THE AO HAS RAISED VERY VALID ISSUE BUT MISSED THE FACT AS CLAIMED BY THE ASSESSEE THAT IT HAS RECOVERED THE SALARY COST WITH MARK UP AS ITS SERVICE INCOME AND OFFERED THE SAME FOR TAXATION. IF THE PAYMENT TO MR. POPP IS UNREASONABLY HIGH THEN IN TH E SAME PROPORTION INCOME EARNED IS ALSO HIGH AS THE SAME IS COST PLUS MARK U P. THEREFORE ANY DISALLOWANCE WILL REQUIRE CORRESPONDING CORRECTION IN RECEIPT ALSO. THEREFORE, AO WAS DIRECTED TO DROP THE PROPOSED DISALLOWANCE B Y THE DRP. THIS FINDING OF THE DRP IS PROPER AS THERE IS NO CORRELATION ESTABL ISHED BY THE ASSESSING OFFICER TO THE CORRESPONDING INCOME AS TO THE PAYME NT TO MR. POPP IN THE ASSESSMENT ORDER. THEREFORE, THE GROUND OF THE REVE NUE THAT THE ADDITION OF RS.1,90,00,000/- EXCESS PAYMENT U/S 40A(2)(B) R.W.S 92CA OF THE ACT SHOULD HAVE BEEN SUSTAIN BY THE DRP DOES NOT SURVIVE. 22. IN RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 2 ND OF DECEMBER, 2015. SD/- SD/- (R.S. SYAL) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 02/12/2015 R. NAHEED * 12 ITA NO.1427 &936/DEL/2014 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT R EGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON .30.11.2015 PS 2. DRAFT PLACED BEFORE AUTHOR 30.11.2015 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 11.2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 02.11.2015 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 03.11.2015 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 13 ITA NO.1427 &936/DEL/2014
