NTT DATA Global Delivery Services Private Limited, Bangalore V. Deputy Commissioner of Income Tax, Bangalore

ITA 2028/BANG/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1278 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 16-12-2020
• Assessment Year: 2005-2006
• Appeal Filed On: 22-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; Earning of tax free income; Rule 8D; Set aside
• Section: 14A; 115JB; 133(6); 22

Judgement Text

ITA NO.2028/BANG/2016 NTT DATA GLOBAL DELIVERY SERVICES PVT. LTD. (FORMERLY KEANE INDIA LIMITED), BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER IT(TP)A NO.2028/BANG/2016 ASSESSMENT YEAR: 2005-06 NTT DATA GLOBAL DELIVERY SERVICES PVT. LTD. (FORMERLY KEANE INDIA LIMITED) 17 & 17/1, SOUTH END ROAD BASAVANGUDI BENGALURU-560 004 PAN NO : AABCK7777J VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-5(1) BANGALORE APPELLANT RESPONDENT A PPELLANT BY : SHRI NAGESHWAR RAO, A.R. RESPONDENT BY : SHRI PRADEEP KUMAR, D.R. DATE OF HEARING : 16.12.2020 DATE OF PRONOUNCEMENT : 17.12.2020 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 19.7.2016 PASSED BY LD. CIT(A)-44, NEW DELHI AND IT RELATES TO ASSESSMENT YEAR 2005-06. 2. THOUGH THE ASSESSEE HAS RAISED MANY GROUNDS AN D ADDITIONAL GROUNDS, THE LD. A.R. RESTRICTED ITS ARGUMENTS ON T HE FOLLOWING ISSUES: ITA NO.2028/BANG/2016 NTT DATA GLOBAL DELIVERY SERVICES PVT. LTD. (FORMERLY KEANE INDIA LIMITED), BANGALORE PAGE 2 OF 10 1) TRANSFER PRICING ADJUSTMENT - EXCLUSION OF 4 COMPAR ABLE COMPANIES 2) WHETHER PROVISION MADE FOR BONUS IS A CONTINGENT LI ABILITY OR ASCERTAINED LIABILITY FOR THE PURPOSE OF SECTION 115JB OF THE ACT. 3) DISALLOWANCE U/S 14A OF THE INCOME-TAX ACT,1961 ['T HE ACT' FOR SHORT]. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSEE WAS EARLIER KNOWN AS KEANE INDIA LIMITED. THE ASSE SSEE IS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SOLUTIONS TO KEAN E USA AND ALSO SELECT UNRELATED PARTIES IN EUROPE. THE WORK PERFO RMED BY THE ASSESSEE INCLUDE APPLICATION OUTSOURCING, E-BUSINES S AND TOTAL IT MANAGEMENT. THERE IS NO DISPUTE THAT THE ASSESSEE FALLS UNDER THE CATEGORY OF SOFTWARE DEVELOPMENT COMPANY. 4. THE FIRST ISSUE RELATES TO TRANSFER PRICING ADJUSTMENT MADE BY THE TPO. THE ASSESSEE AS WELL AS TPO ADOPTED TNM M ETHOD FOR BENCHMARKING THE TRANSACTION. THE PROFIT LEVEL IND ICATOR (PLI) WAS OPERATING PROFIT/TOTAL COST (OP/TC). THE ASSESSEE H AD SELECTED 29 COMPANIES FOR BENCHMARKING ITS TRANSACTIONS WITH AS SOCIATED ENTERPRISES (AE). THE TPO REJECTED THE TRANSFER PR ICING STUDY OF THE ASSESSEE. HE SELECTED TWO COMPANIES NAMELY BODHTRE E CONSULTING LTD. AND TATA ELXSI LTD. THE ASSESSEE HAD ARRIVED AT AVERAGE MARGIN (PLI) 12.78% AND THE TPO ARRIVED AT AVERAGE MARGIN OF 24.60%. ACCORDINGLY, THE TPO MADE TRANSFER PRICING ADJUSTME NT OF RS.15,89,13,316/-. 5. IN THE APPELLATE PROCEEDINGS BEFORE LD. CIT(A ), THE ASSESSEE FURNISHED DETAILED SUBMISSION WITH REGARD TO VARIOU S COMPANIES. HENCE, THE LD. CIT(A) CALLED FOR THE REMAND REPORT FROM TPO, WHEREIN THE TPO SUGGESTED INCLUSION OF 21 MORE COMPANIES. AFTER ANALYSING ITA NO.2028/BANG/2016 NTT DATA GLOBAL DELIVERY SERVICES PVT. LTD. (FORMERLY KEANE INDIA LIMITED), BANGALORE PAGE 3 OF 10 VARIOUS COMPANIES SUGGESTED BY THE TPO AND ALSO BY THE ASSESSEE, THE CIT(A) FINALISED A LIST OF TWELVE COMPARABLE CO MPANIES AS GIVEN BELOW. 1. GEOMETRIC SOFTWARE SOLUTIONS CO. LIMITED 2. BODHTREE CONSULTING LIMITED 3. FLEXTRONICS SOFTWARE SYSTEMS LIMITED (SEG.) 4. TATA ELXSI LIMITED (SEG.) 5. SASKEN COMMUNICATION TECHNOLOGIES LIMITED (SEG.) 6. VISUAL SOFT TECHNOLOGIES LIMITED (SEG.) 7. GOLDSTONE TECHNOLOGIES LIMITED 8. AKSHAY SOFTWARE TECHNOLOGIES LIMITED 9. GEBBS INFOTECH LIMITED 10. GTL LIMITED 11. ICSA (INDIA) LIMITED 12. LGS GLOBAL LIMITED (LANCO GLOBAL SOLUTIONS LIMITED) ACCORDINGLY, HE MODIFIED THE TRANSFER PRICING ADJUS TMENT MADE BY THE AO. 6. IN THE APPEAL FILED BEFORE US, THE ASSESSEE SEE KS EXCLUSION OF FOLLOWING FOUR COMPANIES: 1. GEOMETRIC SOFTWARE SOLUTIONS CO. LIMITED 2. BODHTREE CONSULTING LIMITED 3. FLEXTRONICS SOFTWARE SYSTEMS LIMITED (SEG.) 4. TATA ELXSI LIMITED (SEG.) 7. THE LD. A.R. SUBMITTED THAT ALL THE ABOVE SAID FOUR COMPANIES HAVE BEEN EXCLUDED BY THE COORDINATE BENCH IN THE C ASE OF SHARP SOFTWARE DEVELOPMENT INDIA PVT. LTD.(IT(TP)A NO.110 9/BANG/2011 DATED 25.1.2017 RELATING TO ASSESSMENT YEAR 2005-06 ). 8. WE HEARD LD D.R AND PERUSED THE RECORD. WE NOTI CE THAT ALL THE FOUR COMPANIES REFERRED ABOVE WERE CONSIDERED B Y CO-ORDINATE BENCH IN THE CASE OF SHARP SOFTWARE DEVELOPMENT IND IA P LTD (SUPRA) AND THEY HAVE BEEN HELD TO BE NOT GOOD COMPARABLE C OMPANIES. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEV ANT OBSERVATIONS MADE BY THE CO-ORDINATE BENCH IN THE ABOVE SAID CAS E:- ITA NO.2028/BANG/2016 NTT DATA GLOBAL DELIVERY SERVICES PVT. LTD. (FORMERLY KEANE INDIA LIMITED), BANGALORE PAGE 4 OF 10 1. GEOMETRIC SOFTWARE SOLUTIONS COMPANY LTD.,: 10.8. EVEN THOUGH THIS COMPANY WAS ACCEPTED AS COMP ARABLE IN ITO VS. M/S. SUNQUEST INFORMATION SYSTEMS (INDIA) PRIVATE LIMITE D, IN IT(TP)A NO. 1302/BANG/2011 DT. 11-06-2015 (SUPRA) AND CORDYS SO FTWARE INDIA P. LTD., IN ITA NO. 1451/HYD/2010 DT. 13-06-2014 (SUPRA) AND WAS NOT OBJECTED TO, WE FIND THAT THE CO-ORDINATE BENCH AT BANALORE IN T HE CASE OF DCIT VS. TOSHIBA EMBEDDED SOFTWARE (I) PVT. LTD., IN IT(TP)A NO. 1/BANG/2012 DT. 10-05-2013 HAS CONSIDERED THAT THIS IS IN PRODUCT D EVELOPMENT. WE HAVE PERUSED THE TPOS ORDER. IN PAGE 85 AND 86 OF THE O RDER, THIS COMPARABLE WAS ANALYSED. TPO RECORDS THAT THERE ARE PRODUCT SA LES TO THE EXTENT OF 18%. SEGMENTAL PROFITS ARE NOT AVAILABLE. ON ASSUMPTIONS , THIS COMPANY WAS RETAINED. WE ARE OF THE OPINION THAT BEING A PRODUC T BASED COMPANY, THE SAME IS NOT STRICTLY COMPARABLE TO A SERVICE COMPAN Y LIKE ASSESSEE. IN THE ABSENCE OF SEGMENTAL PROFIT OF SERVICE INCOME, WE H AVE TO EXCLUDE THE SAME. FOLLOWING THE DECISION IN THE CASE OF DCIT VS. TOSH IBA EMBEDDED SOFTWARE (I) PVT. LTD., IN IT(TP)A NO. 1/BANG/2012 DT. 10-05 -2013 (SUPRA), THIS COMPANY IS ACCORDINGLY EXCLUDED. 2. BODHTREE CONSULTING LTD 10.3. THIS COMPANY WAS RETAINED BY LD.CIT(A) BUT AS SESSEE OBJECTS ON THE BASIS OF FUNCTIONALITY. HOWEVER, AS SEEN FROM THE O RDERS OF CO-ORDINATE BENCHES IN THE CASE OF ITO VS. M/S. SUNQUEST INFORM ATION SYSTEMS (INDIA) PRIVATE LIMITED, IN IT(TP)A NO. 1302/BANG/2011 DT. 11-06-2015 (SUPRA) AS WELL AS DCIT VS. TOSHIBA EMBEDDED SOFTWARE (I) PVT. LTD., IN IT(TP)A NO. 1/BANG/2012 DT. 10- 05-2013, BODHTREE CONSULTING LT D., WAS ACCEPTED AS A COMPARABLE. HOWEVER, IN THE CASE OF CORDYS SOFTWARE INDIA P. LTD., IN ITA NO. 1451/HYD/2010 DT. 13-06-2014 (WHERE ONE OF US, AM IS THE AUTHOR) HAS CONSIDERED IN DETAIL AND EXCLUDED THE SAME FOR THE FOLLOWING REASONS: 1. BODHTREE CONSULTING LTD. THE LEARNED COUNSEL SU BMITTED THAT THIS COMPANY SHOULD BE REJECTED UNDER THE FOLLOWING TPO S FILTERS: RELATED PARTY TRANSACTIONS FILTER: AS PER SCHEDULE 4 OF THE BALANCE SHEET, THE COMPANY HAS INVESTMENTS IN PERIGON, LIC, USA AND AS PER THE RESPONSE U/S 133(6); THE COMPANY HAS EXPORT SAL ES TO PERIGON LIC, USA OF RS. 133.90 LAKHS, BEING 34.68% OF THE T OTAL TURNOVER. IT(TP)A NO.1109/BANG/2011 & CO 13/BANG/2012 PAGE 16 OF 33 FUNCTIONALLY DIFFERENT FILTER: THE COMPANY IN ITS RESPONSE TO NOTICE U/S 133(6) HAS STATED THAT IT PROVIDES E-PAPER SOLU TIONS, DATA CLEANSING SOFTWARE, WEBSITE DEVELOPMENT AND OTHER C USTOMIZED SOFTWARE AND ALSO STATE THAT THE E-PAPER SOLUTIONS AND DATA CLEANSING SERVICES WOULD COME UNDER THE CATEGORY OF IT ENABLE D SERVICES . CONSIDERING THE ABOVE, WE DIRECT THAT THE ABOVE COMPANY HAS TO BE EXCLUDED ON THE REASON OF RPT OF MORE THAN 25% AND FUNCTIONA LITY. ITA NO.2028/BANG/2016 NTT DATA GLOBAL DELIVERY SERVICES PVT. LTD. (FORMERLY KEANE INDIA LIMITED), BANGALORE PAGE 5 OF 10 3. FLEXTRONICS SOFTWARE SYSTEMS LTD.,: 10.10. THIS COMPANY WAS OBJECTED TO ON FUNCTIONAL D ISSIMILARITY. THIS WAS CONSIDERED IN ITO VS. M/S. SUNQUEST INFORMATION SYS TEMS (INDIA) PRIVATE LIMITED, IN IT(TP)A NO. 1302/BANG/2011 DT. 11-06-20 15 (SUPRA) AS UNDER: 26. AS FAR AS FLEXTRONICS SOFTWARE LIMITED IS CONC ERNED, WE FIND THAT AT PAGE 90 OF HIS ORDER, THE TPO HAS ALSO OBSE RVED THAT IT(TP)A NO.1109/BANG/2011 & CO 13/BANG/2012 PAGE 25 OF 33 T HE SAID COMPANY HAS INCURRED EXPENDITURE FOR SELLING OF PRO DUCTS AND HAS INCURRED R & D EXPENDITURE FOR DEVELOPMENT OF THE P RODUCTS. THE ABOVE FACTS CLEARLY DEMONSTRATE THAT THERE IS FUNCT IONAL DISSIMILARITY BETWEEN THE ASSESSEE AND THESE COMPANIES AND WITHOU T MAKING ADJUSTMENT FOR THE DISSIMILARITIES BROUGHT OUT BY T HE TPO HIMSELF, THESE COMPANIES CANNOT BE TAKEN AS COMPARABLE COMPA NIES. THE METHOD ADOPTED BY THE TPO TO ALLOCATE EXPENDITURE P ROPORTIONATELY TO THE SOFTWARE DEVELOPMENT SERVICES AND SOFTWARE P RODUCT ACTIVITY CANNOT BE SAID TO BE CORRECT AND REASONABLE. WHEREV ER, THE ASSESSING OFFICER/TPO CANNOT MAKE SUITABLE ADJUSTMENT TO THE FINANCIAL RESULTS OF THE COMPARABLE COMPANIES WITH THE ASSESSEE COMPA NY TO BRING THEM ON PAR WITH THE ASSESSEE, THESE COMPANIES ARE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. THEREFORE, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THESE THREE COMPANIES FROM T HE LIST OF COMPARABLES . RESPECTFULLY FOLLOWING, WE EXCLUDE THE SAME. 4. TATA ELXSI LIMITED 28. WE HAVE CONSIDERED HIS SUBMISSION AND FIND THAT THE ITAT HYDERABAD BENCH (CNO IT SERVICES (INDIA) PVT LTD (ITA NO.1280 /HYD/2010 DATED 12.2.2014 FOR AY 2005-06) ON IDENTICAL FACTS, HELD ON COMPARABILITY OF TATA ELXSI LTD. AS FOLLOWS: 15.7. TATA ELXSI LIMITED : THE OBJECTION OF THE AS SESSEE IS THAT TATA ELXSI OPERATING TWO SEGMENTS SYSTEM COMMUNIC ATION SERVICES AND SOFTWARE DEVELOPMENT SERVICES. THE TPO ACCEPTED THE SOFTWARE DEVELOPMENT SERVICES SEGMENT IN HIS T.P. ANALYSIS A ND ASSESSEES OBJECTION IS THAT THE SOFTWARE DEVELOPMENT SERVICES SEGMENT ITSELF COMPRISES OF THREE SUBSERVICES NAMELY (A) PRODUCT D ESIGN SERVICES (B)DESIGN ENGINEERING SERVICES AND (C) VISUAL COMPU TING LABS. IT WAS SUBMITTED THAT THESE SERVICES ARE NOT AKIN TO ASSES SEE SOFTWARE SERVICES AND SEGMENTAL INFORMATION OF ONLY PRODUCT DESIGN SERVICES COULD HAVE BEEN ACCEPTED BY THE TPO AS A COMPARABLE BUT NOT THE ENTIRE SOFTWARE DEVELOPMENT SERVICE. SINCE COMPANY S OPERATIONS ARE FUNCTIONALLY DIFFERENT AS SUCH, THE SAME IS NOT COM PARABLE. FURTHER, ASSESSEE IS ALSO OBJECTING ON THE BASIS OF INTANGIB LE SCALE OF OPERATIONS. THE COORDINATE BENCH IN THE CASE OF INT OTO (SUPRA) CONSIDERED THE ISSUE AS UNDER IN PARA 22: ITA NO.2028/BANG/2016 NTT DATA GLOBAL DELIVERY SERVICES PVT. LTD. (FORMERLY KEANE INDIA LIMITED), BANGALORE PAGE 6 OF 10 '22 TATA ELXSI LIMITED : AS REGARDS THIS COMPANY, T HE LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE, FILED BEFORE US THE REPLY OF TATA ELXSI LIMITED TO THE ADDL. CIT (T RANSFER PRICING), HYDERABAD, WHEREIN THE CONCERNED OFFICER HAS BEEN INFORMED THAT TATA ELXSI LIMITED IS SPECIALISED EMB EDDED SOFTWARE IT(TP)A NO.1109/BANG/2011 & CO 13/BANG/201 2 PAGE 22 OF 33 DEVELOPMENT SERVICE PROVIDER AND THAT IT CANNOT BE COMPARED WITH ANY OTHER SOFTWARE DEVELOPM ENT COMPANY. IT WAS SUBMITTED THAT BECAUSE OF THE SPECI ALISATION AND ALSO BECAUSE OF DIVERSE NATURE OF ITS BUSINESS, IT IS VERY DIFFICULT TO SCALE-UP THE OPERATIONS OF TATA ELXSI LIMITED. IN VIEW OF THIS, TATA ELXSI LIMITED HAS INFORMED THAT IT IS NOT FAIR TO USE ITS FINANCIAL NUMBERS TO COMPARE IT WITH ANY OTHER COMPANY. THE COMMUNICATION DATED 25TH AUGUST, 2009 TO THE TPO IS PLACED BEFORE US. AS THIS COMMUNICATION WAS NOT BEFORE THE TPO AT THE TIME OF TRANSFER PRICING ADJU STMENT WE DEEM IT FIT AND PROPER TO REMAND THIS ISSUE ALSO TO THE FILE OF THE TPO TO RECONSIDER ADOPTING THIS COMPANY AS THE COMPARABLE IN THE LIGHT OF OBSERVATIONS OF THIS COM PANY TO THE TPO IN THE CASE OF ANOTHER ASSESSEE. IN THE RESULT, THE ASSESSING OFFICER/TPO IS DIRECTED TO RECONSIDER THE ISSUE IN ACCORDANCE WITH LAW, AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. KEEPING THE ASSESSEES OBJECTIONS AND THE DECISIONS OF THE COORDINATE BENCH, PRIMA FACIE, WE ARE OF THE VIEW T HAT TATA ELXSI LIMITED IS FUNCTIONALLY DIFFERENT AND HAS INCOMPARA BLE SIZE TO THAT OF THE ASSESSEE. FURTHER, WE ARE UNABLE TO VERIFY WHET HER THE SEGMENTAL PROFITS ADOPTED BY THE TPO PERTAIN TO ENTIRE SOFTWA RE DEVELOPMENT SERVICES OR PERTAIN TO LIMITED SERVICE AKIN TO ASSE SSEE SERVICES. SINCE, THESE ASPECTS ARE NOT CLEAR FROM THE DATA FURNISHED BEFORE US, WE DIRECT THE TPO TO EXAMINE AND IN CASE, THE SEGMENTA L PROFITS OF A PARTICULAR SERVICE IS NOT AVAILABLE, THEN, TO EXCLU DE THE TATA ELXSI LIMITED FROM THE LIST OF COMPARABLES. ACCORDINGLY, THIS ISSUE IS RESTORED TO THE FILE OF TPO FOR EXAMINATION AND TO DECIDE IN ACCORDANCE WITH LAW AND FACTS, AFTER AFFORDING REAS ONABLE OPPORTUNITY OF BEING HEARD TO ASSESSEE. 29. THOUGH THE ISSUE HAS BEEN SET ASIDE TO THE AO I N THE AFORESAID DECISION, THE ITAT HYDERABAD IN THE CASE OF NTT DATA INDIA EN TERPRISE APPLICATION SERVICES PVT.LTD., ITA NO.1612/HYD/2010 ORDER DATED 23.10.2013 AND IN A SUBSEQUENT RULING IN THE CASE OF INVENSYS DEVELOPME NT CENTRE (INDIA) PVT.LTD., ITA NO.1256/HYD/2010 ORDER DATED 28.2.201 4, HELD THAT TATA ELXSI IT(TP)A NO.1109/BANG/2011 & CO 13/BANG/2012 P AGE 23 OF 33 IS NOT FUNCTIONALLY COMPARABLE WITH THAT OF A SOFTWARE DEV ELOPMENT SERVICE PROVIDER SUCH AS THE ASSESSEE. ITA NO.2028/BANG/2016 NTT DATA GLOBAL DELIVERY SERVICES PVT. LTD. (FORMERLY KEANE INDIA LIMITED), BANGALORE PAGE 7 OF 10 30. IN VIEW OF THE AFORESAID DECISION RENDERED ON I DENTICAL FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT TATA ELXSI L TD., SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. WE NOTICE THAT THE CO-ORDINATE BENCH IN THE CASE OF SHARP SOFTWARE DEVELOPMENT INDIA P LTD HAS FOLLOWED THE DECISION R ENDERED BY ANOTHER CO-ORDINATE BENCH IN THE CASE OF ACIT VS. M CAFEE SOFTWARE (INDIA) P LTD (IT(TP)A NOS. 04/BANG/2012 & 1338/BAN G/2011). ACCORDINGLY, FOLLOWING THE DECISION RENDERED BY THE CO-ORDINATE BENCH IN THE CASE OF SHARP SOFTWARE DEVELOPMENT INDIA P L TD (SUPRA), WE DIRECT EXCLUSION OF FOUR COMPANIES CITED ABOVE. 9. THE NEXT ISSUE URGED BY THE ASSESSEE RELATES TO COMPUTATION OF BOOK PROFIT U/S 115JB OF THE ACT. THE AO NOTICED T HAT THE ASSESSEE HAS DEBITED ITS PROFIT AND LOSS ACCOUNT WITH PROVI SION FOR BONUS OF RS.3.49 CRORES. THE A.O. TOOK THE VIEW THAT THE PR OVISION FOR BONUS IS A CONTINGENT LIABILITY AND HENCE, THE SAME IS RE QUIRED TO BE ADDED TO THE NET PROFIT FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. ACCORDINGLY, THE A.O. ADDED THE SAME T O THE NET PROFIT. THE LD. CIT(A) ALSO CONFIRMED THE SAME. 10. THE LD. A.R. SUBMITTED THAT THE ASSESSEE HA S PROVIDED FOR BONUS PAYABLE BY IT AS AT THE YEAR END AS PER THE A CCOUNTING PRINCIPLES FOLLOWED BY THE ASSESSEE, SINCE IT IS A KNOWN LIABILITY. HE FURTHER SUBMITTED THAT THE ASSESSEE HAD PAID THE AB OVE SAID AMOUNT OF BONUS IN THE SUCCEEDING YEAR. ACCORDINGLY, HE S UBMITTED THAT THE PROVISION FOR BONUS CANNOT BE CONSIDERED AS CONTING ENT LIABILITY. 11. WE HEARD LD. D.R. ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT THE NATURE OF LIABILITY IN RESPECT OF PROVISION FOR BONUS WAS EXAMINED BY CHENNAI BENCH OF TRIBUNAL IN THE CA SE OF ACIT VS. SUN PAPER MILLS LTD. (ITA NO.806/MDS/2011 DATED 14. 7.2011) AND IT WAS DECIDED AS UNDER: ITA NO.2028/BANG/2016 NTT DATA GLOBAL DELIVERY SERVICES PVT. LTD. (FORMERLY KEANE INDIA LIMITED), BANGALORE PAGE 8 OF 10 WE FIND THAT THE PROVISION MADE BY THE ASSESSEE TO WARDS BONUS WAS NOT AN UNASCERTAINED LIABILITY. THE ASSESSEE WAS BOUND TO PAY BONUS TO ITS EMPLOYEES AND IN FACT THE BONUS WAS ACTUALLY PAID B Y THE ASSESSEE COMPANY. THE ONLY THING IS THAT THE BONUS WAS PAID AFTER THE CLOSE OF THE PREVIOUS YEAR. THE HONBLE SUPREME COURT IN THE CA SE OF BHARAT EARTH MOVERS V. CIT (245 ITR 428) HAS HELD THAT IN SUCH C ASES OF PROVISION FOR BONUS, IT IS TO BE SEEN THAT THE LIABILITY IS NOT U NASCERTAINED BUT AT THE MAXIMUM THE QUANTUM ALONE IS EXACTLY NOT ASCERTAINA BLE. IT IS NOT POSSIBLE TO HOLD THAT THE LIABILITY ITSELF WAS UNAS CERTAINED. BUT IN THE PRESENT CASE, WE FURTHER FIND THAT EVEN THE QUANTUM HAS ALREADY BEEN ASCERTAINED BY THE ASSESSEE AND IT WAS BROUGHT IN A PROVISION ONLY FOR THE REASON THAT IT WAS NOT PAID DURING THE RELEVANT PREVIOUS YEAR. THEREFORE, THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS RIGHTLY HELD THAT THE ADJUSTMENT MADE BY THE ASSESSING AUTHORITY WAS NOT PERMITTED IN LAW. WE ALSO NOTICE THAT THE ABOVE SAID DECISION WAS REN DERED BY CHENNAI BENCH OF TRIBUNAL IN THE CONTEXT OF SECTION 115JB ONLY. THE LD A.R ALSO SUBMITTED THAT THE ASSESSEE THAT TH E ASSESSEE HAS ACTUALLY PAID THE BONUS IN THE SUCCEEDING YEAR. ACCORDINGLY, WE HOLD THAT THE PROVISION FOR BONUS CREATED BY THE ASSESSEE IS AN ASCERTAINED LIABILITY. ACCORDINGLY, WE SET ASID E THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE AND DIRECT THE A .O. TO EXCLUDE IT FROM BOOK PROFIT. 12. THE NEXT ISSUE RELATES TO DISALLOWANCE MADE U/S 14A OF THE ACT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE EARNED DIVIDEND INCOME OF RS.41.02 LAKHS AND CLAIME D THE SAME AS EXEMPT. HOWEVER, THE ASSESSEE DID NOT MAKE ANY DISALLOWANCE U/S 14A OF THE ACT. THE A.O. COMPUTED THE DISALLOWANCE BY APPLYING RULE 8D(2)(III) OF I.T. RU LES. ACCORDINGLY, THE A.O. DISALLOWED A SUM OF RS.7,87,8 30/- OUT OF ADMINISTRATIVE EXPENSES U/S 14A OF THE ACT. THE LD . CIT(A) CONFIRMED THE SAME. ITA NO.2028/BANG/2016 NTT DATA GLOBAL DELIVERY SERVICES PVT. LTD. (FORMERLY KEANE INDIA LIMITED), BANGALORE PAGE 9 OF 10 13. THE LD. A.R. SUBMITTED THAT THE PROVISIONS OF RULE 8D HAS BEEN HELD TO BE PROSPECTIVE IN OPERATION BY HONBLE SUPREME COURT IN THE CASE OF CIT VS. ESSAR TELE HOLDINGS LT D. (2018) 401 ITR 445 AND HENCE IT IS NOT APPLICABLE TO ANY ASSES SMENT YEAR PRIOR TO ASSESSMENT YEAR 2008-09. THE LD. A.R. SUB MITTED THAT THE ASSESSMENT YEAR UNDER CONSIDERATION IS AY 2005- 06 AND HENCE THE TAX AUTHORITIES ARE NOT JUSTIFIED IN APPL YING THE PROVISIONS OF RULE 8D FOR THE YEAR UNDER CONSIDERAT ION. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT INCURRE D ANY EXPENDITURE IN EARNING THE DIVIDEND INCOME AND HENC E NO DISALLOWANCE U/S 14A OF THE ACT IS CALLED FOR. IN THIS REGARD, HE PLACED HIS RELIANCE ON THE DECISION RENDERED BY HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SYNDICA TE BANK (2020)(115 TAXMANN.COM 287). 14. WE HEARD LD D.R AND PERUSED THE RECORD. SI NCE THE PROVISIONS OF RULE 8D HAS BEEN HELD TO BE PROSPECTI VE IN NATURE, I.E., FROM AY 2008-09 ONWARDS, THE TAX AUTHORITIES ARE NOT JUSTIFIED IN APPLYING THE SAME TO THE ASSESSMENT YE AR UNDER CONSIDERATION. HOWEVER, THE PROVISIONS OF SEC.14A SHALL APPLY TO THE EXEMPT INCOME. HENCE THE DISALLOWANCE U/S 14A SHOULD BE MADE ON A REASONABLE BASIS. WE NOTICE THAT THE DEC ISION IN THE CASE OF SYNDICATE BANK LTD (SUPRA) HAS BEEN RENDERE D IN THE FACTS PREVAILING IN THAT CASE. WE NOTICE THAT THE HONBLE BOMBAY HIGH COURT, IN THE CASE OF GODREJ AGROVET LTD (IT A PPEAL NO.934 OF 2011 DATED 01-08-2013) HAS UPHELD DISALLOWANCE O F 2% OF THE DIVIDEND INCOME TO MEET THE REQUIREMENTS OF SEC.14A PRIOR TO INSERTION OF RULE 8D. ACCORDINGLY, WE SET ASIDE TH E ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO RES TRICT THE DISALLOWANCE U/S 14A TO 2% OF THE EXEMPT DIVIDEND I NCOME. ITA NO.2028/BANG/2016 NTT DATA GLOBAL DELIVERY SERVICES PVT. LTD. (FORMERLY KEANE INDIA LIMITED), BANGALORE PAGE 10 OF 10 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH DEC, 2020 SD/- (GEORGE GEORGE K. ) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 17 TH DEC, 2020. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.