Appeal details
Counselvise Citation
[2021] 104 COUNSELVISE.COM (IT) 6400 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
6 year(s) 9 month(s) 6 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
14-12-2021
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
A
Assessment Year
2010-2011
Appeal Filed On
08-03-2015
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER IT(TP)A No. and Assessment Year Appellant Respondent 543/Bang/2015 2010-11 M/s. SanDisk India Device Design Centre Pvt. Ltd., Survey No.143/1, Amani Bellandur Khane Village, Prestige Excelsior, Prestige Tech Park, Marathalli- Sarjapur Outer Ring Road, Kadubeesanahalli, Varthu Hobli, Bengaluru – 560 103. PAN : AAICS 9204 M The Income Tax Officer, Ward - 6(1)(1), Bengaluru. 341/Bang/2015 2010-11 The Income Tax Officer, Ward - 6(1)(1), Bengaluru. M/s. SanDisk India Device Design Centre Pvt. Ltd., Bengaluru – 560 103. PAN : AAICS 9204M Appellant by:Smt. Tanmayee Rajkumar, Advocate Respondent by:Shri.Sunil KumarSingh, CIT(DR)(ITAT), Bengaluru Date of hearing:13.12.2021 Date of Pronouncement:15.12.2021 O R D E R Per N. V. VASUDEVAN, Vice President: IT(TP)A No.341/Bang/2015 is an appeal by the Revenue while IT(TP)A No.543/Bang/2015 is an appeal by the assessee. Both these appeals are directed against the final Order of Assessment dated 30.01.2015 passed by the ITO, Ward – 6(1)(1), Bengaluru, under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter called ‘the Act’), in relation to Assessment Year 2010-11. IT(TP)A Nos.543, 341/Bang/2015 Page 2 of 36 2. The assessee is a wholly owned subsidiary of SanDisk Corporation, USA. During the relevant previous year, the Assessee provided Software Development (SWD) services and Management Support [MS] services to SanDisk Corporation, USA, and to other SanDisk group i.e., entities, i.e. its Associated Enterprises (AEs). Also, as the Unit from which the Assessee provided its aforesaid SWD and MS services was registered with the STPI Authorities. it was eligible for and, accordingly, claimed a deduction of Rs.4,12.44.562/-. being the profits of business of the said Unit, under Section 10A of the Act. In the Order dated 30.01.2014 passed by the Transfer Pricing Officer (TPO), U/s.92CA of the Act, the TPO made an adjustment of Rs.2,20,81,655/- towards the Assessee's aforesaid international transaction of provision of SWD services and an adjustment of Rs.22,57,694/-towards the Assessee's international transaction of provision of MS services. Subsequently, vide an order dated 21.03.2014 passed by the TPO under Section 92CA(5) read with Section 154 of the Act, the adjustments to the international transactions of provision of SWD and MS services were rectified to Rs.2,11,85,874/- and Rs.22,30,608/- respectively. Consequently, the aggregate TP adjustment was reworked to Rs.2,34,16,482/-. 3. In the draft assessment order dated 24.03.2014 passed by the AO, the aforesaid rectified Transfer Pricing (TP) adjustment was incorporated. Further, out of the deduction claimed by the Assessee under Section 10A, the AO reduced the following expenses from only its export turnover without making a corresponding reduction thereof from the Unit's total turnover: (1) telecommunication charges to the extent of Rs.55,59,629/-; (2) travel expenses incurred in foreign currency of Rs.1,75,60,563/-; (3) insurance charges of Rs.22,67,733/-; (4) forex loss of Rs.1,11,04,554/-; and IT(TP)A Nos.543, 341/Bang/2015 Page 3 of 36 (5) unrealised export sales / unbilled revenue of Rs.83,70,913/- (actual figure is Rs.33,84.450/- and not the sum that was reduced by the AO). Thereby, the AO recomputed the deduction allowable under Section 10A. In addition, the AO disallowed the deduction of Rs.50,93,594/- claimed by the Assessee, being the loss incurred by it due to misappropriation of funds by one of its ex-employees. Further, while computing the Assessee's income chargeable to tax under the Act, the AO did not adjust the Assessee's brought forward MAT credit. Also, the AO did not grant TDS credit of Rs.7,546/-. The AO did not grant credit of advance tax of Rs.57,12,093/- that was claimed by the Assessee in its return of income while computing its income chargeable to tax in the draft assessment order. 4. Aggrieved, the Assessee filed its objections before the DRP which, vide its directions dated 10.12.2014. granted partial relief to the Assessee by accepting some of its contentions. 5. Pursuant to the directions of the DRP, the AO passed the final assessment order dated 30.01.2015. As per the directions of the DRP, the aggregate TP adjustment was reworked in the final assessment order to Rs.1,89,69,684/-. The disallowance of the loss claimed on account of misappropriation of funds was retained in the final assessment order. Similarly, although the DRP had directed the AO to verify the Assessee's claims as regards ground of objection no. 10 (MAT credit) and ground of objection no. 11 (TDS Credit) and to allow the same if the claims were found to be correct, no relief whatsoever was granted to the Assessee on these issues in the final assessment order. Further, the advance tax claim was restricted to 52,12,093 as against credit of Rs. 57,12,093 claimed by the Assessee in the return of income. The disallowance under Section 10A was, IT(TP)A Nos.543, 341/Bang/2015 Page 4 of 36 however, deleted in the final assessment order pursuant to the DRP's directions. 6. To the extent its objections were not allowed by the DRP, the Assessee has filed the above appeal before this Tribunal. So also, to the extent the DRP allowed the Assessee's objections, the Revenue has filed the above appeal before this Hon'ble Tribunal. 7. We shall first deal with the TP adjustment in the Software Development Services Segment: The assessee rendered software development services to an Associated Enterprise (AE) and in terms of section 92 of the Act, income arising from an international transaction (transaction with AE) has to be determined having regard to Arm’s Length Price (ALP). It is not in dispute that both the assessee and the TPO adopted Transaction Net Margin Method (TNMM) as the most appropriate method (MAM) for determining the ALP of the international transaction. The Proft Level Indicator (PLI) chosen for the purpose of comparing assessee’s margin with that of the comparable companies was Operating Profit / Total Cost (OP/TC). The OP/TC of the assessee was computed as follows: Operating Income Rs. 28,96,00,338/- Operating Expenses Rs. 25,74,22,523/- Operating Profit (Op. Income — Op. Expenses) Rs. 3,21,77,815/- Operating/Net margin (OP/TC) 12.50% 8. The assessee chose 9 comparable companies whose average arithmetic mean profit margin was 10.48%. Since the assesse’s profit margins were higher than that of the average arithmetic mean profit margin IT(TP)A Nos.543, 341/Bang/2015 Page 5 of 36 of the comparables chosen in the TP study, the assessee claimed that the price that it received for rendering services to the AE was at arm’s length. 9. The TPO to whom a reference was made determination of ALP by the AO u/s.92CA of the Act, accepted 2 out of the 9 comparable companies chosen by the Assessee as comparable with the assessee and he on his own selected 9 other comparable companies and arrived at a set of 11 comparable companies. The average arithmetic aprofit margin of the comparable companies chosen by the TPO and the manner in which the TPO determined the ALP of the international transaction and the consequent addition to be made to the total income was as follows: Comparables selected by the TPO and their arithmetic mean: SI. No. Comparables Selected by TPO NCP Margins as per TP Order (%) (WC- Unadj) NCP Margins as per TP Order (%) (WC Adj) 1 ICRA Techno Analytics Ltd.(seg) 24.94 14.73 2 Infosys Ltd. 44.98 34.08 3 KALS Information Systems Ltd. (seg) 34.41 21.63 4 Larsen & Toubro Infotech Ltd. 19.33 12.04 5 Mindtree Ltd. (seg) 14.83 5.98 6 Persistent Systems & Solutions Ltd. 15.38 5.28 7 Persistent Systems Ltd. 30.35 20.46 8 RS Software (India) Ltd. 10.29 3.75 9 Sasken Communication Technologies 17.36 9.51 10 Tata Elxsi Ltd. (seg) 20.93 11.04 11 Thinksoft Global Services Ltd. 17.05 6.83 Arithmetical Mean 22.71 13.21 IT(TP)A Nos.543, 341/Bang/2015 Page 6 of 36 10. Computation of arm's length price by the TPO and the adjustment made post the rectification order passed by the TPO: Arm's Length Mean Margin 22.71% Less: Working Capital Adjustment (Restricted) *1.98% Adjusted mean margin of the comparables 20.73% Operating Cost Rs.25,74,22,523/- Arm's Length Price (ALP): 120.73% of Operating Cost Rs.31,07,86,212/- Price Received Rs.28,96,00,338/- Short fall being adjustment u/s. 92CA Rs.2,11,85,874/- * Note: The TPO applied an upper-cap / restrictor of 1.98% to the WC adjustment and thus arrived at the WC-adjusted mean margin of 20.73%. 11. The assessee filed objections before the Dispute Resolution Panel (DRP) against the proposed additions. Briefly, the directions issued by the DRP are as under: (i) Limitation: The Assessee's contention that the assessment order is barred by limitation and therefore without jurisdiction was rejected by the DRP without assigning any reasons for the same. (ii)Turnover filter: The DRP directed the TPO to apply the turnover filter at the upper and lower ends, i.e., the range of Rs.1 crore to Rs.200 crore and, consequently, to exclude the following 6 companies selected by the TPO: Infosys Ltd. - Rs.21,206 Crores Larsen & Toubro Infotech Ltd. - Rs.1792.13 Crores Mindtree Ltd. (seg) - Rs.740.14 Crore s Persistent Systems Ltd. - Rs.511.04 Crores Sasken Communication Technologies Ltd. – Rs.402.12 Crores Tata Elxsi Ltd. (seg) - Rs.33,694 Crores (iii) Working capital adjustment: IT(TP)A Nos.543, 341/Bang/2015 Page 7 of 36 The DRP rejected the Assessee's contentions and held that it did not find any infirmity in the TPO's action in applying an upper limit while granting working capital adjustment. (iv) Functionality filter: The DRP rejected the Assessee's contentions in this regard and held that the five companies that remained after exclusion of the aforesaid six companies on application of the turnover filter were functionally comparable to the Assessee's SWD service segment. 12. List of comparables post the DRP's directions: On giving effect to the directions issued by the DRP, the final list of comparable companies and their respective margins, are as follows: SI. No. Cornparables Selected by TPO NCP Margins as per TP Order (%) (WC- Unadj) NCP Margins as per TP Order (%) (WC Adj) 1 ICRA Techno Analytics Ltd.(seg) 24.94 14.73 2 KALS Information Systems Ltd. 34.41 12.79 3 Persistent Systems & Solutions Ltd. 15.38 10.10 4 RS Software (India) Ltd. 10.29 6.54 5 Thinksoft Global Services Ltd. 17.05 6.83 Arithmetical Mean 20.41 10.45 13. Aggrieved by the direction of the DRP to the extent it was prejudicial to the interest of the revenue and the assessee respectively, these cross appeals have been filed. 14. As far as Revenue’s appeal is concerned, ground No.1 and grounds 7, 8 are general in nature and do not require any specific adjudication. Ground Nos.2 and 3 raised by the Revenue is with regard to the relief IT(TP)A Nos.543, 341/Bang/2015 Page 8 of 36 allowed by the DRP in the SWD services segment and these grounds read as follows: 2. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in law in holding that the size, turnover and brand of the company are the deciding factors for treating a company as a comparable and accordingly erred in excluding M/s. Tata Elxsi Limited, Sasken Communication Technologies Ltd., Persistent Systems Ltd., Mindtree Ltd., L & T Infotech and Infosys Technologies Ltd. as comparables. 3. On the facts and in the circumstances of the case, the Disputes Resolution Panel erred in excluding uncontrolled comparables having turnover more than Rs. 200 crores in the absence of Turnover criterion prescribed in Rule 10B of Income Tax Rules and also there being no correlation between turnover and profit margin. 15. As far as the aforesaid grounds raised by the Revenue are concerned, the Bengaluru Benches of the Tribunal have been taking a consistent view on application of turnover filter. In the case of Autodesk India Pvt. Ltd., Vs. DCIT (2018) 96 taxmann.com 263 (Bengaluru Tribunal), the Tribunal analysed all the conflicting decisions on the application of turnover filter and came to the conclusion that the criteria of classification of companies for application of turnover filter by categorizing companies falling within turnover range of 1 to 200 crores, 200 to 500 crores and 500 to 1000 crores as laid down in the case of Genesis Integrating Systems India Pvt. Ltd., (2012) 53 SOT 159 (Bengaluru Tribunal) had to be follows. Following were the relevant observations of the Tribunal: “17.7 We have considered the rival submissions. The substantial question of law (Question No.1 to 3) which was framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors IT(TP)A Nos.543, 341/Bang/2015 Page 9 of 36 (India) Pvt. Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non-jurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of Pentair Water India (P.) Ltd. (supra) has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8 In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating Systems (I) (P.) Ltd. (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating Systems (I) (P.) Ltd. (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys integrating Systems (I) (P.) Ltd. (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India (P.) Ltd (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place IT(TP)A Nos.543, 341/Bang/2015 Page 10 of 36 reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon'ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra).” 16. We also observe that both the assessee and the TPO have applied a filter of excluding companies whose turnover was less than Rs. 1 Crore. While the lower turnover of not choosing comparable companies of less than Rs.1 Crore was applied by the TPO, the TPO by the same analogy ought to have applied the upper turnover filter also for the purpose of choosing comparable companies. We are therefore of the view that the CIT(A) was justified in applying the turnover filter and excluding companies from the list of comparable companies whose turnover was in excess of Rs.200 Crores. Assessee’s turnover was only Rs.28.96 Crores and therefore the assessee cannot be compared with the 6 comparable companies whose turnover was more than 200 Crores. Consequently, grounds 2 and 3 raised by the Revenue are dismissed. 17. The other grounds with regard to the determination of ALP and the software development services segment are raised by the assessee in its grounds of appeal. In so far as the software development services segment is concerned, the grounds that were pressed for adjudication by the assessee were ground 1.2, 6.1 and 6.3 and 8. These grounds read as follows: IT(TP)A Nos.543, 341/Bang/2015 Page 11 of 36 1.2 The Assessment proceedings, in the absence of any reference to the TPO before 31 March 2013, are barred by limitation of time and therefore without jurisdiction as per the provisions of section 153(1) of the Act. 6.1 The AO/ TPO grossly erred on facts and the IA. Panel erred in confirming the benchmarking of transactions of software development services of the Appellant with companies such as ICRA Techno Analytics Ltd.. KAIS Information Systems Ltd., Persistent Systems & Solutions Ltd., Infosys Ltd., Persistent Systems Ltd.. Sasken Communication Technologies Ltd.. and Tata Elxsi Ltd. which are operating as full-fledged entrepreneurs without considering the differences in the functions performed assets emploed and risk undertaken by the Appellant vis-a-vis comparable companies. 6.3 The AO/ TPO erred on facts in rejecting the comparable companies arrived at in the Transfer Pricing Study such as Akshay Software Technologies Ltd., without considering the functional and risk analysis of the appellant and the Ld. Panel also erred in confirming the same. Non-allowance of appropriate adjustment to the comparable companies by the Ld. Panel and AO/ TPO 8. AO/ TPO erred in law and on facts in not allowing appropriate adjustments under Rule 10B to account for, inter alia, differences in (i) accounting practices, (ii) marketing expenditure adjustment, (iii) research and development expenditure adjustment, (iv) working capital, and (iv) risk profile between the Appellant and the comparable companies. 18. As far as ground No.6.1 raised by the assessee is concerned, in the aforesaid ground, the assessee has sought exclusion of 9 comparable companies. Out of the 9 comparable companies, 6 comparable companies have already been excluded by application of the turnover filter by the DRP. The said order of the DRP has already been confirmed by us. In assessee’s appeal, the assessee has sought to exclude these very same 6 companies by contending that these 6 companies are otherwise functionally not comparable. Since these companies have already been excluded from the list of comparable companies, we are of the view that rendering any decision on the functional comparability of these 6 companies would be academic, though these companies have been held to be functionally not IT(TP)A Nos.543, 341/Bang/2015 Page 12 of 36 comparable in the case of DCIT Vs. Electronic for Imaging India Pvt. Ltd., (2016) 70 taxmann.com 299 (Bengaluru Tribunal). 19. The remaining 3 companies out of the 9 comparable companies sought to be excluded in ground 6.1 are ICRA Techno Analytics Ltd., Kals Information Systems Ltd., and Persistent Systems and Solutions Ltd. As far as the comparability of these 3 companies with a company rendering software development services such as the assessee, the Tribunal in the case of Electronic for Imaging India Pvt. Ltd., (supra) rendered its decision with reference to Assessment Year 2010-11 and considered these 3 companies as not comparables. It is also relevant to point out that the very same set of 11 comparable companies were chosen by the TPO in the case of the assessee in this case and the assessee in the case of Electronic for Imaging India Pvt. Ltd. Vide paragraph 15 of the aforesaid decision, ICRA Techno Analytics Ltd., was held to be a company engaged in the diversified activities of software development, consultancy engineering services, web development and hosting and substantially diversified itself into domain of business and business process outsources and hence not comparable with a SWD service provider. Vide paragraph 23 of the very same order, Kals Information Systems Ltd., was held to be a company engaged in software development product and therefore cannot be compared with a SWD service provider such as the assessee. Vide paragraph 61 of the very same order, Persistent Systems and Solutions Ltd., was held to be not comparable for the reason that the revenue earned by this company was from sale of software services as well as sale of software products and no segmental details were available. Respectively following the aforesaid decision, we hold that the aforesaid 3 companies have to be excluded from the list of comparable companies. IT(TP)A Nos.543, 341/Bang/2015 Page 13 of 36 20. As far as Ground 8 raised by the assessee is concerned, the same is with regard to action of the AO in not allowing working capital adjustment on the basis of actuals and restricting the working capital adjustment by restricting the same to 1.8%. The working capital adjustment worked out by the TPO on the basis of actuals was 8.08% but in the order passed under section 92CA of the Act, the AO restricted the working capital adjustment to 1.98% and no reason whatsoever was given by the TPO for doing so. The assessee challenged the action of the TPO in restricting the working capital adjustments as above. The DRP however upheld the action of the AO. The observations of the DRP in this regard are contained in paragraph 7.3.1 and 7.3.2. The DRP made a reference to decision of the ITAT Mumbai Bench in the case of Exxon Mobil Co. Ltd., Vs. DCIT 15 ITR (Tribunal) 353 wherein the Mumbai Bench has made observation in the context of deciding an issue regarding grant of risk adjustment and when working capital adjustment has already been allowed. This is not the grievance projected by the assessee before the DRP. The DRP thereafter directed the TPO to correct any arithmetic errors in calculation of working capital adjustment. Aggrieved by the directions of the DRP, the assessee has raised ground No.3 before the Tribunal. 21. Learned Counsel for the assessee submitted that the DRP erred in holding it did not find any infirmity in the action of the TPO in applying an upper limit while granting WC adjustment. In this regard it was submitted that the working capital adjustment must be granted in full without there being any arbitrary and ad-hoc upper cap or restriction to the same, as has been applied by the TPO. The working capital adjustment has been arrived at by the TPO on the basis of a scientific calculation and by adopting the methodology prescribed by the OECD Guidelines. Thus, once a working IT(TP)A Nos.543, 341/Bang/2015 Page 14 of 36 capital adjustment is arrived at in the manner prescribed by law, the consequences of such an adjustment on a comparable's profit margin cannot be the reason for applying a cap on such adjustment. Rule 10B(3) of the Income-tax Rules, 1962 (the IT Rules' for short), provides that an adjustment ought to be provided for any differences in the economic factors between the tested party and the comparables. A working capital adjustment is one such adjustment which is to be applied in order to adjust for the differences between the working capital positions of the tested party and of the comparable. The IT Rules do not provide for any cap or upper limit to such adjustments. This position under the Act and the IT Rules is also evident from the OECD Guidelines. The Assessee placed reliance on Tribunal's decision in VMware Software India Private Limited v. DCIT [Order dated 06.01.2017 in IT(TP)A No.1311/Bang/2014] (paras 34 and 35) wherein this Hon'ble Tribunal directed that WC adjustment should be given as per actual data without application of any upper limit. 22. Learned DR relied on the order of the DRP. We have considered the rival submissions. As pointed out by the learned Counsel for the assessee, this Tribunal in the case of VM Ware Software India Pvt. Ltd., (supra) has taken the following view: “34. The next issue raised by the assessee is regarding restriction of working capital adjustment benefit to 1.71%. 35. We have heard the learned Counsel for the assessee as well as learned DR and considered the relevant material on record. The TPO while computing the working capital adjustment has restricted the benefit to 1.71% instead considering the actual figure in respect of each and every comparable companies. We find that there is no provision under FAR analysis to restrict the working capital adjustment benefit arbitrarily. An identical issue has been considered by the co-ordinate bench of this Tribunal in the case of ARM IT(TP)A Nos.543, 341/Bang/2015 Page 15 of 36 Embedded Technologies Pvt. Ltd. Vs. DCIT (supra) in paras 24 & 25 as under: "24. Now coming to the issue of working capital adjustment, findings of the TPO in this regard as it appears at para 3.7, reads as under : 3.7 working Capital Adjustment: The working capital adjustment is computed us per the formula given in Annexure to the OECD Guidelines, 2009. In this case, the average PLR adopted by SBI, the largest scheduled bank, for short term working capital loans for the relevant FY 2008-09 is considered. The average PLR of 12.50% p.a was adopted by the TPO while computing the working capital adjustment, The working capital adjustment is restricted to the average cost of capital computed at 1.71% in the case of the uncontrolled comparables selected by the TPO. Hence, the working capital adjustment in the. case of the taxpayer is allowed as per the calculation in annexure —C or the average cost of capital to the comparables whichever is the lust. The detailed discussion on this is given In the Annexure-D to the order. The computation of the working capital adjustment is annexed to this order us Annexure C. TPO had restricted the cost of capital to 1.71%. Rationality for such an upper limit being placed on working capital adjustment was an issue which had come up before this Tribunal in the case of M/s. Rambus Chip Technologies (India) P. Ltd v. DCIT [IT(TP)A.23/Ban/2015, dt.22.07.2015. Coordinate bench had held as under at para 13 and 14 of its order : 13. As regards ground No.30, learned counsel for the assessee submitted that the AO/TPO while considering the working capital adjustment, has arrived at the working capital adjustment in the case of the assessee at 5.97%, but while giving effect to the working capital adjustment, has restricted the said adjustment to 1.71% in case of uncontrolled IT(TP)A Nos.543, 341/Bang/2015 Page 16 of 36 comparables selected by the TPO. The learned counsel for the assessee submitted that the TPO has not given any basis for such restriction of the working capital adjustment. He submitted that the CIT(A) also has not applied his mind to this issue but has summarily confirmed the order of the AO and therefore it has to be set aside. 14. On going through the TPO 's order as well as annexure D referred to in the transfer pricing order on working capital adjustment, we find that the AO has not given any basis for restricting the adjustment to 1.71%. In all the cases relating to transfer pricing adjustment, this Tribunal has been directing to give working capital adjustment on actual basis and the TPO having arrived at 5.97% ought to have adopted the same instead of restricting it to 1.71%. In view of the same, we deem it proper to remand this issue to the file of the AO/TPO for working out the ALP after giving adjustment of working capital as per the calculation of the AO in annexure D annexed to the transfer pricing order. This ground of appeal is accordingly allowed. 25. Accordingly we direct the AO / TPO to correctly work out the PL1 of the final comparables after giving due adjustment for the working capital on actual basis. Related ground of the assessee is therefore allowed." Accordingly, we direct the A.O./TPO to recomputed the working capital adjustment by taking the actual data without putting any upper limit.” 23. Following the aforesaid decision, we hold that working capital adjustment should be allowed on the basis of the actuals without applying any upper limit. The TPO is directed to compute the ALP of the international transaction of rendering SWD services segment in accordance with the directions in this order, after affording assessee opportunity of being heard. IT(TP)A Nos.543, 341/Bang/2015 Page 17 of 36 24. The next ground that requires adjudication is ground 1.2 raised by the assessee with regard to the Order of Assessment being barred by limitation under section 153(1) of the Act. In this regard, the period of limitation as laid down in section 153(1)(a) of the Act is two years from the end of the Assessment Year. In terms of the 3 rd proviso to section 153(1) of the Act, if during the course of proceedings for assessment of total income, a reference under sub-section (1) of section 92CA is made, the period of limitation shall be 3 years from the end of the relevant Assessment Year. According to the learned Counsel for the assessee, the draft Order of Assessment was passed on 24.03.2014 and the period of limitation had already expired on 31.03.2013. The contention of the assessee was that the time limit for passing an order of assessment under section 143 of the Act is as follows: a)If a reference to Transfer Pricing Officer under section 92CA(1) of the Act is made: Within the expiry of three years from the end of the assessment year in which the income was first assessable; or b)If a reference to Transfer Pricing Officer under section 92CA (1) of the Act is not made: two years from the end of the assessment year in which the income was first assessable. Accordingly, time limit for passing an order of assessment under section 143 for AY 2010-11 would be as follows: c)Within 31 March 2013, if no reference is made to the Transfer Pricing Officer under section 92CA (1) of the Act by 31 March 2013. d)Within 31 March 2014. if a reference is made to the Transfer Pricing Officer under section 92CA (1) of the Act is made by 31 March 2013. It was the plea of the Assessee that reference to TPO for AY 2010-11 was made in April 2013 and the same is evident from the following: a)Notice No. TP-556/TPO-VI/12-13 dated 19 April 2013 issued by the Deputy Commissioner of Income-tax — Transfer Pricing Officer —VI ; and IT(TP)A Nos.543, 341/Bang/2015 Page 18 of 36 b)Order of the Deputy Commissioner of Income-tax — Transfer Pricing Officer —VI under section 92CA of the Act dated 30 January 2014 Having regard to the provisions of section 153(1) of the Act, in the absence of any reference to the TPO before 31 March 2013 i.e., before the expiry of period of limitation of 2 years from the end of the relevant Assessment year as per Sec.153(1) of the Act, the assessment ought to have been completed by 31 March 2013. In view of the above, the Assessee submitted that the assessment proceedings are barred by limitation of time and therefore without jurisdiction. 25. The above contention raised before the DRP was rejected by the DRP but no reasons have been given by the DRP to clarify the factual aspects with regard to the date of reference by the TPO. A report dated 04.12.2020 has been filed by the AO in which it has been submitted that a reference was made to the TPO vide AO’s letter dated 18.02.2013. It has also been submitted that prior to the issue of the letter, approval of the CIT(A), Bengaluru-3, was obtained on 19.11.2012. In the order of the TPO passed under section 92CA of the Act, the TPO has mentioned as follows: “Reference u/s 92CA was made by DCIT, C - 12(3), Bangalore in the case of M/s. SanDisk btu Device Design Centre Pvt. Ltd. (referred to as SanDisk India or the taxpayer herein below it this order), vide reference letter dtd. 12/04/2013. The Commissioner of Income Tax, Bangalore-III had accorded approval for the reference vide letter No.TP/CIT.B.III/2012-13 dated 19/11/2012. The reference received is disposed in this order.” 26. The DCIT (TP-VI), Bengaluru is a TPO in the present case and the receipt tapal in the letter dated 18.02.2013 shows the date of receipt by him as 18.04.2013. In the light of the above factual details emanating from the record, the learned Counsel for the assessee submitted that the so called IT(TP)A Nos.543, 341/Bang/2015 Page 19 of 36 letter dated 18. 02. 2013 based on which the alleged reference was made is not produced, leading to the conclusion that no such letter was addressed by the Assessing Officer. A copy of the letter dated 18.2.2013 was filed by the learned DR before us and therefore this contention is without any basis and hence rejected. The next contention is that the TPO in his order dated 30.01.2014 (at page 1 of the order) and show cause notice dated 19.04.2018 (page 299 of the paperbook) refers to the reference as being dated 18 04.2013. Without prejudice and in any event, even assuming that the letter under cover of which the reference was made to the TPO was dated 18.02.2013, unless the said letter was actually despatched to the TPO, leaving the control of the AO, it cannot be said that the reference was in fact made. It was submitted that in the context of issue of notices and orders, it is a settled position that mere signing of notice cannot be equated with issuance of a notice. In order for a notice to be validly issued, it should be issued by the concerned authority so as to be beyond his control and, pertinently. such issuance of the notice ought to be within the time prescribed under the Act. It is the date on which the notice is handed over to a proper officer for its issuance that it is said to have been issued. Reliance was placed on the following decisions: K anubhai M. P at el ( HUF ) v . Hi re n Bhat t (reporte d i n [2011] 1 2 t ax man n com 1 98 (G uja rat )); Maharaja Shopping Complex v. DCIT (Order dated 14.10.2014 passed by the Hon'ble High Court of Karnataka in ITA No.832/2008]: CIT v. B J N Hotels Ltd. [reported in [2017] 79 taxmann.com 336]: Government Wood Works v. State of Kerala [reported in (1988) 69 STC 62 (Ker.)], and IT(TP)A Nos.543, 341/Bang/2015 Page 20 of 36 ACTT v. Dr. Tulsi Prasad Mohapatra [2012] 27 taxmann.com 125 (Cuttack – Trib.). It was contended that the Assessing Officer and the TPO having had their offices in the same premises, it is highly improbable that a letter dated 18.02.2013 was received in the TPO's office only two months later. It can therefore be safely assumed that the letter received by the TPO on 18.04.2013 was issued by the Assessing Officer a short while before the said date. The TP0's noting in the TP order that the reference letter is dated 12.04.2013 supports the Assessee's above contention. Moreover, the Revenue has not furnished the dispatch register evidencing dispatch of the letter, and therefore it can be assumed that the letter was not dispatched within the time limit prescribed. Secondly, as regards the Assessing Officer's contention in the letter dated 04.12.2020 that office copy of the show-cause notice is not available in the concerned folder and the Assessing Officer has not made a mention regarding the same in the assessment order, it is submitted that the notice dated 19.04.2013 came to be issued by the TPO and the same is produced by the Assessee in its paperbook at page No. 299. The reference to the said notice is made by the TPO in his order dated 30.01.2014. It is, therefore, clear that the assessment order is barred by limitation under Section 153(1) of the Act.” 27. We have given a very careful consideration to the submission made by the learned Counsel for the assessee. It is clear from the reading of the TPO’s order that he has made a reference to a letter of the AO dated 12.04.2013 and has also made a reference to the approval of the CIT(A), Bengaluru-3, for making a reference to the TPO dated 19.11.2012. It is the IT(TP)A Nos.543, 341/Bang/2015 Page 21 of 36 case of the assessee that since TPO has made reference to the letter of the AO dated 12.04.2013 and since the period of 2 years limitation laid down in section 153(1)(a) of the Act expires on 31.03.2013, the benefit of extended period of one more year as per the 3 rd proviso to section 153(1) of the Act will not be available to the Department. The Revenue has rebutted the date of reference by the AO to the TPO in the order under section 92CA of the Act, which is mentioned as 12.04.2013 by producing a letter dated 18.02.2013 issued by the AO to the TPO making a reference in the case of the assessee for determination of ALP. The assessee has sought to argue that since there is no evidence that this letter dated 18.02.2013 was actually not handed over to the TPO before 31.3.2013 and since the acknowledgment of receipt of the letter dated 18.2.2013 by the TPO mentions the date 18.04.2013, the Order of Assessment should be held to be barred by limitation. We are of the view that the argument put forth on behalf of the assessee cannot be accepted. Admittedly, prior to 31.03.2013, there had been a reference by the AO to the TPO in a letter dated 18.02.2013. The fact that the TPO received the letter of the AO making a reference under section 92CA of the Act only on 18.04.2013 cannot be the basis to conclude that there was no reference under section 92CA of the Act and therefore the extended period of limitation of 3 years under the 3 rd proviso to section 153(1) of the Act is not available to the Revenue. The argument of the learned Counsel for the assessee that the revenue should produce evidence to show that the letter dated 18,2.2013 left the control of the AO before 31.3.2013 is based on decisions rendered in the context of section 148 and in the context of section 153 of the Act. In the case of Anubai M Patel (HUF) (supra), the Hon’ble Gujarat High Court rendered decision in the context of section 148 of the Act. Under section 148 of the Act r.w.s. 149 of the Act, notice had to be issued within a particular period IT(TP)A Nos.543, 341/Bang/2015 Page 22 of 36 and therefore the importance of the notice leaving the control of the AO become important. In the present case, we are concerned with an internal correspondence between the AO and the TPO and therefore the principle laid down in the aforesaid decision cannot be applied. Similarly, in the case of Maharaja Shopping Complex (supra) and other decisions, it was cases where the dispute was whether an order of assessment was passed within the time limit laid down in Sec.153 (1) of the Act. The court laid emphasis on the fact that before the last date of limitation, the Order of Assessment should be out of the control of the AO and should have been in the process of communication to the assessee and that would render altering or mentioning a wrong date by the AO by predating the order of assessment. As already stated, the ratio laid down in the aforesaid cases cannot be applied in the context of the 3 rd proviso to section 153(1) of the Act which deals with making of reference by the AO to the TPO. Admittedly, the Order of Assessment in this case has been passed within the period of 3 years as contemplated under 3 rd proviso to section 153(1) of the Act. We are of the view that the material on record shows that an order of reference had been made under section 92CA of the Act on 18.02.2013 and therefore the contention that the reference was made after 2 years from the end of the relevant Assessment Year and therefore the Order of Assessment is barred by limitation cannot be accepted. Consequently, ground 1.2 raised by the assess is dismissed. 28. We shall now deal with the transfer pricing adjustment dispute in the Marketing Support Services segment. As far as this segment is concerned, the assessee rendered marketing support services to the AE. In support of the claim of the assessee that the price received for services rendered to the AE are at arm’s length, the assessee filed a transfer pricing IT(TP)A Nos.543, 341/Bang/2015 Page 23 of 36 study in which the assessee chose TNMM as the MAM for determining ALP choosing the PLI as the OP/TC. The OP/TC of the assessee was computed as follows: Operating Income Rs.1,65,32,416/- Operating Expenses Rs.1,50,34,474/- Operating Profit (Op. Income — Op. Expenses) Rs.14,97,942/- Operating/Net margin (OP/TC) 10.00% 29. The TPO chose 6 comparable companies and determined the ALP of the international taxation as follows: Comparables selected by TPO and their arithmetic mean: SI. No. Name of the Company OP/Cost (%) 1 Asian Business Exhibition & Conferences Ltd. 58.64 2 Cyber Media Research Ltd. 19.52 3 HCCA Business Services Pvt. Ltd. 19.11 4 Hindustan Housing Co. Ltd. 19.59 5 ICC International Agencies Ltd. 13.27 6 Killick Agencies & Mktd. Ltd. 16.77 AVERAGE MARGIN 24.80% Computat ion of arm's length price by the TPO and the adjustment made: Arm's Length Mean Margin 24.80% Operating Cost Rs.1,50,34,474/- Arm's Length Price (ALP): 124.80% of Operating Cost Rs.1,87,63,024/- Price Received Rs.1,65,32,416/- Short fall being adjustment u/s. 92CA Rs.22,30,608/- IT(TP)A Nos.543, 341/Bang/2015 Page 24 of 36 30. The DRP upheld the choice of the comparable companies by the TPO. The assessee has raised ground 7.1 seeking exclusion of certain comparable companies. The assessee seeks exclusion of the following 3 companies out of the 6 comparable companies chosen by the TPO namely (i) Asian Business Exhibition & Conferences Ltd., (ii) HCCA Business Services Pvt. Ltd., and (iii) Klick agencies and marketing Ltd. Learned Counsel for the assessee submitted that in the case of Electronics for Imaging Pvt. Ltd., (supra) in which the aforesaid 6 companies were chosen as comparable companies by the TPO for Assessment Year 2010-11, the Tribunal held that the aforesaid 3 companies are not functionally comparable with a company rendering marketing support services such as the assessee. The Tribunal in the aforesaid decision held that HCCA Business Services Pvt. Ltd., is engaged in pay roll processing services and was therefore not functionally comparable with the assessee which was rendering marketing and sales support services (para 43 of the order of the Tribunal). As far as Klick Agencies and Marketing Ltd., is concerned, vide paragraph 49 of its order, the Tribunal held that the export revenue of this company was less than 75% of the total revenue and that this company was acting as agent for various foreign principles for sale of dredging equipment, steerable radar and other equipment and machineries and was therefore not to be regarded as a comparable company to a company rendering marketing support services. Vide para 53 of the said judgment, Asian Business Exhibition & Conferences Ltd., was held to be functionally not comparable being a company engaged in organizing exhibition and events and conducting conferences on behalf of various clients. Following the aforesaid decision, we direct exclusion of the aforesaid 3 comparable companies. The TPO is directed to compute the ALP for the international IT(TP)A Nos.543, 341/Bang/2015 Page 25 of 36 transaction in the MSS segment as per the direction contained above, after affording assessee opportunity of being heard. 31. The other grounds in the assessee’s appeal which are pressed for adjudication were ground 9 with regard to computation of deduction under section 10A of the Act which reads as follows: 9. Computation of deduction under Section 10A of the Act 9.1 The AO has erred in computing the deduction under section 10A of the Act at Rs. 33,646,411. 9.2 The AO has erred in considering the profits of the undertaking at Rs. 33,646,411 for the purposes of computing deduction under section 10A of the Act. 93 The AO has erred in reducing the entire communication charges of Rs. 5,559,629, insurance charges of Rs. 2,267,733 and the entire travel expenses incurred in foreign currency of Rs. 17,560,563 from the "export turnover" of the undertaking while computing the deduction under section 10A of the Act. 9.4 The AO has erred in reducing the foreign exchange loss of Rs. 11,104,554 from the "export turnover" of the undertaking while computing the deduction under section 10A of the Act. 9 . 5 The AO has erred in reducing the unrealised export proceeds of Rs. 8,370,913 as against Rs. 3,384,450 from the "export turnover" of the undertaking while computing the deduction under section 10A of the Act. 32. This can be conveniently decided with grounds 5 and 6 raised by the Revenue in its appeal which reads as follows: 5. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in directing the AO to reduce expenses incurred in foreign exchange loss, export sales, communication expenses and insurance charges both from export turnover and as well as from total turnover for the purpose of computation of deduction u/s 10Aof the IT(TP)A Nos.543, 341/Bang/2015 Page 26 of 36 Income tax Act without appreciating the fact that the statute allows exclusion of such expenditure only from the Export turnover by way of specific definition of export turnover defined in the Act and there is no specific provision in section 10A warranting exclusion of above expenses from the total turnover also. 6. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in directing the AO to compute deduction u/s 10A in the above manner by placing reliance on the decision of Hon'ble High Court of Karnataka in the case of M/s Tata Elxsi Ltd., which has not become final since the same has not been accepted by the Department and SLPs are pending before the Hon'ble Supreme Court. 33. As far as the aforesaid grounds are concerned, the facts are that in its updated tax computation filed with the AO vide submission dated 10.02.2014, the Assessee claimed a deduction under Section 10A of the Act of Rs.4,12,44,562/-, being the profits of business of its Unit registered with the STPI Authorities. However, in the draft assessment order, the AO recomputed the said deduction under Section 10A by reducing the following expenses from only its export turnover without making a corresponding reduction thereof from the Unit's total turnover: (1) telecommunication charges to the extent of Rs.55.59,629/-; (2) travel expenses incurred in foreign currency of Rs.1,75,60,563/-; (3) insurance charges of Rs.22,67,733/-; (4) forex loss of Rs.1,11,04,554/-; and (5) unrealised export sales / unbilled revenue of Rs.83,70,913/- (actual figure is Rs.33,84,450/- as can be seen from pages 946 - 948 of the paperbook which is the Form No.56F filed by the Assessee). As for the telecommunication charges, insurance charges and travel expenses incurred in foreign currency, the DRP accepted the Assessee's alternate contention and held that the IT(TP)A Nos.543, 341/Bang/2015 Page 27 of 36 said expenses ought to be reduced from its export and total turnovers by following the judgment of the Hon'ble High Court of Karnataka in CIT v. Tata Elxsi Ltd. (349 ITR 98). Further, as for the unrealised export sales and forex loss, the DRP followed the decision of the jurisdictional High Court in the case of CIT v. Yokogawa India Ltd. (341 ITR 385) and held that the AO was not correct in excluding the said amounts from the Assessee's gross total income and then calculating the deduction allowable to it under Section 10A of the Act. Accordingly, the AO was directed by the DRP to calculate the deduction under Section 10A on the gross total income prior to making any reduction therefrom. In accordance with the directions of the DRP, the entire disallowance of the deduction under section 10A was deleted in the final assessment order. 34. In Ground Nos 5 and 6 in its appeal. the Revenue is challenging the DRP's directions to the extent it directed that the above amounts should be excluded from the Assessee's export turnover as well as its total turnover while computing the deduction allowable under Section 10A. In this regard, we find that the DRP's directions are in accordance with the binding decision of the jurisdictional High Court in CIT v. Tata Elxsi Ltd., reported in [2012] 349 ITR 98 (Karn), as well as the decision pronounced by the Hon'ble Supreme Court on 16.12.2016 in CIT v. Yokogawa India Ltd. and others, reported in [2017] 77 taxmann.com 41 (SC). Therefore, in the light of the above, the Revenue's above grounds are liable to be rejected and is hereby rejected. IT(TP)A Nos.543, 341/Bang/2015 Page 28 of 36 35. As far as Grd. No.9.5 raised by the Assessee is concerned, it is the grievance of the Assessee that the AO erred in reducing an amount of Rs.83,70,913/- being unrealised export sales / unbilled revenue from its export turnover. The actual figure representing unbilled revenue that was brought into India after a period of 6 months from the end of the relevant previous year is Rs.33,84,450/- as can clearly be seen from the Form No.56F filed by the Assessee (pages 946 - 948 and 955 of the paperbook) and not the said sum of Rs.83,70.913/- that was reduced by the AO. In light of the above, the Assessee submits that the AO's action in reducing the incorrect sum of Rs.83,70,913/- being unrealised export sales / unbilled revenue from its export turnover and not the correct sum of Rs.33,84,450/- is erroneous. 36. We are of the view that in the light of the aforesaid submission, grounds 5 and 6 of the Revenue deserves to be dismissed and it would be just and appropriate to direct the AO to consider the claim of the assessee as raised in ground 9.5 of the grounds of appeal. 37. As far as ground 9.3 and 9.4 is concerned, the same does not require adjudication in view of the dismissal of grounds 5 and 6 of the Revenue’s appeal. As far as Ground No.9.1 & 9.2 raised by the Assessee is concerned, it was submitted that the profits of the eligible undertaking for the assessment year in question was Rs. 4,17,12,262/- as is evident from the Form 56F filed in pages 946-948 of the paperbook. The AO has however considered the profits of the business of the undertaking at Rs. 3,36,46,411/- as against Rs.4,17,12,262/- while computing the deduction under Section 10A of the Act (at page 5 of the final assessment order) and consequently limited the deduction to Rs. 3,36,46,411/-. It was submitted that the same is IT(TP)A Nos.543, 341/Bang/2015 Page 29 of 36 wholly erroneous and without any basis and that therefore a direction be given to the AO to adopt the correct figures for computation of the deduction. 38. We are of the view that the grievance projected by the Assessee in GRd.No.9.1 & 9.2 would stand addressed if a direction is given to the AO to consider the claim of the assessee and if on verification the same is found to be correct, to allow to make necessary corrections in the quantum of deduction to be allowed under section 10A of the Act. 39. Ground No. 10 raised by the assessee in its appeal reads as follows: 10. Disallowance of loss due to misappropriation of funds 10.1 The AO has erred in disallowing the loss due to misappropriation of funds of Rs. 5,093,594 while computing the total income of the Appellant. 10.2 Without prejudice to the above, the AO has erred in not considering the enhanced income (i.e.,after taking into account the disallowance of loss due to misappropriation) for computing deduction under section 10A of the Act. 40. As far as the aforesaid grounds of appeal is concerned, the facts are that during the financial year 2009-10, the internal audit division of the Assessee identified misappropriation of funds aggregating to Rs.78,52,798/- during various years (including Rs.35,90,540/- during the financial year 2009-10) by an ex-employee of the Assessee. The Assessee concluded its investigation and initiated legal action for recovery of the said amount. After recovering a portion of the loss from the insurance company, the Assessee charged an amount of Rs.50,93,594/- its P&L account in FY 2009-10 as being irrecoverable. Accordingly. it claimed deduction of the said loss in its return of income for the instant assessment year. IT(TP)A Nos.543, 341/Bang/2015 Page 30 of 36 41. In the draft assessment order. the AO disallowed the said claim on the basis that no documentary evidence was filed in respect thereof. The DRP, in turn. directed the AO to verify the Assessee 's claim and to allow it if it is found to be not recoverable. After the DRP issued its directions, the AO sent an email to the Assessee's authorised representatives on 29.01.2015 calling for details of the legal action taken by the assessee against the ex-employee for misappropriation of funds and directed the said details to be produced before it on the following day itself, i.e. 30.01.2015 (Page 1042 of the paperbook). On receipt of the email, the Assessee orally requested the AO for sometime to produce the said details. Accordingly. the Assessee collated the said details and on 02.02.2015 itself, the Assessee filed a letter before the AO enclosing a copy of the letter written by its legal consultants giving details of the present status of the complaint pending against the said ex-employee along with the FIR filed by the Assessee and the chargesheet filed by the police before the IV Additional Chief Metropolitan Magistrate. Bangalore (pages 1044- 1053 of the paper book). The Assessee also brought to the notice of the AO that a copy of the said FIR and charge-sheet had already been filed by it before the DRP. However. despite the above, the AO passed the final assessment order on 30.01.2015 disallowing the said claim. The basis on which the said claim was disallowed was that no evidence/documents were filed in support of its claim. It is the submission of the Assessee submits that details of the claim were filed by it before the DRP itself by which it clearly demonstrated that it had taken action against the said ex-employee for the loss incurred due to the misappropriation of its funds. Therefore, the AO's entire basis for IT(TP)A Nos.543, 341/Bang/2015 Page 31 of 36 disallowing the claim is wholly erroneous and baseless. In any event, as can be seen from the fact that the email calling for details was sent by the AO less than 24 hours prior to passing the final assessment order, the AO appears to have proceeded with a predetermined mind and moreover, by not affording an opportunity to the Assessee to produce the necessary details (which it had, in any event, already submitted to the DRP) in support of its claim, the final assessment order, to this extent, is violative of the principles of natural justice and is, therefore, liable to be set aside by this Hon'ble Tribunal. 42. On merits, the assessee places reliance on the Circular No. 35-D (XLVII-20) [F.No. 10/48/65-IT(Ai)] dated 24.11.1965 issued by the CBDT which categorically clarifies that the loss incurred by an assessee due to embezzlement of funds by an employee should be treated as being incidental to business and that, therefore, such a loss should be allowed as a deduction in the year in which the loss was discovered (page 1035 of the paperbook). Reliance was also placed by the Assessee on the following decisions in support of its claim that the loss incurred due to misappropriation of its funds by its ex-employee ought to be allowed as a deduction: Badridas Daga v. C/T (1958) 34 ITR 10 Kothari & Sons v. CIT (1966) 61 ITR 23 Gothamchand Galada v. C/T (1961) 42 ITR 418. Without prejudice to the above, if the disallowance of the aforesaid loss incurred due to misappropriation of its funds by its ex-employee were to be upheld by this Hon'ble Tribunal, then it is submitted that since the loss related to its Unit which is eligible for deduction under Section 10A of the Act, the profits of business of the said Unit stand IT(TP)A Nos.543, 341/Bang/2015 Page 32 of 36 increased to this extent. Therefore, this Hon'ble Tribunal ought to direct the AO to recompute the deduction allowable to the Assessee under Section 10A of the Act by taking into account such increased profits. 43. We are of the view that it would be just and appropriate to set aside this issue for consideration afresh by the AO in the light of the evidence filed by the assessee with regard to action taken for recovery of and action against the delinquent employee. We are also of the view that the claim of the Assessee that it is a allowable deduction and that the same can be claimed in AY 2010-11 in which the loss was discovered. In any event the alternate claim to allow the deduction u/s.10A of the Act on the enhanced profits of Sec.10A unit consequent disallowance of loss on account of misappropriation ought to be accepted. Thus, ground 10 is decided accordingly. 44. Grounds 11 to 15 reads as follows: 11. Non grant of credit under section 115JAA of the Act The AO, having determined the tax liability of the Appellant at Rs. 8,521,831(excluding interest) under the normal provisions of the Act, has erred in not setting-off brought forward MAT credit entitlement under section 115JAA of the Act. 12.Non-grant of TDS credit The AO has erred in not granting the credit for TDS of Rs. 7,546. 13.Short-grant of advance tax The AO had erred in restricting credit for advance tax at Rs. 5,212,093 as against credit of Rs. 5,712,093 claimed by the Appellant in the return of income. 14.Interest under section 234A of the Act IT(TP)A Nos.543, 341/Bang/2015 Page 33 of 36 The AO has erred in levying interest under section 234A of the Act at Rs. 28,097, despite the fact that the Appellant had filed its return of income within the due date prescribed under section 139(1) of the Act. 15.Non-grant of refund and levy of interest under section 234D of the Act The AO has erred in considering that a refund of Rs. 594,030 pertaining to AY 2010-11 has been granted to the Appellant vide intimation dated 21 April 2011 issued under section 143(1) of the Act. Accordingly, the AO has also erred in levying interest under section 234D of the Act of Rs. 136,626. 45. As far as Grd.No.11 is concerned, the Assessee is entitled to brought forward MAT credit relating to prior assessment years in accordance with the provisions of the Act. The AO, however, did not grant set-off of the said MAT credit while computing its income chargeable to tax for the instant assessment year. It is the plea of the Assessee that in accordance with the provisions of Section 115JAA(4) of the Act, it is entitled to a set-off of its MAT credit entitlement while computing its tax liability since the tax payable by it for this year is NIL as per the normal provisions of the Act. Therefore. vide this ground in its appeal, the Assessee is seeking a direction from this Hon ble Tribunal to the AO to adjust the brought forward MAT credit against its liability to tax under the Act. We are of the view that it would be just and appropriate to direct the AO to consider the aforesaid claim of the Assessee in accordance with law as the said issue can be decided on facts available on record by applying the relevant statutory provisions for the purpose of correctly computing the tax liability of the Assessee. 46. As far as Grd.No.12 raised by the Assessee is concerned, the Assessee submits that it is entitled to a TDS credit of Rs.7,546/-which is reflected in the Form No.26AS for the instant assessment year which was IT(TP)A Nos.543, 341/Bang/2015 Page 34 of 36 downloaded from the Department's website. The AO, however, did not grant the said TDS credit while computing its income chargeable to tax. Copies of the Form No.26AS and TDS certificate are filed before this Hon'ble Tribunal at Pages 1036-1040 of the paperbook. Therefore, in view of the above, the Assessee submits that it is entitled to be granted the said TDS credit. Therefore, vide this ground in its appeal, the Assessee is seeking a direction from this Hon'ble Tribunal to the AO to grant TDS credit of Rs.7,546/- while computing its liability to tax under the Act. 47. We are of the view that a direction to the AO to verify the claim of the Assessee and allow credit, if found correct would be just and sufficient to decide this ground of appeal. 48. As far as Grd.No.13 is concerned, the Assessee submits that it is entitled to advance tax credit of Rs.57,12,093/-. The said amount was claimed by the Assessee in its return of income filed under the Act for the instant assessment year. However. while computing its income under the Act. the AO erroneously restricted the credit of advance tax to only Rs.52,12 093/-. The Assessee submits that this action of the AO is unsustainable and erroneous. Therefore. vide this ground in its appeal. the Assessee is seeking a direction from this Hon'ble Tribunal to the AO to grant credit of the entire advance tax of Rs.57,12,093/- it is entitled to while computing its liability to tax under the Act. 49. We are of the view that a direction to the AO to verify the claim of the Assessee and allow credit, if found correct would be just and sufficient to decide this ground of appeal. IT(TP)A Nos.543, 341/Bang/2015 Page 35 of 36 50. As far as Ground No.14 is concerned, the Assessee submits that it filed its return of income under the Act for the assessment year 2010-11 on 15.10.2010 as can be seen from a copy of the return which is produced at page 39 of the paperbook filed before this Hon'ble Tribunal. In this regard. the Assessee submits that although the due date to file the return of income for AY 2010-11 was 30.09.2010 as per Section 139 (1) of the Act, the CBDT issued a Circular dated 27.09.2010 bearing reference F.No. 225/72/2010-1TA.II under Section 119 of the Act extending the due date for filing the returns of income for the Financial Year 2009-10 (Assessment Year 2010-11) from 30.09.2010 to 15.10.2010. Therefore. in view of the above, the Assessee filed its return of income under the Act for AY 2010-11 within the due date to do so. Consequently. the levy of interest under Section 234A of the Act by the AO of an amount of 28,097/- is erroneous and unsustainable in law and on facts and is, therefore. liable to be set aside by this Hon'ble Tribunal. 51. We are of the view that a direction to the AO to verify the claim of the Assessee and allow credit, if found correct would be just and sufficient to decide this ground of appeal. 52. As far as Grd.No.15 is concerned, the Assessee submits that the AO has stated in the final assessment order that a refund of 5,94,030/- has been granted to the assessee presumably vide the intimation issued on 21.04.2011. However. contrary to what has been stated by the AO. the Assessee categorically submits that it has not received refund of the said amount till date. Therefore, the levy of interest on it in respect of the said sum under Section 234D of the Act is not attracted at the threshold itself IT(TP)A Nos.543, 341/Bang/2015 Page 36 of 36 and. Therefore, the assessment order is liable to be set aside by this Honble Tribunal to this extent. 53. We are of the view that a direction to the AO to verify the claim of the Assessee and allow credit, if found correct would be just and sufficient to decide this ground of appeal. 54. Ground 16 with regard to initiation of penalty proceedings cannot be a subject matter of appeal and ground 17 with regard to relief prayed for does not require any specific adjudication. 55. In the result, appeal of the Revenue is dismissed and appeal of the assessee is partly allowed. Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- (CHANDRA POOJARI) (N. V. VASUDEVAN) ACCOUNTANT MEMBER VICE PRESIDENT Bangalore, Dated : 15.12.2021. /NS/* Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.
Mehul