Functionally dissimilar entities excluded as comparables in TNMM; no AO satisfaction voids Rule 8D disallowance u/s 14A; bank guarantee fees exempt from TDS u/s 194H lacking principal-agent tie; s.14A disallowance not added to MAT book profits.

ORDER 

PER VIMAL KUMAR, JUDICIAL MEMBER:

The cross-appeals filed by the Revenue and Assessee are against order dated 31.03.2017 passed by the Learned Commissioner of Income-Tax(Appeals)-33, New Delhi (hereinafter referred as ‘Ld. CIT(A))’ arising out of assessment order dated 18.05.2015 of the DCIT, Circle 18(2), New Delhi (hereinafter referred as ‘Ld. A.O.’) under Sections 143(3)/144C(3)(b) of the Income-Tax Act, 1961 (hereinafter referred as “the Act”) for assessment year 2011-12.

2. Brief facts of the case are that the assessee filed e-return declaring net taxable income of Rs.33,35,98,190/- on 30.11.2011. The return was revised on 31.03.2013 at an income of Rs.33,18,78,020/-. The case was selected through CASS. Notice under Section 143(2) of the Act dated 16.08.2012 was issued. Notice under Section 142(1) along with detailed questionnaire was issued on 30.04.2013. Shri A.K. Sood and Shri Rupesh Goyal, CAs and authorised representatives of the assessee company attended proceedings and filed necessary details/documents. The draft assessment order under Section 143(3)/144C(1) of the Act was passed on 12.03.2015 and served on assessee on 26.03.2015. The period for conveying acceptance of assessment order or filing objections under Section 144C(2) of the Act expired on 25.04.2015. Vide letter dated 06.04.2015, the assessee informed that it intended to file appeal before the Ld. CIT(A) against the draft assessment order. The assessee requested that final assessment order under Section 144C(3)(b) of the Act may be passed. The limitation for passing the final assessment order under Section 144C(3)(b) was up to 31.05.2015. The assessee was engaged in the business of software development and services and declared income under the head ‘business and profession’, ‘capital gains’ and ‘income from other sources’. The assessee has entered into international transactions with its associated enterprises and filed a report in Form No. 3CEB. Ld. A.O. vide order dated 18.05.2015, made additions of Rs.13,25,239/- for transfer pricing adjustments, Rs.11,79,63,204/- for denying disallowance under Section 10B, Rs.3,21,394/- for denying disallowance under Section 14A and Rs.12,51,739/- for rationalisation of tax.

3. Against assessment order dated 18.05.2015, the assessee preferred appeal before the Ld. CIT(A) which was partly allowed vide order dated 31.03.2017.

4. Being aggrieved, the Revenue and Assessee filed present cross-appeals.

5. The Revenue in ITA No.3718/Del/2017, took grounds as under:

“1. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in directing exclusion of M/s Global Procurement Consultants. Limited as a comparable even when the entity was functionally comparable to the assessee?

2. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in directing exclusion of M/s Global Procurement Consultants Limited as comparable by ignoring international guideline by OECD and United Nations on application of Transactional Net Margin Method (TNMM) which stipulates that strict comparability standard was not required under the TNMM?

3. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting disallowance of Rs. 11,79,63,204 us 10B of the Income Tax Act, 1961 (the Act) without considering the findings of the Assessing Officer the AO) in assessment order that the