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2017 (2) TMI 1410 - AT - Income TaxTP adjustment - selection of comparable - functionally comparable -inclusion of R systems international Ltd alone - Different Financial year - HELD THAT:- ssessee has made out a case, supra, we remit this matter to the TPO for re-examination and readjudication. TP adjustment - selection of comparable - functinal dissimilarity - ICRA Online Ltd, with unadjusted margin of 43.39%, has to be rejected for the reason that it is not functionally comparable and fails export earning filter. - HELD THAT:- assessee has made out a case, and hence direct the TPO to exclude the above comparables. Provision for bad and doubtful debts as non-operating in nature - HELD THAT:- The provision for doubtful debts fit the description of "operating items" associated with the rendering of services and should be considered as part of the operating costs and relied in case of Techbooks International Pvt. Ltd. Vs. DCIT [2015 (7) TMI 473 - ITAT DELHI]. Thus Provision for bad and doubtful debts should be treated as operating expenses as they are closely linked with the business operations and accordingly direct the TPO to do so. Computation of working capital adjustment - TPO is of opinion that working capital adjustment should be restricted to 0.85% - HELD THAT:- TPO has not given the basis of arriving at the average cost of capital of the comparable companies. As assessee relied on the decision of this Tribunal in Moong Controls India P Ltd [2015 (11) TMI 1719 - ITAT BANGALORE] wherein as directed the TPO to allow actual adjustment towards the differences in the of working capital position between the assesseee and the entrepreneurial companies selected as comparable . We direct the TPO to follow this decision. Non providing appropriate risk adjustment - assessee is a captive contract IT enabled service provider to its AEs. - HELD THAT:- In the case of Chryscapital Investment Advisors (India) Pvt. Ltd. Vs DCIT [2015 (4) TMI 949 - DELHI HIGH COURT], wherein held that appropriate adjustments should be carried out in situations where there are differences between the tested parties and comparables and in case such differences perceptible in the comparables cannot be eliminated on account of adjustments or otherwise, then such comparables have to be rejected. We heard the rival submissions and find that the assessee has made out a case, supra, and hence direct the TPO to make appropriate risk adjustment. Depreciation adjustment on account of difference in the rates of depreciation of the assessee vis- à-vis comparable companies - HELD THAT:- The arithmetic mean OP/ TC margin (post factoring the impact of depreciation) of the comparable companies considered by the TPO is 22.80% which falls within the + / -5% range of the OP / TC margin of 17.63% (as computed by the TPO) earned by the assessee during the FY 2009-10. Accordingly, the prices of international transactions of the assessee in relation to provision of IT enabled services comply with the Arm's Length standard prescribed under the Indian Regulations.We remit this matter to the TPO for re-examination and re-adjudication
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