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2019 (3) TMI 1594 - ITAT HYDERABADTP adjustment - assessee pleaded to consider the internal TNMM as the most appropriate method - AO has rejected the said contention of the assessee on the ground that only 10% of the turnover was with non-AE and therefore, it cannot be considered as the most appropriate method and also on the ground that the segmental results of the Non-AE companies are not audited and therefore, they cannot be relied upon - HELD THAT:- We find that in the case of Lummus Technology Heat Transfer BV [2014 (3) TMI 23 - ITAT DELHI] was considering the case of an assessee which had both AE and non-AE transactions. It is not clear from the said case, whether the non-AE transactions were also international transactions. As rightly pointed out by the DR, the market conditions would not be the same for domestic and international transactions and therefore, they cannot be considered on par with each other and particularly, in the case before us, as the assessee itself has not adopted the internal TNMM as the most appropriate method. Therefore, no reason to direct the TPO to adopt the same and therefore, confirm the order of the TPO on this issue. Thus, ground of appeal is rejected. Errors in computation of operating profit margins of companies selected by the TPO as comparables - as submitted that in the case of CG-VAK Software Exports Ltd, L&T Infotech and Persistent Systems Ltd, the TPO has not considered the provision for doubtful debts as operating expense and in the case of Mindtree Ltd, the unallocated expenses have been erroneously considered - HELD THAT:- On the issue of Mindtree Ltd, the ld DR did not object to the remand of the issue to the AO. We therefore, direct the AO to follow the directions of the DRP on this issue and recompute the margin of the said company. Provision for bad and doubtful debts we find that in the case of Alliance Global Services IT India Pvt. Ltd [2015 (3) TMI 883 - ITAT HYDERABAD] in the case of M.s Kenexa Technologies (P) Ltd [2014 (11) TMI 587 - ITAT HYDERABAD] has held that the provision for bad and doubtful debts is part of operating expenses. The Tribunal has directed the TPO to allow the same. Similarly, in the case of TNS India Pvt. Ltd, the Tribunal has directed the TPO therein, to treat the provision for bad and doubtful debts as operating expenses. Respectfully following the same, we direct the TPO to treat the provisions of bad and doubtful debts in the case of the assessee as well as comparables as part of the operating expenses. Ground of appeal accordingly treated as partly allowed. Treating the outstanding receivables from Associated Entity as a separate international transaction and bringing the interest thereon to tax - HELD THAT:- We find that this Bench, in a number of cases, has held that when the outstanding receivables have factored in computation of working capital adjustment, no separate adjustment is required. The average credit period of the comparables is 81 days, whereas in the case of the assessee, it is 79 days and therefore, there is no need for any adjustment towards outstanding receivables. Further, we also agree with the contention of the assessee that when the assessee is not paying interest on its payables, assessee is also not justified in charging interest on outstanding receivables. Comparable selection - RS Software India Ltd have huge turnover and also has brought out the ownership of non-routine intangibles of RS Software India Ltd which could be a factor for its high turnover. We find that in the case of M/s. GT Nexus Software (P) Ltd i [2017 (4) TMI 1375 - ITAT BANGALORE] the Coordinate Bench of the Tribunal has considered the turnover filter of 10 times tolerance range of assessee’s turnover to direct exclusion of RS Software India Ltd. Minidtree Ltd - The assessee’s objections to this company are almost similar to the objections in the case of RS Software India Ltd, such as diversified activities; incomparable scale of operations, the Revenue being ₹ 1608 crores and ownership of non-routine intangibles, branding and payments etc., As held in the case of RS Software India Ltd, this company has to be excluded from the final list of comparables due to its high turnover and also owning of non-routine intangibles. Infobeans Technologies Ltd - we agree with the contention of the learned DR that the assessee has to prove the impact of the merger/demerger of the said company on its margin for the relevant financial year. Since the assessee has failed to prove the same even before us, we reject the assessee’s contention on the comparability of this company with the assessee. Larsen & Toubro Infotech Ltd - the company is functionally dissimilar and that it develops in-house intangibles, has strong brand value, is involved in diversified operations which includes products and also performs R&D Activities. He submitted that the Revenue of the L&T ranges to ₹ 3,613/- crores and therefore, the scale operation is incomparable. As we have already held that the turnover filter of 10 times of the tolerance range is a relevant filter we direct the AO/TPO to exclude this company also from the final list of comparables. Since we have already excluded the four companies, we direct the TPO to recompute the ALP of the comparables and if the average margin falls within +_3%, then no further companies are to be taken. However, if it does not fall within the said range, the TPO shall reconsider the assessee’s contentions on comparability of the companies in Ground and pass a reasoned order on their comparability after giving the assessee a fair opportunity of hearing.
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