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2020 (10) TMI 1075 - AT - Income TaxTP Adjustment - comparable selection - assessee is aggrieved with the removal of 2 comparable companies that is CG Vak and R Systems - HELD THAT:- TPO applied turnover filter and the various courts have held that turnover filter is a important filter which is a tool to eliminate large entities which enjoys considerable advantage with their huge revenue generation ability and capability to absorb fixed overheads - turnover of CG Vak is 59 times lessar than the assessee. “It is one of the reason that this company’s revenues are coming down and its profits also declining. Since this company failed in revenue filter and as submitted by the Ld DR that this segment is declaring consistent losses over the years, we do not see any reason to include this as comparable company. Accordingly, contention of the assessee is rejected. R Systems - We notice from the submissions of the Ld AR that R systems has disclosed their financial information and revenue generation from BPO segment. The financial information clearly indicate that this company has BPO segment and declared their financial results segment-wise. Thus this company is functionally comparable with this assessee company. The separate BPO segment financial results is available for the period January to December. Since the financial results are available only for Jan-December, we notice from the decisions of the coordinate benches that it has consistently approved the method of working out the segmental data from the existing records and obtaining last quarter i.e., January to March from R Systems to compile the data for the period April to March and then directing the TPO to make the analysis of comparability study by including this company as comparable company - refer this issue back to TPO/AO to include this company as comparable company and work out the segmental data for the period April to March’2010. Risk adjustment - Whether the assessee has any marketing and technical risk compared to comparables?- HELD THAT:- Assessee is a captive service provider and earned income out of the transaction by cost plus basis. It can be seen that the assessee has encountered the risk of having a single customer, whereas the same cannot be said with regard to comparables. The comparables may be dealing in market and therefore they were prone to the marketing and technical risks. They may have incurred certain expenditure on marketing in order to mitigate the risk. Therefore, the risk encountered by the assessee cannot be said to be equal risk attached to the comparables in such a situation. TPO output to have calculated the risk adjustment. Working capital adjustment - HELD THAT:- Since TPO has not calculated the risk adjustment and working capital adjustment to the net margin of the comparables for bringing them on par with the assessee company. Even though assessee has made its submission before TPO as well as DRP. Therefore we are inclined to remit this issue also back to the file of TPO/AO to calculate the risk adjustment and working capital adjustment by collecting the relevant information. Accordingly ground raised by the assessee is allowed for statistical purpose.
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