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2016 (4) TMI 1177 - AT - Income TaxTransfer pricing adjustment - whether the comparable chosen by assessee i.e. Alphageo (India) Ltd. can be removed for computation of margin and working capital adjustment to the comparables selected by revenue can be allowed while computing margins? - Held that:- We find that the assessee’s activity in R&T includes undertaking certain samples preparation and chemical analysis activities for the agro chemical business. It supplies to its AEs the necessary formula, information and expertise to enable it to provide R&T activities. Whereas on the other hand, Alphageo (India) Ltd. is in the business of exploration and production of oil. We are of the view that these two companies i.e. the assessee and Alphageo (India) Ltd. are functionally not comparables and cannot be taken into consideration. The argument of Ld. Sr. DR that once assessee has chosen Alphageo (India) Ltd. as comparables it cannot back out now without filing multiple year data. We find that the assessee in the case of Alphageo (India) Ltd. has filed the date of three years to show any variability distortions which are having effect on determination of transfer pricing of the international transaction. We are of the view that the comparables which are available in public domain even after the conduction of the studies by assessee can be taken as comparables and considered for benchmarking. The assessee filed complete multiple year data in the case of Alphageo (India) Ltd. in its paper book, which is referred by Ld. Counsel for the assessee in his arguments. In view of the above discussion, we are of the view that the authorities below were not justified in including Alphageo (India) Ltd. as comparable for benchmarking for determining ALP u/s. 92C(1) and 92C(2) of the Act. For rest of the comparables for benchmarking as selected by revenue has not been disputed by assessee except claim made that working capital adjustment should be given. The assessee’s contention regarding adjustment for the differences in working capital level of the assessee and comparable companies selected by revenue, we find that the required data in relation to these companies are not available in the orders of the lower authorities or the details filed by the assessee before us. However, we are of the view that the need to carry out the working capital adjustments is for the reason that the differences on account of working capital cycle not only impact the finance cost but it also affects items of P&L Account like expenses, sale price of product, provision for bad debts etc. and in turn it affects the profit before interest and tax. Accordingly, we are of the view that to take into account the difference in the net working capital requirements between the assessee and comparables selected by revenue, appropriate adjustments should be made on account of debtors and creditors. And adjustment to working capital cycle of assessee should be made vis-à-vis the sale and total cost of each of the comparable companies. Let the assessee produce the data and TPO should analyse the same. In view of the above directions, we restore the issue to the file of the AO/TPO to give adjustment accordingly. - Decided in favour of assessee for statistical purposes. Treating the relinquishment of right as short term capital gain - Held that:- The assessee declared sale consideration while computing capital gains at ₹ 4,58,52,200/- and claimed cost of acquisition at ₹ 23.31 lacs. SIPCOT has also adjusted a sum of ₹ 1,86,47,800/- towards refund of deposit made by assessee and assessee reduced this amount from the total consideration. The AO as well as CIT(A) included this amount in total sale consideration and computed capital gains accordingly. Now before us, assessee claimed that in case this adjustment of refund of deposit by SIPCOT is to be treated as sale consideration then the assessee should be allowed this as cost of acquisition for the purpose of computing capital gains. We find the plea of the assessee quite reasonable and accordingly direct the AO to consider this refund of deposit made by assessee with SIPCOT as cost of acquisition for the purpose of computation of capital gains. The AO will verify the adjustment of refund of this deposit made by the assessee with SIPCOT and accordingly allow the claim of the assessee. This issue of assessee’s appeal is set aside to the file of AO in term of the above direction and is allowed for statistical purposes. Non-deduction of TDS by invoking the provisions of section 40(a)(ia) - non allowing set off of brought forward losses/unabsorbed depreciation while computing taxable income - Held that:- AO has not made any disallowance u/s. 40(a)(ia) of the Act and not allowing set off of brought forward losses/unabsorbed depreciation as is apparent from the assessment order and CIT(A) has also given finding of fact qua that. Since the issues are not arising out of the orders of the lower authorities, we dismiss these issues of assessee’s appeal.
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