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2016 (12) TMI 1720 - AT - Income TaxTPA - TPO has considered other Finance charges as ‘operating cost’ - DRP has directed the AO to verify from the computation of total income as to whether the above expenses have been disallowed treating the same as capital in nature - Held that:- There is no need to interfere with the directions of the DRP on the issue. Whether the up-front fees paid is part of the operating cost or not is a factual matter to be verified and therefore, the ground does not deserve any merit at this end. Accordingly, the same is rejected. Selection of comparables - Held that:- Assessee is involved in providing support services in connection with CAE/CAD modeling and iterative simulation. It receives the basic design from its group company with respect to CAD modeling and makes a 3D CAD modeling data of vehicle components using CAD software tools. Assessee is a routing support service provider and it assumes less than normal risk associated with carrying out such business. Companies functionally dissimilar with that of assessee need to be deselected from final list. Functional comparability need to be decided on the basis of the information available in the annual report and not based on the website information which may vary and may not be reliable. Treating the provision for bad and doubtful debts and bad debts written off as nonoperating expenses for the purpose of margin computation of comparable companies as selected by TPO - Held that:- DRP has not erred in confirming the TPO's stand of treating the provision for bad and doubtful debts and bad debts written off as nonoperating expenses for the purpose of margin computation of comparable companies as selected by TPO. Deselection of companies who fails export earning filter as the export turnover was 91.41 Lakhs as against domestic turnover of ₹ 13.33 Crores. ALP adjustment - Held that:- ALP adjustment should only be restricted to international transactions and not to the entire turnover of assessee. However, this requires verification by the AO/TPO. Therefore, we direct the AO/TPO to verify and restrict the adjustment only to the international transactions. Ground is considered allowed for statistical purposes. Working capital adjustment - Held that:- There is no need for making any negative working capital adjustment when assessee does not carry any working capital risk. In fact, TPO should have done necessary working capital adjustment to the profits of the selected comparables so as to make them comparable to the assessee. In view of this, we direct the TPO not to make negative working capital adjustment”. Non-setting off of unabsorbed depreciation - Held that:- We direct the AO/TPO to follow the directions of the DRP and allow the unabsorbed depreciation as per the provisions of the Act. Ground is accordingly considered allowed. Comparable selection - reasons given by the DRP in excluding the company, not only on the basis of the high turnover but also with reference to the brand value etc. is acceptable.
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