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2018 (1) TMI 1370 - AT - Income TaxTPO - MAM - Comparable selection - Held that:- The taxpayer provided software development services, competency centre services and IT Support Services to its AE, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Determining the ALP foreign exchange loss / gain arising from the transaction of revenue nature are required to be considered as part of operating profit/cost of the assessee as well as that of the comparables. The ld.TPO while computing the OP/OC of the comparables treated the amount of foreign exchange gain/loss as non-operating item whereas in case of the taxpayer foreign exchange gain and loss has been treated as operating item. However, both the taxpayer as well as comparable companies is required to be on the same page for treating foreign exchange loss/gain arising from transactions of revenue nature as an operating item. So, the TPO is directed to compute the ALP accordingly. So, this ground is allowed for statistical purposes. Denial of working capital with adjustment - Held that:- It is a settled principle of law that for reasonably accurate adjustments tested party as well as comparables should be on the same page. However, so far as issue of working capital adjustment is concerned that the ld. TPO disallowed the same for lack of sufficient data as the audited accounts of the taxpayer do not show that it has received any advance from its AE. So, we are of the considered view that in the absence of any reliable data, working capital adjustment cannot be granted. So, the assessee is directed to provide complete computation to avail of the facility of working capital adjustment and thereafter TPO is directed to decide this issue afresh. Similarly, so far as question of denial of risk adjustment to the taxpayer by the ld. TPO/DRP is concerned, the same has also been denied on the ground that the taxpayer has failed to provide any back up calculation for claim of risk adjustment. So, in the given circumstances, we are of the considered view that ld. TPO is to re-examine the issue on providing back up calculation by the taxpayer for the claim of risk adjustment. Addition on account of income from maintenance, enhancement and support services (advance billing / deferred revenue) - Held that:- Amount treated as deferred revenue is not brought to be taxed in the year under consideration but to be taxed in the year when such services are rendered or recognized a income of the taxpayer. Grounds as determined in favour of the taxpayer.
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