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2018 (3) TMI 1680 - AT - Income TaxTransfer pricing adjustment in the international transaction of ‘Provision of software development services.’ - not allowing working capital adjustment and inclusion of Larsen & Toubro Infotech Ltd. (Seg.) in the final set of comparables - allocation of 'Unallocable expenses’ - Held that:- In the immediately preceding assessment year, the Tribunal had an occasion to consider this argument for grant of working capital adjustment wherein Tribunal directed to grant the working capital adjustment and, accordingly, remitted the matter to the file of TPO/A.O. for doing the needful. High Court has decided the issue in favour of the assessee by holding that no substantial question of law arises from the Tribunal order [2015 (9) TMI 1554 - DELHI HIGH COURT] - we direct to grant the working capital adjustment and, accordingly, remit the matter to the file of A.O./TPO for granting such adjustment in the light of the directions given by the Tribunal in the preceding year. For inclusion of Larsen & Toubro Infotech Ltd. (Seg.) in the final set of comparables AR has placed on record a calculation in which 'Unallocable expenses’ of Larsen & Toubro Infotech Ltd., have been apportioned on the basis of gross revenue, which gives segmental profit rate of the Industrial cluster segment of L& T at 34.9%. The ld. AR contended that even if the segment of L&T is included with this amended profit rate, its margin will be within the permissible range. Since we have held, in principle, that a company with `Unallocable expenses’, in the absence of the availability of nature of expenses and proper allocation keys, has to be excluded at the threshold, there is no need for examining the apportionment of `Unallocable expenses’ as put forth by the ld. AR. We, therefore, direct to exclude Larsen & Toubro Infotech Ltd. (Seg.) from the list of comparables. Transfer pricing adjustment on account of Interest on delay in realization of receivables from the Associated enterprises (AEs) - Held that:- Non-charging or undercharging of interest on the excess period of credit allowed to the AE for the realization of invoices amounts to an international transaction and the ALP of such an international transaction is required to be determined. Computation of the ALP of the international transaction of debts arising during the course of business - TPO has calculated TP adjustment on account of interest on outstanding debts beyond a period of 30 days by noting the number of days after which the relevant invoices were realized - AR did not dispute the correctness of the period of 30 days allowed by the TPO. He, however, contended that in none of the cases, the assessee realized invoices beyond 30 days from its AEs. He submitted that the TPO inadvertently considered realization from non-AE transactions for the purpose of determination of transfer pricing adjustment. A chart has been placed on record which shows the dates of realization of invoices. Since such details were not before the TPO who proceeded to compute the amount of transfer pricing adjustment by considering realization beyond 30 days, which is not a correct factual position as per the ld. AR, we deem it fit to set aside the impugned order on this score and remit the matter to the file of A.O./TPO for considering the assessee’s contention and then deciding this issue afresh as per law, after allowing a reasonable opportunity of being heard to the assessee. The determination of ALP and the consequential addition on account of transfer pricing adjustments in respect of the international transactions of ‘Provision of software development services’ and ‘Interest receivables’ is sent back to the file of A.O./TPO for doing it afresh - Appeal allowed for statistical purposes
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