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2016 (5) TMI 1498 - AT - Income TaxTP Adjustment - comparable selection - functional similarity - application of turnover limit of ₹ 200 crores - HELD THAT:- Assessee engaged in providing software development services, design and support, primarily developing software and providing support to its principal. Turnover of Tata Elxsi Ltd was ₹ 378.43 crores, that of Sasken Communication Technologies Ltd, came to ₹ 405.31 crores, that of Persistent Systems Ltd, was ₹ 519.69 crores, that of Zylog Systems Ltd was ₹ 734.9 crores, that of Mindtree Ltd (seg) was ₹ 793.22 crores, that of L & T Infotech Ltd, was ₹ 1,950.83 crores and that of Infosys Ltd, was ₹ 20,264 crores. Turnover of the assessee was only ₹ 22.72 crores. Obviously the volume of activity of the above mentioned companies were much higher to that of the assessee. It was more than ten times that of the assessee. Even if we say that applying turnover limit of ₹ 200 crores may not be a wise and prudent one, the turnover of the comparables mentioned above would clearly show that these were much beyond that of the assessee taking them out of the reasonable realm of comparability. Just because the matter was not adjudicated by the CIT (A) may not be a reason for sending it back to him when the facts are clearly on record. There can be no dispute on the position of facts as mentioned above. In such a situation it would be fruitless exercise to remit the issue of application of turnover filter back to the CIT (A). We therefore direct exclusion of Tata Elxsi Ltd, Sasken Communication Technologies Ltd (seg), Persistent Systems Ltd, Zylog Systems Ltd, Mindtree Ltd (seg), L & T Infotech Ltd, and Infosys Ltd, from the list of comparables. Bodhtree Consulting Ltd. cannot be regarded as a comparable. In this regards, the fact that the assessee had itself proposed this company as comparable, in our opinion, should not be the basis on which the said company should be retained as a comparable, when factually it is shown that the said company is a software product company and not a software development services company CG-VAK can be considered as a good comparable as if all the employee costs are properly considered, then this company can pass the filter applied by the TPO for excluding it. Working of operating margin of the comparables - HELD THAT:- Foreign exchange adjustment once allowed as operational in nature should also be considered while working out the operating margin of the comparables is acceptable - This is because comparability should be done based on equal footing and if foreign exchange gains / losses are considered as part of operational income / loss of the assessee, then such items of expenditure , are also to be considered as operational in nature in the case of comparables also. TPO is therefore directed to work out the margin of the comparables that are left in the list after considering foreign exchange gains / losses as operational in nature. Working capital adjustment - HELD THAT:- Working capital adjustment has been made at (-) 5,12% . In such a situation, we cannot say that risk adjustment directed by the CIT (A) was incorrect. TPO having not restricted himself to a working capital adjustment of 1.71% as mentioned by him at para 3.7 of his order ought have considered assessee’s plea for a risk-adjustment, if found reasonable. In such circumstances, we find that direction given by the CIT (A) was justified and we do not find any reason to interfere. Ground of the Revenue stands dismissed. Operating revenue computation - inclusion of Forex gain / loss incidental to the operating activity of the assessee - HELD THAT:- Just because it was not critical to the operating activity, we cannot say that these had to be excluded. This Tribunal in the case of Triology E Business Software India P. Ltd v. DCIT [2013 (1) TMI 672 - ITAT BANGALORE] had held that forex gains / loss are required to be added to the operating revenue relying on another coordinate bench decision in SAP Labs India (P) Ltd, [2010 (8) TMI 676 - ITAT, BANGALORE] . We therefore do not find any error in the directions given by the CIT (A) Decided against revenue
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