Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2016 (1) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (1) TMI 1436 - AT - Income TaxTP Adjustment - comparable selection - Exclusion of M/s. E-clerk Services Ltd and Infosys BPO Ltd, from the list of comparables selected by the TPO, for bench marking the pricing of the international transactions of the assessee with the Associated Enterprise - TPO had applied turnover filter of ₹ 200 crores - HELD THAT:- Given this situation, we are of the opinion that the filters set out by the coordinate bench in the case of Genisys Integrating Systems (India) P. Ltd [2011 (8) TMI 952 - ITAT BANGALORE] based on Dun and Bradstreets analysis can be followed. We are therefore of the opinion that DRP was justified in directing exclusion of companies having turnover in excess of ₹ 200 crores. Grounds 1 and 2 of the Revenue stand dismissed. Foreign exchange loss/ gain - considered to be operating in nature by the DRP though such loss / gain was not attributable to the operating activity of the assessee - HELD THAT:- Sole business revenue of the assessee was from the billings on its AE abroad for the services rendered by it. Nothing has been brought on record to show that any of the foreign exchange loss / gain had come from any hedging activity or any other line of activity undertaken by the assessee. Unless rebutted a safe presumption can be made that foreign exchange loss / gain arose out of the business activity of the assessee which was entirely providing ITES services to its principal abroad. We cannot say that foreign exchange loss / gain had no nexus with such activity. We are therefore of the view that the DRP took a correct view on this issue. DRP had accepted the submission of the assessee that such gains / losses were closely linked to its business operation did and not relate to any extra ordinary or abnormal events. Grounds 3 and 4 stand dismissed. Grant of risk adjustment without advising a reasonably accurate method for its determination - Assessee in its TP study had not made any adjustment for risk while calculating of PLI - HELD THAT:- Assessee itself had never made any attempt in its TP study to quantify the risk. On the other hand, assessee itself had mentioned the difficulties of attempting a risk adjustment. DRP was putting the onus on TPO to give a risk adjustment on the PLI, when assessee had never discharged its onus in its TP study. Perceived single party risk is purely hypothetical and since assessee’s AE is its holding company, it is in its best interest that work is given to the assessee. It is not that assessee could not have had other client, but it chose to service only its principal. Thus the perceived risk even if any, has been voluntarily taken by the assessee. An adjustment for such a perceived or hypothetical risk can never be factored while working out the Profit Level Indicator. In the circumstances, we are of the opinion that DRP ought not have directed the TPO to consider the risk adjustment at 1%. We find merit in this ground taken by the Revenue. Ground 5 of the Revenue is allowed. Comparability of Acropetal Technologies Ltd (seg) - HELD THAT:-When segmental results were available, where expenditure have also been allocated, it would be improper to exclude the company only for a reason that it was into high-end services. Within a given segment there cannot be further classification based on high-end and low-end services. In taking this view we are fortified by the Special Bench decision in the case of Maersk Global Centres (India) P. Ltd v. ACIT [2014 (3) TMI 891 - ITAT MUMBAI] . Analysis of voluminous data and deciphering meaningful information therefrom which helps build core business strategy is a highly skilled function, requiring advanced programming skills and knowledge of data mining. Data analytics is no ordinary job like daily business accounting or book-keeping. It is in no way comparable to a low end business process outsourcing function. Accordingly, we are of the opinion that Acropetal Technologies Ltd (seg), cannot be excluded from the list of comparables. Ordered accordingly. ICRA Online Ltd - HELD THAT:- We are of the opinion that the question whether the foreign exchange earnings of ICRA was above or below the limit of 75% was not verified by any of the lower authorities. We are therefore of the opinion that the issue regarding comparability of ICRA Online Ltd, requires a fresh look by the AO / TPO. We set aside this issue back to the file of AO / TPO for consideration afresh so that he can correctly calculate the export sales ratio of the said company to its total revenues for applying the 75% filter. Exclusion of rental income from the business income - AR submitted that when rental income was excluded while calculating the PLI of the assessee, corresponding rental expenditure was also required to be excluded - HELD THAT:- AO in the assessment done pursuant to the DRP directions had excluded rental income from the business income. As per the assessee it had incurred expenditure of ₹ 23,75,000/- which is relatable to the earning of rental income. We are of the opinion that once rental income is excluded from the business income of the assessee while calculating the PLI of the assessee, as a natural corrolary expenditure incurred for earning such rental income is also required to be excluded. We therefore set aside the orders of authorities below and direct the AO / TPO to rework the PLI by excluding both rental income and the expenditure relatable to the rental income after proper verification. Ground 7(h) of the assessee is treated as allowed for statistical purpose. Working capital adjustment though directed by the TPO to be given in the order passed u/s.92CA - HELD THAT:- It is clear that AO had omitted to give the working capital adjustment. We therefore direct the AO to give working capital adjustment of 0.23% as recommended by the TPO. Accordingly ground 7(i) of the assessee stands allowed. Rental income under the head 'income from other sources' had not reduced the expenditure relatable to such rental income - HELD THAT:- Case of the assessee is that for earning the rental income it had incurred expenditure of ₹ 23,75,000/. Assessee had by itself reduced the rental income from its business head and shown it under the head 'income from other sources' since the rental were earned from sub letting. We find that AO has not mentioned anything regarding the claim of rental expenditure made by the assessee. We are of the opinion that the matter requires a fresh look by the AO we direct the AO to verify whether the claim of expenditure against the rental income earned by the assessee from sub-letting is allowable in accordance with Section 57(iii) of the Act and proceed in accordance with law.
|