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2018 (6) TMI 1688 - AT - Income TaxTP Adjustment - Comparable selection - negative working capital adjustment - HELD THAT:- Basis of the working capital adjustment is the existence of a difference in the cost of working capital and it is also stated that this is relevant because the cost is stated to affect the margin and in the assessee’s case, the assessee has demonstrated that it holds its working capital at no cost, completely out of its own funds without any borrowings at all. In our considered opinion, these factors are not relevant for working capital adjustment because in TP analysis, operating profit is considered which is profit before interest and therefore, the interest cost has no relevance for TP analysis and the working capital adjustment is for this reason that working capital position affects the pricing of any services or goods in the open market and not because the working capital cost increases or decreases the profit margin. Hence we find no merit in this claim of the assessee and accordingly this issue is decided against the assessee. A categorical finding has been given by TPO that the assessee has not established the difference in risk level of the tested party and uncontrolled comparables and this is also not established that it is possible to convert the difference in risk level, if there is any, into numbers. He has also given a finding that there is no reliable method to convert the qualitative difference into quantitative difference to make adjustment on account of risk level. The TPO has also referred to Rule 10B (3) of IT Rules which says that if any adjustment should be made, it should be reasonably accurate to eliminate the material effects of such differences. Before us also, as per the synopsis reproduced above, the assessee has pointed out three options for risk adjustment but these are general in nature and the assessee has not established that there is any risk difference between the tested party and the comparables. In the absence of any working having been provided by the assessee showing difference in risk between the tested party and comparables and in the absence of any working regarding the assessee’s claim for risk adjustment, we find no reason to interfere in the order of DRP on this issue also. This issue is also decided against the assessee. Inclusion of one comparable i.e. R Systems International Ltd. (segment) - HELD THAT:- In the present case, the assessee has submitted annual report of R Systems International for the year ending 31.12.2013 by way of additional evidence containing 1 to 188 pages and we find that the P&L account is available and although statement of P&L account is for year ended 31.12.2013 in the said additional evidence paper book but it is not shown to us that the figures for 31.03.2012 and 31.03.2013 are also available on any page of this additional evidence as has been noted by Punjab & Haryana High Court in M/S MERCER CONSULTING (INDIA) PVT. LTD. GURGAON [2016 (8) TMI 1163 - PUNJAB AND HARYANA HIGH COURT] . But still we feel it proper to restore this matter back to the file of AO/TPO for fresh decision and we order accordingly. The AO/TPO is directed that if the assessee can establish that the figures for Financial Year ending on 31.03.2013 can be worked out from audited accounts of that company then it should be adopted and this comparable should be included in the list of comparables. If the assessee is not in a position to do so, then the TPO may again exclude the same. Hence on this issue, we restore the matter back to the file of TPO for fresh decision in the light of above discussion in the light of judgment of Hon’ble Punjab & Haryana High Court after providing reasonable opportunity of being heard to assessee. PLI of CG-VAK Software and Exports Ltd - It has to be found out from the annual report of the concerned company as to whether provision for doubtful debts is in relation to sale of the present year or of an earlier year. As per the annual report of this company available on pages 559 to 608 of paper book, this cannot be ascertained as to whether the provision for doubtful debts is against the turnover of the present year or of an earlier year. Generally the provision for doubtful debts is created in a later year when it is felt that the debt has become bad or doubtful and therefore, in the absence of any categorical reporting in the annual report that the provision for doubtful debts is against the turnover of the present year, it should be considered as provision against the turnover of an earlier year and therefore, the same cannot be considered as operating expenses for the current year in TP analysis. In this view of the matter, we find no infirmity in the order of authorities below on this aspect. Therefore, we decline to interfere in the orders of lower authorities on this aspect and various judgments cited by ld. AR of assessee in the synopsis are not rendering any help to assessee because these judgments are only on this aspect that provision for doubtful debts is an operating expenditure but in our considered opinion, even after accepting this contention that provision for doubtful debts is operating expenditure, the same has to be excluded in TP analysis for the reasons discussed above. Permissible RPT% Ffor selection of comparable - 25% RPT filter is proper and not 15%. Companies functionally dissimilar with that of assessee need to be deselected from final list. Exclusion of Larsen & Toubro Infotech Ltd. and Persistent Systems Ltd. - It is seen that our decision regarding these two comparables to restore back the matter to the file of TPO is fortified by this Tribunal order also in which, the tribunal has considered one more Tribunal order rendered in the case of Microsoft Research Lab India (P.) Ltd. vs. ACIT [2017 (8) TMI 1585 - ITAT BANGALORE]. Disallowance being payment of commission disallowed by the AO u/s. 40(a)(i) - HELD THAT:- We find that this was held in FAIZAN SHOES PVT. LIMITED [2014 (8) TMI 170 - MADRAS HIGH COURT] that where the assessee paid commission to non-resident agent for procuring orders for leather business from overseas buyers wholesalers or retailers, as the case may be, the non-resident agent is paid 2.5% commission on FOB basis. That appears to be a commission simpliciter and did not provide any technical services for purposes of running business in India. The assessee was not liable to deduct tax on such commission paid. As per the assessment order, this is not the case of the AO that the non-resident agent provided any technical services for the purposes of running business of the assessee in India we hold that the TDS was not required to be deducted from this payment of commission and therefore, disallowance made of this amount u/s. 40(a)(i) is not justified and hence we delete the same.
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