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2018 (4) TMI 1867 - AT - Income TaxTP Adjustment - most appropriate method while computing the arm’s length price of the international transactions - HELD THAT:- We are in agreement with the ld. DRP and the ld. AR to hold that in this situation segregation of accounts solely basing on the income but without reference to either gross profit or sales is most unreliable and the adoption of TNMM method at entity level is safe and plausible method. Unless and until there are compelling reasons to disturb this functional integrity of the assessee, merely because it is possible to have two segments theoretically separate, it is not safe to bifurcate the financials arbitrarily. The contention of the assessee that the excess profits earned in commission segment have to be given set off while determining the adjustment for trading segment cannot be brushed aside. Perhaps keeping all this in view, ld. DRP found that in the backdrop of similarity of the international transactions to be bench marked and the business model of the assessee over the past few years, in the absence of any compelling reasons, the consistently applied TNMM should not have been rejected and CUP method should not have been applied to bench mark the commission income separately. We do not find any reason to disagree with the ld. DRP in view of the fact that the view taken by the ld. DRP is also one of the plausible views amongst the several options put forth before them by the assessee which are reflected in the order of the ld. DRP. We, therefore, uphold the finding of the ld. DRP and find ground No.1 devoid of merits. Adjustment on account of working capital while working out the average margins of the comparables - HELD THAT:- As direction given by Ld. DRP to the Ld. AO/LD. TPO to give working capital adjustment while working out the average margins of the parables. It could be seen from the impugned order, Ld. DRP opined that in view of rule 10 B (3), to improve the compatibility in the facts of the case by comparing margins of the tested party with the incomparable, adjustment should be made for the working capital for which the reliable data has to be provided by the taxpayer. While directing the taxpayer to provide the necessary Data/details with computation of the working capital of the tested party and comparables, Ld. DRP directed the Ld. TPO to give the working capital adjustment. For this purpose Ld. DRP took strength from the decisions in the cases of Mentor graphics. [2007 (11) TMI 339 - ITAT DELHI-H], Sony India [2006 (10) TMI 88 - DELHI HIGH COURT] and Philips software [2008 (9) TMI 466 - ITAT BANGALORE-B]. In view of the impact of the trade receivables, trade payables and inventory on the interest cost and depending upon the interest cost the margins change their volumes; we do not find any illegality or irregularity in the directions given by the Ld. DRP in respect of the working capital adjustment. We see no reason to interfere with such a direction. This ground of appeal is, accordingly, dismissed. Charging the interest on then receivables from the AE’s - determination of interest on receivables outstanding with the AEs and to compute the interest forgone and outstanding and give benefit of the same and bring to tax only the net interest income - HELD THAT:- DRP drew support from safe Harbor Rules which came into force in September, 2013 stating that though they are not applicable in the year under consideration, but the principle is justifiably applicable in the case of the taxpayer for the international transaction to be benchmarked. In the circumstances Ld. DRP directed the ld. TPO to verify the amounts of receivables, stating that in case the aggregate amount of receivables from the AEs does not exceed the ₹ 50 crores, to apply SBI base rate as on 30th of June of relevant the previous year +150 basis points, and in case the aggregate amount of receivables from the AEs exceed ₹ 50 crores, apply SBI base rate as on 30th of June of relevant previous year +300 basis points. It is not demonstrated before us as to how this direction in the given situation is bad either on facts or under law. The reasoning followed by the Ld. DRP is neither illegal nor irregular and it does not warrant any interference at our end. In the absence of any compelling reasons, we do not find it just or proper to interfere with such direction of the Ld. DRP. We therefore uphold the same and dismiss this ground of appeal. Disallowance of travelling expenses stating it to be prior period expense - HELD THAT:- On this aspect, after having gone through the assessee submission and order of the LD. AO, as a matter of fact Ld. DRP found that the company received a contract for which it was required to render services till April, 2009, the invoicing for which was done in April, 2009 and the revenue was recognized in the FY 2009-10. It is further observed that the company incurred travelling expenses for this project from December, 2008 to April, 2009 whereas income from this project was not recognized in the books during the FY 2008-09 and the corresponding travel expenses FY 2008-09. However, subsequently in the FY 2009-10, the income from the project was recognized and the corresponding travelling expenses were charged in the books of accounts. In the instant case, the expenditure in regard to travelling expenses has accrued and arisen during the year and accordingly the same is allowable as direction while computing the profits for the FY 2009-10. The assessing officer is, therefore, directed to delete the addition. We find no reason to interfere with the same. We, therefore, uphold the same and dismiss the ground No. 4 of revenue’s appeal.
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