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2019 (10) TMI 1487 - AT - Income TaxTP Adjustment - Comparable selection - HELD THAT:- Acropetal Technologies Limited - turnover of the company excluding other income is ₹ 141,65,28,000/-. Thus, we observe that the comparable selected by the revenue fails their own filter choosen by the TPO on account of employee cost less than 25% of the total cost. Hence, we hereby direct that the asset comparable be excluded from the TPO study. E-infochips Limited - As gone through the financials of this comparable, the operating revenues gross are to the tune of ₹ 26,03,84,251/- whereas the revenue from software development is ₹ 19,21,09,661/- which is less than 75% hence, do not qualify for the comparable as per the TPO’s own filter. Hence, it is directed that this comparable may be obliterated from the list of comparable. Zylog Systems Ltd. - In the case of this comparable, the revenues from the software solutions and products in the current year is 45.2% and in the earlier year 39.5% which is less than 75% hence, do not qualify for the comparable as per the TPO’s own filter. Hence, it is directed that this comparable may be obliterated from the list of comparable. E-Zest Solutions Limited - We find that cloud computing has been the major source of revenue of this company, hence, functionally not comparable. In the assessee’s own case for the assessment year 2008-09, this comparable has been excluded by the Co-ordinate Bench of the Tribunal relying on the decision of Sunguard Solutions India Pvt. Ltd. [2015 (7) TMI 1275 - ITAT BANGALORE]. Hence, keeping in view the decision of the earlier year, we direct that this comparable may be excluded from the list of comparables. Infosys Ltd. - In the assessee’s own case for the assessment year 2008-09, this comparable has been excluded by the Co-ordinate Bench of the Tribunal relying on the decision of Nokia Siemens Networks India Pvt. Ltd [2018 (2) TMI 1783 - ITAT DELHI] - Hence, keeping in view the decision of the earlier year, we direct that this comparable may be excluded from the list of comparables. Larsen & Toubro Infotech Ltd. - We find that the submissions of the ld. AR cannot be accepted as the assessee and the comparable, and the study of the TPO involves determination of ALP on software development services. In the software development services, the overseas revenues do involve the similar functions. The assessee is also in the software development segment so as the comparable. Increase in turnover cannot entitle to exclude the comparable. The revenues have shown to be from the IT services. The case laws supported by the assessee are not applicable to the facts of this case. 93.56% of revenue is coming from the export of software development only. Functionally Infosys is on a different format whereas L&T is similar. Keeping in view, the judgment of Hon’ble Supreme Court in the case of Morgan Stanley and Company Inc.[2007 (7) TMI 201 - SUPREME COURT] regarding the functions and comparability thereof, we hold that this can be included an appropriate comparable. Persistent Systems and Solutions Ltd. - Revenues and expenses have been shown in a consolidated manner and no segmented disclosure has been made. In the assessee’s own case for the assessment year 2008-09, this comparable has been excluded by the Co-ordinate Bench of the Tribunal. Hence, keeping in view the decision of the earlier year, we direct that this comparable may be excluded from the list of comparables. Sasken Communication Technologies Ltd - The comparable is a provider of Tele-communication Software Services to Mobile Terminal Vendors, and Solutions to Network equipment manufactures. The restructuring reserve account and the diminution value of investment do not necessarily adversely affect this to be a comparable. The profits, EBITDA margins, software services, network engineering services do not change perceptibly. The company has enquired R&D charges on account of R&D centre at IIT Madras and incurred expense of ₹ 8.94 lacs do not impact the profitability. Hence, we hold that this comparable may be included in the TP study. Wipro Technologies Services Limited - The accumulated depreciation and amortization remained constant as at 1st April 2010 and as at 31st March 2011. Regarding the segmental information, the company reports that it is engaged in providing services which are considered as one segment. Since, there are no separate reportable segments, no segmental reporting was done in the audit report. The comparable was rejected by the Tribunal in the case of Orange Business Service India Solution Pvt. Ltd. [2016 (5) TMI 1333 - ITAT DELHI] on the ground that this company is a subsidiary of Wipro Ltd, which has a considerable brand name, and further that the entire revenue during the year in this company is covered by a master service agreement entered into by breakthrough with CITI group services. R Systems Ltd - The comparability of an uncontrolled transaction can be analyzed only with the “data relating to the financial year” in which the international transaction has been entered into. As the assessee follows the accounting year ending 31st March, the comparables must also have the data relating to the financial year ending 31st March. Since, this data is not available, such companies cannot be accepted as comparables. Vama Industries Ltd. - As already held that the filter of less than 75% is to be excluded, this company does not pass the test of filter of service income laid down by the TPO. Hence, we hold that it is not an appropriate comparable for TP study. Allowance on account of risk adjustment - It was held in the case of EXL Servie.com India Pvt. Ltd.[2017 (8) TMI 225 - ITAT DELHI] TP risk adjustment is allowed only when the differences have pointed out and the authorities can proceed to calculate the effect of such differences on the operating profits margins of the comparables. Hence, keeping in view, the provisions of Section 10B(2)(b), we direct the assessee to provide the detailed working of the risk assumed to the TPO so that they can verify the correctness of the working as given by the assessee and allow the same in accordance with the provisions of the Rules enforce. TDS u/s 194C - Disallowance u/s 40(a)(i) - amounts are paid on account of purchase of machinery, reimbursement of pension, reimbursement of travel expenses and training expenses - HELD THAT:- On going to the expenses, we find that training expenses, purchase of materials, reimbursement of travel expenses and pension are not liable to the provisions of TDS. Regarding the other reimbursement, we have gone through the Circulars issued by the CBDT No. 3/2015 and 2/2014. We hold that amounts paid by way of reimbursement of expenses do not constitute income in the hands of the recipient. Consequently, the payer is under no obligation to deduct TDS u/s 194C and no disallowance of the expenditure can be made u/s 40(a)(ia). Since, it is the Assessing Officer who would be in a position to determine whether the payments are reimbursement are not, we hereby direct the assessee to produce the relevant details pertaining to reimbursements other than training expenses, purchase of materials, reimbursement of travel expenses and reimbursement pension. The Assessing Officer may take a decision after the examination of the details of the reimbursement.
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