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2017 (10) TMI 49 - AT - Income TaxTPA - selection of comparable - selection criteria - Held that:- The assessee under the provision of software research and development services carries out R&D services for its AE for the development of software products to its CDS utilizing R&D technology of CDS only. CDS specifies R&D services to be performed; products to be developed or used; timeline for completion and specific result to be achieved. The entire conceptualizing of the marketing strategy for sales of its products and services, securing of orders of its products are done by CDS and not by the assessee. The assessee company is purely a ‘captive service provider’ and does not undertake any kind of marketing or development functions. Conceptualization of services and determination of exact scope of work, which is to be performed by the assessee, is responsibility of CDS. Even the quality control, testing of the products is all done by CDS. Now, if we analyze the functions of the assessee, which is purely R&D being a captive unit companies functionally dissimilar with that of assessee need to be deselected from final list of comparability. T.P. Adjustment on account of interest on outstanding receivables - Held that:- We direct the TPO to first of all examine the working capital adjustment worked out by the assessee vis-à-vis the comparables and then to see whether the assessee has factored the impact of the receivables on the working capital and thereby pricing/profitability vis-à-vis that of the comparables and see the impact of capital adjustment on outstanding receivables. Foreign exchange fluctuation cost - whether is operating or not? - Held that:- As regard the issue whether forex loss is to be regarded as operating cost or not, is no longer debatable issue as foreign exchange gain or loss relatable to an international transaction is always part and parcel of such underlined transaction. When an international transactions are entered into with the AE, one of whom is resident of other contracting state and the transactions are in foreign currency, then any gain or loss on account of forex is inherent item of cost or profit. For the purpose of determining the profit realized on the international transaction, all operating costs incurred for the purpose of providing the services to the AE have to be taken into account. Therefore, no question arises whether the foreign exchange gain or loss is non-operating in nature or not. Thus, we hold that forex loss or gain is operating costs or gain and accordingly, we allow this ground raised by the assessee. Director’s remuneration between STP unit and non-STP unit - Held that:- As admitted by both the parties that this matter had come for consideration before the Tribunal in the assessee’s own case in assessment year 2008-09 this matter has been remanded back to the file of the AO for fresh examination.
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