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2020 (7) TMI 719 - AT - Income TaxTransfer Pricing Adjustment - Selection of comparable - HELD THAT:- Accropetal Technologies Ltd. - Observations of the DRP is a finding that the employee cost of Accropetal Technologies Ltd., is less than 25% of its total cost. However, we find that in form No.35A (form of objection before DRP) the Assessee has raised para 6.4.2 (Page-40 of Form No.35A), the objection for exclusion of this company is only on the basis of functional comparability and revenue recognition method followed by this company. Both the filters employed by the DRP for excluding this company from the list of comparables does not figure in the objection of the Assessee at all. This aspect has not been highlighted or taken as a ground of appeal by the revenue in its appeal. Therefore the only ground of appeal of the revenue against the directions of the DRP is that the directions of the DRP amount to a set aside of the issue to the TPO/AO. Since we have come to the conclusion that the directions of the DRP cannot be construed as a set aside of the issue to the TPO/AO, we find no merits in Gr.No.2 raised by the revenue. Companies functionally dissimilar with that of assessee need to be deselected from final list who is into provision of low end IT enabled services. Gains/loss arising from fluctuation of foreign currency as being operating in nature - HELD THAT:- The Hon’ble Delhi High Court in the case of PCIT Vs. B.C.Management Services (P) Ltd.[2017 (12) TMI 255 - DELHI HIGH COURT] held that foreign exchange gain has to be regarded as part of operating income by following its own order in Pr. CIT v. Cashedge India (P.) Ltd. [2016 (5) TMI 1348 - DELHI HIGH COURT].Respectfully following the said decision, we uphold the directions of the DRP and dismiss ground raised by the revenue. Working capital adjustment - HELD THAT:- On going through the TPO's order as well as annexure D referred to in the transfer pricing order on working capital adjustment, we find that the AO has not given any basis for restricting the adjustment to 1.71%. In all the cases relating to transfer pricing adjustment, this Tribunal has been directing to give working capital adjustment on actual basis and the TPO having arrived at 5.97% ought to have adopted the same instead of restricting it to 1.71 %. - remand this issue to the file of the AO/TPO for working out the ALP after giving adjustment of working capital as per the calculation of the AO in annexure D annexed to the transfer pricing order. This ground of appeal is accordingly allowed. Deduction u/s.10A - HELD THAT:- From case of CIT v. Tata Elxsi Ltd [2011 (8) TMI 782 - KARNATAKA HIGH COURT] we are of the view that communication charges and expenses incurred in foreign exchange should be excluded both from export turnover and total turnover. We are of the view that as of today, law declared by the Hon'ble High Court of Karnataka which is the jurisdictional High Court is binding on us. Moreover, the order of the Hon’ble Karnataka High Court has been upheld by the Hon’ble Supreme Court in the case of CIT v. HCL Technologies Ltd. [2018 (5) TMI 357 - SUPREME COURT]. The grounds are decided accordingly dismissed. Non granting full credit of TDS deducted and consequently levying interest u/s 234B and C and non granting interest under Section 244A contrary to the directions of the DRP - HELD THAT:- We are of the view that these grounds are factual in nature and therefore the AO must be directed to verify the same and grant them/rectify the same in accordance with law. We hold and direct accordingly.
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