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2021 (4) TMI 208 - AT - Income TaxTP Adjustment - comparable selection - Non considering provision of bad and doubtful debts as operating in nature while computing operating margin of assessee and the comparable companies - HELD THAT:- In light of the decision of coordinate bench of this Tribunal in case of Brocade Communications Systems Pvt. Ltd. [2020 (4) TMI 776 - ITAT BANGALORE] and Rolls-Royce India (P.) Ltd. [2016 (4) TMI 1178 - ITAT DELHI] the margin is to be reworked by considering the provision for doubtful debts as operating expenditure. The Ld. AO is directed to recompute the margin of assessee as well as comparables based upon the observations of this Tribunal in case of Brocade Communications Systems Pvt. Ltd. (supra) and decision of Hon'ble Delhi Tribunal in the case of Rolls-Royce India (P.) Ltd. (supra). In terms of risk, we note that assessee is a no risk company and therefore risk adjustment should be provided to comparables is any. We direct the assessee to file all necessary details in respect of the same. In respect of the companies for which details could not be filed, the Ld. AO/TPO shall call for necessary information under section 133(6) in order to compute necessary adjustment. Not applying the upper limit of turnover on sales filter and for in appropriate inclusion/exclusion of comparables by Ld. AO/TPO in the final list - HELD THAT:- This Tribunal in case of Genesis Integrating Systems India Pvt. Ltd. vs [2011 (8) TMI 952 - ITAT BANGALORE] and various other decisions have held that, companies having turnover in excess of ₹ 200 crores cannot be compared with companies having turnover less than ₹ 200 crore. This preposition has been accepted by Hon'ble Bombay High Court in case of CIT vs Pentair Water Pvt. Ltd.,[2016 (5) TMI 137 - BOMBAY HIGH COURT] - Hon'ble Court upheld rejection of companies having turnover holding that turnover is a relevant factor in considering comparability of companies. Accordingly we direct Ld. AO/TPO to exclude Tata Elxi Ltd. (Seg.), Mindtree Ltd., Larsen and Toubro Infotech Ltd., RS Software (India) Ltd., Persistent Systems Ltd., Nihilent Technologies Ltd., Infosys Ltd., Cybage software Pvt. Ltd. for having high turnover as compared to a captive service provider like assessee. Infobeans Technologies Ltd. - It is observed that the annual report of this company categorises the diversify services provided by this company under software development segment. We also note that this company is basically into application development for web and mobile and provides customised services to its offshore clients comprising. Entire revenue received by this comparable case under one single segment of sale of software. This company also owns software licenses. In our considered opinion this comparable cannot be considered to be functioning in 100% risk mitigated environment and is a full-fledged enterprise. Such a comparable cannot be compared with a captive service provider like assessee.Accordingly we direct this comparable to be excluded from finalist. Evoke Technologies Ltd., I2T2 India Ltd., Indiagames Ltd., FCS Software Solutions Ltd., DCIS DOT COM Pvt. Ltd. - As submitted that assessee had filed all relevant details in regards to the same in order to verify the filters considered by the Ld. TPO however the authorities below have summarily rejected these comparables. Based upon the above submissions by both sides, we set aside this issue back to Ld. AO/TPO for reconsideration of Evoke Technologies Ltd., I2T2 India Ltd., Indiagames Ltd., FCS Software Solutions Ltd., DCIS DOT COM Pvt. Ltd. Accordingly ground 1.14 stands allowed for statistical purposes. Proposed adjustment of notional interest on outstanding debtors - action of the Ld. AO to treat credit period to be 30 days - We direct Ld. AO/TPO to verify the invoices against which payments have been received by assessee within the credit period agreed between assessee and the AE. In the event, any trade receivable falls beyond the agreed period of 90 days, the Ld. AO/TPO shall verify, if the same is subsumed in the working capital adjustments. On verification, if found to be subsumed, then no adjustment deserves to be made. On the contrary if any trade payables falls outside the agreed credit period that is not subsumed, adjustment on such trade receivables would be restricted to LIBOR + 300 basis points.
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