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2021 (4) TMI 1085 - AT - Income TaxTP Adjustment - comparable selection - exclusion of Microgenetics Systems Ltd. by the TPO was done after applying the turnover-filter of ₹ 5 crores - HELD THAT:- As AR’s submissions that there is no linkage between the turnover and profit margins though are not valid, but the TPO has also not given any concrete findings as to why this particular comparable was earlier selected and was only excluded following the turnover filter of ₹ 5 crores. This filter whether strictly followed by the TPO or not in other comparables is also not emerging from the order of the TPO. Thus, it will be appropriate to direct the TPO/AO for taking cognizance of this comparable after applying all the filters as well as the functional profile of the comparable into account and thereafter if all the parameters are proper, then select this comparable. Thus, Ground No. 2 of the assessee’s appeal is partly allowed for statistical purpose. Rejection of R-Systems International Ltd. - As from the perusal of the annual reports, it can be seen that audited financial data for the relevant previous year (April, 2009 to March, 2010) is available in the public domain relating to four quarters. Merely having different financial year cannot discard this comparable from the list of comparables. Thus, we direct the TPO/AO to consider this comparable after applying all the filters as well as the functional profile of the comparable into account and thereafter if all the para-meters are proper, then select this comparable. Thus, Ground No. 3 of the assessee’s appeal is partly allowed for statistical purpose. TCS Eserve International and TCS E-Serve Limited - It can be seen that the functional profile of these comparables are different from that of the assessee company. Both these entities are involved in software testing, verification and validation of software which falls in the domain of “software development” services. Besides this separate segmental details pertaining to ITeS/BPO activities are also not available in their financial statements.Therefore, we direct the TPO/AO to exclude both these comparables i.e. TCS Eserve International and TCS E-Serve Limited from the final list of comparables. Third party cost recoveries from AE for the purpose of applying the mark-up - HELD THAT:- As per the terms of the service agreement with the overseas AE, such expenses are recovered by the assessee on a costto- cost basis, without charging any mark-up. The CIT(A) has rightly held that the assessee should have marked up these expenses by a profit-margin before making the recoveries as the said expenses are part and parcel of the business of the assessee and forms part of the total cost based. Besides this the decisions of Cheil Communication India Pvt. Ltd. [2010 (11) TMI 630 - ITAT DELHI] is altogether on a different footing and the factual aspects are totally different from that of the assessee’s case herein. In Cheil Communications, the issue was that of remunerated by its associated enterprises on the basis of a fixed commission/charges based on expenses or cost incurred by the assessee for release of a particular advertisement as well as on advisory services. Thus, Ground No. 7 of the assessee’s appeal is dismissed Working capital adjustments on account of outstanding receivables - HELD THAT:- As submission of the Ld. AR was that the assessee could not recover two invoices dated 31.03.2009 and 30.10.2009 within the stipulated credit period of 30 days and there was delay of 11 and 6 days respectively in collecting these invoices on an isolated basis. But the Ld. AR claims that the weighted average period of realization with respect to all invoices during the relevant year put together was only 20.52 days. This issue needs to be verified properly by the TPO/AO, therefore, we are remanding back this issue to the file of the TPO/AO for proper adjudication after taking cognizance of the actual delay in collection of invoices. Needless to say, the assessee be given proper hearing after following principles of natural justice.Ground No. 8 of the assessee’s appeal is partly allowed for statistical purpose. Exclusion of four comparables Accentia Technology Pvt. Ltd., Eclerx Services Ltd., I Gate Global Services and Infosys BPO Ltd. - HELD THAT:- From the perusal of these companies profiles and the findings given by the CIT(A) is apt. As in case of Accentia Technology Pvt. Ltd. there was extraordinary event that of merger took place during the year. In case of Eclerx Services Ltd., the functional profile is altogether different than the assessee company. In case of I Gate Global Services separate segmental data relating to IT enabled Services and IT Services were not available. In case of Infosys BPO Ltd., it is a giant in the area of the software development, besides this it assumes all risk leading to higher profits as well as there was an extra ordinary economic event during the year as it acquired membership interest in Machenic Systems LLC. Thus, all these comparables were rightly excluded by the CIT(A). Hence, all four grounds of Revenue’s appeal are dismissed.
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