2021 (11) TMI 1059 - ITAT BANGALORE

TP Adjustment - comparable selection - Filters applied by assessee in its TP study - Capacity utilization - HELD THAT:- In this case, the exact details of capacity utilisation of comparable companies was not made available to the TPO. It was alleged that the TPO should obtained it by exercising his powers u/s. 133(6) of the Act so as to compare the capacity utilisation of the comparables with the assessee company. In our opinion, it is appropriate to remit the issue relating to adjustment on account of capacity utilisation of the assessee to the file of the AO/TPO for deciding the same afresh keeping in view the OECD guidelines. If the exact details of capacity utilisation of comparable companies are not available in the public domain, the AO/TPO is directed to obtain the same directly from the comparable companies and decide the issue afresh, after affording opportunity of being heard to the assessee

Customs Duty Adjustment - So as to bring uniformity, the customs duty was to be eliminated from the comparable price also to arrive at correct PLI. Accordingly, we remit the issue to the file of AO for fresh consideration.

Adjustment for foreign exchange fluctuations - Higher Import Content of the assessee vis-à-vis comparable companies - This issue was also considered by the Chennai Tribunal in the case of Gates Unitta India Company (P.) Ltd [2017 (4) TMI 1585 - ITAT CHENNAI] direct the TPO to provide considerable exchange fluctuation adjustment while determining the ALP. Accordingly, this issue is remitted to the file of the TPO for determining the ALP after considering the above three components i.e. customs duty adjustment, air freight adjustment and foreign exchange fluctuation adjustment.

Treatment of amortisation of goodwill as operating expenditure - HELD THAT:- As relying on ST-ERICSSON INDIA PVT. LTD. VERSUS DCIT, CIRCLE 24 (2) , NEW DELHI AND VICE-VERSA [2018 (7) TMI 1903 - ITAT DELHI] as held mortization of goodwill is an extra ordinary item and is not pertaining to the regular operation of the assessee, and hence non-operating in nature - issue decided in favour of assessee.

Adjustment, if any, should be restricted to proportionate value of international transaction of the assessee - HELD THAT:- This issue was considered by the Hon’ble Supreme Court in the case of CIT v. Hindustan Unilever Ltd. [2018 (10) TMI 1611 - SC ORDER] wherein it was held that while determining the ALP of international transactions, benchmarking has to be done only on Associated Enterprises transactions and not for the entire turnover. In view of this, we find force in the argument of the ld. AR that the TP adjustment should be restricted only to international transactions pertaining to purchase of raw materials from AEs and other related transactions only. With these observations, we allow this ground of the assessee.

Comparable for software section - erroneous computation of margin - L&T and Persistent were considered as not comparable in the case of CGI Information Systems & Management Consultants (P.) Ltd.[2018 (4) TMI 1755 - ITAT BANGALORE] on the ground that these company was a software product company and segmental information on SWD services was not available - thus we direct exclusion of these two companies from the final list of comparables.

Consider Akshay Software Technologies Ltd. as a comparable.

Technosoft Engineering - As the allegation of the ld. DR is that the complete financials are not made available to the AO/TPO. In our opinion, if the data is not in the public domain, the AO can exercise his powers u/s. 133(6) of the Act to obtain the financials of this company and decide the issue accordingly. Hence this issue is remitted to the AO/TPO.

Evoke Technologies Ltd. is a comparable company. Accordingly, we remit the issue to the AO/TPO with a direction to go through the financials of this company and decide the issue accordingly.

Disallowance of provision for warranty - AO disallowed the provision for warranty contending the same to be contingent liability/ created on estimate basis - HELD THAT:- As difference between the provision amount and the utilization amount is not the benchmark that is required to be considered. What needs to be seen is whether the provision created is on scientific basis. It is submitted that the amount of provision is a factual outcome of the methodology followed in creating provision and utilization would be the actual expenditure incurred against the warranty claims. In the present case, the assessee has followed the scientific methodology based on which provision amount is arrived at.

The assessee follows the specific methodology of creating provision for warranty consistently over the years. The said methodology has been submitted before the AO during the course of assessment proceedings. It creates provision for warranty on a scientific basis.

We direct the AO to examine the assessee’s past record and allow the provision for warranty in the same proportion as compared to the sales as in the earlier assessment years.For this purpose, the AO may consider the data of the immediate past five assessment years and decide the issue accordingly.

Disallowance of annual licence fee - AO disallowed the same contending it to be capital in nature and also that it is not a genuine expenditure while passing the draft order, on the contention that no evidences were submitted supporting the same - HELD THAT:- The claim of the assessee regarding the expenses being for annual licence fees has not been examined at all and that the details / evidences submitted by the assessee before the DRP has not been admitted for consideration, we deem it appropriate to follow the order of the Co-ordinate Bench of this Tribunal in the assessee's own case for Assessment Year 2009-10 [2019 (4) TMI 1929 - ITAT BANGALORE] admit the details filed by assessee before DRP and remand this issue back to the file of the AO with the same directions as contained in the Tribunal order for Assessment Year 2009-10.

Appeal of the assessee is partly allowed for statistical purposes.