2023 (3) TMI 1440 - ITAT BANGALORE

TP Adjustment - Provision for Bad and Doubtful Debts as operating expenditure - HELD THAT:- This Tribunal in the case of ACI Worldwide Solutions Pvt. Ltd [2019 (9) TMI 1595 - ITAT BANGALORE] as held that provision for bad and doubtful debts should be treated as operating expense while computing the PLI OP/OC of the comparable companies which ultimately remains for comparison. In view of the above order of the Tribunal, we direct the AO/TPO that provisions for doubtful debts to be considered as operating expenses.

Grant of Working Capital Adjustment - Tribunal in the case of Altimetrix India Pvt. Ltd. [2022 (7) TMI 1400 - ITAT BANGALORE] there would remain no comparable uncontrolled transactions for the purpose of comparison. Transfer pricing exercise would therefore fail. Therefore in keeping with the OECD guidelines, endeavor should be made to bring in comparable companies for the purpose of broad comparison. Therefore the working capital adjustment as claimed by the Assessee should be allowed.

Comparable selection - Deselection of companies of Manipal Digital Systems Pvt. Ltd., Datamatics Business Solutions Ltd. and Infosys BPO Limited as functionally dissimilar.

CES Limited is doing both BPO and KPO services - segregation of ITes services has to be categorically conducted before classifying as functionally comparable with another. In this case Revenue Authorities have only looked into the revenue earning from ITes segment and included this company as comparable. The facts remains both these companies are functionally different. We therefore, direct the AO/TPO to exclude CES Limited from the final set of comparables with that of the assessee company.

Ultramine Pigments Ltd - We are of the opinion that this is the initial filter on the basis of which the comparables are selected. So if a company falls this filter, then it will not be selected as a comparable at the first place. Service income has to be seen at the entity level in all the cases. Hence, the TPO is directed to exclude the company as comparable. As it fails the service income filter adopted by the TPO, we do not find it contingent to discuss on the other allegation of the assessee on exclusion of this filter. The intangibles referred in the Asset Schedule represent the computer software.

For any software company, it is essential to have rights of software for coding purposes. Therefore, such intangibles cannot be equated with the intangibles acquired/created by the assessee to provide specific enduring benefit. We also note that intellectual property referred to, as per the annual report, is amortized over its estimated useful life of 2 years. The fixed asset schedule for the year ended 31.3.2017 does not show any intellectual property. Also, the assessee has failed to establish that such differences have material effect on the margin of the above company, in terms of clause (i) of sub--rule (3) of Rule 10B, which provides that an uncontrolled transaction shall be comparable to an international transaction if none of the differences, if any, between enterprises entering into business transactions or likely to materially affect the profit arising from such transactions in the open market. Hence, these pleas were rejected by the ld. DRP.

The above findings of the ld. DRP are self-contradictory. This should be re-examined at the end of AO/TPO. Accordingly, this issue is set aside to the file of AO/TPO for reconsideration.

SPI Technologies Ltd. be excluded as functionally dissmilar.

BNR Udyog Ltd. assessee has passed through the foreign exchange filter and it should be considered as a comparable.

Crystal Voxx Ltd. - We accede to the request of the assessee’s counsel and remit it back to the file of AO/TPO for fresh consideration to examine whether assessee passed through all the filters adopted by the TPO or not. The issue is remitted to the file of AO/TPO for fresh consideration.

R System International Ltd. and Bhilwara Technology Ltd. issue is remitted to the file of AO/TPO for fresh consideration.

ISN Global Ltd - As per the information in the annual report, the company is into ITES services and functionally comparable to the assessee. Hence, the ld. DRP directed the TPO to verify the financials and consider the company for inclusion if satisfies all the filters. DRP is not justified in excluding this comparable from the list of comparable. Accordingly, we direct the AO/TPO to include this company ISN Global Solutions Ltd. in the list of comparables.