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2017 (3) TMI 1315 - AT - Income TaxTPA - selection of comparable - Held that:- We find merit in the claim of the assessee that the margins of concerns with such huge turnover are not comparable with the margins of the assessee which is a limited risk entity. Accordingly, we direct the Assessing Officer to exclude the margins of Infosys Systems Ltd. from the final set of comparables in order to benchmark the international transaction undertaken by the assessee Pre-operative cost included as part of the operating cost while determining the PLI of the assessee - Held that:- The date of registration in the present case is 17-06-2005 and the Associated Enterprise has compensated the assessee for the services provided on cost plus markup basis w.e.f. 01-07-2005. The earlier costs incurred by the assessee for setting up of the business, i.e. for rent, employee cost and administrative expenses cannot form part of the operating cost of the assessee, as the understanding between the parties decide the date from which the assessee would be reimbursed the cost with markup. Accordingly, we hold that the cost of ₹ 39,14,814/- which is the pre-operative expenditure incurred by the assessee, i.e. before starting its activity of providing services to its Associate Enterprise is to be excluded from the operating cost while computing the operating profits. We find before the Hyderabad Bench of the Tribunal in M/s. Market Tools Research Pvt. Ltd. Vs. DCIT [2014 (2) TMI 312 - ITAT HYDERABAD] similar issue of pre-operating expenses arose, where the assessee was incorporated on 04-06-2004 and the agreement was entered with the Associated Enterprise on 01-09-2004. The question was in respect of the pre-operative expenses prior to the date of the agreement and it was held that there is no question of considering the preoperating expenses as part of the operating cost. Similar proposition has been laid down by the Bangalore Bench of the Tribunal in KHF Components Pvt. Ltd. Accordingly, we direct the Assessing Officer to exclude the pre-operative expenditure from the operating cost and also similarly make adjustments, if any, in the case of comparable companies finally selected, to benchmark the international transaction of the assessee
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