TMI Blog2015 (8) TMI 703X X X X Extracts X X X X X X X X Extracts X X X X ..... of the DRP in this regard and direct the TPO/AO to verify the claim of the assessee and if found correct, to take only the segmental margins of this company as pleaded by the assessee. Working capital adjustments - Held that:- The annual reports of the comparable companies chosen for the purpose of calculating working capital adjustment are accepted as additional evidence. The issue, however, requires verification by the TPO/AO and therefore the order of the DRP in this regard is set aside and the issue is remanded to the TPO/AO for fresh consideration in light of the material now made available by the assessee. Allsec Technologies Ltd. should be excluded from the list of comparable companies. Club expenses disallowed as a deduction u/s. 37(1) - as per revenue the same were personal in nature and cannot be regarded as expended wholly and exclusively for the purpose of business - Held that:- As relying on CIT v. United Glass Mfg. Co. Ltd.[2012 (9) TMI 914 - SUPREME COURT] wherein taken the view that club membership fees of employees incurred by the assessee is business expenses u/s. 37 of the Act. In view of the aforesaid decision the claim of assessee in this regard has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Used PLI 1 Provision for BPO services 184,661,067 TNMM OP/TC 2 Provision of Software Development Services 331,562,802 TNMM OP/TC 3 Allocation of Human Resources and Administration costs 938,937 CUP NA 4 Reimbursement of expenses 13,825,805 NA NA 5 Interest on overdue out standings 300,959 CUP NA 6 Import and resale of hardware and software 6,628,593 RPM CP/Sales 7 Export of spares parts 685,749 TNMM OP/Sales 8 Provision of software maintenance services 13,497,927 TNMM OP/Sales 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re development services to the AE as follows:- (in Rs.) Total cost of Provision of services by the assessee (a) 29,97,07,226 OP/OC 16.67 Margin @ 16.67% as discussed above (b) 4,99,61,194 Arm s Length Price A (a+b) 34,96,68,420 Price at which international transaction has been undertaken B 33,15,62,802 Difference 1,81,05,618 % of difference with B above 5.46% 9. On appeal by the assessee, the CIT(Appeals) confirmed the adjustment of ₹ 1,81,05,618 made by the AO by way of adjustment, consequent to determination of ALP. 10. We have heard the submissions of the ld. counsel for the assessee and the ld. DR on the TP adjustment made in respect of software development services segment. The ld. counsel for the assessee prayed that Infosys Technologies Ltd., which was a comparable chosen by the TPO and which is at Sl.No.3 of the list of comparables drawn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... final list of comparable companies chosen by the TPO. 12. The next company from the list of comparables chosen by the TPO that is sought by the assessee to be excluded is Satyam Computer Services Ltd. The DRP in its directions at page 9 has accepted the claim of assessee that Satyam Computer Services Ltd. cannot be regarded as a comparable. Despite the aforesaid directions of the DRP, the TPO while passing the final assessment order after the directions of the DRP, has failed to exclude the aforesaid company from the list of comparables. We have perused the order of the DRP and we find that in para 5.2(iv), the DRP has given a clear direction that the objection by the assessee to include Satyam Computer Services Ltd. is found acceptable. In view of the above, we direct the AO/TPO to exclude Satyam Computer Services Ltd. from the final list of comparables. 13. The next submission of the ld. counsel for the assessee is with regard to the margins of Visualsoft Technologies Ltd., which is at Sl.No.15 of the list of comparables chosen by the TPO. The assessee s objection is with regard to computation of margins for the purpose of comparison as done by the TPO was as follows:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions and are of the view that the basis on which the DRP came to the conclusion that the segmental details are not available in the public domain is erroneous, as the data taken by the assessee are based on the annual report of this company, a copy of which is placed at page 456 of the assessee s paperbook. We are therefore of the view that it would be just and appropriate to set aside the directions of the DRP in this regard and direct the TPO/AO to verify the claim of the assessee and if found correct, to take only the segmental margins of this company as pleaded by the assessee. 18. The next objection of the assessee is that the TPO has not given working capital adjustments. In this regard, the ld. counsel for the assessee drew our attention to the objections filed by the assessee to the DRP in which the Assessee has highlighted as to how working capital adjustment is essentially an adjustment for the opportunity cost of making investments in working capital (ie entities, accounts receivable/debtors and accounts payable/creditors) which require capital and operating assets. At arms length. an uncontrolled entity will expect to earn a market rate of return on that capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are necessary for the purpose of proper adjudication of the dispute before the Tribunal, the same should be admitted as additional evidence. 20. We have considered the prayer of the ld. counsel for the assessee and are of the view that the same deserves to be accepted. Accordingly, the annual reports of the comparable companies chosen for the purpose of calculating working capital adjustment are accepted as additional evidence. The issue, however, requires verification by the TPO/AO and therefore the order of the DRP in this regard is set aside and the issue is remanded to the TPO/AO for fresh consideration in light of the material now made available by the assessee. 21. The TPO is accordingly directed to compute the ALP after giving effect to the directions referred to above. 22. The other issues raised in the grounds of appeal regarding TP adjustment in the software development sector were not argued and accordingly the same are not decided. 23. The ld. counsel for the assessee then drew our attention to the determination of the ALP in the ITES sector. As far as ITES segment is concerned, the assessee in its TP study submitted that the OP/TC margin earned by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness of providing ITES to regard it as a comparable was as follows:- 6. Allsec Technologies Ltd . The learned counsel for the assessee submission is to exclude the said company from the list of comparables on the ground that this company is having super normal profits. Further it has been experiencing extraordinary events. During the FY 2005-06, this company had gone for a IPO during the relevant previous year and also the company had entered into a share purchase agreement with shareholder of B2K Corporation Pvt. Ltd., which is engaged in the business of inbound and outbound voice, email chat services and information technology services. He relied on the following case law: 1. Bangalore ITAT order in the case of Google India Pvt. Ltd. vide 1368/Bang/2010 where this company is rejected as comparable to ITES. 2. Hyderabad ITAT order in the case of Capital IQ Information Systems (India) Ltd. vide Para 11 and 15. 3. Mumbai ITAT order in Teva India Pvt. Ltd. Vs. DCIT Mumbai. 28. The ITAT Hyderabad Bench accepted the claim of the assessee in this regard in para 17 of its order, which reads as follows:- 17. We have considered the various objection in the light ..... X X X X Extracts X X X X X X X X Extracts X X X X
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