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2018 (4) TMI 638

up companies which essentially includes software architecture, coding, software testing, digital integration, software maintenance etc. It also provides some software activity to Indian Customers under independent domestic contracts, thus companies functionally dissimilar with that of assessee need to be deselected from final list. - Directions to compute ALP of the international transaction by treating foreign exchange fluctuation as an item of operating nature both for the assessee company and comparable companies. - Recruitment and Training employees for upgrading their skills - nature of receipt - Held that:- In the globalised set up, sudden upgradation of knowledge and skill of the IT engineers / technicians for providing IT Software Development Services particularly to foreign AE is also necessary for earning profit by a company. Moreover, when undisputedly there is no memorandum of understanding between the assessee company and its employees that the employee will work for specific period, as the attribution rate in software industry is highest, recruitment of employees and imparting of training to them cannot be considered as of enduring benefit. So, by following th .....

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,24,931/- as an operating expense even though 4/5 of said expenditure has been disallowed as capital expenditure under section 37of the Act. 3.2 Wrongly computing the margin of comparable companies selected by him. 3.3. Rejecting the comparables selected by the Appellant on the basis of additional/modified quantitative filters on surmises which lack valid and reasonable basis; 3.4 The Ld.DRP erred in setting an arbitrary norms for fixing the filter on account of filter of related party transactions (RPT) for the purpose of selecting comparable entities. 3.5 The Ld.TPO/AO/DRP have erred in arbitrarily applying lower filter of turnover of ₹ 5 crorcs and also in not applying any filter for upper limit of remover for the purpose of selecting the comparables. 3.6. The Ld. DRP erred in including Thirdware Solutions Ltd..as a comparable entity solely for the reason that the assessee had itself originally included and refused to consider new information brought on record by the appellant. 3.7. The Ld. A.O./ DRP erred in including several entities even though they are materially not comparable to the Appellant in terms of Functions, Assets and Risk profile. 3.8. The DRP have erred in .....

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ime of preparation of Transfer Pricing Documentation by the Appellant, the complete data for financial year 2008-09 was not available within the public domain 8. The Ld. AO erred in determining interest u/s 234B and 234C of the Income Tax Act. The Appellant craves leave to add, to alter, rescind and modify all or any of the afore-stated grounds of appeal or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that the order of the learned AO be set aside and the necessary relief be provided. Additional Ground No. 1 That on the facts and in circumstances of the case the authorities below should have excluded following comparables: 1. Mindtree Ltd. 2. Thirdware Solution Ltd. Additional Ground No. 2 The Ld. AO/TPO/DRP erred in not treating foreign exchange fluctuation gain/loss incurred in the revenue account as operative item for the purpose of computing the operating margin of the assessee as well as of the comparable. 3. The assessee company is a subsidiary of Science Applications International Corporation [SAIC US]. The Company, formerly known as S .....

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r u/s 143(3) read with Section 144C of the Income Tax Act, the assessee filed the present appeal. 5. The Ld. AR submitted that ground No. 3.1 has to be dismissed as the same has been taken elaborately in Ground No. 5. Thereafter, Ld. AR submitted that Ground No. 3.9 regarding working capital profile, the assessee is only contesting working capital profile and not that of risk profile. Therefore, Ground No. 3.9 will be contested in respect of working capital profile only. The submissions of the assessee are accepted. The Ld. AR submitted that there are two consolidated additional Grounds in the present appeal and the same should be taken. 6. As regards to Additional Ground No. 1, the Ld. AR submitted that the comparable Mindtree Ltd. is not contested by the Ld. AR during the time of hearing. The Ld. AR submitted that the assessee is only contesting the exclusion of Thirdware Solutions Ltd. which is set out in Additional Ground No. 1. The Ld. AR further submitted that the same should have been taken into account by the TPO as well as DRP. The said company is not a proper comparable as it is the functionally different company. To support his contention, the Ld. AR submitted that the c .....

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ssessee company and also there is no segmental record given in the annual report of that company. Thus, we partly allowed Additional Ground No. 1. 8. As regards Additional Ground No. 2 read with Original Ground No. 3.2 regarding operating foreign exchange fluctuation, the Ld. AR submitted that in the Assessment Year 2008-09, the same issue has been dealt by the Tribunal in assessee s own case being ITA No. 6464/Del/2012 order dated 27.06.2016 in para 59. The Ld. AR submitted that this issue is in favour of the assessee. 9. The Ld. DR relied upon the Assessment Order as well as the orders of the TPO and DRP. 10. We have heard both the parties and perused all the records. It is pertinent to note that this issue come up in A.Y. 2008-09 before the Tribunal and Tribunal (order dated 27.06.2016) held as under: 59. When, undisputedly, the ld. DRP has directed to treat the forex fluctuation gains/loss on support sale as an export item while comparing the assessee company with comparable companies and no appeal has been filed against the said directions, TPO is under legal obligation u/s 144C (10) & (13) to implement the DRP s direction. So ground No. 12 is determined in favour of the a .....

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nefit of working capital adjustment for transfer pricing adjustment. Thus, the issue is squarely covered by the order of the Tribunal. We therefore, restored the issue to file of the TPO/AO, after providing reasonable opportunity to the assessee by following principle of natural justice and decide the issue on merit. Therefore, Ground No. 3.9 is partly allowed for statistical purpose. 13. As regards Ground No. 4 relating to Recruitment and Training employees for upgrading their skills, the Ld. AR submitted that the said issue is covered in favour of the assessee by Tribunal s order in assessee s own case 2008-09. The Ld. DR relied upon the orders of the Assessing Officer, TPO and DRP directions. 14. We have heard both the parties and perused all the relevant records. The Tribunal in para 20 held as under: 20. Now, adverting to the case at hand, when the assessee has come up with specific pleas that he has made payment of ₹ 37,89,007/- to the third party recruitment agency, access fee to various job sites like naukari.com etc. and ₹ 16,01,153/- for imparting raining to the new employees who have recently joined and on job training to existing employees, which have otherw .....

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