TMI Blog2018 (8) TMI 1922X X X X Extracts X X X X X X X X Extracts X X X X ..... as a non-operating cost. Adjustment on account of risk afresh - HELD THAT:- We view that the issue requires re-examination by the TPO/AO. The order of DRP is set aside and the AO/TPO is directed to examine the adjustment on account of risk afresh. The assessee is directed to give the necessary details of the nature of risk and the impact on profit margins and also the basis of quantification of adjustment towards risk. Direct the AO to allow deduction u/s. 10A of the Act on the amount disallowed u/s. 40(a)(ia) of the Act. Giving credit for Advance Tax paid - HELD THAT:- It would be just and appropriate to direct the AO to verify and give credit for advance tax paid, if the contention of the assessee is found to be correct. Deduction u/s.10A - HELD THAT:- Whatever is excluded from the export turnover should also be excluded from the total turnover. - IT(TP)A No.466/Bang/2016, IT(TP)A No.606/Bang/2016 - - - Dated:- 8-8-2018 - Shri N.V. Vasudevan, Judicial Member And Shri Jason P. Boaz, Accountant Member Revenue by : Ms. Neera Malhotra, CIT(DR)(ITAT), Bengaluru. Respondent by : Shri P.C. Khincha, CA ORDER N.V. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal can be conveniently adjudicated along with ground No.3 raised by the assessee, as these grounds relate to determination of ALP in respect of international transaction entered into by the assessee with its AE. Gr.No.2 3 raised by the Revenue reads thus: 2. Whether the DRP has erred to include forex gain/loss as operating in nature without ascertaining the nexus with the business activity of the tax payer. 3. Whether the DRP has erred in granting 1% risk adjustment arbitrarily without appreciating the facts of the case and its comparables. 4. The facts with regard to determination of ALP in respect of international transaction between the assessee and its AE are as follows. The assessee is a company engaged in the business of rendering software development services. The assessee is a 100% EOU set up under the Software Technology Parks of India (STPI) scheme of the Govt. of India. The assessee is a captive software development service provider for the Yokogawa group. Yokogawa group is engaged in the business of process automation, field instrumentation, analytical equipment, safety systems and production management software. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19.39% 3 E-Infochips Ltd 56.44% 56.53% 4 Evoke Technologies Pvt Ltd 8.11% 8.42% 5 I C R A Techno Analytics Ltd. 24.83% 23.25% 6 Infosys Technologies Ltd. 43.39% 43.87% 7 Larsen Et Toubro Infotech Ltd. 19.83% 20.29% 8 Mindtree Ltd.(seg) 10.66% 9.67% 9 Persistent Systems Et Solutions Ltd. 22.12% 21.60% 10 Persistent Systems Ltd. 22.84% 22.04% 11 R S Software (India) Ltd. 16.35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of assumption of risk by the assessee and the comparable companies should give given. The DRP in its direction held as follows:- The objection regarding adjustment on account of economic and risk profile has been considered following the decision of the Hon ble ITAT Bangalore in Intellinet Technologies India Pvt. Ltd. vs ITO (ITA No.1237/Bang/2010). By means of guidance, it is mentioned that in the case of DCIT vs. Hello Soft Pvt. Ltd. (2013) 32 taxmann.com 101 (ITAT, Hyd) 1% adjustment to the average margin was provided towards risk differential. Since the facts of the case remain the same, the TPO is directed to do the needful as above. 9. The assessee had objected to inclusion of 6 companies out of 13 companies chosen by the TPO on the ground that their turnover was more than ₹ 200 crores, whereas the assessee s turnover was only ₹ 14 crores and therefore by applying the turnover filter, these companies should be excluded from the list of comparable companies. This plea of the assessee was accepted by the DRP and accordingly following 6 companies whose turnover was more than ₹ 200 crores were excluded from the list of comparable compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s should be excluded from the list of comparable companies. 13. The ld. DR, however, pointed out that Persistent Systems Solutions Ltd. was a comparable chosen by the assessee itself and the assessee did not object to this company chosen as a comparable company before the DRP. This contention was found to be not correct as in the objection of the assessee before the DRP, a specific objection was raised in this regard in para 5.153 to 5.159 of assessee s objections before the DRP. In view of the above, we do not find the objection raised by the ld. DR before us to be of any significance. 14. As far as appeal of revenue is concerned, the submission of the ld. DR before us was that the foreign exchange gain/loss relating to transactions of the relevant previous year alone should be considered and in this regard, the ld. DR placed reliance on 3 decisions of ITAT Bangalore Bench as follows:- (i) Tektronix (India) P. Ltd. v DCIT, IT(TP)A No.293/Bang/2014 dated 27.10.2017. (ii) M/s. Akamai Technologies India Pvt. Ltd. v. DCIT, IT(TP)A No.1122/Bang/2011 dated 08.09.2017. (iii) DCIT v. ABB Global Services Pvt. Ltd., IT(TP)A No.97/Bang/2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant turnover is not included in the denominator and therefore, the result will be absurd. Hence, we restore this matter to the file of the A.O. with the direction that the foreign exchange gain should be considered for computing profit percentage for the purpose of ALP if it is in respect of turnover of the present year. But if it is in respect of turnover of the earlier year then the same should not be considered in the operating profit in the present year for the purpose of computing ALP. This submission was also made by the ld. AR of the assessee that such details regarding the year of sale in respect of foreign exchange gain of the comparable may not be available. We feel it proper that either the foreign exchange gain of comparable should not be considered in that situation or such details should be obtained from the respective comparable companies u/s. 133(6) of the IT Act, 1961. Ground no. 12 is allowed for statistical purposes in the terms indicated above. 16. The ld. counsel for the assessee, however, pointed out that the Hon ble Delhi High Court in the case of Pr. CIT v. Ameriprise India Pvt. Ltd. in ITA No.206/2016, judgment dated 23.03.2016 has taken the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows:- 5. The lower authorities have erred in a. Disallowing reimbursement of WAN Link charges and Software licenses (totaling to ₹ 36,10,836/-) u/s. 40(a)(i) on the ground that the Assessee has not deducted TDS as per provisions of section 195; b. Stating that Assessee was obligated to file an application u/s. 195(2) for determination of TDS liability in respect of reimbursements paid to non-resident AE; c. Concluding that the Assessee has no obligation, whatsoever, to reimburse sums to its AEs; and d. Concluding that remittances made by the Assessee cannot be called as reimbursement but a payment for service rendered. 6. Without prejudice to the above, the lower authorities have erred in not granting deduction u/s. 10A on sum of ₹ 36,10,836 being disallowance u/s. 40(a)(i). 23. As far as the aforesaid grounds of appeal are concerned, the facts are that the assessee paid WAN link charges and software licenses fees of ₹ 14,24,051 and ₹ 21,86,785 in all totaling ₹ 36,10,836 to nonresidents. According to the AO, assessee was obliged to deduct tax at source u/s. 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under Chapter VI-A is admissible on the profits so enhanced by the disallowance. 28. In view of the above, we accept ground No.6 of the assessee and direct the AO to allow deduction u/s. 10A of the Act on the amount disallowed u/s. 40(a)(ia) of the Act. In view of the above direction, ground No.5 becomes academic and no adjudication is required in ground No.5. 29. In ground No.7, the assessee has projected the following grievance:- 7. The learned AO has erred in : a. Giving credit for Advance Tax paid only to the extent of ₹ 25,66,655 without appreciating that the Assessee has paid Advance Tax of ₹ 38,65,655/- despite direction by the DRP. b. Without prejudice, the learned AO has erred in not giving MAT credit as per the provisions of section 115JAA of the Act despite direction by the DRP. c. Levying a sum of ₹ 12,92,876/- as interest under section 234B. On the facts and in the circumstances of the case, interest under section 234B is not leviable. Even otherwise interest u/s. 234B is excessive. The appellant submits that each of the above grounds/sub-grounds are independent and without prejudice to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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