TMI Blog2020 (9) TMI 1052X X X X Extracts X X X X X X X X Extracts X X X X ..... ranting proper opportunity of being heard to assessee in accordance with law. Disallowance of employee contribution to PF belatedly - HELD THAT:- This issue now stands settled in favour of assessee by decision of Hon ble Karnataka High Court in case of CIT vs Sabari Enterprises [ 2007 (7) TMI 169 - KARNATAKA HIGH COURT ] wherein held that, in view of statutory provisions of section 2(24)(x), section 36(1)(va) and section 43B(b), contributions made by assessee to PF and ESI are allowable deductions, even though made beyond stipulated period, as contemplated under mandatory provisions of section 36(1)(va), read with section 2(24)(x), provided such contributions are paid by assessee on or before due date for furnishing return of income as per section 139(1). This ratio has been upheld by Hon ble Supreme Court in CIT vs Alom Extrusion Ltd reported in [ 2009 (11) TMI 27 - SUPREME COURT ] . We therefore remand this issue to Ld.AO to verify whether, employee contributions were made by assessee before due date of furnishing of return, as per section 139 (1) of the Act. - IT(TP)A No.583/Bang/2017 - - - Dated:- 25-9-2020 - Shri A.K Garodia, Accountant Member And Smt. Beena Pil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax authorities have erred in adopting following companies as comparables: i. Genesys International Corpn. Ltd. ii. Infosys Ltd. iii. Larsen Turbo Infotech Ltd. iv. Persistent Systems Ltd. d. Not making proper adjustment for enterprise level and transactional level differences between the Appellant and the comparable companies; e. Not properly computing the working capital adjustment; and f. Not recognizing that the Appellant was insulated from risks, as against comparables, which assume these risks and therefore have to be credited with a risk premium on this account; 5. Assuming without admitting that the adjustment is to be made, the lower income tax authorities erred in law in not allowing he benefit of +1- 5% the variation as per the proviso to Section 92C(2) of the Act. GROUND RELATING TO CORPORATE TAX 6. The learned AO has erred in disallowing employee contribution to PF paid late amounting to ₹ 11,25,151/- and the Honourable DRP has erred in confirming the action of the learned AO. On facts and circumstances of the case and law applicable, the impugned disallowances of ₹ 11,25,151/- should be deleted. 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware development and support services for its AE being, enStage Inc, USA. 3. It was noted that, assessee is a provider of software development and support services for card payment authentication and processing, solutions, and focused on global growth market in prepaid, online and mobile payments. Ld.TPO noted that, assessee undertook analysis selecting cost plus method as most appropriate method. Ld.TPO noted that, assessee selected 11 comparables with average margin of 19.04%. Assessee computed its margin to be at 19.23%, and since it was within +/-5% of arms length margin of comparables, the price charged by assessee in software development service segment was considered to be at arms length. 4. Ld.TPO rejected comparables selected by assessee. It is also been noted that Ld.TPO noted that assessee incurred profit of 15.79% from its associated enterprise, whereas, it had net loss of 43% from its non-AE transaction. Ld.TPO called upon assessee to furnish basis of allocation of costs. Ld.TPO noted that, assessee has not reported segment wise revenue in profit and loss account and the segmentation is given only in Transfer Pricing study for benchmarking. Ld.TPO, therefore reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sken Communication Technologies Ltd. Spry Resources India Pvt. Ltd. 26.18% 10 Average 22.63% 6. Ld.TPO thus computed proposed adjustment being shortfall under section 92CA at ₹ 1,65,61,543. 7. Ld. AO while passing draft assessment order, further made addition in the hands of assessee amounting to ₹ 11,25,151/- being employees contribution to PF, that was deposited belatedly after specified due date. These payments were treated as income in the hands of assessee, in terms of provisions of section 2 (24) (x) read with section 36 (1) (va) of the Act. 8. Aggrieved by proposed additions, assessee filed objections before DRP. 9. DRP upheld comparables selected by Ld.TPO and rejected challenge in respect of reworking of margin of assessee by holding that, assessee did not substantiate basis of cost allocation. 10. Ld. AO upon receipt of directions by DRP, passed final assessment order making addition of ₹ 2,14,38,480/- in the hands of assessee. 11. Aggrieved by order of Ld.AO, assessee is in appeal before us now. 12. At the outset, Ld.AR submitted that, assessee filed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld.AR submitted that if, sub ground (c) is considered on functionality, the other grounds would be academic in nature. Ld.AR Submitted that assessee seeks exclusion of 4 comparables in sub ground (c) being: Genesis International Corporation Ltd Infosys Ltd Larsen and Toubro Infotech Ltd Persistent Systems Ltd 17.2 It has been submitted by Ld.AR that these comparables have been considered by coordinate bench of this Tribunal in case of CGI Information Systems and management consultants Pvt.Ltd vs ACIT reported in (2018) 94 taxmann.com 97 for assessment year 2012-13. It is also submitted that, functional profile of assessee is same as that of assessee in CGI Information Systems and Management Consultants Private Ltd., in as much, as the said company was also involved in providing software development services to its AE. It has been submitted that Ld.TPO therein chose similar comparables out of which 7 comparables chosen by Ld.TPO in present case are same. It has been submitted that, observations of coordinate bench of Tribunal in case of CGI (supra) would be applicable to the present case of assessee. 17.3 Ld.CIT.DR submitted that, DRP rejected similar submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 3 companies which the Assessee seeks to exclude from the final list of comparable companies chosen by the TPO. The functional profile of me Assessee and that of the Assessee in the case of Agilis Information Technologies India (P.) Ltd. (supra), is identical inasmuch as the said company was also involved in providing SWD services to its AE and the TPO had chosen some comparable companies which were also chosen by the TPO in the case of the Assessee for the purpose of comparability. In the aforesaid decision the Tribunal held on the comparability of the 3 companies which the Assessee seeks to exclude as follows: (a) Infosys Ltd., was excluded from the list of comparable companies by following the decision of the Hon'ble Delhi High Court in the case of CIT v. Agnity India Technologies (P.) Ltd. [2013] 36 taxmann.com 289/219 Taxman 26 (Delhi). The discussion is contained in paragraphs 4.5 to 4.7 of the Tribunal's order. The Tribunal accepted that Infosys Ltd. is a giant risk taking company and engaged in development and sale of software products and also owns intangible assets and therefore not comparable with a software development service provider such as the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter dated 22.12.2015 addressed to the TPO and in annexure-B to the said letter. The relevant portion of the objection is at pages 711-713 of the Assessee's paper book. According to the Assessee this company is engaged in providing Geographical Information Services comprising of Photogrammetry, Remote Sensing, Cartography, Data Conversion, state of the art terrestrial and 3D geocontent including location based and other computer based related services. Pagc-38 of the Annual report 2012 containing the above description was brought to the notice of the TPO, Attention of the TPO was invited to the directors report to the shareholders at page ii of the annual report 2012, wherein the Directors have informed the shareholders that the company continued in its journey, to be innovators and leaders in the fields of location based services related geoplatforms and advanced survey techniques. There is no segmental reporting because it is stated in the annual report that this company is only in one segment viz., GIS based services and therefore there is no requirement of segmental reporting. It was also submitted that this company owns substantial intangibles equivalent to 10.42% of its t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets is indicative of the fact that this company is not in software development services business. The TPO has overlooked this aspect and proceeded on the basis that the presence of intangible assets would not be significant. Rule 10B(2) of the Income Tax Rules, 1962 (Rules) specifically provides that for the purposes of sub-rule (1) of Rule 10B, the comparability of an international transaction with an uncontrolled transaction shall be judged with reference to the following, namely:- (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; In the given facts and circumstances, we are of the view that Genesys International Corporation Ltd., cannot be considered as a comparable company and the said company should be excluded from the final list of comparable companies. We hold accordingly. 17.7 Nothing contrary has been pointed by revenue in present facts to deviate from the above view taken in respect of the comparables. Respectfully following above decision of Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue to DRP for verifying the same. Assessee is directed to file all necessary documents to substantiate the basis of such allocation in ascertaining margin of assesse in respect of international transaction undertaken by assessee with its associated enterprise. DRP shall then pass a reasoned order by granting proper opportunity of being heard to assessee in accordance with law. Accordingly, additional ground no.9 raised by assessee stands allowed for statistical purposes. 19. Ground No.6 is in respect of disallowance of employee contribution to PF belatedly paid amounting to ₹ 11,25,151/-. 19.1 Ld. A.R. submitted that, authorities below did not consider various decision of Hon ble Supreme Court and jurisdictional High Court on this issue. He submitted that, DRP relied on CBDT Circular No. 22 of 2015 dated 17/12/2015 wherein it is noted that, decision of (Hon ble Supreme Court) in case of CIT vs Alomg Extrusion Ltd; reported in 85 Taxmann 416 is not applicable to payments covered under section 36 (1) (va) of the Act. 19.2 Ld.CIT.DR placed reliance on orders passed by authorities below. 19.3 We have perused submissions advanced by both sides in light of records p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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