TMI Blog2020 (6) TMI 761X X X X Extracts X X X X X X X X Extracts X X X X ..... parables after verifying that the margin can be recomputed to work out the proportionate working margins if the financial data are duly audited and are available in the public domain, of course with the rider that during that period there were no other factors affecting the operating margin, thus, ground No.2 stands allowed for statistical purposes. Rejection of the comparable R-System International Ltd. - As rejection of the comparable by the Ld. CIT (A) is more on some kind of suspicion rather than being supported by any cogent data. As we have already mentioned in the preceding paragraphs, a comparable cannot be rejected merely because of a different financial year ending and now there are numerous orders of the Tribunal in this regard. We again refer to order of the ITAT Delhi Bench in the case of Xchanging Technology Services India Private Limited [ 2015 (10) TMI 1005 - ITAT DELHI ] wherein this company was directed to be included. Since, the Ld. CIT (A) has not indicated any basis for suspecting the reliability of the financial results for this company, we direct that this company be included in the final set off comparables subject to the verification that the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this computational error occurred because the foreign exchange fluctuation loss was deducted twice by the TPO. In this regard a chart has also been submitted. In our considered opinion this claim of the assessee needs to be re-examined by the TPO after giving proper opportunity to the assessee. Accordingly, Ground No.7 is restored to the file of TPO for verification of the assessee s claim and pass order in accordance with law after giving due opportunity to the assessee. Ground No.7, thus stands allowed for statistical purposes. - ITA No. 3328/Del/2016 - - - Dated:- 22-6-2020 - SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER For the Appellant : Sh. Prashant Mehar Chandani, Adv., S/Sh. Kamal Sawhney, Adv., Ms. Priti Gupta, CA,Mr. Shubham Singh, CA, Mr. Divyansh Singh Adv. For the Respondent : Ms. Maimun Alam, Sh. Subhakant Sahu, Sr. DRs ORDER PER SUDHANSHU SRIVASTAVA, JM: This appeal is preferred by the assessee against order dated 28.01.2019 passed by the Learned Commissioner of Income Tax (Appeals)-44, New Delhi {CIT(A)} for Assessment Year 2010-11. 2.0 The brief facts of the case are that the assessee i.e., Fut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Pricing Officer (TPO) for determination of Arms Length Price (ALP) u/s 92CA(3) of the Act. The functional profile of the assessee was accepted by the TPO as is apparent from his observation, ..the main international transaction of the assessee is the provision of IT Enabled Services which were in the nature of economic and financial research, software support and transactions support functions to assist AEs to perform its core activities of trading in derivatives. The Transfer Pricing Report (TP Report) has described the functions of the assessee and its AE and functions of the assessee as submitted in the TP Report are found to be in order. 2.3 The TPO proposed an adjustment of ₹ 5,70,19,166/- being upward adjustment to the ALP of the international transaction. Thus, the TPO determined the ALP at ₹ 98,96,48,933/- as against ₹ 93,26,29,767/- as determined by the assessee. The assessee had adopted TNMM as the most appropriate method. The assessee had taken a set of 9 companies with an average margin of 15.17% and had used multiple year data. The assessee s own margin was worked at 18.96% and, therefore, it was the assessee s contention that its international ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing profit margin of e4e Healthcare Business Services Private Limited as 31.03% instead of correct operating profit margin of 19.52% by treating (1) provision for bad debts and (2) bank charges as non-operating in nature. Even though the Ld. CIT(A) has decided the issue relating to treatment of bank charges in the favour of the Appellant, Ld. AO/ Ld. TPO have not corrected the same yet. 7. Without prejudice to the above grounds, on facts and in law the Ld. CIT(A)/Ld. AO/ Ld. TPO erred in incorrectly computing the operating profit margin of ICR A Techno Analytics Limited as 28.66% instead of correct operating profit margin of 24.96%. 8. Without prejudice to the above grounds, on facts and in law, the Ld. C1T(A)/ Ld. AO/ Ld. TPO erred in incorrectly computing the operating profit margin of Cosmic Global Limited as 18.28% instead of correct operating profit margin of 16.59% by treating bank charges as non-operating in nature. Even though the Ld. CIT (A) has decided the issue relating to treatment of bank charges in the favour of the Appellant, Ld. AO/Ld. TPO have not corrected the same yet. 9. On facts and in law, the Ld. AO erred in levying interest under section 234B of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... With respect to this comparable, being ground No.4 of the appeal, it was submitted that the assessee was praying for inclusion of this comparable as this has been excluded by the TPO on the ground that it was following a different accounting year. The Ld. Authorized Representative referred to numerous case laws wherein it had been held by the Tribunal that R-Systems could not be rejected on the ground of a different financial year. The Ld. Authorized Representative submitted that R-System International Ltd. was functionally similar to the assessee company and the functional comparability of this company had not been disputed either by the TPO or by the Ld. CIT (A). It was submitted that R-System International Ltd. was a provider of IT Solutions and Business Processing outsourcing services and was, thus, functionally similar to the assessee company. (iii) Caliber Point Business Solutions Ltd.- The Ld. Authorized Representative submitted that the assessee was praying for inclusion of this comparable in ground No.2 of the appeal. It was submitted that this comparable was also rejected on the ground that this company followed a different accounting year. It was submitted that altho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operating in nature was not tenable in light of general accepted accounting principles. The Authorized Representative placed reliance on numerous orders of the Tribunal to buttress that provision for doubtful debts is a part of normal operating activities of business. The Ld. Authorized Representative referred to a chart placed at page 23 of his written submissions and submitted that if the provision for bad debts as treated as operating in nature, the profit margin of this company would come to 19.52% only. (vi) The Ld. Authorized Representative further submitted that in ground No.7 of the appeal, the assessee was challenging the erroneous computation of the margin in the case of ICRA Techno Analytics Ltd. It was submitted that the same had been computed at 28.66% instead of 24.96% by deducting loss on account of foreign exchange fluctuation twice. It was submitted that the TPO s action of separately reducing the foreign exchange loss from total expenses amounted to double deduction thereby resulting in higher margins of the comparables. (vii) With respect to Ground No.8, challenging the erroneous computation of margin in the case of Cosmic Global Ltd., the Ld. Authorized Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now that the extraordinary/exceptional items require a separate disclosure. However, no such disclosure is apparent in the annual report of the company and, therefore, we are of the considered opinion that this company cannot be excluded only on an inference that some extraordinary event might have occurred. We also note that the functional comparability of this company has not been disputed either by the TPO or by the Ld. CIT (A). Further, it is now settled law that a company cannot be excluded as a comparable solely for the reason that its financial year is different without considering whether the data for the financial year adopted by the assessee can be compiled from the audited statements of such company. The ITAT Delhi Bench in the case of Xchanging Technology Services India Pvt. Ltd. vs. DCIT (ITA No.1222/Del/2015) directed that this company be included as a comparable wherein it had been rejected only on the ground of having different financial year any. Accordingly, this company is directed to be included in the final set of comparables after verifying that the margin can be recomputed to work out the proportionate working margins if the financial data are duly audited an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. The Ld. Departmental Representative (DR) has argued that the comparable which has initially been selected by the assesee cannot be excluded subsequently by the assessee. However, we note that the Mumbai Bench of the ITAT in the case of Stream International Services (P.) Ltd. vs. ADIT (International Taxation), 7(2), Mumbai ITA NO.8997/ Mum/2010 held that there can be no escape from the proposition that the assessee is entitled to argue at least before the Appellate Authorities that a wrong stand taken at the time of filing of the return should be allowed to be modified. Similarly, the Special Bench of the Tribunal in the case of DCIT vs. Quark Systems (P.) Ltd. [2010] 38 SOT 307 (Chd.) also allowed the assessee to claim exclusion of certain companies from the list of comparables which were inadvertently included by it in its transfer pricing study. Therefore, we agree with the contention of the Ld. Authorized Representative that assessee has a right to argue for the exclusion of comparable even if originally it was included by the assessee in the transfer pricing study. Coming to the arguments for exclusion of this company, it is the assessee s contention that this compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any from the final set of comparables. Thus Ground No.5 stands allowed. (vi). In Ground No.6, the assessee is challenging the incorrect computation of operating profit margin of e4e Healthcare Business Services Pvt. Ltd. It is the assessee s contention that the margins have been incorrectly computed as the provision for doubtful debts has been treated as non-operating in nature by considering it as an unascertained liability. However, we note that the Delhi Bench of the ITAT in the case of Sony India Pvt. Ltd. vs. DCIT, (ITA No.1189/Del/2005, 815/Del/ 2007 and 820/Del/2007) has held that provision for doubtful debts is part of normal operating activity of the business and, similarly, any write back of provision is also to be treated as operating in nature. Similar views have been taken by the Bengalure Bench of ITAT in the case of Outsource Partners International (P.) Ltd. vs. DCIT (IT (TP) Appeal No.337 (Bang.) of 2015) and Hyderabad Bench of the Tribunal in the case of Sum Total Systems India Pvt. Ltd. (ITA No.255/Hyd/2015). Accordingly, we direct that the provision for bad and doubtful debts of this company be treated as a part of the operating expenses and the margins of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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