9911796707
TMI Blog2020 (9) TMI 1197X X X X Extracts X X X X X X X X Extracts X X X X ..... In terms of Sec.92B(1) of the Act, the transaction of providing SWD Services was an "international transaction" i.e., a transaction between two or more associated enterprises, either or both of whom are nonresidents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more AEs for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. In terms of Sec.92(1) of the Act, the Any income arising from an international transaction shall be computed having regard to the arm's length price. In this appeal by the Assessee, the dispute is with regard to determination of Arms' Length Price (ALP) in respect of the aforesaid two international transaction of (i) rendering SWD services to the AE and (ii) rendering of MSS to the AE. We shall deal each of the international transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO. The DRP excluded 6 comparable companies viz.,(i) Infosys Ltd., (ii) Larsen & Toubro Ltd., (iii) Mindtree Ltd., (iv) Persistent Systems Ltd., (v) Sasken Communication Technologies Ltd., and (vi) Tata Elxsi Ltd., on the application of turnover filter of more than Rs. 200 crores. The DRP did not agree to plea of the Assessee for exclusion of Acropetal Technologies Ltd., E-Infochips Ltd., ICRA techno Analytics Ltd., Persistent Systems & Solutions Ltd., and E-Zest Solutions Ltd., To the extent the Assessee did not get relief from the DRP, the Assessee has preferred appeal before the Tribunal. The specific grounds of challenge are contained in Grd.No.10 of the grounds of appeal filed before the Tribunal. The grounds relating to SWD services segment that were pressed for adjudication were Ground No. 10 in which the Assessee has projected grievance with regard to non-exclusion of the following five companies by the DRP viz., of Acropetal Technologies Ltd., E-Infochips Ltd., ICRA techno Analytics Ltd., and E-Zest Solutions Ltd. In Gr.No.12 the Assessee has projected its grievance regarding the action of the DRP in not giving proper directions regarding working capital adjustment. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal by the Assessee was also a part. The following were the relevant observations of the Tribunal for excluding the aforesaid 5 companies listed in paragraph-6 above :- "10. With regard to the other 7 comparable companies, whose exclusion is challenged by the revenue in ground No.2 of its appeal, we find that exclusion of these comparables from the list of companies selected by the TPO had come up for consideration before the Bangalore ITAT in the case of Electronic for Imaging (I) Pvt. Ltd. v. DCIT [2017] 85 taxmann.com 124 [Bang. Trib]. ; Symantech Software & Services (I) Pvt. Ltd. v. DCIT, ITA No.614/Mds/2016; DCIT v. Ikanos Communication Pvt. Ltd. in ITA 137/Bang/2015; Ness Technologies (I) Pvt. Ltd. v. DCIT in ITA No.696/Mum/2016 which are also decisions rendered in relation to AY 2011-12 in the case of a companies providing SWD services such as the assessee in the present appeal. It is also relevant to point out that the very same comparable companies chosen by the TPO in the present appeal had been chosen by the TPO as comparable companies in the case of Electronic for Imaging (I) Pvt. Ltd. (supra). The Tribunal in its order dated 14.7.2017 in the aforesaid case dealt w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to this extent is dismissed. We may add that the other grounds raised by the revenue in its appeal are purely supportive of ground No.2 and are general grounds with no specific reference to instances of comparables excluded and hence dismissed." 10. Respectfully following the aforesaid decision, we direct exclusion of the aforesaid 5 comparable companies from the list of comparable companies. 11. As far as Gr.No.12 raised by the Assessee is concerned, the facts are that the TPO computed working capital adjustment as per annexure-C to the order of Assessment. Perusal of the same shows that in respect of 13 comparable companies chosen by him, he had compared working capital requirements vis-à-vis the Assessee and arrived at working capital adjustment of (-0.22%) + (-0.63%). In the order of assessment however he has discussed about his opinion that working capital adjustment cannot exceed the average working capital component of the comparables and he has referred to a figure of 1.63% being the upper ceiling limit of working capital adjustment which is the average working capital component of the comparables. He has also referred to the fact that while computing working ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... striction on working capital adjustment was imposed by the TPO in the earlier AY 2009-10 which was ultimately rejected by the DRP on the ground that the TPO has no domain to force the assessee in funding its working capital requirement in a specific way. Based on the above, the assessee submitted before the DRP that the adjustment towards the working capital is to be carried out as per the approach suggested in the international guidelines and also submitted as follows:- * The advances received from AEs to be included in computation of working capital adjustment irrespective of value of debtors or inventory; and * The assessee to be entitled for actual working capital adjustment without any upper cap. 16. The DRP however held as follows: "The objection as above has been considered but is found to lack merit. The TPO's methodology for computing the net working capital was as under : Net Working Capital = Debtors + Inventory - Creditors Since the TPO has clearly outlined the methodology followed for computing working capital adjustment in which advances are not a part of the equation, there is little scope for the taxpayer to have such grievances. The TPO's methodo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the average working capital component of the comparables. The second grievance is that when the working capital adjustment is negative then there should be no adjustment on account of working capital. Third grievance is that advances received from AE should also be considered as part of payables in computing working capital of the Assessee. All the aforesaid three grievances projected by the Assessee are well founded and are supported by decisions rendered by Tribunals. The grievance of the assessee is with regard to negative working capital adjustment carried out by the TPO which was confirmed by the DRP is that Working capital adjustment is made for the time value of money lost when credit time is given to the customers. The Assessee however does not bear any risk and has no working capital contingencies. The Assessee has not incurred any expenses for meeting the working capital requirement. The Assessee is running the business without any working capital risk as compared to the comparables. The Assessee does not bear any market risk as the services are provided only to Tavant US. Therefore, requirement for adjustment of negative working capital does not arise. In the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lows:- "B. Corporate tax 14. Disallowance of lease rentals claimed as revenue expenditure - Rs. 14,965,386 a. The learned AO erred in law by disallowing lease rentals paid by the Appellant during Financial Year 2010-11. b. The learned AO erred in disallowing the lease rentals while passing the final order when the same was neither disallowed in the draft assessment order nor by the Hon'ble DRP. c. Notwithstanding and without prejudice to the above, the learned AO has erred in treating the lease rental payments made by the Appellant as capital expenditure. d. The learned AO has erred in not appreciating the fact that the Appellant has paid lease rentals towards fit-outs provided by the lessor. e. Notwithstanding and without prejudice to the above, the learned AO ought to have granted consequential allowance of depreciation should the claim of lease rental payments be treated as capital expenditure." 20. In the earlier AY i.e., AY 2010-11, the assessee had taken a premise on lease and paid lease rent of Rs. 3,79,39,583 which was debited to the P&L account. In the computation of total income, the assessee claimed deduction of a sum of Rs. 1,64,45,484 towards fit-out ..... X X X X Extracts X X X X X X X X Extracts X X X X
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