9911796707
TMI Blog2019 (12) TMI 1557X X X X Extracts X X X X X X X X Extracts X X X X ..... s a transaction with an Associated Enterprise (AE) and was therefore an international transaction. As per the provisions of Sec.92 of the Act, income from international transaction has to be computed having regard to Arm's Length Price (ALP). 3. It is not in dispute between the Assessee and the revenue that the Transaction Net Margin Method (TNMM) was the Most Appropriate Method (MAM) for determination of ALP and that the profit level indicator to be adopted for comparison of the Assessee's profit with that of comparable companies was Operating Profit/Total Cost (OP/TC). The OP/TC of the Assessee was 12.77%. The Assessee in its TP study selected 8 comparable companies whose arithmetic mean of OP/TC was comparable with the profit margins of the Assessee and was acceptable. It was claimed by the Assessee that the price charged by it in the international transaction was at Arm's Length. The Transfer Pricing Officer (TPO) to whom the determination of ALP was referred by the AO, selected 10 companies as comparable companies with the Assessee. Thus a final set of 10 comparable companies was chosen by the TPO as comparable companies. The arithmetic mean of profit margin of these companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter working capital adjustment 1 L & T Infotech Ltd. 24.89% 2 MindTree Ltd. 14.10% 3 Persistent Systems Ltd. 26.31% 4 R S Software (India) Ltd. 16.94% Mean Margin 20.56% The above adjusted mean margin of 20.56% is higher than the adjusted mean margin of 20.06% computed by the TPO based on the tem comparables. In such circumstances, we are of the view that larger set of the comparables takes care of differences, if any, and therefore we uphold the set of the comparables selected by the TPO." 7. Pursuant to the directions of the DRP, the AO passed the final assessment order wherein the TP adjustment stood reworked at a lesser figure than what was originally suggested by the TPO. The AO passed a fair order of assessment making the addition on account of determination of ALP by the TPO as modified by the DRP. Aggrieved by the addition made in the fair order of assessment, the Assessee has raised several grounds of appeal challenging the addition on several counts. However at the time of hearing the learned counsel restricted his arguments to exclusion of 5 comparables out of the 10 comparable companies that remain in the final list of comparable companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies should be directed to be examined afresh by the DRP. 29. We have considered the rival submissions. In the case of Agilis Information Technologies India (P) Ltd., (supra), this Tribunal considered the comparability of the 3 companies which the Assessee seeks to exclude from the final list of comparable companies chosen by the TPO. The functional profile of the Assessee and that of the Assessee in the case of Agilis Technologies India (P) Ltd., is identical in as much 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 Vs. Agnity India Technologies (2013) 36 taxmann.com 289 (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 enga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tangible assets which are peculiar only when the Assessee owns software products. The objections of the Assessee are contained in its letter dated 22.12.2015 addressed to the TPO and in annexure-B to the said letter. The relevant portion of the objection is at page 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. Page-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 geo platforms 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O to conclude that this company is predominantly into software development services. The presence of intangible assets 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." 9. Respectfully following the decision of the Tribunal we hold that the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submits that as the reversal of provision is linked to business activity, the same should be treated as operating in nature. In support of this, the assessee relies on the following decisions: i) Sony India (P.) Ltd. V. DCIT [2008] 114 ITD 448 (Delhi) ii) Logica Private Limited v. ACIT [2013] 36 taxmann.com 374 (Bangalore-Trib). 15. We have considered the submission of the learned AR on this issue and find that in the decision rendered in the case of Sony India (P) Ltd. Vs. DCIT 114 ITD 448 (Delhi), this aspect has been considered and it was held that provisions written back in the P&L a/c should be regarded as forming part of the operating profit of the taxpayer. The relevant observations of the Tribunal are as follows:- "106.2 After considering facts and circumstances of the case, we do not see any good ground for not permitting the taxpayer to raise the ground before the Tribunal which is clearly arising out of the impugned order. As noted earlier, the Revenue has not challenged relevant part of the order of the CIT(A). Therefore, the objection now being taken by the learned Departmental Representative is not justified. On merit, we see no good reason to exclude provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove lines. Further, it is not the case of the Revenue that liabilities written back were wrongly provided for. It is a settled and well accepted proposition that adjustment can be made only on account of differences. It is not possible to believe that other comparable entities taken into consideration are not making and writing back provision of liabilities no more required. There is no material nor there is any finding to support action of the Revenue authorities. We can therefore make a general observation that all business enterprises are making and writing back liabilities as a normal incident of operating business. The expenses for which provisions were originally made were considered operating in nature and allowed in assessment. These provisions no longer required by the taxpayer during the year under review were reversed in the books of account as per mercantile system of accounting and shown as income. Therefore, on facts we do not see any justification for excluding provisions written back in the P&L a/c as not forming part of the operating profit of the taxpayer. Accordingly, claim of the taxpayer is accepted." 16. Respectfully following the aforesaid decision, we hol ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
