TMI Blog2022 (10) TMI 1205X X X X Extracts X X X X X X X X Extracts X X X X ..... r filter - As noticed that the export turnover of the company is Rs.5,22,89,062 against the total turnover of Rs.5,55,40,238 which is around 94.15% that clearly indicates that the company would pass the export turnover filter of 75%. Further the company is functionally comparable to the assessee. The coordinate bench of the Tribunal in the case Prism Networks [ 2022 (2) TMI 1296 - ITAT BANGALORE] has considered the issue exclusion of a comparable company since the same is not featuring in the search matrix of the TPO - we remit the issue back to the TPO/AO for a fresh consideration of the comparability of the company after giving the assessee as reasonable opportunity of being heard. Addition u/s 69 - difference between amount of time deposits reported in Form No. 26 and closing balance of time deposits as per balance sheet - HELD THAT:- On perusal of the statement of reconciliation submitted it is also noticed that the assessee is renewing the deposits on maturity either in the same bank or in another one of these three banks. The AO has taken the total SFT transactions as reflected in Form 26AS and has compared the same with the Balance Sheet figure of Deposits as of 31.03 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Assessee : Smt. Tanmayee Rajkumar, Advocate For the Respondent : Dr. Manjunath Karkihalli, CIT(DR)(ITAT), Bengaluru. ORDER Per Padmavathy S., Accountant Member This appeal by the assessee is against the final assessment order passed by the Income Tax Officer, Ward 4(1)(3) (AO), Bangalore, dated 30.06.2022, u/s. 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 [the Act] for the assessment year 2018-19. 2. The assessee is a wholly owned subsidiary of MyCash Fintech Pte Limited, Singapore. The assessee engaged in the business of providing software development services (SWD) including development, testing, implementation of applications etc., to assessee s Associated Enterprise (AE) i.e., MyCash Fintech. The assessee filed the return of income for the assessment year 2018-19 on 29.11.2018 declaring a loss of Rs.5,45,49,034. The case was selected for scrutiny under CASS. A reference was made to the Transfer Pricing Officer (TPO) for determination of the Arm s Length Price (ALP) of the International Transactions the assessee has entered into with the AE. The TPO passed an order dated 29.07.2021 determining a TP adjustment of Rs. 52,16,943/- in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ALP. The operating profit by Operating Cost is the Profit Level Indicator (PLI = OP/OC) The Net mark-up on cost as computed by the assessee in the TP study are as under:- Operating Income Rs. 9,13,63,594/- Operating Cost Rs. 7,87,61,719/- Operating Profit (Op. Income Op. Cost) Rs. 1,26,01,875/- Operating/Net mark-up (OP/OC) 16% 7. The comparables selected by assessee and the range of weighted average of OP/OC of comparable companies are as listed below - Sl. No. Name of the company Weighted average (in %) 1. Rheal Software Technologies Pvt. Ltd. -4.26 2. Maveric Systems Ltd. 0.19 3. Isummation Technologies Pvt. Ltd. 3.44 4. Yudiz Solutions Pvt. Ltd. 4.18 5. Sagarsoft (India) Ltd. 5.89 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Aptus Software Labs Pvt. Ltd. 22.70 11. Acewin Agriteck Ltd. 24.51 12. Persistent Systems Ltd. 24.98 13. Wipro Ltd. 26.83 14. Tata Elxsi Ltd. 28.24 15. Infobeans Technologies Ltd. 28.52 16. Nihilent Ltd. 30.17 17. Thirdware Solution Ltd. 30.94 18. Threesixty Logica Testing Services Pvt. Ltd. 36.58 19. Infosys Ltd. 37.38 20. Cybage Software Pvt. Ltd. 55.81 35th Percentile 20.19 Median 23.60 65th Percentile 26.83 10. The TPO re-computed the ALP by making adjustments to the operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hilent Ltd., Persistent Systems Ltd., Wipro Ltd., Tata Elxsi Ltd., Thirdware Solutions Ltd., Infosys Ltd. and Cybage Software Pvt. Ltd. from the list of comparables on the basis that these companies fail the turnover filter. 14. The ld. AR submitted that the TPO erred in not applying a cap on upper limit on the turnover/service revenue while selecting the companies comparable to the Assessee. In this regard, it is submitted that application of turnover filter is a relevant criterion in choosing comparable companies. The difference in the scale of operations has a direct impact on the profitability. The concept of economies of scale wherein, an increase in the size and scale of the operations leads to a decrease in the long run average cost of each unit or each service project delivered. Therefore, the per unit fixed cost of a small-scale company would be much higher than that of a medium/large size organisation. Further, it is submitted that medium/large size organisation operating in a particular industry also enjoys benefits of certain other market drivers and cost arbitrages. It is submitted that the turnover of the assessee from rendering SWD services is Rs. 9,13,63,594/-. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44710.00 8 Tata Elxsi Ltd., 1386.29 9 Thirdware Solutions Ltd., 204.38 10 Infosys Ltd. and 61941.00 11 Cybage Software Pvt. Ltd. 731.16 18. Considering the facts and respectfully following the decision of the coordinate bench of the Tribunal in the case of Autodesk India Pvt Ltd., (supra) we hold that the companies whose turnover in the current year is more than Rs.200 crores should be excluded from the list of comparable companies. Ground no.3.5 - Inclusion of Isummations Technologies Ltd. and Yudiz Solutions Pvt. Ltd. Isummations Technologies Ltd 19. The ld. AR submitted that Isummations Technologies Ltd was selected by the assessee and the company is functionally comparable since the company passes all the filters applied by the TPO. The TPO rejected the company on the ground that it fails positive net worth filter and export earnings filter. It is also submitted that the DRP, while rightly held that the company's export earnings c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis that the company is not featuring in the search matrix of the TPO. In this regard the ld AR relied on the decision of the coordinate bench of the Tribunal in the case of Prism Networks Private Limited vs ACIT [2022] 141 taxmann.com 163 (Bangalore - Trib.). 23. We heard the ld DR. On perusal of the financials of the company (page 785 of Paper Book) it is noticed that the export turnover of the company is Rs.5,22,89,062 against the total turnover of Rs.5,55,40,238 which is around 94.15% that clearly indicates that the company would pass the export turnover filter of 75%. Further the company is functionally comparable to the assessee. The coordinate bench of the Tribunal in the case Prism Networks (supra) has considered the issue exclusion of a comparable company since the same is not featuring in the search matrix of the TPO and held that - 18. We heard the rival submissions. It is clear from the order of the DRP that the DRP has not considered the plea of the Assessee in proper perspective. The fact that the TPO rejected the TP study of the Assessee cannot be the basis not to consider the claim of the Assessee for inclusion of comparable companies. The TPO exclud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this, the Banks reported both the initial fixed deposit and the auto-renewed Fixed deposit as independent items, and thereby the same has appeared in Form 26AS. (iv) While Form 26AS records all the deposits, both original and renewed, in the financial statement all deposits that were live as on 31st March 2018 were accounted for disclosed appropriately. (v) The discrepancy between the financial statements and Form 26AS is on account of the recording of the deposits twice over (original and renewed) in Form 26AS. 28. The ld AR filed ledger extracts of Yes Bank and RBL Bank and confirmation from the said Banks as to the balances as on 31st March as additional evidence, in support of its contentions and prayed for the admission of the same. The ld AR also submitted that the details of the deposits (pages 446-452 and 458-468 of the Paper Book) are submitted along with a reconciliation of the deposits made and the entries in Form 26AS before the AO. 29. We have heard the rival submissions and perused the material on record. The additional evidences now produced go the root of the issue and the core reason for making the addition u/s. 69 by the lower authorities. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnology expenses and an amount of Rs. 9,58,71,595/- towards advertisement expenses. Wherever taxes were required to be deducted at source, it was duly deducted the taxes and remitted. Details of the taxes deducted/reason for non-deduction was furnished to the AO, which he failed to take into consideration. 34. The ld DR submitted that the assessee has not furnished any details before the lower authorities and therefore submitted that in absence of any supporting the lower authorities are justified in making addition. 35. We heard the rival submissions and perused the material on record. The main reason for the adhoc disallowance by the lower authorities is that the assessee did not submit any details or evidences to support the claim that these expenses are incurred for the purpose of business. During the course of hearing, the ld AR submitted that the relevant details are placed at pages 471-473 of the Paper Book and that the same is not examined. In view of this we remit the issue back to the AO with a direction to verify the details and the evidences with regard to the expenses and decide the allowability in accordance with law. The assessee is directed to submit all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... At that point in time, there was no question of employee s contribution being considered as part of the employer s earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions especially second proviso to Section 43B - was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 54. In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer s obligation to deposit the amounts retained by it or deducted by it from the employee s income, unless the condition that it is deposited on or before the due date, is correct and justified. The nonobstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees contributions- which are deducted from their income. They are not part of the assessee employer s income, nor are they heads of deduction per se in the form of statutory pay out. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
