Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2015 (5) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2015 (5) TMI 365 - ITAT BANGALORETransfer pricing adjustment - determination of Arm’s Length Price (ALP) in respect of international transaction entered into by the Assessee with it’s Associated Enterprises (AE) - improper application of the Related Party Transaction (RPT) filter by the CIT(A) as submitted by AO - Held that:- In the cases of 24/7 Customer Pvt. Ltd. (2013 (1) TMI 45 - ITAT BANGALORE ), and Sony India Private Ltd. (2008 (9) TMI 420 - ITAT DELHI-H) and various other cases has taken a view that comparables having RPT of upto 15% of total revenues can be considered. In view thereof, the Revenue’s grievance on this issue as projected in the relevant ground has to be allowed. It is held that the CIT(A) ought to have adopted a threshold limit of 15% of the total revenue attributable to related party transaction as ground for rejecting comparable companies. Consequently it is held that comparable companies having RPT upto 15% of the total revenues alone can be included. Excluding companies with abnormal profits - Held that:- CIT(A) rejected some of the comparable companies chosen by the TPO by applying related party transaction filter. The filter of companies dealing in software products and abnormal profits owing to amalgamation of the companies during the relevant period thereby showing abnormal profits was applied to exclude Exensys Software solutions Ltd., was excluded for reasons of high turnover and high risk profile. Satyam Computer Services Ltd., has to be excluded from the comparable companies for non-reliability of financial data as it was involved in financial scam. - Decided against revenue. Exclusion of comparable companies with RPT of less than zero percent is not valid, and that companies where RPT is less than 15% alone can be considered, then the comparable rejected by the CIT(A) on the basis of the said filter will have to be included along with the four comparable retained by the CIT(A). Although 12 comparable which were rejected on the basis of RPT being more than zero percent, one comparable viz., Four Soft Ltd., will have to be excluded since the RPT is at 19.89% and thus in excess of 15%. Sathyam Computers Ltd., will get excluded for the reason that the financial results are not reliable. The remaining 10 comparable companies which were excluded by the CIT(A) by applying the Related Party Transaction filter of 0% related party transaction will now have to be included. Foursoft Ltd., and Thirdware Solutions Ltd., should be excluded from the list of comparable companies as there is no sale of software products during the year by these companies. TATA Elxsi Ltd.should be excluded from the list of comparable companies as it is functionally different and has incomparable size to that of the assessee. Bodhtree Consulting Ltd.[related party transaction as a percentage to the total revenue is 34% which is more than the accept/reject matrix of more than 25% fixed by the TPO.] and Infosys Technologies Ltd.[being a big company in all respects including the range of turnover] be excluded from the list of comparable companies for the purpose of determining the ALP. Geometric Software Solutions Ltd. - remand the question of excluding this company as a comparable to the TPO. If the RPT is more than 15% of the total revenues than this company should be excluded from the list of comparable companies. Working capital adjustment - Held that:- no basis for the TPO to come to a conclusion that advances received from AE, as having been utilized for purchase of fixed assets and therefore they need to be ignored while computing working capital adjustment to the profit margin of the Assessee. Having come to this wrong conclusion without any basis, the TPO has proceeded to ignore the advances received from AE while computing working capital adjustment. In our view such an approach cannot be sustained. Besides the above, the DRP has ignored the submissions made by the Assessee regarding non utilization of the advances received for acquiring fixed capital. n our view the submissions made by the Assessee that the advance received from the AE should be considered while working out the working capital adjustment deserves to be accepted, if the Assessee demonstrates that such advances were not utilized for acquisition of fixed assets. If it is so demonstrated, these advances need to be included for working out the working capital of the Assessee while computing adjustment towards working capital. The issue is accordingly remanded to the AO/TPO and the Assessee is directed to file the necessary details to demonstrate its case regarding advances not having been utilized for acquiring fixed assets - Decided in favour of assessee for statistical purposes. Exclusion of telecommunication expenses and travel expenses both from total turnover as well as export turnover while computing deduction u/s.10A - Held that:- As in Tata Elxsi Ltd. (2011 (8) TMI 782 - KARNATAKA HIGH COURT) held that while computing the deduction under section 10A of the Act, if the export turnover in the numerator is to be arrived at after excluding certain expenditure, then the same expenditure should also be excluded from the total turnover also. Respectfully following the same, we dismiss this ground of revenue and of the view that the CIT(A) has rightly directed the AO to exclude telecommunication charges and travel expenses incurred be excluded both from export turnover and total turnover - Decided against revenue.
|