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2022 (8) TMI 1498 - AT - Income TaxTP Adjustment - non granting of WCA - HELD THAT - We remit the issue to the file of AO/TPO to compute the working capital adjustment after necessary examination in the light of the above observation and after allowing an opportunity of hearing to the assessee. Comparables selection in both segments of SWD ITes - HELD THAT - As relying on Global Logic India Ltd 2021 (11) TMI 1090 - ITAT DELHI exclude Inteq Software Pvt.Ltd, L T Infotech Ltd., Infobean Technologies Ltd., Thirdware Solutions Ltd. from the final list of comparable for SWD segment. Persistent Systems Ltd and Infosys Ltd. - With varied functions, these companies cannot be compared with assessee before us, which is a captive service provider. We accordingly direct the Ld.AO/TPO to exclude Persistent Systems Ltd., and Infosys Ltd. from the final list. Aspire Systems (India) Pvt. company earns its revenue from power generation and it has nothing to do with the rendering of software development service. In fact, we note that this company is a full fledged entrepreneur in the business of power generation and therefore is not comparable functionally with a captive software service provider like assessee. Thus direct the Ld.AO/TPO to exclude Aspire System India Pvt. Ltd. from the final list. Nihilent Technologies Limited - Based on the functions performed by this company as submitted by the Ld.AR and the observations of Hon ble Mumbai Tribunal in Red Hat India Pvt. Ltd 2022 (2) TMI 1283 - ITAT MUMBAI this comparable deserves to be excluded from the final list. Cybage Software Pvt.Ltd Primarily is a product company and has diversified business segments. We note that this company is a full fledged entrepreneur and assumes all the risks attributable to the various business segments for which details are not available. In our view, under such circumstances, this company cannot be held to be functionally comparable with that of assessee which is a captive service provider that caters only to its AE. SPI Technologies India Pvt.Ltd. and eClerx Services Ltd. - The assessee in Barracuda Networks India (P.) Ltd 2022 (5) TMI 322 - ITAT BANGALORE was a captive service provider to its AE for assessment year 2016-17. Respectfully following the above, we direct Ld. AO/TPO to exclude Tech Mahindra Business Services Ltd., Infosys BPM Ltd., SPI Technologies India Pvt.Ltd., eClerx Services Ltd. for having high turnover as compared to a captive service provider like assessee under the ITES segment. Disallowance of deduction claimed u/s 35AC and section 80G - Corporate Social Responsibility (CSR) Expenditure which lacks voluntary act/element of charity on the part of donor - HELD THAT - As relying on Sling Media (P.) Ltd 2021 (12) TMI 762 - ITAT BANGALORE we direct the Ld.AO verify the payments made by assessee towards CSR that also forms part of deduction u/s. 80G. Ld. AO shall then grant the deduction claimed u/s. 80G of the Act in accordance with law. Interest u/s. 234A cannot be levied in case if assessee has filed the return of income within the time period prescribed u/s. 139(1) of the Act. The Ld.AO is directed to verify the same and consider the claim in accordance with law.
Issues Involved:
1. Transfer Pricing Adjustments 2. Comparability Analysis 3. Working Capital Adjustment 4. Risk Adjustment 5. Incorrect Margins Computation 6. Inclusion/Exclusion of Comparable Companies 7. Deduction under Section 35AC and 80G 8. Interest under Section 234A and 234B Detailed Analysis: 1. Transfer Pricing Adjustments: The assessee contested the rejection of its Transfer Pricing (TP) documentation and the adjustments made by the Assessing Officer (AO) and Transfer Pricing Officer (TPO) for Software Development Services (SWD) and Information Technology enabled Services (ITeS) segments. The Tribunal noted that the TPO applied various filters and made adjustments to the arm's length price, which were upheld by the Dispute Resolution Panel (DRP). 2. Comparability Analysis: The Tribunal examined the comparability analysis undertaken by the assessee and the TPO. The TPO rejected certain comparables selected by the assessee and included others. The Tribunal evaluated the functional profiles of the comparables and the assessee, concluding that several companies included by the TPO were not functionally similar to the assessee. 3. Working Capital Adjustment: The assessee argued that the AO/TPO/DRP erred in not providing appropriate adjustments for working capital differences. The Tribunal referenced several judgments, including Huawei Technologies India Pvt. Ltd., and directed the AO/TPO to compute the working capital adjustment after necessary examination. 4. Risk Adjustment: The assessee claimed that the AO/TPO/DRP failed to provide risk adjustments, ignoring the limited risk nature of the services provided by the assessee. However, the Tribunal did not specifically address this issue in detail, indicating it was not pressed by the assessee. 5. Incorrect Margins Computation: The assessee contended that the AO erroneously computed incorrect margins for various comparable companies. The Tribunal directed the AO/TPO to correct the margins of the comparables retained in the final list after giving effect to the Tribunal's order. 6. Inclusion/Exclusion of Comparable Companies: The Tribunal analyzed the functional profiles of several companies included by the TPO and excluded by the assessee. It directed the exclusion of companies such as Inteq Software Pvt. Ltd., Larsen & Toubro Infotech Ltd., Infobeans Technologies Ltd., Persistent Systems Ltd., Infosys Ltd., Aspire Systems (India) Pvt. Ltd., Nihilent Technologies Ltd., and Cybage Software Pvt. Ltd. from the final list of comparables due to functional dissimilarities and other reasons. 7. Deduction under Section 35AC and 80G: The assessee claimed deductions under Section 35AC and 80G, which were disallowed by the AO on the grounds that they were part of Corporate Social Responsibility (CSR) expenditure. The Tribunal, referencing decisions such as Goldman Sachs Services (P.) Ltd., directed the AO to verify the payments made towards CSR and grant deductions under Section 80G in accordance with the law. 8. Interest under Section 234A and 234B: The assessee contested the levy of interest under Section 234A, arguing that the return of income was filed within the due date specified under Section 139(1). The Tribunal directed the AO to verify the claim and consider it in accordance with the law. The issue of interest under Section 234B was noted to be consequential and did not require separate adjudication. Conclusion: The Tribunal allowed the appeal partly, directing the AO/TPO to re-examine specific issues such as working capital adjustments, correct margins computation, and the inclusion/exclusion of certain comparables. It also directed the AO to verify and grant deductions under Section 80G for CSR-related payments and to reconsider the interest levied under Section 234A. The Tribunal's order provided a detailed analysis of the functional profiles and comparability of the companies involved, ensuring that the assessee's transactions were evaluated fairly and in accordance with the law.
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