2015 (5) TMI 1105 - AT - Income Tax

TPA - selection of comparable - Held that - The assessee company is engaged in the business of software development and export. thus companies functionally dissimilar with that of assessee need to be deleted from final list of comparable. Reimbursement of expenditure - Held that - A.O. himself has agreed that the reimbursement of expenditure does not figure in the P & L account and perusing the paper book at pages 1 3 and 11 we are convinced that it is only a balance sheet entry and not debited to the P & L account. Hence we allow the ground with respect to reimbursement of expenditure raised by the assessee before us.

Summary

Issues:
1. Dispute related to Transfer Pricing Adjustment under section 144C(5) for A.Y. 2009-2010.
2. Selection of comparable companies for determining ALP margin.
3. Treatment of reimbursement of expenses in the P & L account.

Issue 1: Dispute related to Transfer Pricing Adjustment:
The appeal was filed against the Order passed under section 144C(5) for the A.Y. 2009-2010. The case involved the valuation of ALP of transactions as the TPO's proposed adjustment was detrimental to the assessee's interests. The ACIT finalized the order, adding the adjustment amount to the income as T.P. adjustment. The assessee challenged this before the Tribunal.

Issue 2: Selection of Comparable Companies:
The assessee argued that certain comparable companies should be excluded due to dissimilarity with the assessee company. The list of comparables selected by the TPO was scrutinized, and it was contended that companies like Bodhtree Consulting Ltd., Infosys Ltd., and Kals Information Systems Ltd., were functionally different and should be removed. Relying on precedents, the Tribunal excluded these companies, resulting in an ALP margin within an acceptable range.

Issue 3: Treatment of Reimbursement of Expenses:
Regarding the reimbursement of expenses, the assessee presented evidence that the amount did not feature in the P & L account but was a balance sheet entry. The Tribunal referred to a previous case and concluded that if the expenditure was not part of the claim in the computation of income, it should be excluded from the operating profits. In this case, as the reimbursement was not debited to the P & L account, the Tribunal allowed the ground raised by the assessee regarding the treatment of reimbursement of expenses.

In conclusion, the Tribunal allowed the appeal of the assessee, excluding certain comparable companies for determining ALP margin and accepting the treatment of reimbursement of expenses as presented by the assessee.