9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (8) TMI 870 - AT - Income TaxTransfer pricing adjustment selection of comparables Functionally different company - enormity of turnover employee cost filter Segmental turnover - Held that - The company cannot be considered as comparable to the assessee due to various factors such as its size, turnover, brand value, scale of operation, diversified activities and owning of intangibles - the turnovers of Infosys Technologies Limited during the year under consideration are ₹ 13,149 crores as against ₹ 42 crores of the assessee - the assessee in the TP documentation, has selected Infosys Technologies Ltd. as comparable but that cannot prevent the assessee from objecting to the aforesaid company being selected as comparable, if there are valid reasons for doing so - considering the enormity of turnover of the company as well as other relevant factors, the company cannot be treated as comparable to the assessee in any manner - the company was functionally different from the assessee company as it was engaged in the services in the form of ACCEL IT and ACCEL animation services for 2D and 3D animation and therefore assessee's claim that this company was functionally different was accepted - It directed the Assessing Officer to exclude ACCEL Transmatic Ltd. from the final list of comparables for the purpose of determining TNMM margin - the Assessing Officer /TPO is directed to exclude this while computing ALP Decided in favor of assessee. Rejection of comparables Held that - Proper case was not made out for inclusion of the comparables - once TPO and DRP forms that these comparables are not functionally similar to the assessee on the basis of various filters adopted by the TPO, it would be better if the matter is left like that rather than ordering fresh enquiry - these companies have related party transactions and therefore, may not justify on various filters adopted - When specific 133(6) notice was issued, that assessee has not to responded and therefore, TPO was not in a position to include the above case in the absence of segmental data - there was a specific finding that after enquiry being conducted, it was found that company was taken up by one Kelton Sector P. Ltd. and inspite of being called, the company was failed to produce its cash book ledger particulars of salary paid etc. - genuineness of the company and its activities are doubted the company has been rightly rejected as comparable - there is no need to consider any of the comparables, already rejected by the TPO/DRO Decided against Assessee. Risk Adjustment Held that - the assessee reserves the right to conduct risk adjustment in future during the time of assessment - this issue is to be examined by the TPO afresh - Assessee admits that it is having a single customer risk, whereas, other comparable companies has market risk thus, the matter is to be remitted back to the TPO for fresh adjudication Decided in favour of assessee. Computation of deduction u/s 10A Communication charges registered from export turnover - Held that - Following the decision in The Commissioner of Income Tax Versus M/s. Gem Plus Jewellery India Ltd. 2010 (6) TMI 65 - BOMBAY HIGH COURT - communication charges etc., attributable to the delivery of the computer software outside India which are to be reduced from the export turnover should be reduced from the total turnover as well while computing the deduction under section 10A - the AO is directed to reduce the amount from the export turnover as well as total turnover while computing the deduction u/s 10A Decided in favour of assessee.
Issues Involved:
1. Selection and exclusion of comparables for Transfer Pricing. 2. Risk adjustment consideration. 3. Computation of deduction under section 10A of the I.T. Act. Issue-wise Detailed Analysis: 1. Selection and Exclusion of Comparables for Transfer Pricing: 1.1. Accepted Comparables: The assessee accepted the selection of 16 comparables by the TPO, including Datamatics Ltd., E-Zest Solutions Ltd., and others. 1.2. Disputed Comparables: The assessee objected to the inclusion of the following comparables: - Avani Cimcon Technologies Ltd.: Excluded due to revenue from both product and software services without segmental data and supernormal profits. Previous tribunal decisions supported exclusion. - Infosys Technologies Ltd.: Excluded due to its size, turnover, brand value, and diversified activities. Tribunal and Delhi High Court decisions supported exclusion. - Ishir Infotech Ltd.: Excluded for failing the employee cost filter. Previous tribunal decisions supported exclusion. - Lucid Software Ltd.: Excluded due to lack of segmental data for product and software services. Previous tribunal decisions supported exclusion. - MEGASOFT Ltd.: Only segmental margin from software development services considered. Previous tribunal decisions supported this approach. - Tata Elxsi Ltd.: Excluded due to its complex nature of business and lack of segmental details. Previous tribunal decisions supported exclusion. - Wipro Ltd.: Excluded due to its size, brand value, and diversified activities. Previous tribunal decisions supported exclusion. - Accel Transmatic Ltd.: Excluded due to its diversified business activities. Previous tribunal decisions supported exclusion. - Kals Information Systems Ltd.: Excluded due to functional differences and failing the salary cost filter. Previous tribunal decisions supported exclusion. 1.3. Rejected Comparables by TPO: The assessee's request to include Aztec Soft Ltd., Birla Technologies Ltd., Indium Software India Ltd., Larsen & Toubro Infotech, PSI Data Systems Ltd., and VMF Softech Ltd. was denied. The TPO and DRP found these comparables functionally dissimilar or having related party transactions. 2. Risk Adjustment Consideration: The assessee requested risk adjustment due to single customer risk versus market risk of comparables. The TPO initially denied this, but the tribunal directed a fresh examination of the issue by the TPO, considering the exclusion of certain comparables. 3. Computation of Deduction under Section 10A of the I.T. Act: The issue involved the reduction of communication charges from export turnover but not from total turnover. The tribunal directed the A.O. to reduce the communication charges from both export and total turnover, following the decisions of the Hon'ble Bombay High Court and ITAT Special Bench. Conclusion: The appeal was partly allowed, directing the TPO/A.O. to recompute the ALP after excluding certain comparables and considering risk adjustments. The computation of deduction under section 10A was to be adjusted as per the tribunal's directions. Other grounds not pressed by the assessee were dismissed.
|
