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2017 (7) TMI 1193 - AT - Income TaxTPA - Comparable selection - Held that - From the profile of the taxpayer as recorded by the TPO himself in his order, the assessee is into simple ITES services. Except for arguing that the assessee is also into KPO services, the Ld DR has not been able bring on record any material to rebut the findings of the DRP. Thus companies functionally dissimilar with that of assessee need to be deselected from list. Computing the interest on receivables - Held that - As relying on Income Tax Officer vs. Nevis Network (India) (P.) Ltd 2015 (4) TMI 722 - ITAT PUNE assessee has placed a working regarding the difference in time lag in sale recoveries in the case of the assessee and that of the three comparable concerns selected by the TPO. The difference in such time lag is applied to the Prime Lending Rate (PLR) to compute the working capital adjustment. On this basis, an adjustment of 5.90% was determined, which was required to be applied to the operating margins of the three comparable concerns. The CIT (A), in our view, made no mistake in accepting the plea of the assessee for allowing of such working capital adjustment. The said action of the CIT (A), in our view, is liable to be affirmed. We hold so
Issues:
1. Revenue's appeal against the order of the AO under the Income Tax Act, 1961. 2. Determination of ALP for international transactions by the TPO. 3. Exclusion of certain companies as comparables by the DRP. 4. Treatment of forward contracts in the company's operations. 5. Base rate vs. PLR for working capital adjustment. Analysis: 1. The case involved the Revenue's appeal against the AO's order for the A.Y. 2011-2012 under the Income Tax Act, 1961. The Revenue challenged the relief granted to the assessee by the DRP, raising multiple grounds of appeal related to the selection of comparables and adjustments made by the TPO. 2. The TPO determined the ALP for the assessee's international transactions and proposed adjustments. The TPO found defects in the assessee's search process, leading to the selection of inappropriate comparables. The TPO conducted an independent analysis using TNMM, resulting in proposed adjustments. The assessee objected to certain companies selected as comparables by the TPO. 3. The DRP granted relief to the assessee by excluding specific companies from the final list of comparables, such as Accentia, Acropetal, eClerx, Infosys, and TCS. The Revenue contested the exclusion, arguing that functional differences were not adequately considered. The DRP's decision was based on the functional dissimilarities of the services provided by the excluded companies compared to the assessee. 4. Regarding the treatment of forward contracts in the company's operations, the DRP directed the exclusion of a company engaged in forward contracts. The DRP considered the influence of forward contracts on the company's margin and directed its exclusion. The assessee agreed to consider this company as a comparable if the correct margin was taken into account. 5. The dispute over the base rate vs. PLR for working capital adjustment was addressed. The DRP directed the adoption of the average prime lending rate of SBI for computing working capital adjustments, contrary to the TPO's decision. The Tribunal referred to a previous decision supporting the use of PLR for such adjustments, leading to the rejection of the Revenue's appeal on this ground. In conclusion, the Tribunal partly allowed the Revenue's appeal, considering various aspects of the ALP determination, selection of comparables, treatment of forward contracts, and working capital adjustment methodologies. This detailed analysis covers the key issues raised in the legal judgment, providing a comprehensive overview of the case and the Tribunal's decision on each matter.
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