2017 (8) TMI 1433 - AT - Income Tax

Accrued income shown as unmatured advances in the Balance Sheet - Held that - As decided in assessee s own case 2017 (4) TMI 358 - ITAT HYDERABAD what is to be seen is whether the assessee has followed a recognized method of accounting or not. If method followed by the assessee is such whereby correct income cannot be deduced, then only the assessing officer has the authority to adopt a reasonable basis to determine the total income. In the instant case it cannot be disputed that the assessee has followed a recognized method of accounting and hence, there is no question of adding any further amount to the total income. - Decided in favour of assessee Arm s length Price adjustment u/s 92CA - comparable selection - Held that - Assessee company entered into certain International Transactions pertaining to BPO services by way of Tele-calling services and sales Agency Services in respect of data bank belonging to the Associated Enterprises. The assessee company has been adopting cost plus 15% mark up for invoicing these Associated Enterprises in respect of Tele-calling Services. The assessee company in respect of sales agency, has been charging and paying sales commission of 10%. For purpose of complying with Transfer Pricing Regulations, the assessee company adopted cost plus 15% mark up as Arms Length Price in respect of Tele-calling and Comparative Uncontrolled, thus companies functionally dissimilar with that of assess need to be deselected from final list. Disallowance of expenditure included in employees cost - Held that - We are of the opinion that this issue required to be examined by the Assessing Officer/TPO in detail whether the said amount claimed to have received by the assessee as reimbursement expenses are indeed reimbursement or not. In case of reimbursement at cost of the expenditure incurred on behalf of the AEs and has not formed part of the expenditure claimed as operating cost of the assessee then, the reimbursement should not be considered as part of assessee s sales. The amounts should be excluded in computing the operating profits. Since the Assessing Officer has not examined and it is also not on record whether the said expenditure was not part of claim under section 37(1) in the regular computation or not, in the interest of justice, we remit the matter back to the file of the TPO to examine the facts and to exclude only in the case the said amount is reimbursement of expenditure and there was no claim by the assessee in its computation of income

Summary

Issues Involved:
1. Taxing of accrued income shown as unmatured advances.
2. Arm's Length Price (ALP) adjustment under section 92CA.
3. Disallowance of expenditure included in employees' cost.

Issue-wise Detailed Analysis:

1. Taxing of Accrued Income Shown as Unmatured Advances:
The assessee company, engaged in providing online recruitment services, filed its return of income for AY 2010-11. The Assessing Officer (AO) added ?51,89,30,155/- as accrued income shown as unmatured advances in the balance sheet, arguing that these amounts were already accrued and not refundable. The AO noted that the company's notes to accounts indicated income accrual despite heterogeneous contracts and non-uniform payment terms. The CIT(A), relying on a previous decision of the ITAT in the assessee's own case, deleted this addition. The ITAT upheld the CIT(A)’s decision, referencing the consistent application of a recognized method of accounting, as established in prior rulings (e.g., ITA No. 1762/Hyd/11 for AY 2007-08).

2. Arm's Length Price (ALP) Adjustment Under Section 92CA:
The AO referred the matter to the Transfer Pricing Officer (TPO) to determine the ALP for international transactions. The TPO made adjustments totaling ?1,49,51,346/- for BPO services, commission transactions, and loans. The CIT(A) confirmed the AO's decision but the assessee appealed, arguing that the issues were covered by ITAT decisions in its favor for previous years. The ITAT reviewed the TPO's comparables and found several inappropriate, directing the exclusion of certain companies (e.g., Infosys BPO Ltd., Genesys International Ltd., Eclerx Services Ltd., Cosmic Global Ltd., Acropetal Technologies Ltd., Accentia Technologies Ltd.). The ITAT remitted the issue back to the AO/TPO to recompute the ALP afresh, adhering to the principles established in prior cases.

3. Disallowance of Expenditure Included in Employees' Cost:
The AO disallowed ?1,43,70,180/- included in employees' cost. However, this specific issue was not elaborated upon in the judgment.

Separate Judgments:
The ITAT delivered a consolidated judgment for both AY 2010-11 and 2011-12, addressing similar issues across both years. The revenue's appeal regarding unmatured advances for AY 2011-12 was dismissed following the same rationale as AY 2010-11. The assessee’s grounds for AY 2011-12 were remitted back to the AO/TPO for reconsideration in line with the directions given for AY 2010-11.

Conclusion:
Revenue appeals for AY 2010-11 and 2011-12 were dismissed. Assessee’s appeals for both years were allowed for statistical purposes, with directions to the AO/TPO to reassess the ALP adjustments and other contested issues. The decision emphasized consistency with prior ITAT rulings and adherence to recognized accounting methods.