9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (3) TMI 1734 - AT - Income TaxTPA - Loss on Derivatives disallowed - DRP upholding, the provision for mark-to-market loss on derivatives created by your appellant during the year based on the principles articulated in .Accounting Standard-1 and pursuant to the pronouncement of Institute of Chartered Accountants of India dated 29/03/2008 - Held that - It is seen from the DRP order that it has not considered the assessee s submissions independently but held that that the view taken by the A O do not call for any interference. This issue is remitted back to the DRP for passing a reasoned order after giving due opportunity to the assessee. Customs Duty disallowance - sum added to the cost of such equipments/ items and disallowed the revenue expenditure and the DRP upholding the same - Held that - The Panel after taking into consideration of the facts deems it appropriate to direct the AO to revisit this issue and examine the claim that the impugned customs duty on imports pertaining to equipments/items procured for clients projects and the same was subsequently billed to the client. This ground is disposed off with the directions as above Disallowance of rent equalization - assessee provided this sum towards rent equalization in accordance with AS 19-Leases, as notified by the Ministry of Corporate affairs under the Companies (Accounting Standards) Rules 2006 - AO held that since no such known liability exists, the claim is not allowable - Held that - As pointed out by the DR, we find that the assessee has not raised any objection on this issue before the DRP. Since, this issue has attained finality, we don t entertain this ground. TPA - ALP determination - MAM - assessee had adopted Transactional Net Margin Method (TNMM) to arrive at the Arm s Length Price with 14 comparables - Held that - Assessee is into providing software development services to its AEs thus companies functionally dissimilar with that of assessee need to be deselected from final list. Idle costs incurred by the assessee on account of excess capacity considered by the TPO as operating costs for arriving the ALP - Held that - Adjustments have been made for the expenses on idle infrastructure and manpower incurred by the assessee which was not the case with the companies adopted as comparables by the assessee. Hence, margins of transactions with AEs excluding idle costs have been considered. The margin on cost calculated by the TPO after apportionment of idle cost was - 8.95% as against the margin of 27.11% computed by the appellant. In view of that the assessee sought suitable adjustment for idle costs for excess capacity - this issue is a purely factual one and minute details are required to be verified and examined. Therefore, this issue requires proper verification and examination. Accordingly, we set aside this issue to the record of the TPO/AO to verify all the facts and then decide this issue as per law.
Issues Involved:
1. Disallowance of mark-to-market loss on derivatives. 2. Disallowance of customs duty paid on imports. 3. Disallowance of rent equalization. 4. Transfer pricing adjustments and selection of comparables. 5. Idle costs incurred due to excess capacity. Detailed Analysis: Issue 1: Disallowance of Mark-to-Market Loss on Derivatives The assessee argued that the provision for mark-to-market loss on derivatives amounting to ?10,00,000/- was created based on principles in Accounting Standard-1 and guidance from the Institute of Chartered Accountants of India. The DRP did not independently consider the assessee's submissions but upheld the AO's view. The Tribunal remitted this issue back to the DRP for a reasoned order after giving due opportunity to the assessee. Issue 2: Disallowance of Customs Duty Paid on Imports The assessee claimed a deduction for customs duty of ?38,860/- paid on imports for client projects, which was subsequently billed to the clients and offered to tax. The DRP directed the AO to revisit and examine this claim. The Tribunal upheld the DRP's decision to remit the issue back to the AO. Issue 3: Disallowance of Rent Equalization The assessee provided ?18,82,944/- towards rent equalization in accordance with AS-19. The AO disallowed this claim, stating no such known liability existed. The Tribunal found that the assessee did not raise this issue before the DRP, and thus, it attained finality. The Tribunal did not entertain this ground. Issue 4: Transfer Pricing Adjustments and Selection of Comparables The assessee objected to certain comparables selected by the TPO and upheld by the DRP. The Tribunal analyzed the functional dissimilarity of several comparables: - Avani Cincom Technologies: Remitted back to the TPO for re-adjudication based on information obtained under section 133(6). - Celestial Biolabs, Infosys Technologies Ltd, Kals Information Systems Ltd (Seg), Tata Elxsi Ltd (Seg), Wipro Ltd (Seg): Directed the TPO/AO to exclude them due to functional differences. - E-Zest Solutions Ltd, Persistent Systems Ltd, Quintegra Solutions Ltd, Thirdware Solutions Ltd, Lucid Software Ltd: Directed the TPO/AO to exclude them based on functional dissimilarity and lack of segmental data. - Bodhtree Consulting Ltd: Directed the TPO/AO to exclude based on functional differences and lack of segmental data. The Tribunal upheld the exclusion of these comparables based on various decisions from different benches of the Tribunal. Issue 5: Idle Costs Incurred Due to Excess Capacity The assessee argued that idle costs due to excess capacity were wrongly considered as part of operating costs by the TPO. The Tribunal found this issue to be purely factual requiring detailed verification and examination. Consequently, the Tribunal set aside this issue to the TPO/AO for verification and decision as per law. Conclusion The Tribunal partly allowed the assessee's appeal, remitting certain issues back to the DRP and TPO/AO for re-examination and verification, while upholding the exclusion of several comparables based on functional dissimilarity and lack of segmental data.
|
