9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (5) TMI 1849 - AT - Income TaxTP adjustment - comparable selection - consideration of appropriate risk related adjustment - HELD THAT - Essential requirement for allowing a risk adjustment is that the assessee should have quantified and claimed the risk adjustment in its TP documentation based on a clear and logical workings considering the risk profile of tested party and comparables companies and not based on surmises. Just because assessee was serving a single customer would not mean that it was bearing market risk different from any other competitor. As already mentioned by us assessee had simply estimated risk adjustment at 5% without properly quantifying the difference in the risk profile between assessee and M/s. Suprajit Engineering Ltd. We are of the opinion that lower authorities were thus justified in not allowing the risk adjustment claimed by the assessee. Grounds of the assessee stand dismissed. Inclusion of loss on forex exchange as part of operating expenditure - HELD THAT - This Tribunal in assessee s own case for assessment year 2012-2013 this issue is squarely covered by the judgement of Madras High Court in the case of CIT Vs. Pentasoft Technogies Ltd. 2010 (7) TMI 75 - MADRAS HIGH COURT decide the issue against the assessee holding that foreign exchange loss is a part of operating expenditure Working Capital Adjustment for Determination of arm s length price by the TPO - non production sufficient data for proving its claim of working capital adjustment. - HELD THAT - The basis of the calculation was the number of days of holding of the inventory receivables and creditors of the comparables viz-a-viz the assessee. However while working out the rate of interest for calculating working capital adjustment assessee had considered the prime lending rate @18.5% and this is clear which gives the work-out of the working capital adjustment. There is nothing on record to show that the interest paid by the assessee or the comparables on their respective loans were at the rate of 18.5% or the rates were significantly different. This in our opinion reduced the claim of working capital adjustment at 3.18% to a mere estimate. Actual interest paid was never considered by the assessee. Hence we are of the opinion that lower authorities were justified in taking a view that assessee had not produced sufficient data for proving its claim of working capital adjustment. We do not find any reason to interfere with the orders of the lower authorities. Ground of the assessee stands dismissed. Disallowance of employees contribution to Provident Fund/ remitted after the due date mentioned in the relevant statute but before the due date of filing the return of income - HELD THAT - The issue raised by the assessee is covered by the judgment of Hon ble Jurisdictional High Court in the case of CIT vs. Industrial Security & Intelligence India Pvt. Ltd 2015 (7) TMI 1063 - MADRAS HIGH COURT . Assessee having remitted the amount before due date of filing of return by virtue of the above judgment of Hon ble Jurisdictional High Court a disallowance could not have been made. Such disallowance stands deleted. Ground of the assessee is allowed.
Issues Involved:
1. Risk Adjustment for Comparable Company 2. Forex Fluctuation Loss as Operating Expenditure 3. Working Capital Adjustment 4. Disallowance of Employees' Contribution to Provident Fund 5. Interest under Sections 234B and 234C Issue-wise Analysis: 1. Risk Adjustment for Comparable Company: The assessee contested the inclusion of Suprajit Engineering Ltd as a comparable in the Arms Length Pricing analysis, arguing that appropriate risk-related adjustments were not considered. The assessee claimed that Suprajit Engineering catered to the replacement market, which had higher margins and different risk profiles. The Tribunal noted that the assessee had estimated a 5% risk adjustment without empirical data. The Tribunal referenced its earlier decision for AY 2012-2013, where it remitted the matter for re-examination. However, for the current year, the Tribunal found that the assessee's claim was based on estimates and not quantified logically. Therefore, the Tribunal upheld the lower authorities' decision to deny the risk adjustment. 2. Forex Fluctuation Loss as Operating Expenditure: The assessee argued that forex fluctuation loss should not be considered non-operating in nature based on Rule 10TA(j)(iv) of the Income Tax Rules, 1962. The Tribunal referred to its earlier decision for AY 2012-2013 and the judgment of the Madras High Court in CIT vs. Pentasoft Technologies Ltd, which held that forex fluctuation gains or losses related to export business should be considered operating expenditure. The Tribunal found no reason to deviate from this view and dismissed the assessee's ground. 3. Working Capital Adjustment: The assessee claimed a working capital adjustment of 3.18%, which was denied by the TPO and DRP. The Tribunal noted that while the assessee considered inventory, debtors, and creditors holding levels of comparables, it used an estimated interest rate of 18.5% for calculating the adjustment. The Tribunal found that the actual interest paid was not considered, making the claim an estimate. Therefore, the Tribunal upheld the lower authorities' decision to deny the working capital adjustment. 4. Disallowance of Employees' Contribution to Provident Fund: The assessee's contribution to the Provident Fund was disallowed as it was remitted after the due date mentioned in the statute but before the due date of filing the return. The Tribunal referred to the judgment of the Madras High Court in CIT vs. Industrial Security & Intelligence India Pvt. Ltd, which allowed such contributions if remitted before the due date of filing the return. Consequently, the Tribunal deleted the disallowance. 5. Interest under Sections 234B and 234C: The issue of interest under Sections 234B and 234C was deemed consequential and required no specific adjudication. Conclusion: The appeal was partly allowed, with the Tribunal dismissing the grounds related to risk adjustment, forex fluctuation loss, and working capital adjustment, while allowing the ground related to the disallowance of employees' contribution to the Provident Fund. The issue of interest under Sections 234B and 234C was considered consequential.
|
