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2017 (8) TMI 1585 - AT - Income TaxTP Adjustment - Comparable selection - taking TNMM as the most appropriate method (MAM) - HELD THAT - Exclusion of companies from the list of comparables on account of it failing to satisfy the filter of 75% revenues to be from software development services revenue The assessee company, a subsidiary of Microsoft Corporation, USA, is a captive provider of software research and development services to its Associated Enterprises (AEs) for a remuneration of cost plus mark up of 15% , thus companies functionally dissimilar with that of assessee need to be deselected from final list. Working capital computation - HELD THAT - Following the decision of the co-ordinate bench of this Tribunal in the ease of Moog Controls (India) (P.) Lid. 2015 (11) TMI 1719 - ITAT BANGALORE , we direct the TPO/AO to allow the actual adjustment towards the differences in working capital position between the assessee and the companies in the final set of comparables. Charging of interest u/s 234B and 234D - HELD THAT - The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition has been upheld by the Hon'ble Apex Court in the case of CIT v. Anjum M.H. Ghaswala 2001 (10) TMI 4 - SUPREME COURT and we therefore uphold the action of the AO in charging the said interest.
Issues Involved:
1. Transfer Pricing Adjustment 2. Exclusion of Comparables 3. Working Capital Adjustment 4. Charging of Interest under Sections 234B and 234D Detailed Analysis: 1. Transfer Pricing Adjustment: The assessee, a subsidiary of Microsoft Corporation, USA, filed its return of income for the assessment year 2011-12. The case was scrutinized, and the Transfer Pricing Officer (TPO) determined a transfer pricing adjustment of ?4,05,33,797/-. The assessee's income was assessed at ?11,88,59,576/- after the adjustment. The TPO rejected the assessee's economic analysis and conducted a fresh one, determining the Arm's Length Price (ALP) of the international transactions. The TPO selected 13 comparable companies with an average mean margin of 24.82%, leading to the adjustment. The Dispute Resolution Panel (DRP) excluded six companies from the TPO’s list, applying the turnover filter. 2. Exclusion of Comparables: The assessee sought the exclusion of Acropetal Technologies Ltd. and E-Infochips Ltd. from the list of comparables. For Acropetal Technologies Ltd., it was argued that the company failed the employee cost filter of 25% and the 75% software development services revenue filter. The Tribunal agreed, noting that the income from software development services was less than 75% of total revenues. Following the decision in GT Nexus Software Pvt. Ltd., the Tribunal directed the exclusion of Acropetal Technologies Ltd. Similarly, for E-Infochips Ltd., it was argued that the company was functionally different and engaged in IT enabled services and product sales, failing the 75% revenue filter. The Tribunal, following the decision in Saxo India Pvt. Ltd., directed the exclusion of E-Infochips Ltd. from the comparables. 3. Working Capital Adjustment: The assessee contended that the TPO erred in restricting the working capital adjustment to 1.63%. The Tribunal found that the restriction was not justified, as the adjustment seeks to remove differences in the working capital position between the assessee and the comparables. Following the decision in Moog Controls (India) Pvt. Ltd., the Tribunal directed the TPO/AO to allow the actual adjustment towards the differences in working capital position. 4. Charging of Interest under Sections 234B and 234D: The assessee denied liability for interest under sections 234B and 234D. The Tribunal upheld the AO's action, noting that the charging of interest is consequential and mandatory, as upheld by the Supreme Court in CIT v. Anjum M.H. Ghaswala. The AO was directed to compute the interest chargeable while giving effect to the order. Conclusion: The appeal was partly allowed, with directions to exclude Acropetal Technologies Ltd. and E-Infochips Ltd. from the list of comparables, and to allow the actual working capital adjustment. The charging of interest under sections 234B and 234D was upheld, subject to computation by the AO.
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