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2018 (10) TMI 1841 - AT - Income TaxTP Adjustment - Forex loss on cancellation of forward contract - removing forex fluctuation gain from operating profit - HELD THAT - As in FISERV INDIA PVT. LTD. 2016 (1) TMI 1276 - DELHI HIGH COURT has decided this issue in favour of the assessee and against the Revenue - As directed to treat the foreign exchange gain/loss as an operating item. The AO/TPO was directed to compute the ALP of the international transactions entered into by FIPL with its AEs. Also see AGILIS INFORMATION TECHNOLOGIES INTERNATIONAL (I) PVT. LTD. 2016 (2) TMI 1078 - DELHI HIGH COURT we direct the Assessing Officer to treat the forex fluctuation gain as operating income for calculation of OP/OC. The assessee succeeds on this point. Comparable selection - inclusion of Infosys Ltd and Wipro Technologies as good comparables - HELD THAT - As decided on own case . 2015 (5) TMI 637 - ITAT DELHI and 2015 (6) TMI 132 - ITAT DELHI respectfully following the judgment of the Hon ble jurisdictional High Court in Agnity India 2013 (7) TMI 696 - DELHI HIGH COURT we hold that Infosys Technologies Ltd. cannot be treated as comparable with the assessee company. This company is therefore directed to be excluded from the list of comparables. WIPRO Technologies Services Ltd - Comparable as excluded by the Tribunal in the case of Microsoft India R D Pvt Ltd. 2018 (10) TMI 70 - ITAT DELHI Reduction in deduction allowed u/s 10A - HELD THAT - Once the forex fluctuation gain is treated as part of operating profit then the same deserves to be allocated amongst various units of the assessee and basis of allocation should be same as that deduction for the allocation of expenses amongst various units. We accordingly direct the Assessing Officer to allocate forex fluctuation gain also to Pune unit based on turnover. The assessee succeeds on this issue. Calculation of surcharge and education cess - AO has calculated surcharge and education cess on the gross amount without giving effect to the MAT credit deduction by the assessee for the year under consideration - HELD THAT - As relying on M/S. VACMENT INDIA AGRA 2014 (10) TMI 787 - ALLAHABAD HIGH COURT we direct the Assessing Officer to calculate the surcharge and education cess on net tax liability. The assessee succeeds on this issue also. Short credit of TDS - HELD THAT - We direct the assessee to furnish relevant details of TDS and the Assessing Officer is directed to verify the same and allow credit of TDS as per provisions of law. Charging of interest is consequential and the Assessing Officer is directed to charge interest as per provisions of law.
Issues Involved:
1. Disallowance of forex loss on cancellation of forward contract. 2. Transfer Pricing (TP) adjustment of ?19,17,52,485. 3. Calculation of surcharge and education cess on gross tax payable without giving effect to MAT credit u/s 115JAA. 4. Allowing short credit of TDS to the extent of ?1,89,349. Issue-Wise Detailed Analysis: 1. Disallowance of Forex Loss on Cancellation of Forward Contract: The judgment does not provide detailed analysis or resolution regarding the disallowance of forex loss on the cancellation of forward contracts. The focus is primarily on the TP adjustments and related issues. 2. Transfer Pricing (TP) Adjustment of ?19,17,52,485: The assessee, engaged in software development services, used the Transactional Net Margin Method (TNMM) with Operating Profit/Total Cost (OP/TC) as the Profit Level Indicator (PLI). The Transfer Pricing Officer (TPO) analyzed the comparables and selected a final set, excluding some proposed by the assessee due to various reasons such as different financial year endings, significant Related Party Transactions (RPT), or non-availability of annual reports. The TPO proposed a set of comparables with an average margin of 20.28%, while the assessee's margin was recalculated at 8.48% after excluding forex fluctuation gain from operating profit. This led to a proposed adjustment of ?18,83,88,512, which was later revised to ?19,17,52,485 by the Dispute Resolution Panel (DRP). The assessee argued that forex fluctuation gain should be included in the operating profit, which would adjust their margin to 13.79%. The Tribunal agreed, referencing the Delhi High Court's decisions in Fiserv India Pvt Ltd and Agilis Information Technologies International [I] Pvt Ltd, which treated forex fluctuation gain as part of operating income. Consequently, the Tribunal directed the Assessing Officer to treat forex fluctuation gain as operating income, thus favoring the assessee on this point. Regarding the inclusion of Infosys Ltd and Wipro Technologies as comparables, the Tribunal referred to its previous decisions in the assessee's own case for earlier years, where these companies were excluded due to functional dissimilarities and significant RPTs. The Tribunal directed the exclusion of these companies from the final set of comparables, leading to the deletion of the TP adjustment of ?19,17,52,485. 3. Calculation of Surcharge and Education Cess on Gross Tax Payable Without Giving Effect to MAT Credit u/s 115JAA: The assessee computed tax by deducting MAT credit from gross tax payable before calculating surcharge and education cess, whereas the Assessing Officer calculated these on the gross amount without MAT credit deduction. The Tribunal referred to the Allahabad High Court's decision in Vacement India, which clarified that surcharge and education cess should be computed on the net tax liability after giving effect to MAT credit. The Tribunal directed the Assessing Officer to follow this method, thus ruling in favor of the assessee. 4. Allowing Short Credit of TDS to the Extent of ?1,89,349: The Tribunal directed the assessee to furnish relevant details of TDS to the Assessing Officer, who was instructed to verify and allow the credit as per the provisions of law. This issue was resolved in favor of the assessee, contingent upon verification. Conclusion: The appeal of the assessee was allowed, with directions to the Assessing Officer to treat forex fluctuation gain as operating income, exclude Infosys Ltd and Wipro Technologies from comparables, compute surcharge and education cess on net tax liability after MAT credit, and verify and allow the short credit of TDS. The order was pronounced on 30.10.2018.
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