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2020 (9) TMI 1051 - AT - Income TaxTP Adjustment - Comparable selection - HELD THAT - Assessee is engaged in the business of rendering back office and related services including invoicing, collection, administration, support services includes customer services, ticketing, contract loading etc. to its Associated Enterprises (AEs) i.e. ;TRX Inc, USA, TRX Europe Limited and TRX Germany GmbH, Germany (herein referred to as AEs). The services rendered by the assessee to its AEs is predominantly related to travel and tourism industry. The assessee is also engaged in providing software maintenance support to TRX portfolio of software products and solutions which is essential an ITES, thus companies as functionally dissimilar with that of assessee need to be deselected. And also excluded for non adhering turnover filter decided. TPO not reducing the Working Capital Adjustment of 1.47% from the final list of ALP margin - HELD THAT - As stated that the TPO has specifically provided for 1.47 % as per the TPO order however while computing the ALP, the TPO adopted Working Capital Adjustment of only 0.13%. We are of the view that this issue ought to have been raised in a Rectification Application. Assessee has not contended before the DRP that the Working Capital Adjustment ought to be 1.47% instead of 0.13% granted by the TPO while computing the ALP. Therefore Ground No.8 raised is rejected.
Issues Involved:
1. Exclusion of certain comparables (Accentia Technologies Ltd., Acropetal Technologies Ltd., ICRA Online Ltd., Jeevan Scientific Technology Ltd., and Mindtree Ltd.) from the list of comparables. 2. Non-reduction of the working capital adjustment from the final ALP margin. 3. Non-following of the DRP's directions regarding the turnover filter. Detailed Analysis: 1. Exclusion of Certain Comparables: The primary issue raised by the assessee was the inclusion of certain companies as comparables which were functionally different from the assessee's business. The companies in question were Accentia Technologies Ltd., Acropetal Technologies Ltd., ICRA Online Ltd., Jeevan Scientific Technology Ltd., and Mindtree Ltd. The assessee argued that these companies were not comparable due to functional dissimilarity and other reasons such as lack of segmental information and failure to meet the turnover filter. The Tribunal noted that the assessee had initially selected some of these companies in its TP Study but later sought their exclusion. The Tribunal referred to several precedents, including the Bangalore Bench of Tribunal in the case of Aspect Technology Centre (India) Pvt. Ltd. Vs. ITO and the Special Bench order in DCIT Vs. Quark Systems Pvt. Ltd., which allowed the exclusion of such companies based on functional dissimilarity or other valid reasons. The Tribunal concluded that the companies in question were indeed functionally dissimilar and directed the AO/TPO to exclude M/s. Acropetal Technologies Ltd. (Seg.), M/s. Accentia Technologies Ltd., ICRA Online Ltd., and Jeevan Scientific Technology Ltd. from the list of comparables. 2. Non-Reduction of Working Capital Adjustment: The assessee contended that the AO/TPO erred in not reducing the working capital adjustment of 1.47% from the final ALP margin, as specified in the TPO order. However, the Tribunal noted that this issue was not raised before the DRP and suggested that it should have been addressed through a Rectification Application. Consequently, the Tribunal rejected this ground. 3. Non-Following of DRP's Directions on Turnover Filter: The DRP had directed the exclusion of companies with turnover lower than ?1 Crore and higher than ?200 Crores from the comparability analysis. However, the AO/TPO did not follow these directions, leading to the inclusion of the ALP adjustment proposed by the TPO in the final assessment order. The Tribunal emphasized that the directions of the DRP had become final in the absence of an appeal by the revenue. Therefore, the AO/TPO was directed to examine whether Infosys BPO Ltd., Mindtree Ltd., and I-Gate Global Solutions Ltd. should be excluded based on the turnover filter specified by the DRP. Conclusion: The Tribunal partially allowed the appeal, directing the exclusion of certain comparables and the re-examination of others based on the turnover filter. The ground related to the working capital adjustment was rejected. The judgment underscores the importance of functional similarity in selecting comparables and adherence to DRP directions.
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