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2022 (3) TMI 469 - AT - Income TaxTP Adjustment - Amount of margin retained by the A.E.- CIT-A rejected the ground of the assessee that the transfer pricing adjustment should be restricted to the amount retained by the A.E. - HELD THAT - We find that on identical issue, the Co ordinate Bench of the Tribunal in ITO v/s M/s. Ominiglobe Information Technologies India Pvt. Ltd., 2019 (4) TMI 1726 - ITAT DELHI restricted the transfer pricing adjustment to the amount of margin retained by the A.E - Similar view was also expressed by another Co ordinate Bench of the Tribunal in Fortune Infotech Ltd 2016 (2) TMI 382 - ITAT AHMEDABAD Thus, respectfully following the aforesaid judicial precedence of the Co ordinate Benches of the Tribunal, we direct the TPO/A.O. to restrict the transfer pricing adjustment to the amount retained by the A.E and compute the total income of the assessee in accordance with law. Since the issue relating to restricting the transfer pricing adjustment to the revenue retained by the A.E. from the customers is decided in favour of the assessee and against the Revenue, resultantly, the other grounds of appeal raised by the assessee in this appeal become academic in nature.
Issues Involved:
1. Legality of the Assessing Officer's order under section 143(3) read with section 254 of the Income-tax Act, 1961. 2. Validity of the transfer pricing adjustment made by the Transfer Pricing Officer (TPO). 3. Classification of provision for doubtful debts written back as operating income. 4. Classification of sundry balances written back and miscellaneous income as operating income. 5. Classification of loss on sale of fixed assets as operating expenditure. 6. Exclusion of M/s. I Gate Global Solutions and M/s. Sofisol India Ltd from the list of comparables. 7. Inclusion of M/s. Bodhtree Consulting Ltd and M/s. Tata Elxsi Ltd in the list of comparables. 8. Inclusion of M/s. Akshay Software Technologies Ltd in the list of comparables. 9. Eligibility for standard deduction of +/- 5% in computing the transfer pricing adjustment. Detailed Analysis: 1. Legality of the Assessing Officer's Order The assessee challenged the order passed by the Assessing Officer under section 143(3) read with section 254, claiming it to be illegal and bad in law. The Tribunal did not specifically address this issue separately, as the primary focus was on the transfer pricing adjustment. 2. Validity of the Transfer Pricing Adjustment The assessee contended that the transfer pricing adjustment should be restricted to the revenue retained by the Associated Enterprise (A.E.) from the customers. The Tribunal agreed with the assessee, referencing precedents where it was held that the transfer pricing adjustment should not exceed the amount retained by the A.E. The Tribunal directed the TPO/A.O. to restrict the transfer pricing adjustment to the amount retained by the A.E. 3. Classification of Provision for Doubtful Debts Written Back The assessee argued that the provision for doubtful debts written back should be included as operating income while computing the operating margin. This issue became academic as the primary issue of transfer pricing adjustment was decided in favor of the assessee. 4. Classification of Sundry Balances Written Back and Miscellaneous Income Similarly, the assessee contended that sundry balances written back and miscellaneous income should be classified as operating income. This issue also became academic following the decision on the transfer pricing adjustment. 5. Classification of Loss on Sale of Fixed Assets The assessee argued that the loss on sale of fixed assets should be included as operating expenditure. Like the previous issues, this became academic after the Tribunal's decision on the transfer pricing adjustment. 6. Exclusion of M/s. I Gate Global Solutions and M/s. Sofisol India Ltd The assessee challenged the exclusion of these companies from the final list of comparables. This issue was not specifically addressed due to the resolution of the primary transfer pricing adjustment issue. 7. Inclusion of M/s. Bodhtree Consulting Ltd and M/s. Tata Elxsi Ltd The assessee contended that these companies are not comparable and should be excluded. This issue also became academic after the Tribunal's decision on the transfer pricing adjustment. 8. Inclusion of M/s. Akshay Software Technologies Ltd The assessee argued against the inclusion of this company in the list of comparables. This issue became academic following the decision on the primary issue. 9. Eligibility for Standard Deduction of +/- 5% The assessee claimed eligibility for a standard deduction of +/- 5% in computing the transfer pricing adjustment. This issue was rendered academic after the Tribunal's decision on the primary issue. Conclusion: The Tribunal directed the TPO/A.O. to restrict the transfer pricing adjustment to the amount retained by the A.E., thereby rendering other issues academic. The appeal was partly allowed in favor of the assessee on the primary issue of transfer pricing adjustment.
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