9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (8) TMI 1285 - AT - Income TaxTP adjustment in relation to software development services - comparable Companies selection - HELD THAT - As we hold that companies having turnover in excess of Rs.200 crores should be excluded from the list of comparables. We direct the AO/TPO to recompute the ALP. Working capital adjustment - Respectfully following the above decision of the Tribunal in the case of Huawei Technologies India (P) Ltd. 2021 (8) TMI 1334 - ITAT BANGALORE we direct the AO to allow the working capital adjustment and re-compute the ALP accordingly. Notional interest on outstanding receivables - AO computed the notional interest on delayed receivables at 4.98% on the ground that the assessee has failed to furnish the details of invoice-wise receipt and arrived at an adjustment - HELD THAT - As it is clear that the assessee has realized payments against all the invoices within a period of 30 days as agreed between the assessee and the AE. We are therefore of the considered view that there is no delay in receipt of payment warranting levy of ay notional interest. We therefore delete the adjustment made in this regard. Partial denial of claim of depreciation on goodwill - Goodwill arising on slump sale - eligible for depreciation - difference between the purchase consideration and net assets taken over - HELD THAT - As relying on M/S. I B SEEDS PRIVATE LIMITED 2022 (6) TMI 1295 - ITAT BANGALORE hold that depreciation on goodwill is an allowable claim u/s. 32(1) of the Act. This ground is allowed in favour of the assessee.
Issues Involved:
1. Transfer Pricing (TP) adjustment in relation to software development services. 2. Notional interest on outstanding receivables. 3. Partial denial of claim of depreciation on goodwill. 4. Denial of deduction of Education Cess and Higher & Secondary Education Cess. Detailed Analysis: Transfer Pricing Adjustment: The assessee, operating as a global offshore service center, had international transactions including software development services. The Transfer Pricing Officer (TPO) made an adjustment of Rs.16,40,49,447 in the software development services segment, which was later enhanced by the Dispute Resolution Panel (DRP) to Rs.18,69,37,357. The TPO rejected five comparables selected by the assessee and accepted three, applying fresh filters and selecting comparables with a margin of 25.59%. The DRP upheld the 15 comparables and excluded one selected by the TPO, reworking the median margin to 26.74%, resulting in an enhanced TP margin of Rs.17,48,41,864. The Tribunal held that companies with high turnover exceeding Rs.200 crores should be excluded from the final set of comparables, referencing multiple decisions including those from the ITAT Bangalore Benches and the Hon'ble Bombay High Court. The Tribunal directed the AO/TPO to recompute the ALP accordingly. The Tribunal also addressed the working capital adjustment, directing the AO to allow it based on precedents such as the case of Huawei Technologies India (P) Ltd., emphasizing the necessity of adjustments to account for differences in working capital between the tested party and comparables. Notional Interest on Outstanding Receivables: The AO computed notional interest on delayed receivables at 4.98%, resulting in an adjustment of Rs.1,20,95,493. The DRP directed the AO to verify invoice-wise receipt of payments and compute interest as per SBI short-term deposit rate. The assessee submitted details showing all invoices were received within the agreed 30-day period. The Tribunal found no delay in receipt of payments and deleted the adjustment for notional interest. Partial Denial of Claim of Depreciation on Goodwill: The assessee claimed depreciation on goodwill arising from the acquisition of business from Xerox Business Services India Private Limited (XBSIPL). The AO disallowed the claim, stating the assessee did not provide a scientific basis for the valuation of goodwill. The DRP confirmed the disallowance. The Tribunal, referencing the decision of the Hon'ble Supreme Court in Smiff Securities Ltd. and other precedents, held that depreciation on goodwill is an allowable claim under section 32(1) of the Act and allowed the claim. Denial of Deduction of Education Cess and Higher & Secondary Education Cess: This ground was not pressed during the hearing and was accordingly dismissed. Conclusion: The appeal by the assessee was partly allowed. The Tribunal directed the AO/TPO to exclude high turnover companies from the comparables, allow working capital adjustments, delete the notional interest on receivables, and allow depreciation on goodwill. The denial of deduction for Education Cess and Higher & Secondary Education Cess was dismissed as it was not pressed.
|
