2023 (4) TMI 59 - AT - Income Tax

TP Adjustment - comparable selection - turnover filter - HELD THAT - We notice that the issue of applying the upper turnover filter of 200 cores has been considered by the coordinate bench in the case of Autodesk India Pvt.Ltd. 2018 (7) TMI 1862 - ITAT BANGALORE - thus we hold that companies listed below whose turnover in the current year is more than Rs.200 Crores should be excluded from the list of comparable companies. TP adjustment towards AMP expenses - TPO held that the AMP expenses incurred by the assessee is a separate international transaction and proceeded to make the TP adjustments towards the same - HELD THAT - Considering the above facts and respectfully following the decision of the coordinate bench in assessee s own case for AY 2017-18 2022 (9) TMI 1233 - ITAT BANGALORE we hold that no adjustment is required to be made towards AMP expenses and the same cannot be treated as a separate international transaction when TPO has not otherwise rejected the margins of the assessee in the trading segment. The TP adjustment made in this regard is therefore deleted. Disallowance in respect of employee s contribution to PF - HELD THAT - We notice that the Hon ble Supreme Court in the case of Checkmate Services 2022 (10) TMI 617 - SUPREME COURT has considered the issue of whether the employees contribution paid before due date for filing the return of income u/s.139(1) whether otherwise allowable u/s.43B, putting to rest the contradicting decisions of various High Court. Thus employees contribution to PF and ESI should be remitted before the due date as per explanation to section 36(1)(va) i.e. on or before the due date under the relevant employee welfare legislation like PF Act, ESI Act etc., for the same to be otherwise allowable u/s.43B. The grounds taken by the assessee on this issue is dismissed.

Summary

Issues Involved:
1. Transfer Pricing (TP) adjustment of Software Development Segment (SWD)
2. TP adjustment on Advertisement and Publicity (AMP) expenses
3. Disallowance of Employee's contribution to Provident Fund (PF)
4. Interest under Section 234C

Detailed Analysis:

1. TP Adjustment of Software Development Segment (SWD):
The assessee, engaged in software development services and trading in mobile phones, filed its return of income declaring a total income of Rs.173,06,46,940/-. The case was selected for scrutiny, and the AO made TP adjustments in the software development segment amounting to Rs.8,08,69,270/-. The assessee's financials showed an operating profit margin of 15.22%, which the TPO rejected, applying new filters and selecting comparables with a median margin of 23.60%, resulting in a TP adjustment. The DRP provided partial relief, reducing the adjustment to Rs.5,65,59,250/-. The Tribunal, following the decision in Autodesk India Pvt. Ltd., upheld the application of the upper turnover filter of Rs.200 crores, excluding comparables with turnovers exceeding this limit. Consequently, the TP adjustment in the SWD segment was deleted as the assessee's margin fell within the acceptable range.

2. TP Adjustment on AMP Expenses:
The TPO considered the AMP expenses incurred by the assessee as a separate international transaction, making a TP adjustment of Rs.447,46,17,651/-. The DRP upheld this adjustment, agreeing with the TPO's application of the Residual Profit Split Method (RPSM) and the Bright Line test method. The assessee contended that AMP expenses were part of the operating cost of the trading segment, and no separate adjustment was warranted. The Tribunal, following the decision in the assessee's own case for AY 2017-18, held that AMP expenses could not be treated as a separate international transaction when the TPO had not rejected the trading segment margins. Hence, the TP adjustment on AMP expenses was deleted.

3. Disallowance of Employee's Contribution to PF:
The AO disallowed Rs.28,12,365/- in respect of the employer's contribution to PF, as the payment was made beyond the due date. The Tribunal, following the Supreme Court's decision in Checkmate Services (P.) Ltd. vs. CIT-1, held that employee's contributions to PF must be remitted before the due date under the relevant employee welfare legislation for the same to be allowable under Section 43B. Therefore, the disallowance was upheld.

4. Interest under Section 234C:
The issue of interest under Section 234C was not specifically addressed in the judgment provided.

Conclusion:
The appeal filed by the assessee was partly allowed, with the TP adjustments in the software development segment and AMP expenses being deleted, while the disallowance of the employee's contribution to PF was upheld.