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2018 (11) TMI 435 - AT - Income TaxTPA - Comparable selection - Held that - The appellant company is engaged in the business of I.T. Enables Services ITES . In our considered opinion, the appellant company itself is providing services in civil and structural, in accordance with the requirement of its AE, mainly related to construction activities. In our considered opinion, the functional profile of the appellant is not different from the functional profile of Mahindra Consulting Engineers Limited. We do not find any merit in the contention of the ld. AR. This comparable has been rightly used by the TPO and, therefore, no interference is called for. Companies functionally dissimilar with that of assessee need to be deselected from final list. A perusal of the directions of the DRP show that the DRP has directed to treat the gain/loss on account of forex fluctuation as non operating in nature but while following the directions of the DRP, the Assessing Officer has not disclosed the computation of revised adjustment in this regard. We, accordingly, direct the Assessing Officer to compute the revised adjustment as per directions of the DRP
Issues Involved:
1. Inclusion of high-profit making companies in the final comparables set. 2. Inclusion of certain companies that are not comparable in terms of functions performed, assets employed, and risks assumed. 3. Exclusion of certain companies on arbitrary/frivolous grounds. 4. Non-disclosure of computation of revised adjustment regarding foreign exchange fluctuation gains/losses. Detailed Analysis: 1. Inclusion of High-Profit Making Companies in the Final Comparables Set: The appellant contested the inclusion of high-profit making companies in the final comparables set. The TPO included companies such as Mahindra Consulting Engineers Ltd, Alphageo (India) Ltd, STUP Consultants Pvt. Ltd, Semac Ltd, and Kirloskar Consultants Ltd, arguing that the appellant's characterization as a routine service provider was not appropriate. The TPO believed the appellant was a specialized independent enterprise bearing risks, thus requiring a higher margin. The Tribunal upheld the inclusion of Mahindra Consulting Engineers Ltd and STUP Consultants Pvt. Ltd, finding their functional profiles similar to the appellant's. However, the Tribunal directed the exclusion of Kirloskar Consultants Ltd due to its extraordinary financial restructuring. 2. Inclusion of Certain Companies That Are Not Comparable: The appellant argued against including companies not comparable in terms of functions performed, assets employed, and risks assumed. The Tribunal found that Alphageo (India) Ltd was functionally dissimilar and directed the Assessing Officer/TPO to reconsider its inclusion, following the Tribunal's previous findings. Similarly, for Semac Ltd, the Tribunal restored the issue to the Assessing Officer/TPO to obtain the Annual Report for F.Y. 2007-08 and decide afresh. 3. Exclusion of Certain Companies on Arbitrary/Frivolous Grounds: The appellant pleaded for the inclusion of KITCO Ltd, M.N. Dastur & Company (P) Ltd, Consulting Engineers Services (India) Pvt. Ltd, and Development Consultants Pvt. Ltd. The Tribunal directed the inclusion of KITCO Ltd and M.N. Dastur & Company (P) Ltd, finding their functional profiles similar to the appellant's. For Consulting Engineers Services (India) Pvt. Ltd and Development Consultants Pvt. Ltd, the Tribunal directed the Assessing Officer/TPO to call for their Annual Reports and decide the issue in line with the DRP's directions for A.Y. 2009-10. 4. Non-Disclosure of Computation of Revised Adjustment Regarding Foreign Exchange Fluctuation Gains/Losses: The appellant alleged that the Assessing Officer did not disclose the computation of the revised adjustment for foreign exchange fluctuation gains/losses as directed by the DRP. The Tribunal directed the Assessing Officer to compute the revised adjustment per the DRP's directions and disclose it to the appellant. Conclusion: The Tribunal partly allowed the appeal for statistical purposes. It upheld the inclusion of certain comparables, directed the exclusion of others, and mandated the inclusion of some companies after further verification. Additionally, it instructed the Assessing Officer to disclose the computation of revised adjustments regarding foreign exchange fluctuations.
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