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2023 (4) TMI 75 - AT - Income TaxTP Adjustment - comparable selection - Turnover filter - HELD THAT - Tribunal consistently holding that turnover filter is very important and the companies having turnover of Rs.1 crore to Rs.20 crores have to be taken as a particular range and the assessee is in that range having turnover of Rs.29.91 crores. The companies which also have turnover of Rs.1 crore to Rs.200 crores only should be taken into consideration for the purpose of making TP study. This view of ours was fortified by the order of the coordinate bench of the Bangalore Tribunal in the case of Autodesk India Pvt. Ltd. 2018 (7) TMI 1862 - ITAT BANGALORE . Thus we direct the AO to exclude the 6 companies from the list of comparables whose turnover is more than Rs.200 crores in the assessment year under consideration since the turnover of the assessee company in Rs.9,91 crores in AY 2006-07. Comparables on the basis of RPT filter - Where the RPT exceeds 15%, such companies should not be taken as comparable companies. See FCG Software Services India Ltd. 2016 (1) TMI 1359 - ITAT BANGALORE Functional dissimilarity - Companies functionally dissimilar with that of assessee need to be deselected. Provision for obsolescence of inventory - submission of the assessee in this regard is that there is no distinction between provision and write off when it comes to treatment in the books of accounts and the issue of obsolescence of stock - HELD THAT - The disallowance has been deleted by the Tribunal in Assessee's own case for AY 2004-05. The Revenue appeal before High Court of Karnataka 2016 (6) TMI 1463 - KARNATAKA HIGH COURT in on this issue is answered in favour of the assessee - we are inclined to decide the above issue in favour of assessee. Loss on exchange fluctuation - HELD THAT - Currency cannot be treated as stock or shares because inherently they have different characteristic. In the case of the assessees, the foreign exchange exposure for the relevant period specified by R.B.I regulations is quiet substantial in order to justify the forex derivative transactions made by the assessee through Government recognized channel, otherwise the RBI would not have entertained these transactions and would have restrained the banks from entering into such transaction with its clients. Decided in favour of assessee. Provision for sales tax and customs duty - HELD THAT - We set aside the issue to the file of AO to pass fresh order in conformity with the decision of coordinate Bench of Delhi in case of NHPC Ltd 2014 (12) TMI 214 - ITAT DELHI . Disallowance of Legal and Professional fees - AO has made the disallowance for documentary evidence - HELD THAT - We are of the opinion that assessee has to establish the genuineness of the expenditure by filing the requisite details. In the present case, assessee produced the recipient s details along with details of TDS and other evidence supporting the claim. Had the AO have any doubt, he should have made further enquiry by summoning the respective party, which he failed to do so. Hence, in our opinion, the expenditure cannot be disallowed only on surmises and conjectures. Accordingly, we allow the ground taken by the assessee. Provision for expenses (disallowed as Contingent Liability) - AO has made the disallowance under the premise that assessee was not able to furnish the kind of litigation expenses and nature of litigation - HELD THAT - We are of the opinion that assessee has to establish the genuineness of the expenditure/provisions by filing the requisite details and details of TDS. If the assessee furnishes these details, the claim of assessee to be allowed. In the present case, it is not the case of revenue that this expenditure is bogus. The assessee has furnished the details called for by AO u/s 142(1) of the Act. There is no failure on the part of the assessee to substantiate the claim, we allow the ground taken by the assessee. Dealer Commission - Addition made for want of documentary evidence - HELD THAT - In this case assessee has filed all the details called for by AO and Ld. D.R. is not able to point out the lapse on the part of the assessee, hence, this ground of appeal is allowed by placing reliance on the earlier order of the Tribunal for the assessment year 2005-06 2017 (4) TMI 1527 - ITAT BANGALORE as noted that in the case of receipt of this commission by those parties, the department has accepted it. However, in the hands of assessee it was treated as not incurred by the assessee, which is incorrect. Books of accounts of the assessee is not rejected by challenging the entries in the books of accounts. On this point also, we are of the opinion that the claim of assessee is to be allowed as genuine - thus allow the ground taken by the assessee. Miscellaneous expenses - AO has made the disallowance for want of documentary evidence - HELD THAT - We are of the opinion that assessee has to establish the genuineness of the expenditure by filing the requisite details. In the present case, assessee produced the recipient s details along with details of TDS. Had the AO have any doubt, he should have made further enquiry by summoning the respective party, which he failed to do so. Hence, in our opinion, the expenditure cannot be disallowed only on surmises and conjectures. Accordingly, we allow the ground taken by the assessee.
Issues Involved:
1. Transfer Pricing Adjustment for Software Services (AY 2006-07) 2. Transfer Pricing Adjustment for Distribution Segment (AY 2012-13) 3. Royalty Payment Adjustment (AY 2012-13) 4. Interest on Intra-group Trade Advances (AY 2012-13) 5. Provision for Obsolescence of Inventory (AY 2012-13) 6. Loss on Exchange Fluctuation (AY 2012-13) 7. Provision for Sales Tax and Customs Duty (AY 2012-13) 8. Disallowance of Legal and Professional Fees (AY 2012-13) 9. Provision for Litigation Expenses (AY 2012-13) 10. Dealer Commission (AY 2012-13) 11. Miscellaneous Expenses (AY 2012-13) 12. TDS Credit (AY 2012-13) 13. Interest under Section 234B (AY 2012-13) Detailed Analysis: 1. Transfer Pricing Adjustment for Software Services (AY 2006-07): The Tribunal found that the TPO erred by not considering the filters adopted for selecting comparables. The AO/TPO was directed to exclude companies with turnovers exceeding Rs. 200 crores, as the assessee's turnover was Rs. 29.91 crores. Companies like Infosys Ltd., Mindtree Consulting Ltd., Persistent Systems Ltd., Sasken Communication Ltd., Flextronics Software Systems Ltd., and Igate Global Solutions Ltd. were ordered excluded. 2. Transfer Pricing Adjustment for Distribution Segment (AY 2012-13): The Tribunal directed the AO/TPO to follow the earlier Tribunal orders for AYs 2002-03 to 2006-07, which mandated using the Resale Price Method (RPM) and restricting adjustments to AE purchases only. The Tribunal found that the TPO had wrongly applied adjustments to domestic sales, which are not international transactions. 3. Royalty Payment Adjustment (AY 2012-13): The Tribunal remitted the issue to the AO/TPO for reconsideration in line with earlier years' directions, which included treating royalty payments as part of operating costs for computing margins in the trading segment. 4. Interest on Intra-group Trade Advances (AY 2012-13): The Tribunal directed the AO/TPO to consider net advances after deducting provisions for doubtful loans and apply LIBOR+2% for computing interest on intra-group trade advances. 5. Provision for Obsolescence of Inventory (AY 2012-13): The Tribunal allowed the provision for obsolescence of inventory, citing the assessee's consistent method of evaluation and the decision in the assessee's favor by the Karnataka High Court for AY 2004-05. 6. Loss on Exchange Fluctuation (AY 2012-13): The Tribunal allowed the foreign exchange loss, distinguishing between realized and unrealized losses, and referenced decisions that recognized such losses as allowable business expenses. 7. Provision for Sales Tax and Customs Duty (AY 2012-13): The Tribunal remitted the issue to the AO to pass a fresh order in line with the Delhi Tribunal's decision in NHPC Ltd., which allowed such provisions if the liabilities were ascertained and discharged. 8. Disallowance of Legal and Professional Fees (AY 2012-13): The Tribunal allowed the expenses, noting that the assessee had provided all necessary details and TDS certificates, and the AO had not made further inquiries despite having doubts. 9. Provision for Litigation Expenses (AY 2012-13): The Tribunal allowed the provision for litigation expenses, noting that the assessee had furnished all necessary details and there was no failure on the part of the assessee to substantiate the claim. 10. Dealer Commission (AY 2012-13): The Tribunal allowed the dealer commission expenses, noting that the assessee had provided detailed information and TDS certificates, and the AO had not made further inquiries despite having doubts. 11. Miscellaneous Expenses (AY 2012-13): The Tribunal allowed the miscellaneous expenses, noting that the assessee had provided detailed information and TDS certificates, and the AO had not made further inquiries despite having doubts. 12. TDS Credit (AY 2012-13): The Tribunal remitted the issue to the AO for giving due TDS credit as claimed in the return of income. 13. Interest under Section 234B (AY 2012-13): The Tribunal noted that interest under Section 234B is mandatory and consequential, and directed it to be recomputed accordingly. Conclusion: The Tribunal largely found in favor of the assessee, directing the AO/TPO to follow earlier Tribunal decisions, exclude certain comparables, and allow various expenses and provisions that had been disallowed. The Tribunal emphasized the importance of consistency and adherence to judicial precedents in transfer pricing and other tax matters.
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