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TMI Blog2017 (2) TMI 1410X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus Provision for bad and doubtful debts should be treated as operating expenses as they are closely linked with the business operations and accordingly direct the TPO to do so. Computation of working capital adjustment - TPO is of opinion that working capital adjustment should be restricted to 0.85% - HELD THAT:- TPO has not given the basis of arriving at the average cost of capital of the comparable companies. As assessee relied on the decision of this Tribunal in Moong Controls India P Ltd [2015 (11) TMI 1719 - ITAT BANGALORE] wherein as directed the TPO to allow actual adjustment towards the differences in the of working capital position between the assesseee and the entrepreneurial companies selected as comparable . We direct the TPO to follow this decision. Non providing appropriate risk adjustment - assessee is a captive contract IT enabled service provider to its AEs. - HELD THAT:- In the case of Chryscapital Investment Advisors (India) Pvt. Ltd. Vs DCIT [2015 (4) TMI 949 - DELHI HIGH COURT], wherein held that appropriate adjustments should be carried out in situations where there are differences between the tested parties and comparables and in case such differences per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds of functional dissimilarity and application of certain quantitative filters. The DCIT vide his order giving effect to the DRP directions determined the final TP adjustment at ₹ 133,512,120/-. Aggrieved against that order, the assessee filed this appeal with following grounds : 03. The AR did not press grounds nos 1,2,3 & 3a being general . With regard ground no 3b & 5, he pressed for the inclusion of R systems international Ltd alone. He submitted that the DRP excluded this company on the ground that the financial year ending is different and argued as under : "The Appellant had selected R Systems as a comparable company since it is functionally comparable. The learned TPO had selected R Systems as a comparable company in the transfer pricing order for the assessment year ("AY") 2006-07, 2007-08 and 2008-09. Further, in this regard, the Appellant would like to submit that the data for the relevant financial year for the company can be derived from the audited quarterly data available on the website and hence the same can be considered for the purpose of comparability analysis. Further, in this regard, reliance may be placed on the recent judgement in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods, the purpose of comparables would be served. The question in each case is whether despite the financial years of the assessee and of the other enterprise being different, the financials of the corresponding period of each of them are available. If they are, the TPO must refer to the corresponding period of both the entities in determining whether the two are comparable or not for the purpose of determining the ALP. We are, therefore, entirely in agreement with the decision of the Tribunal that if the data relating to the financial year in which the international transaction has been entered into is directly available from the annual accounts of that comparable, then it cannot be held as not passing the test of sub-rule(4) of rule 10B." Further the Appellant would like to rely on the Delhi Tribunal judgement in the case of Ameriprise India Private Limited vs. ACIT (ITA No. 7014/De/2014) wherein it was held that company having different financial year can be considered as a comparable if the extrapolation of rest three months data is available. The extract from the case is given below: "14.3 We note that in the immediately preceding year, this Company was considered by Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .39%, has to be rejected for the reason that it is not functionally comparable and fails export earning filter. The detailed written submissions made in this regard are extracted as under : We heard the rival submissions and find that the assessee has made out a case, supra, and hence direct the TPO to exclude the above comparables. 05. The AR did not press ground nos 4,6,10. 06. The next ground pertains to ground no 7 ie the A O/ DRP not considering provision for bad and doubtful debts as non-operating in nature. In this regard, it is submitted that the provision for doubtful debts fit the description of "operating items" associated with the rendering of services and should be considered as part of the operating costs and relied in case of Techbooks International Pvt. Ltd. Vs. DCIT [ITA No.240/Del/2015]. In this regard, relevant extract of said judgment is provided below: "Both the provision for bad debts as well as doubtful advances are in the realm of the operations of the business. It is not the case of the either side that the assessee made any excess provision. In our considered opinion, the same has been rightly taken as an item of operating expense of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble Court has held that appropriate adjustments should be carried out in situations where there are differences between the tested parties and comparables and in case such differences perceptible in the comparables cannot be eliminated on account of adjustments or otherwise, then such comparables have to be rejected. We heard the rival submissions and find that the assessee has made out a case, supra, and hence direct the TPO to make appropriate risk adjustment. 09. The ground no 11 is in not providing appropriate depreciation adjustment ie depreciation adjustment on account of difference in the rates of depreciation of the assessee vis- à-vis comparable companies : In this regard, the assessee depreciates its assets at a higher rate than the rates prescribed by Schedule XIV of the Companies Act, 1956. However, most of the comparable companies considered by the TPO follow rates as prescribed under Companies Act, 1956, thereby charging a lower rate of depreciation. Therefore, it seeks an adjustment on account of differential in the rates of depreciation charged by the Appellant viz-a-vis comparables. When applying the arm's length principle, the conditions of a contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable companies. In our view, the request of the assessee is proper and deserves to be accepted in the light of the decision of the Pune Bench cited by the Id. counsel for the assessee supra. We accordingly direct the TPO to allow appropriate adjustments while working out the margins of the assessee as well as comparable cases." Thus, it is submitted that the OP / TC margin of TPO comparables (post factoring the impact of depreciation as per the assessee's rate of depreciation) as under: (The computation of the depreciation adjustment for the comparable companies are attached as Appendix A) Based on the above table, it submitted that the arithmetic mean OP/ TC margin (post factoring the impact of depreciation) of the comparable companies considered by the TPO is 22.80% which falls within the + / -5% range of the OP / TC margin of 17.63% (as computed by the TPO) earned by the assessee during the FY 2009-10. Accordingly, the prices of international transactions of the assessee in relation to provision of IT enabled services comply with the Arm's Length standard prescribed under the Indian Regulations. We have considered the rival submissions. We find merit in the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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