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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 ..... arables adopting TNMM as the most appropriate method. The TPO rejected its TP study, conducted a fresh one, retained 4 comparables chosen by the assessee, introduced 4 new comparables, adopted TNMM, arrived the net margin at 29.17%, after adjusting for working capital arrived the adjusted margin at 28.32 and determined the shortfall at Rs. 12,50,87,839/-. The assessee filed its objections before the DRP. The DRP directed the TPO to exclude certain comparables from the final set on grounds 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 Rs. 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 Syste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 101 of 2015 (O&M) wherein the High Court held as follows- "We are unable to agree with the decision of the TPO and of the DRP that affirmed it. The view taken by the Tribunal commends itself to us. It is not the financial year per se that is relevant. Even if the financial years of the assessee and of another enterprise are different, it would make no difference. If it is possible to determine the value of the transactions during the corresponding periods, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellectual Property rights (Approx.57% of the net fixed assets) * Extraordinary events during the year * No segmental data available. 2. Fortune Infotech Ltd, with unadjusted margin of 22.80%, has to be rejected for the following reasons : * Functionally not comparable : Product development company * Presence of Intellectual Property rights (Approx.57% of the net fixed assets) * RPT of more than 25%. 3. ICRA Online Ltd, with unadjusted margin of 43.39%, 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustments are also mandated by the Tribunal: * Sony India (P) Limited [114 lTD 448] * E-Gain Communication Pvt. Ltd. [118 lTD 243] * Mentor Ruling * Motorola Solutions India Private Limited vs ACIT [ITA No. 5637/Del/2011] Further, in addition to the above rulings, the principle has also been upheld by the recent High Court ruling in the case of Chryscapital Investment Advisors (India) Pvt. Ltd. Vs DCIT [ITA 41712014], wherein the Hon'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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Tribunal in the case of Egain Communications Pvt. Ltd. v. /TO (2008) TIOL 282, ITAT, Pune, wherein it was held that proper adjustment has to be given where the rates of depreciation adopted by the tested party and the comparable companies are different xxx....xxx....xxx 14. Before us, the limited request of the Id. counsel for the assessee is to allow proper adjustments on account of rates of depreciation adopted by the comparable 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 compan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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