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TMI Blog2020 (9) TMI 918X X X X Extracts X X X X X X X X Extracts X X X X ..... are and Development Services Segment. In order to carry out the TP study, it is relevant to determine the operating margin of the segment before it can be compared with other comparative companies. The assessee has arrived the margin of the R D segment at 12% by allocating the unallocated expenses without proper basis. When we allocate the unallocated expenses in the operating revenue basis, we will know the exact operating profit from the segment and then the TP analysis can be carried out based on the updated segment results. Accordingly, we are directing AO/TPO to calculate the updated segment results and do TP adjustment. Accordingly, the ground raised by the assessee is partly allowed. Foreign exchange fluctuation - difference in the exchange rate on the date of raising of invoices and exchange rate on the date of realization of invoice - assessee submitted that it used to raise the invoices for services rendered in USD equivalent to Indian rupees recorded in its books of accounts - HELD THAT:- Forex loss reported by the assessee in segment reporting as operating expenditure and since assessee has surrendered the same in income tax computation, the same has to be eliminated fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is a part of Symantec Group. Assessee is a service provider engaged in providing marketing support services, general and administrative services (reported as technical support services) and software development services to the overseas Symantec Group Entities. The details of international transactions undertaken by the assessee are given below:- Sr. No. Nature of transaction Amount (Rs. Method 1. Provision of marketing support services 54,82,56,061 TNMM using OP/OC as PLI 2. Provision of general and administrative services 4,16,73,240 3. Provision of software development services (R & D fees) 11,38,13,387 TNMM using OP/OC as PLI 4. Reimbursement of expenses to AEs 98,06,845 Reimbursement of expenses 5. Recovery of expenses from AEs 43,19,216 Recovery of expenses. 6. TPO observed that assessee benchmarked its international transaction pertaining to software development services rendered to its AEs by using TNMM as the most appropriate method using OP/OC as PLI. Assessee also provided copy of agreement entered between AEs. For the purpose of comparability TP study, assessee's operating margin of 12% from software development services segment is compared wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved with the above order, assessee filed objections before the DRP. After considering the detailed submissions of the assessee DRP accepted the contention of the assessee relating to objection on inclusion of comparable company M/s E-Zest Solutions Limited and accordingly directed the TPO to not to be taken as comparable. DRP rejected all other objections raised by the assessee. Accordingly, AO passed the final assessment order with the TP adjustment of ₹ 1,43,97,187/-. 11. Aggrieved with the above order, assessee is in appeal before us raising 8 grounds of appeal. At the time of hearing, Ld. AR submitted that assessee is pressing ground No. 3 and ground No. 4. All other grounds are not pressed. Accordingly, all other grounds raised by the assessee are dismissed. 12. Before us, Ld AR submitted that assessee is a captive service entity engaged in rendering marketing support and general administrative support services (as technical support services) and software development services to its overseas AEs. The assessee has carried out TP study and benchmarked Arms Length Price. He submitted that no dispute with regard to benchmark and method adopted by the assessee. He submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rabad bench in the case of AMD Research & Development Centre India Private Limited. The copy of the decision is placed at page 668 of the paper book. He also brought to notice other decisions of ITAT Mumbai benches and prayed that this company should be deleted as a comparable company to the assessee. 14. With regard to ground No. 4, Ld AR submitted that assessee has claimed amortization of goodwill during this year to the extent of ₹ 45,51,139/- (refer page 17 of the paper book) and brought to our notice the fixed assets schedule as per Companies Act and page 192 of the paper book, which is computation statement, in which assessee has disallowed the total depreciation/amortization claimed as per Companies Act and claimed depreciation as per section 32(1) of the Act excluding amortization of goodwill. The depreciation schedule as per Income Tax Act is placed on record at page 192A of the paper book. He submitted that the goodwill claimed by the assessee as per Companies Act is excluded in the computation statement for the tax purpose. He submitted that when the expenditure is excluded for the purpose of tax, the same cannot be part of arm's length price adjustment. 15. Furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough the transaction between the assessee and its AE falls within the meaning of an international transaction still no adjustment on account of ALP can be made since the assessee has suo moto added the amount while computing its taxable income for the impugned assessment year and no benefit of the same has been taken in either by capitalizing it and claiming depreciation on it or taken benefit in subsequent years. Ld AR submitted that the case before us is similar. Further he brought to our notice page 518 of the paper book, in the case of Pole to Win India Private Limited versus DCIT (IT (TP) A No. 1275/Bang/2010, In the similar situation ITAT Bangalore A bench held that expenses disallowed should be excluded from operating cost is well placed and therefore agree with the assessee's contention that expenses disallowed in computation of taxable income should be excluded from operating cost by relying in the case of Haworth India Private Limited (supra). 17. On the other hand, Ld. DR heavily relied on the orders passed by the revenue authorities and DRP. 18. Considered the rival submissions and material placed on record. We noticed that in order to include Infosys as a comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75,90,873/-. However, while doing the analysis of segmental margin, which is placed at page 165 of the paper book. The assessee has reworked the segmental margin and arrived at the operating profit at 12%. In this study assessee has reported segmental profits as per the schedule 28 reported above that segmental profit at ₹ 75,90,873/- for the software developments services and it has reduced the unallocated expenses from profit and loss account to segmental expenses to the extent of ₹ 46,03,418/- (it includes amortisation of goodwill of ₹ 45,51,139/-). As per the note 1 given in the analysis sheet, it states that "unallocated expenses are allocated in the ratio of segmental revenue". We noticed that assessee has allocated the unallocated expenses of ₹ 48,99,687/- between the segments as ₹ 2,96,267/- in marketing support segment and ₹ 46,03,418/- in software development segment. But the note declares that it is allocated based on segmental revenue. 20. With regard to calculation of segmental results, we are in agreement with the submissions of the Ld AR that the segmental results can be determined only with operating income and operating expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned AR submitted that assessee is pressing the ground No. 4 and 5 only and rest of the grounds are not pressed. Accordingly, the ground No. is 1, 2, 3, 6 to 11 are dismissed as not pressed. 23. With regard to ground No. 4, we noticed that the ground No. 4 is similar to the ground No. 4 argued by Ld. AR for the assessment year 2011 - 12. The facts and issue are similar except during this assessment year the assessee has reported amortisation of goodwill of ₹ 68.27 lakhs and achieved segmental revenue to total operating revenue of 25.96% compared to previous year ratio of 14.85%. Since the facts and issues are similar to the previous year, we direct TPO/AO to follow the direction as per para no 21 above. Accordingly, the grounds raised by the assessee is partly allowed. 24. With regard to ground No. 5, we noticed that during assessment proceedings, the assessee submitted that it used to raise the invoices for services rendered in USD equivalent to Indian rupees recorded in its books of accounts. The overseas Symantec Group Entities made payments to the assessee company in USD equivalent to Indian rupees. Since the invoices were raised in USD, the assessee followed the practic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, brought to the notice of assessing officer, the above defect, accordingly the assessing officer passed the order under section 154 rectifying the above mistake. 25. The assessee filed objection before the DRP that assessee has voluntarily offered the foreign-exchange loss while filing revised return of income, therefore the segmental result originally filed by the assessee has to be modified since assessee has offered this loss of foreign exchange during assessment proceedings and it requested that the operating expense has to be reduced to the extent of foreign exchange loss declared in segmental results. The DRP rejected the contention of the assessee and retained the transfer pricing adjustment made by the TPO. Aggrieved with the above order, assessee is in appeal before us rising the ground No. 5 that inappropriately denying reduction of foreign exchange loss from operating cost of the assessee. 26. The learned AR brought to our notice page 21 of the paper book in which assessee has claimed foreign exchange fluctuation loss (net) of ₹ 224.71 lakhs and he brought to notice segmental reporting in which assessee has apportioned the forex loss between sales and m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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