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TMI Blog2019 (12) TMI 1557X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessee by considering provision for service tax written back as part of the operating profit of the Assessee - HELD THAT:- As in the decision rendered in the case of Sony India (P) Ltd. Vs. DCIT [ 2008 (9) TMI 420 - ITAT DELHI-H ] this aspect has been considered and it was held that provisions written back in the P L a/c should be regarded as forming part of the operating profit of the taxpayer. Thus we hold that provision written back should be regarded as part of the revenue of the Assessee while determining PLI. TPO is directed to compute the ALP of the international transaction of rendering of SWD services in the light of the directions contained in this order, after affording the Assessee opportunity of being heard. No other grounds relating to Transfer Pricing adjustment, were pressed for adjudication. Grant of appropriate MAT credit - HELD THAT:- The issue has been dealt with by the DRP by directing the AO to allow MAT credit, if available, according to the provisions of Sec.115JAA of the Act. We are of the view that the said directions are proper and we direct the AO to allow MAT credit as per the directions of the DRP. X X X X Extracts X X X X X X X X Extracts X X X X ..... lytics Ltd. 17.24 4. Infosys Ltd. 43.10 5. Larsen & Toubro Infotech Ltd. 25.47 6. Mindtree Ltd. 15.01 7. Persistent Systems Ltd. 27.20 8. RS Software (India) Ltd. 15.34 9. Sasken Communication Technologies Ltd. 12.15 10. Spry Resources India Pvt. Ltd. 26.18 AVERAGE MARK-UP 22.63 4. Based on the above average arithmetic mean of profit margin of the comparable companies, the TPO computed the ALP of the international transaction of rendering of SWD services by the Assessee to its holding company as follows:- Computation of arm's length price by the TPO and adjustment made: Arm's Length Mean Mark-up 22.63% Less: Working Capital Adjustment 2.57% Adjusted mean mark-up of the comparables 20.06% Operating Cost ₹ 121,19,54,144 Arm's Length Price - 120.06% of Operating Cost ₹ 145,50,72,145 Price Received ₹ 131,23,18,343 Shortfall being adjustment u/s. 92CA ₹ 14,27,53,802 Arm's Length Mean Mark-up 22.63% Less: Working Capital Adjustment 2.57% Adjusted mean mark-up of the comparables 20.06% Operating Cost ₹ 121,19,54,144 Arm's Length Price - 120.06% of Operating Cost ₹ 145,50,72,145 Price Received S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessee and accepted by the TPO was altered by the TPO by not considering the reversal of provision for service tax as operating income. 8. The learned counsel for the brought to our notice a decision of the ITAT Bangalore Bench in the case of CGI Information Systems & Management Consultants Private Ltd., Vs. ACIT IT(TP) A.No.183/Bang/2017 for AY 2012-13 order dated 11.4.2018 wherein 4 out of the aforesaid five comparable companies viz., (a) Genesys International Corpn.Ltd., (b) Infosys Ltd., (c ) Larsen and Toubro Infotech Ltd., and ( d) Persistent Systems Ltd. were excluded by the ITAT. The functional profile of the Assessee in this appeal and that of the Assessee in the decision cited by the learned counsel for the Assessee is the same. The following were the relevant observations of the Tribunal:- "28. The learned counsel for the Assessee submitted before us that the comparability of the 3 companies out of the aforesaid 4 companies which the Assessee seeks to exclude from the list of comparable companies chosen by the TPO viz., Infosys Ltd., Larsen & Toubro Infotech Ltd. and Persistent Systems Ltd., were considered by the ITAT Delhi Bench in the case of Agilis Infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the Delhi Bench of ITAT in the case of Saxo India (P) Ltd. Vs. ACIT (2016) 67 taxmann.com 155 (Del-Tri). The discussion is contained in paragraphs 4.8 to 4.10 of the Tribunal's order. The Tribunal held that L & T Infotech Ltd., was a software product company and segmental information on SWD services was not available. The Tribunal also noticed that the appeal filed by the revenue against the tribunal's order was dismissed by the Hon'ble Delhi High Court in ITA No.682/2016. (c) Persistent Systems Ltd., was excluded from the list of comparable companies on the ground that this company was a software product company and segmental information on SWD services was not available. The Tribunal in coming to the above conclusion referred to the decision rendered by ITAT Delhi Bench in the case of Cash Edge India Pvt.Ltd. Vs. ITO ITA No.64/Del/2015 order dated 23.9.2015 and the decision of Hon'ble Delhi High Court in the case of Saxo India Pvt.Ltd. (supra). The findings in this regard are contained in Paragraphs 4.14 to 4.16 of its order. 30. Respectfully following the decision of the Tribunal we hold that the aforesaid 3 companies be excluded from the final list of compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces and operates a few development centres in India. The company is predominantly into software development services. The intangibles in the possession f the company are only the GIS database which is only depreciation. It does not add significant value to the company. 33. The objections as put forth before the TPO were reiterated before the DRP. The DRP in paragraph 6.2.2 & 6.2.3 of its directions dealt with this issue as follows: "6.2.2. The functions of the Assessee company have been examined in detail. A financial product on which the settlement system of bank runs is a real time system. It is very complex. Any bug or problem in it can crash the entire banking system of several nations. The Assessee's claim of providing only basis software services is rejected. 6.2.3. The Panel holds that the software for financial product is much more complex than a geospatial software. Therefore, the panel holds that the Genesys is a valid comparable." 34. The learned counsel for the Assessee submitted that the DRP has completely proceeded on wrong facts which does not either emanate from the order of the TPO or the submissions of the Assessee. He reiterated submissions made before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcluded by the DRP on the ground of functional comparability. Besides the above, the related party transaction in the case of the aforesaid company was more than 25% as is evident from page 1129 & 1130 of Assessee's paper book containing the financial statement of this company from capitaline database, which details are extracted at page 863 of Assessee's paper book which is objections filed by the Assessee before the DRP. In the circumstances, this company has to be excluded from the list of comparable companies. We hold accordingly. 11. As far as the request of the Assessee to compute the PLI of the Assessee by considering provision for service tax written back as part of the operating profit of the Assessee, the factual details are as follows: "Assessee's Margin for Software Development Segment Particulars Amount (INR) Total Operating Revenue 1,31,24,45,359 Add: Forex Gain considered as operating pursuant to DRP direction 2,94,35,226 Revised Total Operating Revenue 1,34,18,80,585 Operating Cost 1,21,19,54,144 Less: Reversal of provision for Service Tax (Note 1) 2,20,57,615 Revised Total Operating Cost 1,18,98,96,529 Operating Margins 15,19,84,056 OP/OC 12.77 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by it in the financial year and, therefore, a large number of business liabilities (manufacturing included) are provided in the accounts of a given year. It is elementary that there is no difference between actual disbursement of an expenditure or provision thereof. However, recovery of liability provided may become barred by limitation or for some other reasons, liability gets unenforceable or is reduced or ceases to exist with the passage of time. Therefore, it may be necessary to write back such a liability. But, it cannot follow that the liability was not expenditure of business or operating expense. Cessation of a liability is a taxable income under s. 41 of the IT Act. The underlying principle behind above provision is that Revenue takes back a benefit which it granted earlier, but which, due to subsequent events or changed circumstances should be charged to tax as "income". Statutory provision overrides general understanding that mere creation of a benefit to a taxpayer by admission or cessation of a debt or a liability should not result in an income. Thus, creation of unpaid liability and its write back is a normal incident of a business operation which is carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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