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TMI Blog2023 (4) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... on 31/03/2016, its export turnover of Rs.1316,67,746/- worked out to 56.84% of total turnover of Rs.2316,46,376/-. Yet another argument advanced that there is no sanctity of applying 75% is concerned, we find that the Hon ble High Court in the case of Pr. Commissioner of Income Tax vs. Convergys India Services Pvt. Ltd., in 142 taxmann.com 276 (Delhi) has already approved the applicability of 75% export filter. Apparently this is done primarily to exclude predominantly domestic companies which cannot be compared with the companies having major earning from exports. This is because economic circumstances of such companies would be different which is also recognised by Rule 10B(2) of the Income Tax Rules 1962. Thus we hold that the ld.TPO /ld. AO was justified in excluding TVS Infotech Ltd. from the list of comparables chosen by the assessee. TPO is directed to re-work the arm s length price of international transaction in view of the aforesaid observations. Accordingly, the ground No. 1 raised by the assessee is partly allowed for statistical purposes. - ITA No.1426/Mum/2021 - - - Dated:- 20-1-2023 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI, M.BALAGANESH, ACCOUNTANT MEMB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. TVS Infotech 3.18 6. R Systems International Ltd. 25.51 Median 12.00 35th Percentile 9.01 65th Percentile 15.00 3.1. The assessee concluded that since NCP of assessee of 15.04% is higher than the median of the data set i.e. 12%, its transaction was concluded to be at arm s length. Since the turn over of the assessee from provision of software development services was from export activity, the ld. TPO observed that assessee ought to have used a filter in respect of export revenue more than 75% of sales. He also observed that profit margins of companies engaged in domestic sales and those engaged in export sales would be different together with the level of computation prevailing thereon. The final set of comparables chosen by the Revenue pursuant to the directions of the ld. DRP are as under:- Sr. No. Name of Comparable OP/OC (i) CG-VAK Software and Exports Ltd. 14.05% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion for Doubtful Debts: The Company evaluates all customer dues for collectability. The need for provisions is assessed based on various factors including collectability, present market indicators pertaining to the relevant country which could affect the ability to settle. Provisions are made for debtor dues exceeding one year or longer from the date of invoice as at the date of the balance sheet. The company pursues all recovery of dues irrespective of provisions made. 3.6. Based on this note, the ld. DR vehemently argued that the said comparable had been making provision for doubtful debts only in respect of dues exceeding one year or longer from the date of invoice as on the date of balance sheet. Hence, it goes to prove that provision for doubtful debts has been made in respect of sales made in earlier years and accordingly, the said provision does not relate or pertain to the operating results of the year. Hence, the ld. TPO was justified in excluding the provision for doubtful debts as non-operational expenses while working out the margins of this comparable. He also placed reliance on the decision of Chennai Tribunal in the case of Doowon Automotive Systems India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies in the list of comparables, now we proceed to determine the correctness of the profit margin of two comparables, namely, CG-VAK Software and Exports Ltd. and Exilant Technologies Ltd. 35. The assessee has not disputed the per se inclusion of these two companies in the list of comparables. The only quarrel is on the computation of their OP/OC. To be precise, the question is about the treatment given by the authorities below to the Provision for bad and doubtful debts as non-operating. The TPO while calculating the profit margin of CG VAK Software and Exports Ltd., reduced the amount of Provision for bad debts at Rs.39,97,218/- from total expenses for working out the OP/OC at 18.40%. The view point of the assessee is that the Provision for bad and doubtful debts ought not have been reduced from operating expenses. 36. We have gone through the Annual report of this company whose copy has been provided on behalf of the assessee. It can be seen from the 'Expenditure' under the head Operating and other expenses at Rs.1.87 crore that there is an item of Provision for doubtful debts at Rs.39,97,218/- included in it. The provision for doubtful debts has a dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... economies of scale and volume of operations. Hence, based on one of the parameters of FAR analysis i.e. assets employed, we hold that this comparable would not be a good comparable with that of the assessee company. Hence, the ld. TPO / AO is directed to exclude the same from the final set of comparables while re-working the ALP of the international transaction. (c) Inclusion of Sasken Communications and Technologies Ltd. and TVS Infotech Ltd. 3.9. From the perusal of the financial statements of the assessee as on 31/03/2016, we find that assessee had shown receipts from software development charges (exports) in the sum of Rs.18,48,64,844/- in its profit and loss account. From the related party transactions disclosed by the assessee in the financial statements in accordance with Accounting Standard-18 issued by the Institute of Chartered Accountants of India (ICAI), we find that assessee had shown the very same software development service charges of Rs. 18,48,64,844/- to have received from its AE i.e. Zedo Inc. This goes to prove that the entire Revenue from software development services had arose to the assessee from exports. In this scenario, there is absolutely nothin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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