2022 (7) TMI 1400 - AT - Income Tax

Assessee's Appeal Partly Allowed with Specific Directions for Turnover, Exclusions, and Depreciation Recomputation

Altimetrix India Pvt. Ltd Versus The Assessing Officer, National e-Assessment Centre, Delhi.

Altimetrix India Pvt. Ltd Versus The Assessing Officer, National e-Assessment Centre, Delhi. - TMI Issues Involved:1. Turnover Filter2. Exclusion of Companies3. Inclusion of Companies4. Working Capital Adjustment5. Interest on Receivables6. Disallowance of Depreciation on GoodwillDetailed Analysis:1. Turnover Filter:The assessee contended that the turnover filter should have an upper limit which was not applied by the TPO. The Tribunal referenced the decision in BORQS Software Solutions P. Ltd. v. ITO, where it was held that the application of the turnover filter is justified based on the classification of companies. The Tribunal directed the AO/TPO to apply the appropriate upper turnover filter and exclude seven companies having turnover in excess of Rs.200 crores, including Larsen and Toubro Infotech Limited and Infosys Limited.2. Exclusion of Companies:The assessee sought exclusion of Inteq Software Ltd. based on the RPT filter for AY 2014-15. The Tribunal, following the decision in BORQS Software Solutions P. Ltd., directed that the margins of Inteq Software Ltd. for FY 2013-14 should not be considered. Similarly, Infobeans Technologies Ltd. was sought to be excluded for being functionally not comparable for AY 2015-16. The Tribunal directed the AO to exclude the margin for AY 2015-16 while arriving at the 3-year average profit of Infobeans Technologies Ltd.3. Inclusion of Companies:The Tribunal did not specifically address any additional companies for inclusion in the comparables set in the provided text.4. Working Capital Adjustment:The TPO did not allow any adjustment on the working capital, which was upheld by the DRP. The Tribunal referenced the decision in Huawei Technologies India (P) Ltd. v. JCIT, which held that working capital adjustment should be allowed as per actuals. The Tribunal directed the AO/TPO to consider the working capital adjustment in light of the ruling and allow appropriate adjustment in arriving at an arm's length price.5. Interest on Receivables:The TPO treated outstanding receivables from AE as a loan facility and imputed interest, which was upheld by the DRP, resulting in an enhancement of TP adjustment. The assessee contended that outstanding receivables should not be treated as a separate international transaction. The Tribunal referenced the decision in Barracuda Networks India Pvt. Ltd., holding that interest on receivables is a separate international transaction requiring separate benchmarking. The Tribunal remitted the issue to the TPO for fresh examination, considering that the payables from AE were more than the receivables.6. Disallowance of Depreciation on Goodwill:The AO disallowed the depreciation claimed on goodwill, which was upheld by the DRP. The Tribunal referenced its own decision in the assessee's case for AY 2015-16, which allowed the claim of depreciation on goodwill in accordance with the Supreme Court ruling in Smifs Securities Ltd. The Tribunal directed the AO to recompute the depreciation on goodwill with similar directions as in AY 2015-16.Conclusion:The appeal by the assessee was partly allowed, with specific directions provided for each issue. The Tribunal's decisions were based on precedents and detailed analysis of the facts presented. The AO/TPO was directed to apply the appropriate filters, consider working capital adjustments, and recompute depreciation on goodwill as per established legal principles.