2022 (10) TMI 1205 - AT - Income Tax

Appeal partly allowed, directions for ALP recomputation, verification of evidence, reassessment of expenses. Errors in TPO's approach identified.

MWYN Tech Private Ltd Versus The Income Tax Officer

The Tribunal partly allowed the appeal by directing the Assessing Officer to recompute the Arm's Length Price (ALP), verify additional evidence for the ... TP adjustment - Comparable selection - Application of turnover filter - assessee is seeking exclusion of Exilant Technologies Pvt. Ltd., Tech Mahindra Ltd., Larsen & Toubro Infotech Ltd., Mindtree Ltd., Nihilent Ltd., Persistent Systems Ltd., Wipro Ltd., Tata Elxsi Ltd., Thirdware Solutions Ltd., Infosys Ltd. and Cybage Software Pvt. Ltd. from the list of comparables on the basis that these companies fail the turnover filter - HELD THAT:- Considering the facts and respectfully following the decision of Autodesk India Pvt Ltd.[2018 (7) TMI 1862 - ITAT BANGALORE] we hold that the companies whose turnover in the current year is more than Rs.200 crores should be excluded from the list of comparable companies. Inclusion of Isummations Technologies Ltd. company is functionally comparable to the assessee we hold that Isummations Technologies Ltd be included in the list of comparable companies. Yudiz Solutions Pvt. Ltd rejected by the TPO on the ground that it fails export turnover filter - As noticed that the export turnover of the company is Rs.5,22,89,062 against the total turnover of Rs.5,55,40,238 which is around 94.15% that clearly indicates that the company would pass the export turnover filter of >75%. Further the company is functionally comparable to the assessee. The coordinate bench of the Tribunal in the case Prism Networks [2022 (2) TMI 1296 - ITAT BANGALORE] has considered the issue exclusion of a comparable company since the same is not featuring in the search matrix of the TPO - we remit the issue back to the TPO/AO for a fresh consideration of the comparability of the company after giving the assessee as reasonable opportunity of being heard. Addition u/s 69 - difference between amount of time deposits reported in Form No. 26 and closing balance of time deposits as per balance sheet - HELD THAT:- On perusal of the statement of reconciliation submitted it is also noticed that the assessee is renewing the deposits on maturity either in the same bank or in another one of these three banks. The AO has taken the total SFT transactions as reflected in Form 26AS and has compared the same with the Balance Sheet figure of Deposits as of 31.03.2018 and has made the addition for the differential amount. This in our considered view is not correct comparison since the SFT transactions in Form 26AS reflect the transactions that happened during a period of time whereas the Balance Sheet reflect the status as on the last day of the financial year. Therefore, a direct comparison of these two will not be the right approach. DRP has not analysed the submissions of the assessee that the deposits on maturity were redeposited and that Form 26AS reflects the entire movement. The ld AR submitted the additional evidence with the deposit confirmations from the bank and also submitted a reconciliation between the amount as per Form 26AS and the Balance Sheet. Considering that the lower authorities have not verified the details factually, we remit the issue back to AO for a proper verification of the bank confirmations. Addition being 20% of the ‘Advertisement Payments’ and ‘Information Technology expense’ - AO while holding that the expenses cannot be denied for the business activity, disallowed 20% of the expenses on the ground that the assessee had not furnished certain details, which was affirmed by the DRP - HELD THAT:- During the course of hearing, AR submitted that the relevant details and that the same is not examined. In view of this we remit the issue back to the AO with a direction to verify the details and the evidences with regard to the expenses and decide the allowability in accordance with law. The assessee is directed to submit all the relevant details and cooperate with the proceedings. It is ordered accordingly. Disallowance of employee’s contribution to provident fund remitted after the due date prescribed under the relevant statute, but before the due date for filing of return of income - HELD THAT:- As relying on CHECKMATE SERVICES P. LTD. [2022 (10) TMI 617 - SUPREME COURT] we hold that the employees contribution to PF and ESI should be remitted before the due date as per explanation to section 36(1)(va) i.e., on or before the due date under the relevant employee welfare legislation like PF Act, ESI Act etc., for the same to be otherwise allowable u/s.43B. We therefore see no reason to interfere with the order of the CIT(Appeals). The grounds taken by the assessee on this issue is dismissed. Issues Involved:1. Non-compliance of section 144B.2. Transfer Pricing adjustment of Rs. 45,08,087/-.3. Addition of Rs. 96,23,15,500/- under Section 69 of the Act.4. Disallowance of Rs. 2,14,87,266/- (20% of expenses claimed under Advertisement Payments and Information Technology expense).5. Addition of Rs. 64,800/- being employee's contribution to provident fund deposited after the due date.Detailed Analysis:Non-compliance of Section 144B:The Tribunal did not explicitly address the issue of non-compliance with section 144B in the provided judgment.Transfer Pricing Adjustment:The assessee challenged the transfer pricing adjustment of Rs. 45,08,087/-. The Tribunal examined the comparables used by both the assessee and the Transfer Pricing Officer (TPO). The Tribunal noted that the TPO had rejected several comparables selected by the assessee and included others. The Tribunal found that the TPO erred in not applying an upper turnover filter, which is crucial for comparability. The Tribunal directed the exclusion of companies with turnovers exceeding Rs. 200 crores, following the decision in Autodesk India (P) Ltd. v. DCIT. The Tribunal also included Isummations Technologies Ltd. as a comparable, as it met the export turnover filter and had a positive net worth. However, the comparability of Yudiz Solutions Pvt. Ltd. was remitted back to the TPO/AO for fresh consideration.Addition under Section 69:The AO had added Rs. 96,23,15,500/- as undisclosed income under Section 69 due to discrepancies between Form 26AS and the balance sheet. The assessee argued that the discrepancy was due to automatic renewal of fixed deposits, leading to double counting in Form 26AS. The Tribunal admitted additional evidence, including bank confirmations and reconciliations, and remitted the issue back to the AO for proper verification.Disallowance of Advertisement and IT Expenses:The AO disallowed 20% of the advertisement and IT expenses, amounting to Rs. 2,14,87,266/-, due to lack of supporting details. The Tribunal noted that the assessee had submitted relevant details in the Paper Book, which were not examined by the lower authorities. The issue was remitted back to the AO for verification of the details and evidences.Addition of Employee's Contribution to Provident Fund:The AO disallowed Rs. 64,800/- being employee's contribution to provident fund remitted after the due date prescribed under the relevant statute. The Tribunal upheld the disallowance, citing the Supreme Court's decision in Checkmate Services (P.) Ltd. Vs CIT-1, which held that employees' contributions must be deposited within the due date specified under the relevant welfare legislation.Conclusion:The Tribunal partly allowed the appeal, directing the AO to recompute the ALP, verify the additional evidence for the addition under Section 69, and reassess the disallowance of advertisement and IT expenses. The disallowance of the employee's contribution to the provident fund was upheld.