Turnover filter excludes comparables over Rs200 crore; AMP not a separate international transaction; section 43B limits PF/ESI deduction

ITAT BENGALURU - AT upheld that comparables with current-year turnover above Rs.200 crore must be excluded under the turnover filter; the transfer-pricing adjustment for AMP expenses is deleted, holding AMP not a separate international transaction where trading-segment margins were not rejected; and the assessees' challenge to disallowance of employer contributions to PF/ESI was dismissed, applying the SC precedent that such contributions are allowable under section 43B only if remitted by the statutory due date under the relevant welfare legislation.

---

---

Issues Involved:
1. Transfer Pricing (TP) adjustment of Software Development Segment (SWD)
2. TP adjustment on Advertisement and Publicity (AMP) expenses
3. Disallowance of Employee's contribution to Provident Fund (PF)
4. Interest under Section 234C

Detailed Analysis:

1. TP Adjustment of Software Development Segment (SWD):
The assessee, engaged in software development services and trading in mobile phones, filed its return of income declaring a total income of Rs.173,06,46,940/-. The case was selected for scrutiny, and the AO made TP adjustments in the software development segment amounting to Rs.8,08,69,270/-. The assessee's financials showed an operating profit margin of 15.22%, which the TPO rejected, applying new filters and selecting comparables with a median margin of 23.60%, resulting in a TP adjustment. The DRP provided partial relief, reducing the adjustment to Rs.5,65,59,250/-. The Tribunal, following the decision in Autodesk India Pvt. Ltd., upheld the application of the upper turnover filter of Rs.200 crores, excluding comparables with turnovers exceeding this limit. Consequently, the TP adjustment in the SWD segment was deleted as the assessee's margin fell within the acceptable range.

2. TP Adjustment on AMP Expenses:
The TPO considered the AMP expenses incurred by the assessee as a separate international transaction, making a TP adjustment of Rs.447,46,17,651/-. The DRP upheld this adjustment, agreeing with the TPO's application of the Residual Profit Split Method (RPSM) and the Bright Line test method. The assessee contended that AMP expenses were part of the operating cost of the trading segment, and no separate adjustment was warranted. The Tribunal, following the decision in the assessee's own case for AY 2017-18, held that AMP expenses could not be treated as a separate international transaction when the TPO had not rejected the trading segment margins. Hence, the TP adjustment on AMP expenses was deleted.

3. Disallowance of Employee's Contribution to PF:
The AO disallowed Rs.28,12,365/- in respect of the employer's contribution to PF, as the payment was made beyond the due date. The Tribunal, following the Supreme Court's decision in Checkmate Services (P.) Ltd. vs. CIT-1, held that employee's contributions to PF must be remitted before the due date under the relevant employee welfare legislation for the same to be allowable under Section 43B. Therefore, the disallowance was upheld.

4. Interest under Section 234C:
The issue of interest under Section 234C was not specifically addressed in the judgment provided.

Conclusion:
The appeal filed by the assessee was partly allowed, with the TP adjustments in the software development segment and AMP expenses being deleted, while the disallowance of the employee's contribution to PF was upheld.

---