TaxTMI 
TaxTMI 
2018 (8) TMI 1922
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....ts Associated Enterprise (AE). At the time of hearing, the ld. counsel for the assessee submitted that ground No.3 raised by the assessee in its appeal, if adjudicated, would be sufficient and other grounds are not pressed for adjudication. Ground No.3 raised by the assessee in its appeal reads as follows:- "4. Without prejudice, the lower authorities have erred in: a. Rejecting the comparables selected and transfer pricing analysis undertaken by the Assessee on unjustifiable grounds. b. Conducting a fresh transfer pricing analysis despite absence of any defects in the transfer pricing analysis submitted by the Assessee; c. Adopting inappropriate filters like 25% RPT filter etc. in the process of selecting comparables; d. Adopting companies as comparables even though they are not comparable in terms of functions performed, risks assumed, assets utilized, despite unusual business circumstances or high margins etc. e. Ignoring additional comparables proposed during the assessment proceedings. f. Considering provision for doubtful debts as non-operating in nature while computing operating margins; g. Not ....
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....rable companies. The Profit Level Indicator (PLI) chosen for the purpose of comparison of assessee's profit margin with that of the comparable companies was Operating Profit to Operating Cost (OP/OC). The PLI of the assessee was 15.41%. The arithmetic mean of the profit margin of the comparables i.e., PLI of the comparables was 14.12%. Since the profit margin of the assessee was much more than the arithmetic mean of the profit margin of the comparables chosen by the assessee, the assessee claimed that the price received by the assessee in the international transaction has to be considered as at arm's length and no adjustment should be made and consequent addition to be made to the total income on account of determination of ALP. 6. The TPO, to whom the AO made a reference for determination of ALP under the provisions of section 92CA of the Act, did not accept the claim of assessee. The TPO, selected 13 companies as comparables and arrived at the arithmetic mean of the profit margin of these companies before and after working capital adjustments at 24.82% and 24.43% respectively. The TPO thereafter computed the ALP and the consequent addition to be made to the total income in the....
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....LP in the case of the assessee." 8. The assessee had contended before the DRP that proper adjustment on account of assumption of risk by the assessee and the comparable companies should give given. The DRP in its direction held as follows:- "The objection regarding adjustment on account of economic and risk profile has been considered following the decision of the Hon'ble ITAT Bangalore in Intellinet Technologies India Pvt. Ltd. vs ITO (ITA No.1237/Bang/2010). By means of guidance, it is mentioned that in the case of DCIT vs. Hello Soft Pvt. Ltd. (2013) 32 taxmann.com 101 (ITAT, Hyd) 1% adjustment to the average margin was provided towards risk differential. Since the facts of the case remain the same, the TPO is directed to do the needful as above." 9. The assessee had objected to inclusion of 6 companies out of 13 companies chosen by the TPO on the ground that their turnover was more than Rs. 200 crores, whereas the assessee's turnover was only Rs. 14 crores and therefore by applying the turnover filter, these companies should be excluded from the list of comparable companies. This plea of the assessee was accepted by the DRP and accordingly following 6 compa....
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....d decision of the Tribunal, we are of the view that the aforesaid 5 companies should be excluded from the list of comparable companies. 13. The ld. DR, however, pointed out that Persistent Systems & Solutions Ltd. was a comparable chosen by the assessee itself and the assessee did not object to this company chosen as a comparable company before the DRP. This contention was found to be not correct as in the objection of the assessee before the DRP, a specific objection was raised in this regard in para 5.153 to 5.159 of assessee's objections before the DRP. In view of the above, we do not find the objection raised by the ld. DR before us to be of any significance. 14. As far as appeal of revenue is concerned, the submission of the ld. DR before us was that the foreign exchange gain/loss relating to transactions of the relevant previous year alone should be considered and in this regard, the ld. DR placed reliance on 3 decisions of ITAT Bangalore Bench as follows:- (i) Tektronix (India) P. Ltd. v DCIT, IT(TP)A No.293/Bang/2014 dated 27.10.2017. (ii) M/s. Akamai Technologies India Pvt. Ltd. v. DCIT, IT(TP)A No.1122/Bang/2011 dated 08.09.2017. (iii) DCI....
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....is included in the numerator i.e. profit but the relevant turnover is not included in the denominator and therefore, the result will be absurd. Hence, we restore this matter to the file of the A.O. with the direction that the foreign exchange gain should be considered for computing profit percentage for the purpose of ALP if it is in respect of turnover of the present year. But if it is in respect of turnover of the earlier year then the same should not be considered in the operating profit in the present year for the purpose of computing ALP. This submission was also made by the ld. AR of the assessee that such details regarding the year of sale in respect of foreign exchange gain of the comparable may not be available. We feel it proper that either the foreign exchange gain of comparable should not be considered in that situation or such details should be obtained from the respective comparable companies u/s. 133(6) of the IT Act, 1961. Ground no. 12 is allowed for statistical purposes in the terms indicated above." 16. The ld. counsel for the assessee, however, pointed out that the Hon'ble Delhi High Court in the case of Pr. CIT v. Ameriprise India Pvt. Ltd. in ITA No.206/201....
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....s as follows:- "5. The lower authorities have erred in a. Disallowing reimbursement of WAN Link charges and Software licenses (totaling to Rs. 36,10,836/-) u/s. 40(a)(i) on the ground that the Assessee has not deducted TDS as per provisions of section 195; b. Stating that Assessee was obligated to file an application u/s. 195(2) for determination of TDS liability in respect of reimbursements paid to non-resident AE; c. Concluding that the Assessee has no obligation, whatsoever, to reimburse sums to its AEs; and d. Concluding that remittances made by the Assessee cannot be called as "reimbursement" but a "payment" for service rendered. 6. Without prejudice to the above, the lower authorities have erred in not granting deduction u/s. 10A on sum of Rs. 36,10,836 being disallowance u/s. 40(a)(i)." 23. As far as the aforesaid grounds of appeal are concerned, the facts are that the assessee paid WAN link charges and software licenses fees of Rs. 14,24,051 and Rs. 21,86,785 in all totaling Rs. 36,10,836 to nonresidents. According to the AO, assessee was obliged to deduct tax at source u/s. 195 of the Act at the time o....
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....nhanced by the disallowance." 28. In view of the above, we accept ground No.6 of the assessee and direct the AO to allow deduction u/s. 10A of the Act on the amount disallowed u/s. 40(a)(ia) of the Act. In view of the above direction, ground No.5 becomes academic and no adjudication is required in ground No.5. 29. In ground No.7, the assessee has projected the following grievance:- "7. The learned AO has erred in : a. Giving credit for Advance Tax paid only to the extent of Rs. 25,66,655 without appreciating that the Assessee has paid Advance Tax of Rs. 38,65,655/- despite direction by the DRP. b. Without prejudice, the learned AO has erred in not giving MAT credit as per the provisions of section 115JAA of the Act despite direction by the DRP. c. Levying a sum of Rs. 12,92,876/- as interest under section 234B. On the facts and in the circumstances of the case, interest under section 234B is not leviable. Even otherwise interest u/s. 234B is excessive. The appellant submits that each of the above grounds/sub-grounds are independent and without prejudice to one another." 30. We are of the view that as far as ground No.7(a) is concer....