TaxTMI 
TaxTMI 
2020 (4) TMI 319
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....ase are as under: 2. Assessee is a company and is engaged in business of software development and filed its return of income for year under consideration on 30/11/11 declaring income of Rs. 18,38, 27,713/-. Return was processed under section 143 (1) of the Act and statutory notices under section 143 (2) along with questionnaire was issued to assessee. 2.1. Ld.AO observed that, assessee had international transactions with its associated enterprises for more than Rs. 15 crores. Accordingly, reference to Ld.TPO was made for determination of correct arms length price. 2.2. On receipt of reference, Ld.TPO called for economic details of international transaction entered into by assessee with its associated enterprises. As per TP docum....
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.... Savan Technologies Ltd 12.80% 18. Thinksoft Global Services Ltd 6.64% 19. Thirdware Solutions Ltd 16.29% 20. Zylog Systems Ltd. 12.08% 21. Sasken Communications Ltd. 19.09% 22. Evoke Technologies Pvt. Ltd. 16.61% Arithmetic mean 7.15% As average margin of comparables was 7.15%, assessee held the international transaction to be at arms length. 2.4. Ld.AO rejected most of the comparables selected by assessee by applying various filters and shortlisted following final set of comparables with 13 comparables having an average margin of 22.82%. S.No. Name of Comparables Margine 1. Acropetal Technologies Ltd 31.98% 2. e-zest Solutions 21.03% 3. ....
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....e working capital adjustment restricting it to 1.63%, DRP upheld the same. However, as regards risk adjustment, DRP directed Ld.TPO to provide 1% adjustment to the average margin towards risk differential. DRP further disallowed provision of doubtful advances created by assessee's amounting to Rs. 4,93,66,601/- to be not in accordance with accounting principles. DRP also disallowed sum of Rs. 15,77,76,840/-being provision for doubtful advances (that is provision on service tax refund receivable) created by assessee as not qualifying for expenditure under section 37 of the Act. 4. On receipt of DRP directions, Ld.AO passed final assessment order determining arms length price of international transaction from AE after making adjustment of ....
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....bound to give adjustment based on difference in economic, geographical condition, compared with that of assessee in actual is without any. He has placed reliance upon various decisions of coordinate benches of this Tribunal where, TPO has been directed to provide working capital adjustment by taking actual data, without putting any upper limit. 6.2. Also, Ld.CIT.DR submitted that, DRP while excluding certain comparables did not carry out FAR analysis. She also submitted that DRP provided risk adjustment at 1% on ad hoc basis without having a scientific approach. She submitted that there are various factors that needs to be considered for providing risk adjustment which assessee has to establish in its case having regards to the comparabl....
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....ee do not undertake any key risks. Based upon the above in our view the comparables needs to be revisited. We also note that working capital adjustment has been restricted by Ld.TPO and upheld by DRP at 1.63% which is contrary to provisions of transfer pricing rules. As held by various decisions of coordinate benches of this Tribunal, we direct Ld.TPO to recompute working capital adjustment in actual, and to consider the same for purposes of computing arm's length margin. 7.2. As regards the risk adjustment on ad hoc basis at 1%, it is observed that there is no scientific manner which has been applied by DRP. Assessee is a low risk bearing company and therefore while computing risk adjustment risks assumed by the comparables for earni....