TaxTMI 
TaxTMI 
TaxTMI 
2020 (11) TMI 220
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....d expense of Rs. 12,26,063/- as deduction u/s 35D as 1/10th of the expense over a period of 10 years instead of 1/5th of the expenses over 5 years. 3. On facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the addition u/s 92C of The Income Tax Act, 1961 of Rs. 8,10,171/- by taxing the margin (c) 13.15% of total cost in relation to transactions with M/s Global Conference Organisers B.V, Netherlands without considering our contention of not to exclude the comparable company Cethar Consultancy Services Pvt. Ltd. while calculating the arm's length price. 4. Without prejudice to above, the Ld. CIT(A) has erred in not excludin g the comparable company M/s. En Pointe Technologies India Pvt. Ltd. while calculating the arm's length price. 5. On facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not making risk adjustment of 2% while computing the arm's length price u/s 92C. 6. Without prejudice to the ground no 3,4 and 5 the Ld. AO has erred in calculating adjustment u/s 92C at 13.15% of the sale turnover i.e. Rs. 94,87,509/- instead of 13.15% of cost i.e. Rs. 90,48,051/- 7. Without prejudice to ground no. 1 ....
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....them as pre-commencement expenses within the meaning of Sec.35D of the Act. Apart from that, it was observed by the A.O that the assessee during the year under consideration had entered into an international transaction with its Associated Enterprise (AE), viz. M/s Global Conference Organizers, B.V, Netherland, in respect of the I.T services rendered to its AE. On a perusal of "Form 3CEB" filed by the assessee company, it was noticed by the A.O that the assessee had provided software outsourcing services exclusively to its parent company viz. M/s Global Conference Organizers, B.V, Netherland, aggregating to Rs. 94,87,508/-. The assessee had benchmarked the aforesaid services under the Transactional Net Margin Method (TNMM). Adopting OP/Sales as the Profit Level Indicator (PLI), the assessee had shown a mark up of 4.85% in respect of the I.T. Services rendered to its AE. For the purpose of benchmarking its international transactions the assessee had adopted 6 comparable companies whose arithmetic mean margin worked out at 7.88%, as under: Sr. No. Final list of comparable from both the data bases OP/TC % 1. Asia H.R. Technologies Ltd. -2.44 2. Cethar Consultancy Services....
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....im of the assessee that the aforesaid company had made a profit during the year under consideration, it was observed by the A.O that the assessee while so concluding had considered write off (bad debts) as a non-operating expense. Observing, that the write off (bad debts) could not be considered as a non- operating expense as incurring of bad debts was a regular routine expenses in any business, the A.O declined to subscribe to the said claim of the assessee. It was observed by the A.O that after claiming the write off (bad debts) as an operating expense, the margin of the aforesaid comparable company turned out to be negative. On the basis of his aforesaid observations, the A.O treating M/s Cethar Consultancy Services Pvt. Ltd. as a consistent loss making company excluded it from the final list of comparables. As regards the assessee's claim for working capital adjustment of 2.5% and risk adjustment of 2%, it was observed by the A.O that the assessee had neither in the TP study report nor in its submissions quantified the aforesaid adjustments. Accordingly, the plea of the assessee for working capital adjustment and risk adjustment was rejected by the A.O. Insofar the claim of the....
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....iding software outsourcing services exclusively to its parent company viz. M/s Global Conference Organizers, B.V, Netherland, was incorporated on 20.04.2009 and thus, the year under consideration was its first year of operation. It was submitted by the ld. A.R that the business of the assessee company was set up on 01.05.2009, and prior to entering into an agreement with its parent company viz. M/s Global Conference Organizers, B.V, Netherland, on 01.08.2009, it had during the year interregnum period i.e 20.04.2009 to 31.07.2009 incurred expenses towards directors remuneration, employees salary, lease rentals, professional fees, technical fees and other administration expenses, viz. telephone charges, electricity etc. In the backdrop of the aforesaid facts, it was submitted by the ld. A.R that as the assessee company had "set up" its business, therefore, its claim of expenses incurred wholly and exclusively for the purpose of its business, though prior to the commencement of the business was allowable under Sec. 37(1) of the Act. In support of his aforesaid contention, the ld. A.R had relied on the judgment of the Hon"ble High Court of Delhi in the case of Omnigloble Information Te....
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....ny was functionally comparable and not a perpetual and persistent loss making company, it was, thus, rightly included by the assessee in its TP study report for benchmarking its international transactions. In support of his aforesaid contention the ld. A.R had relied on the judgment of the Hon"ble High Court of Bombay in the case of CIT Vs. Goldman Sachs (I) Securities (P) Ltd. (2016) 69 taxman.com 19 (Bom). Alternatively, it was submitted by the ld. A.R, that now when the A.O had rejected one of the comparable company on the ground that it was a loss making company, therefore, on similar lines he ought to have excluded another comparable, i.e M/s En Pointe Technologies India Pvt. Ltd, for the reason, that the latters margin was substantially highly pitched at 31.18%. In support of his aforesaid contention the ld. A.R had relied on the order of the ITAT, Pune bench in the case of Songaurd Solutions (I) Pvt. Ltd. Vs. ADIT (2016) 68 taxman.com 89 (Pune). In the backdrop of his aforesaid contentions, it was submitted by the ld. A.R that as the international transactions of the assessee company were at arm"s length, therefore, no adjustment was called for in its case. 5. Per contra, t....
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....e Development Services), can safely be held to be the interval between "setting up" of the business and its commencement. In our considered view, all expenses which are incurred by an assessee during the interregnum period between "setting up" of its business and commencement of the business, are permissible as a deduction under Sec. 37 of the Act. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Bombay in the case of CIT Vs. Axis Private Equity Limited [ITA No. 1204 of 2014, dated 30.01.2017]. In its aforesaid order, the Hon"ble High Court relying on its earlier judgment in the case of Western India Vegetables Products Ltd. Vs. CIT(1954) 26 ITR 151 (Bom), had held, that business is said to have been "set up" when it is established and ready to commence. As observed by the High Court, there may be an interval between a business which is "set up" and a business which is commenced. However, all expenses incurred during the interregnum period between "setting up" of business and commencement of business would be permissible deductions. Observing, that the assessee before them had "set up" its business, which, however, was disallowed by the A.O on the ground....
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....ave been "set up" only when the bank account was open by it. On appeal, the Tribunal therein observed, that the business of the assessee was to be taken to have been "set up" when the directors were appointed, regional and branch manager were appointed and their salaries were paid, and computers for carrying on the business were installed. In the case of Styler India (P) Ltd. Vs. JCIT (2008) 116 TTJ 333 (Pune)(TM), the assessee was engaged in service and consultancy sector and was into the business of supplying knowledge and technology to its customers. It was the claim of the assessee that its business was to be taken to have been "set up" when the infrastructure was set up (i.e technical staff was appointed etc), and initially contacts were made with the prospective customers. Rebutting the aforesaid claim of the assessee, the A.O was of the view that the aforesaid activities of the assessee would not be sufficient to bring the business in "ready to commence" position. On appeal, the ld. Third Member concurring with the view taken by the ld. accountant member decided the issue in favour of the assessee. Similarly, in the case before the Hon'ble High Court of Madras in the case of....
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....ng company and thus, excluded the same from the final list of the comparables. As observed by us hereinabove, it is the claim of the ld. A.R that though the aforesaid comparable company had suffered a loss of Rs. (-) 0.1 crore for financial year ending 31.03.2008 and a loss of Rs. (-)0.35 crores for the year ending 31.03.2010, however, it had made profit of (+) Rs. 0.01 crore for the year ending 31.03.2009. It is the claim of the assessee before us that the lower authorities had erred in stamping the aforesaid comparable company as a persistent loss making company for three years. It is in the backdrop of its aforesaid claim, that the ld. A.R had tried to impress upon us that the authorities below were in error in excluding the aforesaid comparable from the final list of comparable companies while benchmarking its international transactions. On the contrary, we find, that the A.O in the assessment order had observed that the difference in the working of the margins had arisen because the assessee had considered write off (bad debts) as a non-operating expense. It was observed by the A.O had that after treating the bad debts as an operational expense, the margin of the aforesaid com....
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....Ltd., for the reason, that it had a high profit margin of 31.18%, we are afraid that the same does not find favour with us. We may herein observe that the aforesaid comparable company i.e M/s En Pointe Technologies India Pvt. Ltd. was selected by the assessee as a comparable in its TP study report for the year under consideration. Apart from that, the said comparable i.e M/s En Pointe Technologies India Pvt. Ltd, cannot be excluded from the final list of comparables on the standalone basis that of its high margin. Admittedly, in case the assessee is able to demonstrate that the higher margin of a company was backed by certain extraordinary events, then, there would be a basis for rejecting the same as a comparable for the purpose of benchmarking the international transactions of the assessee. However, as it is not the case of the assessee that the higher margin of the aforementioned company was due to certain extraordinary circumstances prevailing in its case, therefore, we are unable to concur with the seeking of the exclusion of the said company from the final list of comparables. The Ground of appeal No. 4 is dismissed. 10. We shall now advert to the claim of the assessee that ....