TaxTMI 
TaxTMI 
2017 (5) TMI 1814
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....f working capital adjusted operating margin over operating cost of ICRA Management Consulting Services Ltd. 3. The learned TPO/AO have erred in following an inconsistent approach with respect to treatment of certain expenses as operating/non-operating in the case of comparables vis-a-vis the assessee while computing their operating margins respectively. 4. The learned AO erred in holding that the appellant has furnished inaccurate particulars of income in respect of each item of disallowance/additions and in initiating penalty proceedings under section 271 of the Act. 5. That on the facts and in the circumstances of the case, the Ld. AO has erred in/initiating penalty under section 271 of the Act, as consequences of the addition made in the assessment order passed under section 143(3) read with section 144 of the Act; 6. That on the facts and in the circumstances of the case, the Ld. AO has erred in charging interest under section 244A, 234B and 234D of the Act, as consequences of the additions made in the assessment order passed under section 143(3) read with section 144C of the Act. 2. Ld. Counsel at outset submitted that Ground No. 1 raised....
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....parables finalized by Ld. TPO. Ld. Counsel submitted that rectification application under section 154 of the Act was filed before Ld. DCIT which was disposed of vide order dated 02.02.2017, without granting any relief to assessee. Ld. Counsel submitted that, in the financial report of M/s ICRA Management Consulting Services Pvt. Ltd. trade receivables for the year under consideration as on 31.03.12 was 785.19 lakhs and in the preceding year it was 820.80 lakhs. He placed his reliance upon Schedule 8 in the financials of M/s ICRA , placed at page 420 of paper book which is reproduced herein: 8. Trade receivables (unsecured) over 6 months 6. Ld. Counsel submitted that by excluding the provision for doubtful debts, working capital adjustment of this comparable has been computed at 6.62% by Ld. TPO. He submitted that Ld. TPO, while calculating working capital adjustment has taken trade receivables at nil, because of which OP/OC comes to 6.62%. The computation of working capital as per Ld.TPO is reproduced herein: 8. Ld. Counsel submitted that DRP had accepted contention of assessee and had directed TPO to allow working capital by observing as under: "The TPO is dir....
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.... financial report of M/s. ICRA Management Consulting Services Pvt. Ltd., placed in paper book at page 420. In the result this ground raised by assessee stands allowed for statistical purposes. Ground No. 3 14. Ld. Counsel submitted that Ld. TPO computed net operating margins of two comparable companies, by excluding provision of doubtful debts from operating expenses, the details of which are as under: Name of company Position taken by TPO's while computing operating margin Margin computed by TPO in appeal effect order BVG India Limited Provision for doubtful debts are considered to be non-operating 23.59% Cameo Corporate Services Limited Provision for doubtful debts are considered to be non-operating 4.10% 15. Ld. Counsel referred to computation adopted by Ld.TPO, in the draft order, which has been reproduced hereinbelow: 16. Whereas, Ld. Counsel submitted that after DRP directions, while computing assessee's operating profits, Ld.TPO considered provision for bad debts as operating expenses. He relied upon computation placed at page 401 of paper book read with, break up of other expenses, being schedule 19, forming part of Notes to the financ....
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....on for doubtful debts/advances as operating in the case of the comparables as well." To the facts of the present case also the revenue has not disputed the provision of doubtful debts being excessive in the hands of the assessee for the year under consideration. It is also observed that the DRP had directed Ld.TPO to have consistent treatment in terms of items includable/excludable in non-operative profit, with assessee as well as with comparables which evidently has not been followed by Ld. TPO. Respectfully following the view taken by this Tribunal in the case of Techbooks International Pvt. Ltd., vs DCIT, we direct Ld. TPO to treat provision of doubtful debts in the case of BVG India Ltd and Cameo Corporate Services Ltd., as operating as well. Accordingly, this ground raised by assessee stands allowed. In the result appeal filed by assessee stands allowed. Order pronounced in the open court on 18th May, 2017. ============= Document 1 International Transaction Method Selected aTSPL (Tested party) Comparables Transfer Price (INR) Margin Type of Arm's Within 5 Companies Length Percent of Transfer Margin price Provi....
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.... | 4,545,909,066 1,112,126,361 24.46% 19.66% Revenue from operations Add: other income Total income Less: non operational 792, 039, 600 9, 170, 165 801, 209, 765 9, 170, 165 income Cameo Corporate Services Ltd Interest Income Rental income Exchange gain/loss Operating income Total expenditure 692, 514 8, 164, 873 312, 778 792, 039, 600 769, 525,957 Less: non operational 36, 034, 062 expenses Document 7 Interest and financial 32, 966, 458 charges Provision for bad & 3,067, 604 doubtful debts Operating cost 733,491, 895 Operating profit 58,547, 705 Operating 7.98% profit/operating cost (%) Operating 7.39% profit/operating revenue (%) Document 8 Particulars PO's order/Appeal Effect to DRP Income Service Charges Other income Total income Less:non-operating income Less: provision is no longer required 25, 06, 18, 849 8, 66, 214 25, 14, 85, 063 8, 55, 809 written back Operating income Expenditure Personal expenses 25, 06, 29, 254 14, 08, 60, 742 Document 9 Operating and other Depreciation Tota....