AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (10) TMI 1205
X X X X Extracts X X X X
X X X X Extracts X X X X
....r scrutiny under CASS. A reference was made to the Transfer Pricing Officer (TPO) for determination of the Arm's Length Price (ALP) of the International Transactions the assessee has entered into with the AE. The TPO passed an order dated 29.07.2021 determining a TP adjustment of Rs. 52,16,943/- in respect of the SWD services segment. The draft assessment order dated 27.08.2021 was passed by the AO, in which the aforesaid TP adjustment was incorporated. The AO also proposed the following adjustments to the returned income: a) addition of Rs. 96,23,15,500/- under Section 69 of the Act relating to time deposits; b) Addition of Rs. 64,800/- being employees' contribution to employees welfare fund remitted after the prescribed due date; and c) disallowance of expenses amounting to Rs. 2,14,87,266/-, being 20% of the advertisement and information technology expenses. 3. On objections, the DRP vide its directions dated 06.05.2022 granted marginal relief to the assessee. Consequently, the AO passed the impugned final assessment order dated 30.06.2022, in which the TP adjustment was reworked to Rs. 45,08,087/- and the other adjustments proposed in the draft ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....11. Infobeans Technologies Ltd. 25.85 12. Bhilwara Infotechnology Ltd. 26.45 13. Tata Elxsi Ltd. 27.19 35th Percentile 5.89 Median 8.19 65th Percentile 21.18 8. Since the margin of the assessee is within the range of 35th percentile and 65th percentile of the comparable companies the assessee concluded that the TP margins are within arm's length. 9. Out of the 13 comparables selected by the assessee, the TPO accepted the Infobeans Technologies Ltd. and Tata Elxsi Ltd. and rejected the other companies on application of various filters. The comparables selected by TPO and the median of weighted average of PLIs of the companies are as follows:- Sl. No. Name of the Company weighted average (in %) 1. Infomile Technologies Ltd. 9.69 2. Harbinger Systems Pvt. Ltd. 11.65 3. Exilant Technologies Pvt. Ltd. 17.17 4. Tech Mahindra Ltd. 18.57 5. Larsen & Toubro Infotech Ltd. 18.94 6. Great Software Laboratory Pvt. Ltd. 19.73 7. Elveego Circuits Pvt. Ltd. 20.19 8. Black Pepper Technologies Pvt. Ltd. 20.62 9. Mindtree Ltd. 21.21 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... from the list of comparables as the same fail the turnover filter. (Ground No. 3.5) Ground no.3.5 - Turnover filter 13. Through ground No.3.5, the assessee is seeking exclusion of Exilant Technologies Pvt. Ltd., Tech Mahindra Ltd., Larsen & Toubro Infotech Ltd., Mindtree Ltd., Nihilent Ltd., Persistent Systems Ltd., Wipro Ltd., Tata Elxsi Ltd., Thirdware Solutions Ltd., Infosys Ltd. and Cybage Software Pvt. Ltd. from the list of comparables on the basis that these companies fail the turnover filter. 14. The ld. AR submitted that the TPO erred in not applying a cap on upper limit on the turnover/service revenue while selecting the companies comparable to the Assessee. In this regard, it is submitted that application of turnover filter is a relevant criterion in choosing comparable companies. The difference in the scale of operations has a direct impact on the profitability. The concept of economies of scale wherein, an increase in the size and scale of the operations leads to a decrease in the long run average cost of each unit or each service project delivered. Therefore, the per unit fixed cost of a small-scale company would be much higher than that of a medium/large siz....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as ea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lutions Ltd., 204.38 10 Infosys Ltd. and 61941.00 11 Cybage Software Pvt. Ltd. 731.16 18. Considering the facts and respectfully following the decision of the coordinate bench of the Tribunal in the case of Autodesk India Pvt Ltd., (supra) we hold that the companies whose turnover in the current year is more than Rs.200 crores should be excluded from the list of comparable companies. Ground no.3.5 - Inclusion of Isummations Technologies Ltd. and Yudiz Solutions Pvt. Ltd. Isummations Technologies Ltd 19. The ld. AR submitted that Isummations Technologies Ltd was selected by the assessee and the company is functionally comparable since the company passes all the filters applied by the TPO. The TPO rejected the company on the ground that it fails positive net worth filter and export earnings filter. It is also submitted that the DRP, while rightly held that the company's export earnings constituting 99.63% of total revenue, the company passes the filter, erroneously concluded by holding that the company fails the said filter. The ld AR further submitted that the company passes the export earnings filter and that, the company's net worth stands ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 23. We heard the ld DR. On perusal of the financials of the company (page 785 of Paper Book) it is noticed that the export turnover of the company is Rs.5,22,89,062 against the total turnover of Rs.5,55,40,238 which is around 94.15% that clearly indicates that the company would pass the export turnover filter of >75%. Further the company is functionally comparable to the assessee. The coordinate bench of the Tribunal in the case Prism Networks (supra) has considered the issue exclusion of a comparable company since the same is not featuring in the search matrix of the TPO and held that - 18. We heard the rival submissions. It is clear from the order of the DRP that the DRP has not considered the plea of the Assessee in proper perspective. The fact that the TPO rejected the TP study of the Assessee cannot be the basis not to consider the claim of the Assessee for inclusion of comparable companies. The TPO excluded these companies only on the ground that information related to these companies was not available in the public domain and this fact was shown to be an incorrect assumption by the Assessee in the submissions before the DRP. In such circumstances, it was incumbent....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... statement all deposits that were live as on 31st March 2018 were accounted for disclosed appropriately. (v) The discrepancy between the financial statements and Form 26AS is on account of the recording of the deposits twice over (original and renewed) in Form 26AS. 28. The ld AR filed ledger extracts of Yes Bank and RBL Bank and confirmation from the said Banks as to the balances as on 31st March as additional evidence, in support of its contentions and prayed for the admission of the same. The ld AR also submitted that the details of the deposits (pages 446-452 and 458-468 of the Paper Book) are submitted along with a reconciliation of the deposits made and the entries in Form 26AS before the AO. 29. We have heard the rival submissions and perused the material on record. The additional evidences now produced go the root of the issue and the core reason for making the addition u/s. 69 by the lower authorities. For a proper adjudication of the issue and for substantial cause, the additional evidence is admitted and taken on record. 30. We notice that the assessee is having fixed deposits with RBL Bank Limited, Yes Bank Ltd., and HSBC. On perusal of the statement o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the AO, which he failed to take into consideration. 34. The ld DR submitted that the assessee has not furnished any details before the lower authorities and therefore submitted that in absence of any supporting the lower authorities are justified in making addition. 35. We heard the rival submissions and perused the material on record. The main reason for the adhoc disallowance by the lower authorities is that the assessee did not submit any details or evidences to support the claim that these expenses are incurred for the purpose of business. During the course of hearing, the ld AR submitted that the relevant details are placed at pages 471-473 of the Paper Book and that the same is not examined. In view of this we remit the issue back to the AO with a direction to verify the details and the evidences with regard to the expenses and decide the allowability in accordance with law. The assessee is directed to submit all the relevant details and cooperate with the proceedings. It is ordered accordingly. 36. Ground No. 6: The assessee challenges the action of the AO in disallowing an amount of Rs. 64,800/- being employee's contribution to provident fund remitted after the du....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions - especially second proviso to Section 43B - was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee's income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of "income" amounts that were receipts....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... income, unless the condition that it is deposited on or before the due date, is correct and justified. The nonobstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees' contributions- which are deducted from their income. They are not part of the assessee employer's income, nor are they heads of deduction per se in the form of statutory pay out. They are others' income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in ter....