TaxTMI 
TaxTMI 
2022 (10) TMI 1205
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....ade 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 assessment order were upheld by the DRP. Aggrieved, the assesse....
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....8 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 10. Aptus Software Labs Pvt. Ltd. 22.70 11. Acewin Agriteck Ltd. 24.51 12. Persistent Systems Ltd. 24.98 13. Wipro Ltd. 26.83 14. Tata Elxsi Ltd. 28.24 15. Infobeans Technologies Ltd. 28.52 16. Nihilent Ltd. 30.17 17. Thirdware Solution Ltd. 30.94 ....
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.... 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 size organisation. Further, it is submitted that medium/large size organisation operating in a particular industry also enjoys benefits of certain other market drivers and cost arbitrages. It is submitted that the turnover of the assessee from rendering SWD services is Rs. 9,13,63,594/-. This being so, the TPO ought to have applied the upper turnover filter while selecting companies comparable to the Assessee. In this regar....
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....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 early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions....
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....s 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 is Rs. 4.7 million. The ld AR prayed therefore that the company ought to be included in the final list of comparables. 20. We heard the rival submissions and perused the material on record. We notice that the above company is rejected by the TPO on the ground that the company fails the export turnover filter and has a negative net worth. We also notice that the DRP on perusal of the annual report has held that the turnover of the company has an export turnover of Rs.2,18,46,527 against a total turnover of Rs.2,....
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.... 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 on the part of the DRP to have adjudicated the question of inclusion of these companies as comparable companies. The fact that these companies do not figure in the search matrix of the TPO is not and cannot be a ground not to consider inclusion of these companies as comparable companies. Since the DRP has failed to do so, we are of the view that the issue regarding inclusion of the aforesaid companies as comparable companies should be set aside to AO/TPO for fresh consideration in the light of the information available in publ....
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.... 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 of reconciliation submitted it is also noticed that the assessee is renewing the deposits on maturity either in the same bank or in another one of these three banks. The AO has taken the total SFT transactions as reflected in Form 26AS and has compared the same with the Balance Sheet figure of Deposits as of 31.03.2018 and has made the addition for the differential amount. This in our considered view is not correct comparison since the SFT transactions in Form 26AS reflect the transactions that happened during a period of time whereas the Balance Sheet reflect the status ....
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....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 due date prescribed under the relevant statute, but before the due date for filing of return of income. 37. During the financial year under consideration, the assessee remitted employees' contribution to provident fund after the due dates prescribed under the relevant statutes, but before the due date of filing of its return of income. The AO held that the contribution not having been remitted by the "due date" as specified in Section 36(1)(va) of the Act, disallowed the same. The DRP affirmed the disallowance. 38. In this regard the ld.AR submitted that the assessee having remitted....
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.... 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 or deductions from employees income; at the time, payment within the prescribed time - by way of contribution of the employees' share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers' contribution (Section 36(1)(iv)) and employees' contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assesse....