TaxTMI 
TaxTMI 
2026 (6) TMI 862
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....d. Prayer The Appellant prays that the final assessment order is bad in law and ought to be quashed. Transfer Pricing Grounds Ground No. 2 On the facts and in the circumstances of the case, and in law, the Ld. TPO/Ld. AO/ Ld. DRP have erred in rejecting the economic analysis conducted by the Appellant ita transfer pricing (TP) study report and consequently, making a transfer pricing (TP) adjustment of INK 3,88,86,498 to the income of the Appellant on the ground that the international transaction of provision of IT support services is not at arm's length. Prayer The Assessee prays that the book value of the aforesaid international transaction be accepted to be the arm's length price and accordingly, the TP adjustment ought to be deleted. Ground No. 3 On the facts and in the circumstances of the case and in law, the 14. TPO/LA. AO/Ld. DRF have erred in disregarding the fact that none of the conditions, as set out in Section 92C(3) of the Act are satisfied and hence, there was no requirement to re-determine arm's length price by the Ld. TPO. Prayer The Appellant prays that th....
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....umstances of the case, the Ld. AO/ Lad. DRP has erred in not allowing the economic adjustment on account of differences in functional and risk profile of the Appellant and that of the comparable companies while determining the arm's length price of the international transaction of Provision of IT support services. Prayer The Appellant prays that the economic adjustment for difference in functional and risk profile should be allowed. Corporate Tax Grounds Ground No. 8 On the facts and in the circumstances of the case, the Ld. AO/ Ld. DRP have erred in treating unearned revenue of INR 5,39,84,069 as sales revenue for the year under consideration and holding the said receipts as unexplained cash credits as per section 68 of the Act. While doing so the Ld. AO/Ld. DRP failed to appreciate that the unearned revenue is an amount received in advance and is classified as a liability in accordance with Accounting Standard (AS) 9 Revenue Recognition and is accounted for as revenue only upon rendering of services to customers and accordingly, not taxable for the year under consideration. Prayer The Appellant submits th....
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....acts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 270A of the Act for underreporting of income as a consequence of misreporting of income. Prayer The Appellant prays before the Hon'ble ITAT to direct the Ld. AO to drop the penalty proceedings under section 270A of the Act. The above grounds are independent of and without prejudice to each other. The Appellant craves leave to add, alter, amend, or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing." 2. Brief facts of the case are that assessee-company is a wholly owned subsidiary of Alepo Technologies Inc. the assessee is providing Information Technological (IT) support services to the Alepo group in India. The assessee filed its return of income for A.Y. 2022-23 on 25.11.2022 declaring total income of Rs, 1.28 Crore. The assessee while filing return of income reported certain international transaction with its associated enterprises (AE). Consequent upon, the assessing officer (AO) made a reference to transfer pricing offic....
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....sessee submits that he is making submissions for inclusion of only two comparable that is Rheal Software (P) Limited (Alepo) and Toxsl Technologies Private Limited (ToxsL). If these two comparable companies are retained in final set of comparable, the assessee will be satisfied. 6. To support the inclusion of Rheal Software (P) Ltd. (Rheal), the ld. AR of the assessee submits that TPO excluded Rheal from final set of comparable holding that it is persistent loss making company. It incurred losses in two assessment years out of last three assessment years. The DRP upheld the action of TPO. The ld. AR of the assessee submits that the TPO has not disputed functional similarity between the assessee's business and with Rheal. It is an undisputed fact that Rheal has earned operating profit in one of the last three years and has a positive profit before taxes in two or last three years. It is settled position in law that holding a comparable company a persistently loss maker, it has to make losses in three consecutive assessment years which is clearly missing in this case. The ld. AR provided year on year operating margins of Rheal in the following manner: Particulars FY 2018-19 ....
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....his company. This company is in software license distribution, customer liaising, Pricing, sales and marketing function and pricing of order, thus, the function of assessee is not software development which is basically code writing for software but IT support services. Rheal is in software development and not comparable with the assessee. Similarly, for Toxsl Technology, the ld. Sr. DR supported the order of TPO and DRP. 10. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We find that the parties have locked their horn on limited issue about the inclusion of two comparables. We find that TPO rejected the inclusion of Rheal on the ground that it is persistent loss making company. We find that coordinate bench of Mumbai Tribunal in Nokia Solutions and Networks India (P) Ltd. vs ACIT (supra) held that where TPO rejected a company selected for assessee on the ground that it was having persistent losses in last three years upto and including FY 2014-15, however, the assessee furnished evidence to demonstrate that company has made profit in subsequent financial year. The company was to be included in the li....
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.... in final set of comparable. In the result, ground no. 2 to 7 of appeal is allowed. 12. Ground no. 8 & 9 relates to addition under section 68 of Rs. 5.39 crore. The ld. AR of the assessee submits that AO made addition under section 68 with respect to unearned Revenue appearing in the audited financial statement by holding that assessee has not proved such receipt to be advance from customers. The ld. AR of the assessee submits that provision of section 68 is not applicable on the facts of present case. The assessee provided complete details pertaining to unearned Revenue and same has been offered to tax in subsequent years. Otherwise, during assessment proceedings, the details of party including PAN, e-mail address and invoices and ledgers of the parties. The assessee also proved creditworthiness of parties. The advances were received from the customers across multiple years. The assessing officer has not considered the ledgers, invoices, work orders, journal entries furnished by assessee. The assessing officer merely added closing balance shown in the 'head other current liabilities' and erroneously holding that this amount is unexplained. DRP also failed to appreciate the fact....
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....of revenue on account of exchange loss of Rs. 91.68 lacs. The ld. AR of the assessee submits that during assessment, the assessing officer sought reconciliation of gross receivable of Rs. 50.90 crore vis-à-vis operating revenue of Rs. 43.69 crore of the assessee for the year under consideration. The assessee provided reconciliation, copy of which is placed on record. On perusal of such reconciliation, the assessing officer alleged that assessee has understated its income by not adding back foreign exchange loss of Rs. 91,68,000/-, especially considering that assessee has reduced the amount of foreign exchange gain from gross receivable. The operating revenue figures derived through reconciliation provided by assessee exactly matches the audited financial statement and has been fully offered to tax. The net foreign exchange difference (both gain and loss) shown separately as "other income" in the accounts and have been fully brought to tax so there is no question of any income having been understated. The allegation understatement income on account of no addition of foreign exchange loss in the reconciliation is therefore, misconceived and deserves to be rejected. 16. On t....
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....ers of lower authorities carefully. We find that assessing officer made addition on account of foreign exchange fluctuation loss of Rs. 91,68,000/- by taking view that assessee has reduced foreign currency fluctuation gain only from gross trade receivable without simultaneous addition of foreign currency loss of Rs. 91.68 lacs inspite of the fact that both gain and loss are directly related to trade receivable. The DRP upheld the action of assessing officer by holding that assessing officer has carried out an exhaustive reconciliation exercise and found that the assessee has reduced forex fluctuation gain from gross receivable, the assessee had not added back the forex fluctuation losses accordingly an understatement of Revenue to that extent was found by assessing officer and no interference is called for. Before us, the ld. AR of the assessee vehemently argued that operating revenue figure derived through the reconciliation provided by assessee, exactly matches with audited financial statement and has been fully offered to tax. It is further contention of ld. AR of the assessee that net foreign exchange difference, both gains and losses shown separately as "other income" in the a....