TaxTMI 
TaxTMI 
2020 (10) TMI 1408
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....the TPO are not valid comparables. 3. In addition to the above, the assessee has also contested domestic issues which related to: a) Disallowance of warrantee and replacement expenses; b) Disallowance of claim of bad debts written off; c) Denial of depreciation of Written Down Value [WDV] of software expenditure; and d) Denial of depreciation of WDV of expenditure incurred on purchase of business rights 4. Representatives of both the sides were heard at length, the case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules and have also perused the judicial decisions relied upon by both the sides. 5. In addition to the oral arguments, the representatives of both the sides have also furnished written submissions which have been duly considered. 6. Facts on record show that during the year under consideration, 'GEIIPL', the appellant, was engaged in the following activities : ● Export of computer software (Bently Nevada India division) ● Sales and service of v....
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....ational transactions of some of the divisions of the appellant company vide order dated 30.01.2015. Accordingly, the AO framed draft assessment order against which the assessee filed objections before the Dispute Resolution Panel [the 'DRP' for short] and the DRP issued its directions vide order dated 29.12.2015. Finally, the AO issued the final assessment order in accordance with the directions of the DRP vide order dated 28.01.2016. 8. We will first address to the issues relating to TP adjustment in some of the divisions of the appellant. I Digital Energy [Distribution Activity] 9. In this division, the appellant is engaged in distribution of power quality products, such, as Uninterruptible Power Supplies (UPS), batteries and relays. In this division, the bone of contention is the claim of adjustment on account of higher import cost. The assessee claims that percentage of total imports to total purchases of the assessee are 67.97% whereas for comparable companies, the average total imports to total purchases is 20.66%. It is the claim of the assessee that even Rule 10B(3)(ii) of the Income Tax Rules, 1962 (Rules, in short) states that reasonably accurate adjustme....
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....e comparables, which means that the assessee is subject to higher imports at 47.31%. In our considered opinion, on the given facts, the assessee should get benefit of adjustment on account of higher imports. 14. The claim of the ld. DR that any adjustment should be made in the case of comparables and not in the hands of the tested party cannot be accepted because the co-ordinate bench in assessee's own case in ITA No. 2210/Ahd/2012 for A.Y 2004-05 allowed adjustment on account of high raw material cost to the margins of the assessee. The relevant findings of the co-ordinate bench read a under: "15. In the instant case, what is being tested is whether purchase from associated enterprises is at arms-length or not. Admittedly, sales by the assessee is not to the associated parties and therefore, is un-controlled transaction. In view of above, in the light of OECD guidelines, while working out ratio of raw-material should be worked out by comparing the raw-material vis-à-vis sales. In this view of the matter, we uphold the finding of the TPO for the year under appeal wherein he arrived at the conclusion that the assessee should be allowed the adjustment of 18.50%....
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.... any adjustment in TP audit. 20. The DRP confirmed the findings of the TPO. 21. Before us, the ld. counsel for the assessee once again drew our attention to the decision of the co-ordinate bench in ITA No.2210/Ahd/2012 [supra] and pointed out that the raw material adjustment was allowed on account of significantly high consumption of raw material. 22. In so far as this adjustment is concerned, we have already extracted the relevant findings of the co-ordinate bench at para 14 hereinabove. In view of the above, we direct the Assessing Officer/TPO to allow adjustment on account of high raw material consumption. 23. In so far as adjustment on account of under utilisation of capacity is concerned, we find that capacity utilisation by the assessee is 43% whereas comparable companies are working at an average capacity of 53.58%. In our considered opinion, this wide variation mandates appropriate adjustment to iron out differences between the assessee and comparable companies. 24. Observation of the lower authorities that the assessee is a captive center for its AE seems to be incorrect. We find that total revenue of the Power Control Division is Rs. 2,08,46,83,619/-, where....
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....erent F.Y., these companies were disregarded by the TPO/DRP. In our considered opinion, where the audited quarterly results are available in the public domain, there should not be any difficulty in making necessary adjustment in respect of quarterly results and making accounting year similar to that of the assessee. This principle has been accepted in a catena of decisions by the co-ordinate benches. To name a few: - Pangea3 Legal Database Systems Private Limited (ITA No. 484/Mum/2016 - American Express (I) P Ltd [ITA No. 1426/Del/2015] - Cadence Design Systems (India) Ltd [ITA No.2074/DEL/2014] - Mercer Consulting HC [ITA No. 101 of 2015 30. We accordingly, direct the TPO to consider the quarterly results and work out proportionate profit margin. The assessee is directed to furnish necessary details and the TPO is directed to verify the same. 31. The other dispute relates to inclusion of Infosys technologies Ltd and Acropetal Technologies Ltd. The main contention of the assessee is that these companies were included by cherry picking, which is against the rule of the Tribunal in the case of Toshiba India Ltd 3175/DEL/2007 wherein it has be....
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....ating damages were provided for adjustment. In this division, the assessee sells locomotive parts, turbochargers and railway signalling equipment in India. The assessee imports locomotive parts, turbo parts and signalling panels from its affiliates in US. The locomotives are sold directly by the assessee to customers India whereas the company assembles Turbo kits into turbochargers in its assembly facility before selling turbochargers finally to its customers. Before the TPO/DRP the assessee has claimed the adjustment on account of extraordinary expenses. The TPO rejected the claim on the ground that these are expenses in relation to business operations. 38. Before us, the learned counsel for the assessee pointed out that TPO himself has provided adjustment in F.Y 2006-07. Therefore, there should not be any reason for denying similar adjustment for the year under consideration. 39. In our considered opinion, if working capital adjustment brings parity in comparability and case strength to comparability, we do not find any reason why the same should be denied. All that the TPO has to do is to satisfy himself with the working of the adjustments and point out issues of his dissa....
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....ovides marketing support services exclusively to its AEs.GBS is an administration support services provider. It is engaged in providing these services only to its domestic and foreign AEs. In this division, ALP adjustment of 26,01,40,955/- has been contested by the assessee. 46. At the very outset, we have to state that out of 19 comparable companies selected by the assessee in its TP study, 18 comparables were rejected by the TPO. This itself shows that the TP study in this division was flawed. The main reason for rejecting the comparables given by the TPO is that these comparables were mainly engaged in providing security services or travel related services etc which are not at all comparable to those segments of the assessee which is broadly an administrative service segment. Since the 18 comparables were rejected by the TPO and only one valid comparable survived, the TPO had no choice but to work out the ALP on the basis of fresh search. 47. Before us, the assessee has challenged the inclusion of the following comparables: 1. TSR Darashaw Limited In his written submissions, the learned counsel has reiterated what has been contended before the TPO/DRP. 48. We have....
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....to keep this company from the final set of compatibles. Various benches of the Tribunal may have excluded this company on the facts of those cases but the facts of the case in hand clearly suggests that Aptico Limited remains in the final set of comparables. GLOBAL PROCUREMENT CONSULTANTS LIMITED 51. The annual report of this company suggests that this company is indirectly held by the government as Export Import Bank, which is a public financial institution, holding more than 25% of the subscribed capital of this company and as per section 224A of the Companies Act, 1956, such company has to appoint auditors as per special resolution, which has been followed by this company. Being a public sector undertaking itself is a strong ground for exclusion of this company from the final set of comparables. We direct accordingly. 52. Another contention of the ld. counsel is that there is an arithmetical error in the margin of concept communications for which the DRP has issued necessary directions but have not been followed by the TPO. We accordingly direct the TPO to give effect to the directions of the DRP. 53. The learned counsel has further brought to our notice that after c....
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....have been rejected on the basis of functional dissimilarity or on the basis of some filters. In our considered opinion, it would be in the interest of justice to revisit the comparabilities of these companies as per analysis given by the assessee in the following charts: Annexure 1 - Analysis of Appellant's Comparable companies rejected by TPO in respect of Technical Support Services Division - Refer Ground 13 of Grounds of appeal S. No Name of Company Reason for rejection by DRP / TPO Appellant's Analysis 1 Antelec Limited Rejected on the basis of being functionally dissimilar Note 2 of Schedule 15 of notes to accounts state that electrical jobs executed are accounted at contract rates. Page 27 states that the Company is principally involved in execution of electrical contracts. Appellant on page 28 of the written submissions has provided that GEIIPL in this divisions sends service engineers to customer locations in India to provide technical support services. The technical services provided include installation, product clarification and break down / maintenance visits, technical support or warranty services and analysis of technical and materia....
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....ed Rejected on the basis of current year data is not available in public domain Financials for FY 2010-11 are available in public domain. Appellant pleads your Lordships to direct AO TPO to accept this Company 7 Mecon Limited Rejected on the basis as the company is failing service income filter Company earns income from services rendered and construction contracts. Note 8 under Schedule 11 of notes to accounts states: 8.2. Execution of Projects 8.2.1 Credit for execution of projects to the clients against contracts or letters of Intent or work orders or exchange of letters which stipulate fixed price is taken into account on the basis of percentage of progress achieved during the financial year. Appellant submits that the construction contracts are also in the nature of services rendered. So entire revenue earned by the Company is from services. Appellant also renders installation, maintenance of equipments sold to clients. Thus, the transactions can be equated. Therefore, Appellant pleads your Lordships to direct AO / TPO to accept this Company 8 Raunaq International Limited 7 Rejected on the basis of being functionally dissimilar Page 4 of the annual....
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....panies rejected by TPO in respect of Technical Support Services Division - Refer Ground 13 of Grounds of appeal S. No Name of Company Reason for rejection by DRP / TPO Appellant's Analysis 9 Simon India Limited Rejected on the basis of being functionally dissimilar Page 12 states that the Company earns income from engineering supplies and services. Page 21 states that the Company offers technology, basic engineering, detailed engineering, project management, procurement and construction services and contracting capability covering a wide spectrum of the process industries. 10 Simplex Infrastructures Limited Rejected on the basis of being functionally dissimilar Page 87 states - Company has two segment - Construction business and Others which includes income from wind mill, real estate, and hire of plant and equipment including oil drilling rig 11 Sterling & Wilson Limited Rejected on the basis of being functionally dissimilar Page 21 states - Company renders MEP services - Mechanical, Electricals and Plumbing and fire fighting. These are technical support services and can be compared to the business of the Appellant. 12 Suni....
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....ompany 17 UB Engineering Limited Rejected on the basis of service income ratio Revenue recognition in Schedule L of notes to account states - Revenue from construction and project related activities is recognized by applying percentage of completion to the contract value. Your Lordships would appreciate that the servicing projects are also rendition of services, hence, the company earns 100% revenue from services. Annexure 1 - Analysis of Appellant's Comparable companies rejected by TPO in respect of Technical Support Services Division - Refer Ground 13 of Grounds of appeal S. No Name of Company Reason for rejection by DRP / TPO Appellant's Analysis 18 United Van Der Horst Limited Rejected on the basis of service income ratio Appellant accepts TPO / DRP's comments 19 Wapcos Limited Rejected on the basis of service income ratio Page 26 of annual report states that the Company has two segments - Consultancy & Engineering projects and Lump Sum Turnkey projects. Page 18 and 19 talk about the revenue from services rendered. (A) Consultancy Contracts Income from services rendered commensurate with the progress of work under t....
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....ific working. The AO further observed that similar view was taken in A. Y 2008-09,2009-10 and 2010-11. 63. Objections raised before the DRP were similarly dismissed. 64. Before us, the learned counsel for the assessee reiterated what has been stated before the lower authorities. 65. Per contra, the ld. DR strongly supported the findings of the assessing officer. 66. We have given careful consideration to the orders of the authorities below. It is not in dispute that similar disallowances were made in A.Y 2006-07 and 2007-08 and the matter travelled up to the Tribunal and the coordinate bench in ITA Nos. 3064/A/10 and 2749/A/11 has considered this dispute vide ground No. 3 of that appeal. The relevant findings of the coordinate bench read as under: "16. We have heard the rival submissions and perused the material on record. It is an undisputed fact that assessee has debited expenses on account of warranty expenses. The expenses are with respect to warranty is an undisputed fact. The Hon'ble Apex Court in the case of Rotork Controls (supra) has laid down the conditions which are required to be satisfied for making claim in respect of post sale customer servic....
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.... needs to be examined in the light of the principles laid down by Hon'ble Apex Court. We therefore remit the matter to the file of AO for deciding the issue afresh in the light of the decision of Hon'ble Apex Court in the case of Rotork Controls (supra) and after giving a reasonable opportunity of hearing to the assessee. Thus this ground of assessee is allowed for statistical purposes." 67. In light of the findings given by the coordinate bench [supra] we direct accordingly. Ground No. 14 is allowed for statistical purposes. 68. Ground number 15 relates to disallowance of claim of bad debts written off. 69. While scrutinising the return, the Assessing Officer noticed that the assessee has written off bad debts amounting to Rs.6,94,01,066/-. The assessee was asked to provide details of these bad debts. 70. In its reply, the assessee stated that these debts are actually written off and strong reliance was placed on the case of TRF Limited in Civil Appeal No. 5293 and 5294 of 2003. 71. The assessee was further asked to furnish details of income accounted for two amount claimed as return off. On a perusal of the details, the Assessing Officer noticed that the as....
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....ame has been written off. The assessing officer was of the further belief that such a write off of advances are in the nature of debts and therefore, the same has to be considered in the light of section 36(1)(vii) read with section 36(2) of the Act. The Assessing Officer made an addition of Rs. 80,39,243/-, which was confirmed by the DRP. 78. Before us, the learned counsel for the assessee drew our attention to the details of advances written off which are exhibited in the paper book. It is the say of the ld. counsel that advances are in the nature of trade advances, which were made in regular course of business and since advances were found to have become irrecoverable, the same were written off. 79. Per contra, ld. DR supported the findings of the Assessing Officer. 80. We have carefully considered the issue. A perusal of the relevant pages exhibited in the paper book shows that these advances were in the nature of trade advances, which were made in regular course of business and were given to suppliers in the normal course of business and some are earnest money deposits and some are guarantee deposits, which were furnished in furtherance of business of the assessee. In....