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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI A.MOHAN ALANKAMONY & SHRI DUVVURU RL REDDY
आदेश / O R D E R
Per A. Mohan Alankamony, AM:-
This appeal by the assessee is directed against the order passed by the Ld. Members of the Dispute Resolution Panel-2, Bengaluru vide order dated 15.09.2017 in F.No.414/DRP-2- BNG/2016-17 for the assessment year 2013-14 passed U/s.144C(5) of the Act.
The assessee has raised several grounds in its appeal however the cruxes of the issues are that:- (i) The Ld.AO / TPO / Members of the Dispute Resolution Panel (DRP) have erred in making an upward adjustment by erroneously adopting M/s. Acropetal Technologies Ltd., as the comparable company. (ii) The Ld.AO / TPO / Members of the Dispute Resolution Panel (DRP) have erred in disallowing the Research & Development expenditure by treating it as capital expenditure.
The brief facts of the case are that the assessee is a private limited company engaged in the business of manufacturing of power conditioning systems for solid oxide fuel cell using power electronics technology, filed its return of income for the assessment year 2013-14 on 30.11.2013 admitting total income of Rs.11,65,67,340/-. The case was selected for scrutiny under CASS and notice U/s.143(2) of the Act was issued on 04.09.2014. Finally the assessment order was passed U/s.143(3) r.w.s. 144C(1) & 92CA of the Act on 09.12.2016 wherein the Ld.AO made an upward adjustment of Rs.2,00,98,068/- and Research and Development expenses amounting to Rs.1,99,60,831/- was disallowed treating it as capital expenditure.
4.Ground No. 2(i) : Upward revision of Rs.2,00,98,068/-:- At the outset the Ld.AR submitted before us that the Ld.Revenue Authorities has erroneously adopted M/s. Acropetal Technologies Ltd., as comparable company because of the following reasons:- 1) The profit earned by M/s. Acropetal Technologies Ltd., during the relevant assessment year was abnormally higher than the earlier years. 2) There were several allegation that the company had window dressed its statement of accounts for the relevant assessment year. 3) There were several such reports in newspaper publications.
It was therefore pleaded that M/s. Acropetal Technologies Ltd., should be excluded from being adopted as comparable company and in the event if it is treated as comparable company then the previous three years average profits may be adopted while computing the ALP. The Ld.AR further submitted that the assessee had adopted M/s. Acropetal Technologies Ltd., as comparable company with the available data of the earlier assessment year, since there were adverse factors in the relevant assessment year as a result the data for the relevant assessment year was not reliable. The Ld.DR could not controvert to the submission of the Ld.AR though he vehemently relied on the orders of the Ld. Revenue Authorities.
4.1 We have heard the rival submissions and carefully perused the materials on record. The mean margins of the comparable companies adopted by the Ld.Revenue Authorities are as follows: The mean margin of the comparables is Name of the Company Margin (OP/OC) Acropetal Technologies Ltd 57.66 Tata Elxsi Ltd 10.53 Cades Digitech Ltd 5.37 Vama Industries Ltd (Seg) 38.05 Average 27.90
From the above it is crystal clear that the average operating margin of M/s. Acropetal Technologies Ltd., is 57.66 which is significantly high and not consistent with the other comparables. Therefore we find merit in the submission of the Ld.AR that the statement of accounts of M/s. Acropetal Technologies Ltd., during the relevant assessment year cannot be relied upon and even if it is relied upon the profit of the company is abnormally high during the relevant assessment year. Hence, we are of the considered view that for the relevant assessment year M/s. Acropetal Technologies Ltd., cannot be adopted as a comparable company. Therefore we hereby direct the Ld.AO to exclude M/s. Acropetal Technologies Ltd., while determining the ALP of the assessee. It is ordered accordingly.
Ground No. 2(ii) : Disallowance of Research & Development Expenditure amounting to Rs.1,99,60,831:- The Ld.AO disallowed the amount of Rs.1,99,60,831/- under the belief that the expenditure incurred by the assessee is capital in nature which was upheld by the Ld. Members of the DRP. However the Ld.AR submitted before us that the assessee had rendered Research & Development services to its related party against which the assessee has earned revenue income. The Ld.AR further pleaded that the matter may be remitted back to the file of Ld.AO for fresh examination of the facts. The Ld.DR strongly objected to the submission of the Ld.AR. After hearing both the parties, considering the strong arguments advanced by the Ld.AR, we are of the considered view that in the interest of justice, the entire issue has to be examined afresh. Therefore this ground raised by the assessee is remitted back to the file of Ld.AO for de-nova consideration.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced on the 20th June, 2018 at Chennai.