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2018 (6) TMI 1390 - AT - Income Tax


Issues:
1. Adjustment of income by the Dispute Resolution Panel under section 144C(5) of the Income Tax Act, 1961.
2. Selection of comparable companies for benchmarking international transactions.
3. Exclusion of Trade Wings Ltd. as a comparable company.
4. Benefit of risk adjustment in providing business support services to associated enterprises.

Analysis:

1. The appellant challenged the order passed by the Dispute Resolution Panel (DRP) under section 144C(5) of the Income Tax Act, 1961, which assessed the income at a higher amount compared to the returned income. The appellant contended that the DRP did not specifically address the issues raised, leading to discrepancies in the assessment. The appellant's counsel argued for the inclusion of specific cases and pages from the order to support their contentions, while the Department defended the impugned order.

2. The appellant, a subsidiary of a US company, provided business support services to its associated enterprises. The Transfer Pricing Officer (TPO) made adjustments to the arm's length price of international transactions related to services provided by the appellant. The TPO's adjustments were contested before the DRP, which directed certain adjustments leading to a revised income figure. The appellant selected comparable companies using the Transactional Net Margin Method (TNMM) for benchmarking, but the TPO rejected most selections, proposing alternative comparables resulting in adjustments.

3. The appellant contested the exclusion of a comparable company, Trade Wings Ltd., by the TPO and DRP. The appellant argued that Trade Wings Ltd. met the service income filter criteria, contrary to the TPO's decision. Detailed financial analysis and segmental information were presented to support the contention that Trade Wings Ltd. should be considered a valid comparable company.

4. Regarding the benefit of risk adjustment in providing business support services, the appellant explained its cost markup strategy and reimbursement for costs incurred without bearing service delivery or credit risk. Legal precedents were cited to support the appellant's position. The Counsel for the Department defended the addition, leading to a detailed argument on the risk adjustment issue.

In conclusion, the Tribunal found merit in the appellant's arguments regarding the lack of detailed analysis by the DRP and the need for a fresh examination of the factual matrix. The appeal was remanded back to the DRP for a fresh adjudication in accordance with the law, allowing both parties to present their case and evidence. The appeal was allowed for statistical purposes only, emphasizing the importance of a fair and thorough assessment process.

 

 

 

 

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