2011 (6) TMI 842 - AT - Income Tax

Summary

Issues Involved:
The judgment involves issues related to transfer pricing adjustment and disallowance of deduction under section 10-A of the Income Tax Act.

Transfer Pricing Adjustment:
The case involved two separate appeals by different assessees concerning transfer pricing adjustments for assessment year 2006-07. Both assessees, subsidiaries of Heartland Asia (Mauritius) Ltd., provided I.T. enabled services in Medical Transcription to their parent company, HCR Information Corporation, USA. The Transfer Pricing Officer (TPO) determined arms length prices for the transactions with Associated Enterprises, leading to adjustments in the assessment. The Assessing Officer (AO) adopted the TPO's arms length prices, resulting in disallowance of exemption under section 10-A for one assessee. The Dispute Resolution Panel-II upheld the disallowance, citing lack of approval by the required 'Board' for claiming deduction under section 10-B and disallowing the claim under section 10-A.

Adjustment Dispute and Objections:
The assessees raised objections regarding the adjustments made to the arms length prices by the TPO, including the rejection of loss-making comparables, lack of standard deduction, and comparability adjustments for risks and working capital. The Dispute Resolution Panel upheld the TPO's decisions based on relevant legal provisions and precedents, rejecting the objections raised by the assessees.

Judicial Review and Directions:
The assessees appealed the decisions, arguing for the allowance of 5% adjustments and deduction under section 10-B based on previous ITAT rulings. The tribunal found merit in some of the objections raised by the assessees, directing the assessing officer to allow the 5% adjustment and reconsider the disallowance of deduction under section 10-A. The tribunal also instructed the Dispute Resolution Panel to provide a detailed explanation for their decisions and reconsider the objections raised by the assessees.

Conclusion:
The tribunal partially allowed both appeals for statistical purposes, directing further review and clarification on specific objections raised by the assessees. The matter was remanded to the Dispute Resolution Panel for a more detailed consideration of the issues raised by the assessees.