2015 (10) TMI 2576 - AT - Income Tax

Transfer pricing adjustment - comparable selection - Held that - Considering the judicial precedent in assessee s own case the Ld. CIT DR stated that as far as the calculations are concerned the issue has to be verified by the TPO and in the face of the order of the Co-ordinate Bench as the issue has to go back it was submitted that he would have no objection if the calculations as considered by the TPO are taken on record and the departmental ground is allowed. The Ld. AR in reply submitted the let the TPO consider both the calculations and he would have no objection. We have heard the rival submissions and perused the material available on record following the judicial precedent in the light of the submissions of the parties, we allow the departmental appeal as canvassed by the ld. CIT DR and not opposed by the Ld. AR and direct the TPO/AO to recompute the operating margins of the comparables retained by the TPO in line with the rates of depreciation charged by the assessee under the straight line method. Applying the principle that only companies which are on similar standard can only be comparables Fortune Infotech Ltd. is excluded from the list of the comparables in view of the fact that it holds unique intangibles which position is not disputed by the Revenue.

Summary

Issues Involved:
1. Deletion of addition on account of difference in arm's length price.
2. Adjustment to the arm's length price of international transactions.
3. Classification of the appellant as a captive unit or independent service provider.
4. Adjustment on account of idle capacity and higher depreciation rates.
5. Use of contemporaneous data versus multiple year data for benchmarking.
6. Exclusion of high profit or high loss making companies from comparables.
7. Rejection of certain comparable companies.
8. Provision for expenses and recomputation of deduction under section 10B.
9. Levy of interest under sections 234B and 234C.

Detailed Analysis:

1. Deletion of Addition on Account of Difference in Arm's Length Price:
The CIT(A) deleted the addition of Rs. 9.59 crores made by the TPO/AO on account of the difference in arm's length price. The Revenue appealed against this deletion. The Tribunal dismissed this ground following the order of the Co-ordinate Bench in the assessee's own case for the previous assessment year, where similar issues were decided in favor of the Revenue.

2. Adjustment to the Arm's Length Price of International Transactions:
The appellant contended that the CIT(A) erred in sustaining an addition of Rs. 18,85,44,612 on account of adjustment to the arm's length price of international transactions. The appellant argued that it should be considered a hybrid unit with elements of both captive and entrepreneurial units. The Tribunal restored the issue to the TPO for verification and necessary relief, following consistent orders of the ITAT.

3. Classification of the Appellant as a Captive Unit or Independent Service Provider:
The appellant argued that it was an independent service provider and not a captive unit, responsible for effective utilization of its resources without assurance of minimum utilization from the associated enterprise. The Tribunal dismissed this ground, following the order of the Co-ordinate Bench in the assessee's own case for the previous assessment year.

4. Adjustment on Account of Idle Capacity and Higher Depreciation Rates:
The appellant argued for adjustments due to idle capacity and higher depreciation rates. The Tribunal restored the issue to the TPO for verification and necessary relief, following consistent orders of the ITAT. The Tribunal also directed the TPO/AO to recompute the operating margins of the comparables retained by the TPO in line with the rates of depreciation charged by the assessee under the straight-line method.

5. Use of Contemporaneous Data versus Multiple Year Data for Benchmarking:
The appellant argued that the CIT(A) erred in applying operating results for the relevant previous year instead of contemporaneous data available at the time of effecting the Transfer Pricing documentation. The Tribunal did not specifically adjudicate this issue as it was not pressed by the appellant.

6. Exclusion of High Profit or High Loss Making Companies from Comparables:
The appellant argued for the exclusion of high profit or high loss making companies from the list of comparables. The Tribunal excluded Fortune Infotech Ltd. from the list of comparables, noting that it had developed unique software and intangibles, making it not comparable to the appellant.

7. Rejection of Certain Comparable Companies:
The appellant argued against the rejection of certain comparable companies by the CIT(A). The Tribunal restored the issue to the TPO for verification and necessary relief, following consistent orders of the ITAT.

8. Provision for Expenses and Recomputation of Deduction under Section 10B:
The appellant argued against the disallowance of provision for expenses amounting to Rs. 36,52,675 and the recomputation of deduction under section 10B. The Tribunal restored the issue to the AO to consider the correctness of the claim and grant necessary relief in accordance with law, following the order of the Co-ordinate Bench in the assessee's own case for the previous assessment year.

9. Levy of Interest under Sections 234B and 234C:
The appellant contested the levy of interest under sections 234B and 234C. The Tribunal did not specifically adjudicate this issue as it was not pressed by the appellant.

Conclusion:
The Tribunal allowed the appeal of the Revenue and partly allowed the appeal of the assessee for statistical purposes. The issues were largely restored to the TPO/AO for verification and necessary relief, following consistent orders of the ITAT and the Co-ordinate Bench in the assessee's own case for the previous assessment year.