2016 (10) TMI 1155 - AT - Income Tax

TPA - Comparable selection criteria - Held that - The assessee, BGIEPL, is providing support services to the BG Group in India in the course of its operation and is compensated at the cost plus 8% basis for the services rendered to BG Group entities, thus companies functionally dissimilar with that of assessee need to de-selected from final list comparables.

Issues Involved:
1. Assessment of income under normal provisions.
2. Transfer Pricing adjustments for business support services.
3. Rejection of economic analysis by the assessee.
4. Lack of material for rejecting economic analysis.
5. Inclusion of reimbursements in operating cost.
6. Exclusion of 'provisions for liabilities no longer required written back' from operating income.
7. Selection and rejection of comparable companies.
8. Segmental analysis of Water and Power Consultancy Services (I) Private Limited.
9. Rejection of comparables from previous assessment year.
10. Risk adjustments in operating margins.
11. Use of single year data versus multiple year data.
12. Benefit of 5% range under Section 92C.
13. Charging of interest under sections 234B, 234C, and 234D.

Issue-wise Detailed Analysis:

1. Assessment of Income under Normal Provisions:
The assessee contested the assessment of income at ?65,356,841 against the declared ?29,003,875, based on directions from the Dispute Resolution Panel (DRP). The Tribunal did not provide a specific ruling on this issue, as it was covered under subsequent grounds.

2. Transfer Pricing Adjustments for Business Support Services:
The assessee company, a cost-plus entity, provided project support services to its Associated Enterprises (AEs) and used the Transactional Net Margin Method (TNMM) with a Profit Level Indicator (PLI) of Operating Profit/Operating Cost (OP/OC). The Transfer Pricing Officer (TPO) adjusted the income by ?36,352,966, claiming the transactions were not at arm's length.

3. Rejection of Economic Analysis by the Assessee:
The TPO rejected the economic analysis undertaken by the assessee, which was in accordance with the provisions of the Income-Tax Act and Rules. The Tribunal found that the TPO did not place any material or documents on record to reject the economic analysis conducted by the assessee, thus failing to comply with section 92C(3) of the Act.

4. Lack of Material for Rejecting Economic Analysis:
The Tribunal noted that the TPO failed to provide any substantial evidence or material to justify the rejection of the assessee's economic analysis, thereby not adhering to the statutory provisions.

5. Inclusion of Reimbursements in Operating Cost:
The TPO included reimbursements received by the assessee from its AEs in the operating cost, which the assessee argued against. The Tribunal observed that the TPO made a two-fold adjustment by including ?94.70 crores as both cost and income, which was incorrect. The Tribunal restored the matter to the Assessing Officer (AO) for further examination and verification.

6. Exclusion of 'Provisions for Liabilities No Longer Required Written Back' from Operating Income:
The Tribunal did not specifically address this ground, as the assessee did not press it.

7. Selection and Rejection of Comparable Companies:
The assessee contested the rejection of 11 comparables and the inclusion of 7 new ones by the TPO. The Tribunal ordered the exclusion of APITCO Limited, Choksi Laboratories Limited, and RITES Limited from the list of comparables, and directed the TPO to re-examine Water and Power Consultancy Services (India) Ltd. (WAPCOS) after providing an opportunity of being heard to the assessee.

8. Segmental Analysis of Water and Power Consultancy Services (I) Private Limited:
The Tribunal found that the TPO chose WAPCOS as a comparable without proper analysis and directed a re-examination of this comparable.

9. Rejection of Comparables from Previous Assessment Year:
The Tribunal noted that the TPO rejected comparables that were accepted in the previous assessment year without proper justification. The Tribunal directed a fresh benchmarking by excluding certain comparables and re-examining others.

10. Risk Adjustments in Operating Margins:
The Tribunal did not specifically address this issue, as the assessee did not press it.

11. Use of Single Year Data versus Multiple Year Data:
The Tribunal did not specifically address this issue, as the assessee did not press it.

12. Benefit of 5% Range under Section 92C:
The Tribunal directed the TPO to provide the benefit of +/- 5% as per the provisions of Section 92C, if applicable.

13. Charging of Interest under Sections 234B, 234C, and 234D:
The Tribunal did not specifically address this issue, as it was consequential in nature.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes, directing the AO/TPO to re-examine certain issues and provide an opportunity of being heard to the assessee. The matter was remitted back for fresh benchmarking and further examination of specific issues.

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