2016 (10) TMI 1190 - AT - Income Tax

Transfer Pricing Adjustment - selection of comparables - Held that - Assessee group affiliates with engineering and software development services thus companies functionally dissimilar with that of assessee need to be deselected from final list. Disallowance of the loss of foreign exchange fluctuation on advance to holding company and Export Earner Foreign Company Account (EEFCA) - assessee has failed to furnish the necessary details and supporting evidence to show that the loss is revenue in nature - Held that - Though the assessee has contended that the amounts are revenue receivables and therefore loss is also an allowable loss however we find that the necessary details and supporting evidence has not been produced by the assessee. Accordingly in the facts and circumstances of the case as well as in the interest of justice the assessee is granted one more opportunity to produce the necessary details and supporting evidence before the Assessing Officer. Hence this issue is set aside to the record of the Assessing Officer for verification Non-deduction of tax under Section 40(a)(ia) - disallowance of provision for legal and professional charges and trade charges - Held that - As the assessee has not pointed out any error or illegality in the orders of the authorities below. Further no contrary fact has been brought to our notice to show that the finding of the Assessing Officer is perverse or illegal or not tenable. Accordingly in the absence of any facts or submissions to substantiate the claim of the assessee we do not find any error or illegality in the orders of the authorities below Short grant of credit for advance tax - Held that - The assessee has pointed out that the advance tax is 77 lakhs whereas the Assessing Officer has granted the credit on account of advance tax only to the extent of 72, 19, 408 for the assessment year under consideration. Since this is purely a matter of verification of facts and therefore no dispute of decision is involved. Accordingly we direct the Assessing Officer to verify the correct advance tax available for credit and then consider the plea of the assessee for granting of credit for advance tax.

Summary

Issues Involved:
1. Transfer Pricing Adjustment and selection of comparables.
2. Disallowance of foreign exchange fluctuation loss.
3. Disallowance of provision for legal and professional charges.
4. Disallowance of freight charges for non-deduction of tax.
5. Short grant of credit for advance tax.
6. Levy of interest under Section 234B.

Detailed Analysis:

1. Transfer Pricing Adjustment and Selection of Comparables:
The primary dispute revolves around the Transfer Pricing Adjustment for the software development services segment. The TPO selected 20 comparables and computed an average margin of 23.65%, proposing an adjustment of ?2,27,99,703. The assessee challenged the inclusion of 13 out of these 20 comparables, arguing they were not functionally comparable. The Tribunal reviewed previous decisions and found that these 13 companies were indeed functionally dissimilar. Consequently, the Tribunal directed the exclusion of these 11 companies from the set of comparables and ordered the TPO to recompute the ALP, considering the benefit of the tolerance range of ±5%.

2. Disallowance of Foreign Exchange Fluctuation Loss:
The Assessing Officer disallowed a foreign exchange loss of ?2,20,50,750, treating it as a capital loss due to insufficient details provided by the assessee. The Tribunal noted that the assessee failed to furnish necessary details to prove the loss was revenue in nature. Therefore, the Tribunal remanded the issue back to the Assessing Officer for re-examination, granting the assessee another opportunity to provide supporting evidence.

3. Disallowance of Provision for Legal and Professional Charges:
The Assessing Officer disallowed the provision for legal and professional charges, deeming it an uncertain liability. The Tribunal upheld this disallowance, noting that the assessee did not present any evidence or arguments to counter the findings of the lower authorities.

4. Disallowance of Freight Charges for Non-Deduction of Tax:
The Assessing Officer disallowed freight charges due to non-deduction of tax under Section 40(a)(ia). The Tribunal upheld the disallowance, as the assessee failed to demonstrate any error or illegality in the lower authorities' decision.

5. Short Grant of Credit for Advance Tax:
The assessee claimed a shortfall in the credit for advance tax paid, with the Assessing Officer granting credit for ?72,19,408 instead of the claimed ?77,00,000. The Tribunal directed the Assessing Officer to verify the correct amount of advance tax paid and grant the appropriate credit.

6. Levy of Interest Under Section 234B:
The levy of interest under Section 234B was deemed consequential, and the Tribunal did not provide a separate ruling on this issue.

Conclusion:
The Tribunal partially allowed the appeal, directing adjustments and verifications on several issues while upholding certain disallowances due to lack of evidence or arguments from the assessee.