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2016 (1) TMI 306 - AT - Income TaxTransfer pricing adjustment - whether the transactions of the assessee need to be benchmarked as KPO? - Held that - The assessee claims itself to be a Software Development Service Provider whereas the TPO has treated the assessee as engaged in providing contract Research & Development Services. This dispute gets strength from the nomenclature used by the assessee in Form No. 3CEB and also in its Transfer Pricing Study Report. However, the documentary evidences filed in the form of copies of Softex Forms and the order of the STPI authorities paint an altogether different picture. In our considered opinion, these documents have not been properly appreciated by the Revenue authorities. Had these documents been examined qua the nature of business of the assessee, the resultant product would have been different. Therefore, in the interest of justice and fair play, we restore this issue to the file of the TPO. The TPO is directed to re-examine the entire issue by denovo assessment. The TPO is directed to decide the issue on the basis of Softex Form filed with the STPI authorities and related orders of the STPI authorities. The assessee is directed to furnish necessary details and the TPO is directed to examine the same after giving reasonable opportunity of being heard to the assessee. Needless to mention, the TPO shall also decide all other related issues with the TP adjustments relating to working capital adjustments and differences in the risks.- Decided in favour of assessee for statistical purpose.
Issues Involved:
1. General Issues 2. Non-pressed Ground 3. Transfer Pricing Adjustment 4. Following Directions of the DRP 5. Arithmetical Errors in Computation 6. Refund Issues 7. Levy of Interest Issue-wise Detailed Analysis: 1. General Issues: Grounds No. 1 and 2 were of a general nature and did not require separate adjudication. 2. Non-pressed Ground: Ground No. 3 was not pressed by the assessee and was dismissed accordingly. 3. Transfer Pricing Adjustment: Grounds No. 4, 5, and 6 revolved around the Transfer Pricing Adjustment made by the TPO. The TPO alleged that the assessee was engaged in providing contract research and development services to its associated enterprises, while the assessee claimed it was engaged in contract software development services. The TPO rejected the comparables selected by the assessee and used his own set of comparables, leading to a significant adjustment. The assessee argued that the TPO did not appreciate the nature of its business correctly and relied on the nomenclature used in Form No. 3CEB and the Transfer Pricing Study Report. The Tribunal found that the documentary evidence, such as Softex forms and orders from STPI authorities, were not properly considered by the Revenue authorities. Therefore, the Tribunal restored the issue to the file of the TPO for a denovo assessment, directing the TPO to re-examine the issue based on the Softex forms and related orders from STPI authorities. Grounds No. 4, 5, and 6 were allowed for statistical purposes. 4. Following Directions of the DRP: Grounds No. 7, 8, and 9 related to Transfer Pricing Adjustments. Since the Tribunal restored the determination of TP adjustment for grounds No. 4, 5, and 6, the assessee was allowed to raise any related issue before the TPO. The TPO was directed to consider these issues after providing a reasonable and fair opportunity to the assessee. Grounds No. 7, 8, and 9 were allowed for statistical purposes. 5. Arithmetical Errors in Computation: Grounds No. 10 and 11 related to the grievance that the directions of the DRP were not followed while framing the assessment order. The Tribunal directed the TPO/AO to follow the DRP's directions and decide the rectification application filed by the assessee expeditiously. Grounds No. 10 and 11 were allowed. 6. Refund Issues: Ground No. 12 was consequential to grounds No. 4, 5, and 6 and was decided accordingly. Ground No. 13 related to certain arithmetical errors in the computation of net income tax. The Tribunal directed the AO to decide the rectification application expeditiously. Ground No. 14 related to an amount of Rs. 38,44,080/- which the AO claimed was already refunded to the assessee. The Tribunal directed the AO to decide the rectification application expeditiously. Grounds No. 13 and 14 were addressed accordingly. 7. Levy of Interest: Grounds No. 15, 16, and 17 related to the levy of interest under sections 234B, 234C, and 234D. The Tribunal noted that the levy of interest is mandatory though consequential in nature and directed the AO to charge interest as per the provisions of the law. Interest under section 234C is charged on the returned income, not on the assessed income. Conclusion: The appeal filed by the assessee was allowed in part for statistical purposes. The Tribunal directed the TPO to re-examine the Transfer Pricing Adjustment issue and other related issues, ensuring that the directions of the DRP were followed and rectification applications were decided expeditiously. The order was pronounced in the open court on 10th November 2015.
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