2016 (8) TMI 1365 - AT - Income Tax

Transfer Pricing related grounds - Comparable specific - Held that - Referring to business support services provided by the Appellant to its associated enterprise functional dissimilarity need to be seen to select comparability. Absence of any difference in facts having been pointed out by the ld. DR of the revenue we direct the AO/TPO to exclude these three companies i.e. M/s Aptico Ltd. M/s Global Procurement Consultants Ltd. and M/s TSR Darashaw Ltd. from the list of final comparables and since the average profit of the remaining three comparable i.e. M/s Cyber Media Research Ltd., 14.85% M/s HCCA Business Services Pvt. Ltd. 20.05% and M/s Quadrant Communications Ltd. 1.11% is around 16% which is within 5% range of the assessee s profit margin of 12.06% no TP adjustment is required to be made. We hold accordingly.

Issues Involved:
1. Incorrect appreciation of facts and wrong interpretation of law by DRP.
2. Erroneous assessment of total income and tax demand by AO/TPO.
3. Non-acceptance of economic analysis and use of inappropriate data for determining ALP.
4. Improper comparability adjustments and inclusion/exclusion of certain comparables.
5. Incorrect computation of TP adjustments and lack of basis for revised TP adjustment.
6. Levy of interest under sections 234B and 234C.
7. Initiation of penalty proceedings under section 271(1)(c).

Issue-wise Detailed Analysis:

1. Incorrect Appreciation of Facts and Wrong Interpretation of Law by DRP:
The assessee contended that the DRP's directions were based on an incorrect appreciation of facts and a wrong interpretation of law, rendering the order bad in law. This issue was raised as a general ground without specific details provided in the judgment.

2. Erroneous Assessment of Total Income and Tax Demand by AO/TPO:
The AO/TPO assessed the total income at ?5,05,70,333 against the returned income of ?2,76,94,194, resulting in a balance tax demand of ?1,26,88,059. The assessee argued that this assessment was erroneous in both law and fact.

3. Non-acceptance of Economic Analysis and Use of Inappropriate Data for Determining ALP:
The DRP upheld the TPO/AO's decision not to accept the economic analysis undertaken by the assessee and instead conducted a fresh economic analysis using only FY 2009-10 data, which was not available to the assessee at the time of documentation. The Tribunal found that the AO/TPO's reliance on FY 2009-10 data was improper as it was not available to the assessee during the compliance period.

4. Improper Comparability Adjustments and Inclusion/Exclusion of Certain Comparables:
The assessee contested the inclusion of functionally different companies (Apitco Ltd., Global Procurement Consultants Ltd., and Quadrant Communications Ltd.) and the exclusion of valid comparables (Ma Foi Global Services, Ma Foi Management Consultants Ltd., Overseas Manpower Corpn. Ltd., Inhouse Productions Ltd., India Tourism Development Corporation Ltd., ICRA Management Consulting Services Ltd., and EDCIL (India) Ltd.). The Tribunal directed the exclusion of Apitco Ltd., Global Procurement Consultants Ltd., and TSR Darashaw Ltd. from the list of comparables based on functional dissimilarity and lack of segmental data. The Tribunal referenced previous cases (Adidas Technical Services Pvt. Ltd. and Eli Lilly & Co. (India) Pvt. Ltd.) to support its decision.

5. Incorrect Computation of TP Adjustments and Lack of Basis for Revised TP Adjustment:
The assessee argued that the TPO/AO erred in computing the quantum of TP adjustments and did not provide the basis for arriving at the revised TP adjustment despite specific requests. The Tribunal found that with the exclusion of certain comparables, the remaining comparables' average profit margin was within the acceptable range, and thus, no TP adjustment was required.

6. Levy of Interest under Sections 234B and 234C:
The AO levied interest of ?49,12,458 under section 234B and ?4,132 under section 234C. This issue was not specifically adjudicated as it became academic with the resolution of the primary TP adjustment issue.

7. Initiation of Penalty Proceedings under Section 271(1)(c):
The assessee argued that the initiation of penalty proceedings under section 271(1)(c) was erroneous as the basic conditions for such initiation were not satisfied. This issue was also not specifically adjudicated due to the primary issue's resolution.

Conclusion:
The Tribunal directed the exclusion of Apitco Ltd., Global Procurement Consultants Ltd., and TSR Darashaw Ltd. from the list of comparables. With the remaining comparables' average profit margin within the acceptable range, no TP adjustment was required. The appeal of the revenue was partly allowed, and the appeal of the assessee was allowed. The Tribunal's decision rendered other grounds academic.

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