2018 (4) TMI 1631 - AT - Income Tax

TPA - Comparable selection - Held that - Assessee as been engaged in providing low end business support services thus companies functionally dissimilar with that of assessee need to be deselected from final list. We therefore find the four companies disputed by the assessee namely Engineers India Ltd RITES limited TCE Consulting Engineering Ltd and Water And Power Consulting Services Ltd are not good comparables to the assessee to benchmark the international transaction. Ld. AO/TPO will exclude the same from the final list of comparables. Appeal of the assessee is allowed for statistical purpose.

Summary

Issues Involved:
1. Transfer Pricing Adjustment for Medical Information and Business Support Services.
2. Use of Single Year Data vs. Multiple Year Data for Arm's Length Price (ALP) Determination.
3. Selection of Comparable Companies for Benchmarking.
4. Risk Adjustment for Low-Risk-Bearing Contract Service Provider.
5. Working Capital Adjustment.
6. Levy of Interest under Sections 234B and 234C of the Income Tax Act.
7. Condonation of Delay in Filing the Appeal.

Detailed Analysis:

1. Transfer Pricing Adjustment for Medical Information and Business Support Services:
The assessee challenged the addition of Rs. 54,64,835 on account of transfer pricing adjustment related to medical information and other business support services. The Tribunal noted that the Transfer Pricing Officer (TPO) had increased the book value due to a difference in the ALP and the book value exceeding 5%. The Tribunal upheld the TPO's adjustment, finding no error in the determination of the ALP.

2. Use of Single Year Data vs. Multiple Year Data for Arm's Length Price (ALP) Determination:
The assessee argued for the use of multiple year data to even out industry and production cycle variations. However, the TPO used single year data as per Rule 10B(4) of the Income Tax Rules, which generally mandates the use of data from the financial year in which the transaction took place. The Tribunal agreed with the TPO, noting that the assessee failed to demonstrate any special circumstances justifying the use of multiple year data.

3. Selection of Comparable Companies for Benchmarking:
The assessee contested the inclusion of Engineers India Ltd, RITES Ltd, TCE Consulting Engineering Ltd, and Water and Power Consulting Services Ltd as comparables. The Tribunal examined each company and ruled that these entities were not functionally comparable due to differences in business models, the nature of services provided, and the fact that they were government enterprises. The Tribunal cited several precedents and concluded that these companies should be excluded from the final set of comparables.

4. Risk Adjustment for Low-Risk-Bearing Contract Service Provider:
The assessee contended that as a low-risk-bearing contract service provider, a risk adjustment should be provided. The Tribunal did not find merit in the assessee's argument, as the assessee failed to demonstrate how the risk adjustment should be calculated or justified.

5. Working Capital Adjustment:
The assessee argued for a working capital adjustment, claiming that the TPO had inconsistently denied this adjustment while allowing it in other cases. The Tribunal upheld the TPO's rejection, noting that the assessee did not adequately demonstrate the reasons and calculations for the working capital adjustment.

6. Levy of Interest under Sections 234B and 234C of the Income Tax Act:
The assessee challenged the levy of interest under Sections 234B and 234C. The Tribunal did not provide a detailed discussion on this issue, implicitly upholding the levy of interest as per the assessment order.

7. Condonation of Delay in Filing the Appeal:
The appeal was filed with a delay of 30 days. The assessee explained that the delay was due to technical reasons and was not intentional. The Tribunal condoned the delay, noting that the assessee did not gain any advantage from the delay and that the cause of justice would be advanced by allowing the appeal to be heard on merits.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the exclusion of the four contested comparables and upholding the use of single year data for ALP determination. The Tribunal also condoned the delay in filing the appeal, allowing the assessee to present their case on merits.