9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (9) TMI 1525 - AT - Income TaxTP adjustment - comparable selection - functional similarity - HELD THAT - The assessee is mainly in the business of installation, commissioning and after sales service in respect of Telecom equipment supplied by its Associated Enterprises (AEs) to basic wired and wireless telecommunication operators in India and supply of telecommunication equipment accessories. The assessee also provides marketing support and customer services in relation to the Indian market and software research and development services to its AE. Once it has been pointed out that there are factual and functional similarities then only the decisions rendered qua such comparables have a persuasive value which the Co-ordinate Bench is obliged to follow. However, before us, except for referring to these decisions no other material facts have been submitted before us with regard to the functional similarity or dissimilarity based on FAR analysis vis- -vis the comparable companies. Hence, in the interest of justice, we feel that all the disputed comparable companies which has been sought to be excluded by the assessee needs to be remanded back to the file of the AO / TPO so that proper analysis on FAR basis can be presented by the assessee. In case the similarity of facts are found vis- -vis the comparable companies as discussed in the ITAT orders relied by the assessee, then AO should consider the same. However, the onus will be on the assessee to show that, how these decisions of the Tribunal qua the comparable companies are applicable on the facts of the assessee s case. With this direction so far as Transfer Pricing adjustment with regard to market support system is concerned, the same is remanded back to the file of the AO for fresh adjudication Software research and development services assessee has sought to challenge the inclusion of Infosys Technologies Ltd. and Satyam Computers Services Ltd by the TPO, when these two comparable companies were assessee s own comparables which have been accepted by the TPO and also by the DRP. There is no whisper in the DRP s order qua these two comparable companies. Before us, the Ld. Counsel has merely relied upon the decision of Hon ble Delhi High Court in the case of CIT vs. Agnity India Technologies (P) Ltd. 2013 (7) TMI 696 - DELHI HIGH COURT It has not been pointed out as to why these two comparables were not disputed before the DRP and also why no separate ground has been taken before us. On these facts, the Ld. Counsel s contention for exclusion of these two comparables cannot be accepted. However, in the interest of justice and also in wake of several decisions on these two comparables, we feel that so far as the inclusion and exclusion of these two comparables are concerned, the matter should be restored back to the file of the TPO/AO for fresh consideration whereby proper FAR analysis should be done while carrying out the comparability exercise based on principle laid down by the Hon ble Delhi High Court as well as other decisions and be decided accordingly. Comparables selected by the assessee viz., Sagar Soft India Ltd; Birla Technologies Ltd.; and PSI Data Systems Ltd. TPO had rejected these comparable on the ground that it is providing BPO service, IT outsourcing services and, therefore, it is functionally not comparable. However, from perusal of the annual report of this company it is seen that it has shown two segments of services - (i) hardware; and (ii) software services. So far as hardware services are concerned, it has earned revenue on account of sale of products and services, whereas, under the software services it has shown under the head services only. However, there is no separate bifurcation of license fee. For proper analysis, we of the opinion that this comparable company too should also be restored back to the to the file of the AO / TPO to carry out proper functional comparability and to examine whether its revenue is from software products or are mainly on account of rendering of software services. Appeal of the assessee stands allowed for statistical purposes.
Issues Involved:
1. Addition to total income. 2. Incorrect selection of comparables by the TPO. 3. Incorrect rejection of Appellant's benchmarking analysis and comparables. 4. Incorrect margin of comparables. 5. Disregard of multiple year data contention. 6. Tax evasion motive not demonstrated. Issue-wise Detailed Analysis: 1. Addition to Total Income: The assessee challenged an addition of ?99,13,649 to the total income made by the Assessing Officer (AO) based on the provisions of Chapter X of the Income-tax Act, 1961. The Transfer Pricing Officer (TPO) and the Dispute Resolution Panel (DRP) upheld this addition. The main dispute revolved around the inclusion and exclusion of certain comparables by the TPO. 2. Incorrect Selection of Comparables by the TPO: The assessee argued that the TPO and the DRP erred in selecting comparables for marketing and customer support services, despite detailed submissions. The TPO rejected 6 out of 7 comparables chosen by the assessee and required a fresh search, which led to further rejections. The TPO applied specific filters, such as excluding companies with data not available for FY 2007-08 and those with different financial year endings. The DRP later rejected 3 out of 10 comparables chosen by the TPO, leaving 7 comparables. The assessee disputed 4 of these comparables, citing various tribunal decisions. 3. Incorrect Rejection of Appellant's Benchmarking Analysis and Comparables: The TPO disregarded some comparables selected by the assessee based on contemporaneous data in the transfer pricing study report. The TPO found the filters applied by the assessee inappropriate and carried out his own search process. The DRP upheld the TPO's rejection of the comparables identified by the assessee. The tribunal remanded the issue back to the AO/TPO for fresh adjudication, directing a proper analysis on a functional, asset, and risk (FAR) basis. 4. Incorrect Margin of Comparables: The TPO made incorrect adjustments in the margin of some comparable companies computed from publicly available annual reports. The tribunal noted that the TPO provided detailed reasons for including certain companies in the comparability analysis after an elaborate search process and FAR analysis. The tribunal remanded the issue back to the AO/TPO to allow the assessee to present proper analysis and rebut the TPO's findings. 5. Disregard of Multiple Year Data Contention: The TPO and the DRP rejected the assessee's contention to compute the margin of comparable companies based on multiple-year financial data. The tribunal did not specifically address this issue separately but included it in the overall remand for fresh adjudication. 6. Tax Evasion Motive Not Demonstrated: The assessee argued that it was claiming a tax deduction under Section 10A of the Act for software research and development activities and had no intention to shift profits outside India, a prerequisite for adjustments under Chapter X. The tribunal did not specifically address this issue separately but included it in the overall remand for fresh adjudication. Separate Judgments: Not applicable as the judgment was delivered collectively by the tribunal members. Conclusion: The tribunal remanded the entire matter relating to Transfer Pricing adjustment back to the AO/TPO for fresh adjudication. The tribunal directed the AO/TPO to carry out a proper FAR analysis and consider the assessee's contentions and tribunal decisions regarding the comparables. The appeal of the assessee was allowed for statistical purposes.
|
