2017 (8) TMI 1576 - AT - Income Tax

TP Adjustment - Exclusion/Inclusion of comparables sought for by assessee - HELD THAT - Infosys BPO Ltd. - As the facts of the case for the year under consideration, as brought out from the relevant portions of the Annual Report of this company are similar for this year also, we respectfully following the aforesaid decision of the co-ordinate bench in the case of e4e Business Solutions India (P.) Ltd. 2016 (3) TMI 356 - ITAT BANGALORE hold that his company i.e Infosys BPO Ltd., is functionally dissimilar from the assessee in the case on hand and direct the AO/TPO to exclude this company from the final set of comparables. We hold and direct accordingly. TCS E-Serve Ltd.- While the assessee has mentioned the services rendered by this company as high end KPO services, it has not brought out as to which are the services that would fall under Transaction Processing and which services would come under Technical Services, a distinction made in the cited case. It is also seen that the assessee has not put forth any submissions on the issue of development of software, one of the reasons cited in the decision relied upon. While the TPO has held that the services rendered by the company to be BPO services without any analysis, we find that the assessee also has not demonstrated that the services rendered by the company fall in the high end KPO services as claimed and has relied on the decisions that has merely relied on the decisions that were rendered in the context of earlier years for excluding this company from the list of comparables. Therefore, in our view an examination is necessary in order to ascertain as to whether the conditions on the basis of which this company was excluded as a comparable in earlier years still prevail and are applicable to the assessment year under consideration. In this view of the matter, we deem it fit to remand the matter back to the file of the TPO for fresh consideration in the light of our observations above. BNR Udyog Ltd. (Seg) (Medical Transcription) - Since in the year under consideration, there are 3 segments, how much of the RPT expenses pertain to each of the segments requires examination and we find that this aspect has not been analyzed by either the TPO or the assessee. While it is clear from the TPO s order that if the benchmarking is done only for the medical transcription segment, then the RPT pertaining to that segment only should be considered. However, since how much of the RPT pertain to the medical transcription segment has not been determined by either the TPO or the assessee, we deem it appropriate and proper to remand the matter of comparability of this company M/s BNR Udyog Ltd., to the file of the TPO for determination of the issue afresh in line with our observation above. Needless to add, the assessee shall be afforded adequate opportunity of being heard in the matter and to file submissions/details in this regard which shall be duly considered by the TPO before deciding the issue Jindal Intellicom Ltd. - If the DRP come to the view that this company has been wrongly selected as a comparable the least the DRP ought to have done was to have afforded opportunity to both the TPO and the assessee of being heard in the matter in respect of their view/observations. However, we find that the DRP has unilaterally excluded this company from the final list of comparables. In the fitness of things, both the TPO and assessee should have been afforded adequate opportunity to explain its stand view in the matter. In that view of the matter, we set aside the finding of the DRP in excluding this company from the list of comparables to the assessee and remit the matter to the file of the DRP who shall decide this issue, of inclusion/exclusion of this company as a comparable, afresh TP Adjustment towards interest received - charging interest receivable on loans provided by the assessee to its AE s - HELD THAT - In the assessee s own case for asst. year 2008-09 in Indegence Life Systems (P.) Ltd. v. Asstt. CIT 2015 (7) TMI 211 - ITAT BANGALORE we hold that LIBOR rate should be applied for the interest on the said loan transactions and if the interest rate of 10% per annum charged by the assessee is higher than the LIBOR applicable, then adjustment towards the interest on the said loans advanced by the assessee to its AE s is not tenable. Charge of Interest u/s 234B and 234C - HELD THAT - The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition was upheld by the Hon ble Apex Court in the case of CIT v. Anjum H. Ghaswala 2001 (10) TMI 4 - SUPREME COURT and we therefore uphold the action of the AO in charging the assessee the said interest. The AO is, however, directed to re-compute the interest chargeable u/ss 234B and 234C of the Act while giving effect to this order.

Summary

Issues Involved:
1. Validity of the orders passed by the AO, TPO, and DRP.
2. Rejection of the arm’s length price for interest on loans to AE.
3. Treatment of interest payable on bank overdraft as internal comparable.
4. Non-following of jurisdictional ITAT ruling for AY 2008-09.
5. Rejection of documentation for accounting support services segment.
6. Rejection of comparable companies for accounting support services segment.
7. Selection of functionally different comparable companies.
8. Exclusion of a comparable not disputed by either party.
9. General nature of grounds.
10. Claim for MAT credit.
11. Inclusion/Exclusion of comparables in ITES segment.
12. TP adjustment towards interest received.
13. Charge of interest u/ss 234B and 234C of the Act.

Detailed Analysis:

1. Validity of Orders:
The assessee contended that the orders passed by the AO, TPO, and DRP were bad in law and not in accordance with the provisions of the Act. However, this ground was general in nature and no specific adjudication was called for.

2. Rejection of Arm’s Length Price:
The TPO rejected the arm’s length price determined by the assessee for interest receivable on loans to its AE, asserting that even if the loans were granted without charging any interest, they would comply with the arm’s length standard. The DRP confirmed the TPO's order.

3. Treatment of Bank Overdraft Interest:
The DRP erred in treating the interest payable on the bank overdraft as an internal comparable for determining the arm’s length nature of interest receivable on loans provided to the AE. The DRP did not follow the jurisdictional ITAT ruling for AY 2008-09 in the appellant’s own case, which involved similar facts.

4. Non-following of Jurisdictional ITAT Ruling:
The DRP did not adhere to the jurisdictional ITAT ruling for AY 2008-09 in the appellant’s own case, which involved similar facts.

5. Rejection of Documentation:
The TPO rejected the documentation maintained by the appellant for the accounting support services segment, stating that the information or data used in computation of the arm’s length price was not reliable or correct. The DRP confirmed the TPO's order.

6. Rejection of Comparable Companies:
The TPO rejected the comparable companies selected by the appellant for the accounting support services segment. The DRP confirmed the TPO's order.

7. Selection of Functionally Different Comparable Companies:
The DRP and the AO erred in confirming the TPO's order, which had selected certain comparable companies that were functionally different from the appellant.

8. Exclusion of a Comparable:
The DRP directed the TPO to exclude a comparable which had not been disputed either by the appellant or the TPO.

9. General Nature of Grounds:
Grounds 1 and 9 were general in nature and did not call for specific adjudication.

10. Claim for MAT Credit:
The appellant’s claim for MAT credit was rendered infructuous as the grievance was addressed by the AO’s order u/s 154 of the Act dated 18/4/2017.

11. Inclusion/Exclusion of Comparables in ITES Segment:
The assessee sought exclusion of Infosys BPO Ltd., TCS e-Serve Ltd., and BNR Udyog Ltd., and inclusion of Jindal Intellicom Ltd. The Tribunal held:
- Infosys BPO Ltd.: Excluded due to functional dissimilarity, brand value, and economies of scale.
- TCS e-Serve Ltd.: Remanded to TPO for fresh consideration to determine if conditions for exclusion still prevail.
- BNR Udyog Ltd.: Remanded to TPO to determine RPT expenses pertaining to the medical transcription segment.
- Jindal Intellicom Ltd.: Remanded to DRP for reconsideration, ensuring both TPO and assessee are heard.

12. TP Adjustment Towards Interest Received:
The TPO proposed an adjustment using a 14.47% rate instead of the 10% applied by the assessee. The DRP directed the use of the bank overdraft interest rate. The Tribunal held that LIBOR should be applied, following the decision in the assessee’s own case for AY 2008-09.

13. Charge of Interest u/ss 234B and 234C:
The charging of interest u/ss 234B and 234C is consequential and mandatory. The AO was directed to re-compute the interest while giving effect to the order.

Conclusion:
The appeal was partly allowed, with directions for re-examination and fresh consideration on specific issues, particularly regarding the inclusion/exclusion of comparables and the determination of interest rates for TP adjustments.