2019 (1) TMI 1795 - AT - Income Tax

TP Adjustment - comparable selection - HELD THAT - Accentia Technologies Ltd. is engaged in the business of developing software products and it does have any segmental information for its services segment and software products segment. Though the Ld D.R sought time to find out availability of segmental details yet no such information was provided before us. Accordingly the absence of segmental information would make this company incomparable. Accordingly we direct the Assessing Officer to exclude this company. E-clerx Services Ltd. cannot be compared with assessee being a KPO company. M/s. Mold-Tech Technologies Limited is a KPO company providing structural engineering services. Further during the year under consideration extra ordinary events like amalgamation and demerger have taken place. Hence there is merit in the contentions of the assessee that this company cannot be taken as a comparable. M/s. Acropetal Technologies Limited comparable has two segments namely engineering design service segment and Information technology service segment.TPO has considered engineering design service segment and compared the same with the assessee company. As noticed earlier the assessee company is providing routine ITE services to its AEs as a captive service provider. Identical scenario was considered in the case of Symphony Marketing Solution India P. Ltd. 2014 (2) TMI 83 - ITAT BANGALORE and this comparable has been excluded. Since all the above said four companies have been directed to be excluded arithmetic mean margin of comparable requires to be redetermined and it also requires to be seen as to whether any addition if any is called for or not. Accordingly we restore the issue of determining mean margin of comparables to the file of the Assessing Officer for examining it afresh by excluding four comparable companies. Disallowance u/s 14A - A.R submitted that the disallowances made while computing the profits and gains of business shall also be eligible for deduction u/s 10A - prayed that the AO may be directed to allow deduction u/s 10A of the Act in respect of disallowance made u/s 14A - HELD THAT - This claim of the assessee requires examination in terms of the circular issued by CBDT. Accordingly we restore this issue to the file of AO for examining the same. Claim for credit of TDS amount - HELD THAT - We restore this issue also to the file of the AO as it requires examination of relevant TDS certificates and income declared by the assessee.

Summary

Issues Involved:
1. Transfer pricing adjustment of ?799.87 lakhs.
2. Rejection of claim for deduction u/s. 10A on the amount disallowed u/s. 14A.
3. Non-granting of TDS of ?17,562.
4. Levy of interest u/s. 234B & 234C.

Detailed Analysis:

1. Transfer Pricing Adjustment of ?799.87 Lakhs:
The assessee, engaged in BPO/ITE services, contested the transfer pricing (T.P) adjustments made by the Assessing Officer (AO). The assessee had benchmarked its international transactions using the Transactional Net Margin Method (TNMM) and considered 14 comparables, arriving at an arm’s length margin of 12.99%, while the assessee’s own margin was 16.77%. However, the TPO selected 19 comparables and determined an arm’s length margin of 30.49%, leading to an adjustment of ?1167.96 lakhs. The Dispute Resolution Panel (DRP) excluded two comparables, reducing the mean margin to 27.45% and the adjustment to ?799.87 lakhs.

The assessee accepted 13 comparables but disputed four: Accentia Technologies Limited, E-clerx Services Ltd., Mold-Tex Technologies Ltd., and Acropetal Technologies Ltd.

Accentia Technologies Limited:
The assessee argued that Accentia provided high-end services like medical transcription and had developed software products, making it incomparable. The Tribunal had previously excluded this company in AY 2011-12, and the Bombay High Court in Aptara Technology (P) Ltd. held that companies providing medical services without segmental data cannot be compared to ITE service providers. The Tribunal directed the exclusion of Accentia Technologies Limited due to the lack of segmental information and its involvement in software development.

E-clerx Services Ltd.:
The assessee contended that E-clerx provided high-end KPO services and had undergone extraordinary events like acquiring Igentica Travel Solutions Ltd., impacting its profitability. The Tribunal had excluded E-clerx in several cases, including Rampgreen Solutions Pvt. Ltd. and Maersk Global Centres (India) Pvt. Ltd., as KPO services were not comparable to BPO services. The Tribunal directed the exclusion of E-clerx Services Ltd.

Mold-Tex Technologies Ltd.:
The assessee argued that Mold-Tex provided structural KPO services and had undergone amalgamation and demerger, impacting its comparability. The Tribunal had excluded Mold-Tex in Dialogic Networks (India) Pvt. Ltd. and Maersk Global Centres (India) Pvt. Ltd. due to its restructuring and different functional profile. The Tribunal directed the exclusion of Mold-Tex Technologies Ltd.

Acropetal Technologies Limited:
The assessee contended that Acropetal had two segments, and the TPO considered the engineering design service segment, which was not comparable to the assessee’s ITE services. The Tribunal had excluded Acropetal in Symphony Marketing Solution India P. Ltd., as engineering design services were high-end KPO activities. The Tribunal directed the exclusion of Acropetal Technologies Limited.

The Tribunal restored the issue of determining the mean margin of comparables to the AO for fresh examination by excluding the four disputed companies.

2. Rejection of Claim for Deduction u/s. 10A on the Amount Disallowed u/s. 14A:
The assessee argued that disallowances made while computing business profits should be eligible for deduction u/s 10A. The Tribunal restored this issue to the AO for examination in terms of the CBDT circular.

3. Non-Granting of TDS of ?17,562:
The Tribunal restored the issue of TDS credit to the AO for examination of relevant TDS certificates and income declared by the assessee.

4. Levy of Interest u/s. 234B & 234C:
The Tribunal noted that charging of interest is consequential and did not require adjudication.

Conclusion:
The appeal of the assessee was treated as allowed, with directions to the AO to re-examine the issues of transfer pricing adjustments, deduction u/s 10A, and TDS credit. The issue of interest u/s 234B & 234C was deemed consequential and not adjudicated separately.