2018 (5) TMI 2084 - AT - Income Tax

TP Adjustment - comparable selection - Design Engineering Services Segment - characterize the assessee as providing ITES - AR contended that the characterization of the assessee's services rendered to its AEs in this segment as ITES was wrong and the same should have been characterized as Design and Engineering Services - HELD THAT - As it was not correct to characterize the assessee as providing ITES. First of all, the TPO does not appear to be following a consistent position over the years - in Assessment Year 2011-12, Revenue has also accepted the services rendered by this segment as 'Engineering Design Services' - also characterization is not in tune with the functional analysis done in the TP Study as the TPO has not brought on record any evidence which might establish that the characterization has to be ITES only - for unclear/unestablished factual position as emerges we deem it appropriate to remand the matter back to the file of the TPO and direct that the characterization of the assessee shall be done in accordance with law, after affording the assessee adequate opportunity of being heard and to make submissions and file details etc required which shall be duly considered. Computation of deduction under Section 10A - seeking parity between export turnover and total turnover - exclusion of expenses incurred on freight and travel in foreign currency from both export turnover as well as the total turnover - HELD THAT - This issue is no longer res integra and is covered by the judgment in the case of Tata Elxsi Ltd. 2011 (8) TMI 782 - KARNATAKA HIGH COURT wherein it has been held that if certain expenses are excluded from export turnover, the same should be excluded from total turnover. Thus we reverse the decision of the learned CIT (Appeals) and direct the Assessing Officer to compute the deduction under Section 10A of the Act by reducing the said expenses from both export turnover and total turnover. Charging of interest under Section 234B 234D - HELD THAT - The charging of interest is consequential and mandatory and the Assessing Officer has no discretion in the matter. This proposition has been upheld by the Hon'ble Apex Court in the case of Anjum H. Ghaswala 2001 (10) TMI 4 - SUPREME COURT and we therefore uphold the action of the Assessing Officer in charging the said interest in the case on hand. The Assessing Officer is, however, directed to recompute the interest chargeable under Section 234B 234D.

Summary

Issues Involved:
1. Condonation of Delay in Filing Appeal
2. Transfer Pricing Adjustments
3. Deduction under Section 10A/10B of the Income Tax Act
4. Charging of Interest under Sections 234B and 234D

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing Appeal:
The assessee filed an appeal with a delay of 20 days, attributing the delay to the serious illness of the employee responsible for tax matters, which led to the assessment order being overlooked. The Tribunal considered the reasons provided, including medical certificates and attendance records, and emphasized the principles laid down by the Hon'ble Apex Court in MST Katiji, which favor substantial justice over technical considerations. The Tribunal found no malafide intent and deemed the delay as caused by sufficient and reasonable cause. Thus, the delay was condoned, and the appeal was admitted for consideration and adjudication.

2. Transfer Pricing Adjustments:
The assessee, a subsidiary of Flowserve Corporation, USA, contested the adjustments made by the TPO to the Design Services Segment and management charges. The TPO had characterized the design services as ITES, leading to an adjustment of ?68,31,724. The Tribunal noted that the TPO had accepted the services as Design and Engineering Services in previous years and that the characterization as ITES was inconsistent. The Tribunal remanded the matter back to the TPO for a fresh examination, directing that the characterization be done in accordance with law, considering the submissions and evidence provided by the assessee.

3. Deduction under Section 10A/10B of the Income Tax Act:
The assessee challenged the recomputation of deductions under Sections 10A and 10B, particularly the exclusion of foreign travel and freight expenses from export turnover. The Tribunal referred to the jurisdictional High Court's decision in Tata Elxsi Ltd., which mandates that if certain expenses are excluded from export turnover, they must also be excluded from total turnover. The Tribunal directed the Assessing Officer to recompute the deduction by reducing the expenses from both export and total turnover, allowing the assessee's appeal on this ground.

4. Charging of Interest under Sections 234B and 234D:
The assessee contested the levying of interest under Sections 234B and 234D. The Tribunal upheld the Assessing Officer's action, citing the Hon'ble Apex Court's ruling in Anjum H. Ghaswala, which states that charging interest is consequential and mandatory. However, the Assessing Officer was directed to recompute the interest while giving effect to the Tribunal's order.

Conclusion:
The Tribunal partly allowed the assessee's appeal for Assessment Year 2007-08, condoning the delay in filing, remanding the transfer pricing issue for fresh examination, directing recomputation of deductions under Sections 10A/10B, and upholding the charging of interest under Sections 234B and 234D, subject to recomputation.