2018 (2) TMI 2063 - HC - Income Tax

International transactions/activities in respect of one of the services rendered to its associated enterprises i.e. (AE) - HELD THAT - We admit following question of law arises - Did the ITAT commit an error in law in holding that the assessee was engaged in knowledge management systems and international transactions/activities in respect of one of the services rendered to its associated enterprises i.e. (AE). Notional interest attributed to the assessee and for which adjustment was made by the TPO, was finally affirmed by the ITAT - This Court has considered the submissions of the parties and is of the opinion that having regard to the considered view in the case of Pr. CIT Vs. Kusum Health Care Pvt. Ltd. 2017 (4) TMI 1254 - DELHI HIGH COURT , the matter requires further examination/scrutiny; the reasons for the credit or delay in payment needs to be examined. The matter is therefore remitted back to the ITAT which may, connected matters deem necessary, file a report in this regard. Did the ITAT fall into an error in excluding the relative comparables which were held to be irrelevant for the purpose of ALP determination in the circumstances of the case.? - Notice of both the appeals are accepted by the concerned parties. Heard the counsel for the parties. Judgment reserved.

Summary

Issues:
1. Question of law regarding ITAT's error in holding the assessee was engaged in knowledge management systems and international transactions.
2. Question of law regarding notional interest attributed to the assessee and adjustment made by the TPO.
3. Question of law regarding ITAT's error in excluding relative comparables for ALP determination.

Issue 1 - Knowledge Management Systems and International Transactions:
The High Court considered whether the ITAT erred in holding that the assessee was involved in knowledge management systems and international transactions regarding one of the services provided to its associated enterprises. The Court noted the case of Pr. CIT Vs. Kusum Health Care Pvt. Ltd. and decided that further examination was needed to determine the reasons for the credit or delay in payment. As a result, the matter was remitted back to the ITAT for additional scrutiny, with the possibility of filing a report if necessary. All rights of the parties were reserved, and the judgment was reserved for further proceedings.

Issue 2 - Notional Interest and Adjustment by TPO:
The Court examined the question of notional interest attributed to the assessee and the adjustment made by the Transfer Pricing Officer (TPO), which was affirmed by the ITAT. Referring to the case of Pr. CIT Vs. Kusum Health Care Pvt. Ltd., the Court decided that a detailed examination of the reasons for the credit or delay in payment was essential. Consequently, the matter was sent back to the ITAT for reevaluation, with the option for the ITAT to submit a report if deemed necessary. The judgment was reserved, and all parties' rights were preserved.

Issue 3 - Exclusion of Relative Comparables for ALP Determination:
The High Court addressed the question of whether the ITAT erred in excluding relative comparables considered irrelevant for determining the Arm's Length Price (ALP) in the given circumstances. Both appeals were accepted by the parties, and after hearing the counsel, the judgment was reserved for further consideration.