2019 (11) TMI 1714 - AT - Income Tax

TP Adjustment - comparable selection - HELD THAT - Companies functionally dissimilar with that of assessee need to be deselected from final list. Delayed payment of employees contribution towards PF and ESIC u/s 36(1)(va) rws 2(24)(x) - HELD THAT - We direct the AO to allow the deduction of employees contribution to PF provided assessee has remitted the same into Govt. a/c before the due date of furnishing the return of income u/s 139(1) of the Act. This ground is allowed.

Summary

Issues Involved:
1. Incorrect selection of comparables.
2. Incorrect rejection of comparables.
3. Incorrect rejection of Appellant's Transfer Pricing study/Incorrect benchmarking analysis by TPO.
4. Incorrect computation of Profit Level Indicator (PLI).
5. Risk Adjustment.
6. International transactions at Arm's Length Price (ALP) after considering the ±5 percent benefit under the proviso to section 92C of the Act.
7. Disallowance of employee's contribution to Provident Fund.
8. Inadequate opportunity.
9. Levy of interest under sections 234A, 234B, and 234C of the Act.

Detailed Analysis:

1. Incorrect Selection of Comparables:
The assessee contested the inclusion of eight comparables selected by the TPO on the grounds of functional dissimilarities. The Tribunal found that in the assessee's own case for AY 2011-12, the coordinate bench had excluded Accentia Technologies Ltd., Eclerx Services Ltd., and TCS E-Serve Ltd. due to their functional differences. The Tribunal upheld the exclusion of these companies, citing their involvement in high-end KPO services and other specialized services not comparable to the assessee's ITES services. Additionally, the Tribunal directed the exclusion of Datamatics Global Services Pvt. Ltd. and Cross Domain Solutions Pvt. Ltd. based on functional dissimilarities and previous decisions in the assessee's own case for subsequent years (AYs 2013-14 and 2014-15).

2. Incorrect Rejection of Comparables:
The assessee's objections to the rejection of certain comparables by the TPO were partly accepted. The Tribunal directed the AO/TPO to adopt the correct margins for E4e Healthcare Business Services Pvt. Ltd. and Jindal Intellicom Ltd. before arriving at the ALP of the transaction. The Tribunal also directed the exclusion of Cross Domain Solutions Pvt. Ltd. from the final list of comparables, as it was found to be a KPO service provider, not comparable to the assessee's ITES services.

3. Incorrect Rejection of Appellant's Transfer Pricing Study/Incorrect Benchmarking Analysis by TPO:
The Tribunal noted that the issues raised in grounds 13 to 16 were academic in nature due to the directions for exclusion of certain companies. Therefore, these grounds were rejected as academic.

4. Incorrect Computation of Profit Level Indicator (PLI):
The Tribunal did not find it necessary to address this issue separately, as the exclusion of certain comparables and adoption of correct margins for others would inherently correct the PLI computation.

5. Risk Adjustment:
The assessee did not press this ground, and it was rejected as not pressed.

6. International Transactions at Arm's Length Price (ALP) after Considering the ±5 Percent Benefit under the Proviso to Section 92C of the Act:
The assessee did not press this ground, and it was rejected as not pressed.

7. Disallowance of Employee's Contribution to Provident Fund:
The Tribunal found that the issue was covered in favor of the assessee by various decisions, including those of the Hon'ble Madras High Court and Hon'ble Delhi High Court. It directed the AO to allow the deduction of employees' contribution to PF if the assessee had remitted the same into the government account before the due date of furnishing the return of income under section 139(1) of the Act.

8. Inadequate Opportunity:
The assessee did not press this ground, and it was dismissed as not pressed.

9. Levy of Interest under Sections 234A, 234B, and 234C of the Act:
The Tribunal held that the charging of interest under these sections is consequential in nature and directed the AO/TPO to compute the consequential relief, if any, to the assessee.

Conclusion:
The appeal of the assessee was partly allowed, with specific directions to exclude certain comparables and adopt correct margins for others, thereby affecting the final assessment of the ALP. The disallowance of employees' contribution to PF was directed to be allowed, and the levy of interest under sections 234A, 234B, and 234C was to be computed consequentially.