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2020 (2) TMI 1632 - AT - Income TaxTP Adjustment - determination of Arm s Length Price (ALP) in respect of an international transaction for rendering information Technology Enabled Services (ITES) by the assessee to its Associated Enterprise (AE) - comparable selection - HELD THAT - Acropetal Technologies Ltd. ( Acropetal) company is engaged in provision of a variety of IT enabled services comprising of Enterprise solutions IT Infrastructure Management Services Cloud Services Greenhouse Gas Management unlike the Assessee who is a provider of routine IT enabled services. Further the company is engaged in provision of engineering design services which are in the nature of high end IT enabled services which are in the nature of Knowledge Process Outsourcing ( KPO ) which is not comparable to the Assessee s ITES. Jeevan Scientific Technologies Ltd. ( Jeevan ) - If the service income from the BPO segment alone is considered the component of service income to the total revenue of this company is less than 75% of total operating revenue. In any event if the turnover of BPO segment is considered it is less than Rs.1 Crore and this company fails to satisfy the TPO s own filter of service revenue from the relevant segment having to be in excess of Rs. 1 crore as the revenue from the BP0 segment of the said company is Rs. 79 lakhs only. The company is therefore not comparable to the Assessee and the DRP s findings on exclusion of Jeevan are right in law and ought not to be interfered with. iGate Global Solutions Ltd. ( iGate ) is engaged in provision of varied services and no segmental breakup of the same is available in its Annual Report. Further. the company s software services segment is clubbed with its ITEs segment and there is no breakup between the revenues generated from the two segments. During the year under consideration this company had acquired majority equity interest in Patni Computer Systems Ltd. rendering it incomparable due to it failing the TPO s own filter of having peculiar economic circumstances. In addition the company owns significant intangibles in its name which is evident from the balance sheet of the company for the Financial Year 2010-11 - We are of the view that the above reasons given by the DRP for excluding this company as a comparable company is right and does not call for any interference. Computation of deduction u/s 10A - excluding communication expenses and expenses incurred in foreign currency both from the export turnover as well as total turnover while computing the deduction - HELD THAT - DRP correctly accepted the Assessee s alternate contention and held that the expenses ought to be reduced from its export and total turnover by following the judgment of the Hon ble High Court of Karnataka in CIT Vs Tata Elxsi Ltd. 2011 (8) TMI 782 - KARNATAKA HIGH COURT thus sums excluded from Export turnover in fact ought not to have been so excluded as per the definition of Export Turnover as defined in Sec.10A of the Act do not require any adjudication and are accordingly dismissed. TDS u/s 195 or 192 - disallowance u/s 40(a)(i) - cross charge of salary paid to Aon Services Corporation USA - HELD THAT - It is not disputed by the revenue that in respect of the payments made to Aon Services Corporation USA towards reimbursement of salary expenses the assessee has duly deducted tax at source u/s 192 of the Act. In fact in the letter dated 02-03-2015 the assessee has highlighted this aspect in para-2 at page-3 of the aforesaid letter. Though the assessee has not taken a specific plea that no disallowance u/s 40(a)(ia) of the Act can be made for short deduction of tax at source yet the fact remains that the aforesaid plea is a legal plea which can be adjudicated on the basis of facts already available on record. We are of the view that decision of the Hon ble Karnataka High Court in the case of Kishore Rao Others 2016 (4) TMI 430 - KARNATAKA HIGH COURT clearly supports the plea of the assessee. The decision rendered in case of S.K. Tekriwal 2012 (12) TMI 873 - CALCUTTA HIGH COURT taking a view that there can be no disallowance of expenses u/s 40a(ia) of the Act for short deduction of tax at source has been followed by the Hon ble Karnataka High Court. In the given facts and circumstances of the case we are of the view that the order of CIT(A) has to be upheld. Therefore the question whether the payment in question has to be regarded as fees for technical services rendered or mere reimbursement of expenses does not call for any adjudication.
Issues Involved:
1. Determination of Arm’s Length Price (ALP) for international transactions. 2. Exclusion of certain companies as comparables. 3. Computation of deduction under Section 10A of the Income Tax Act. 4. Disallowance under Section 40(a)(i) for non-deduction of tax at source. Issue-wise Detailed Analysis: 1. Determination of Arm’s Length Price (ALP) for International Transactions: The Assessee, a wholly owned subsidiary of Aon Mauritius Holdings, engaged in providing IT-enabled analytical, research, and support services to its Associated Enterprises (AEs), was remunerated on a cost-plus basis. During the relevant year, the Assessee provided ITES to its AEs at a price of Rs. 44,92,78,673/-, leading to a Transfer Pricing (TP) adjustment of Rs. 2,60,45,974/- by the Transfer Pricing Officer (TPO). The TPO accepted only 5 out of the 14 comparable companies chosen by the Assessee and applied several filters to determine comparability. The Dispute Resolution Panel (DRP) directed the exclusion of certain companies and reworked the TP adjustment to 'Nil', which was subsequently contested by the Revenue. 2. Exclusion of Certain Companies as Comparables: The DRP excluded companies like Acropetal Technologies Ltd., Jeevan Scientific Technologies Ltd., and iGate Global Solutions Ltd. from the list of comparables. The DRP found Acropetal Technologies Ltd. to be engaged in high-end IT-enabled services, unlike the Assessee's routine ITES. Jeevan Scientific Technologies Ltd. was excluded as its BPO segment's revenue was less than Rs. 1 crore, failing the TPO's filter. iGate Global Solutions Ltd. was excluded due to the lack of segmental breakup between software services and ITES, and the presence of peculiar economic circumstances. The Tribunal upheld the DRP's findings on these exclusions. 3. Computation of Deduction under Section 10A: The AO recomputed the deduction under Section 10A by reducing communication expenses and expenses incurred in foreign currency only from the export turnover, not from the total turnover. The DRP directed the AO to reduce these expenses from both export and total turnover, following the Karnataka High Court's decision in CIT Vs Tata Elxsi Ltd. The Tribunal agreed with the DRP, dismissing the Revenue's appeal on this ground. 4. Disallowance under Section 40(a)(i) for Non-deduction of Tax at Source: The AO disallowed Rs. 73,45,311/- reimbursed to Aon Limited, UK, considering it as fees for technical services, on which the Assessee failed to deduct tax at source under Section 195. The DRP deleted the addition, relying on the Tribunal's decision in the Assessee's own case for the previous year. The Tribunal upheld the DRP's decision, noting that the Assessee had deducted tax under Section 192 for salary costs, and as per the Karnataka High Court's decision in CIT Vs Kishore Rao & Others (HUF), no disallowance under Section 40(a)(ia) can be made for short deduction of tax. Conclusion: The Tribunal dismissed both the Revenue's appeal and the Assessee's cross-objection, upholding the DRP's directions on the exclusion of certain comparables, computation of deduction under Section 10A, and disallowance under Section 40(a)(i). The Tribunal's order emphasized adherence to established legal principles and precedents, ensuring that the Assessee's transactions were evaluated fairly and in accordance with the law.
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