2019 (9) TMI 1645 - AT - Income Tax

TP Adjustment - transactions with non-Denmark AEs - Whether not covered under MAP? - HELD THAT - AO should restrict the TP adjustment in respect of non- Denmark AEs as per MAP resolution in respect of Denmark AEs.

Summary

Issues Involved:
1. Assessment order passed by AO u/s. 143(3) r.w.s. 144C of the IT Act, 1961 for Assessment Year 2012-13 challenged by the assessee.
2. Correct interpretation of law and assessment of total income by the AO.
3. Transfer pricing adjustments made by the TPO and DRP.
4. Selection of comparables and economic analysis in transfer pricing.
5. Working capital adjustment benefit computation.
6. Risk profile adjustment and comparability analysis.
7. Surcharge rate levied by the AO and computation of education cess, secondary and higher education cess, and interest under section 234B.
8. Interest levied under section 234B and initiation of penalty proceedings u/s 271(1)(c) of the Act.

Detailed Analysis:

1. The appeal was filed against the assessment order passed by the AO for the Assessment Year 2012-13 under sections 143(3) and 144C of the IT Act, 1961 as per the directions of the DRP. The grounds raised by the assessee challenged the correctness of the interpretation of law by the AO and the assessment of the total income, including specific objections to the balance demand payable.

2. The transfer pricing adjustments made by the TPO were contested by the assessee, particularly focusing on the addition to the total income on account of adjustments to the arm's length price for Information Technology enabled Services transactions with associated enterprises. The economic analysis undertaken by the assessee was not accepted, leading to discrepancies in determining the arm's length price.

3. The selection of comparables and the conduct of fresh economic analysis by the AO, TPO, and DRP were challenged by the assessee. The use of FY 2011-12 data for determining the arm's length margin was criticized, along with the reliance on information obtained under Section 133(6) of the Act for comparability purposes.

4. Issues related to the computation of working capital adjustment benefit and the failure to make suitable adjustments for differences in the risk profile of the assessee compared to the comparables were raised. The incorrect computation of working capital adjustment and the lack of adjustments for risk profile differences were significant points of contention.

5. The imposition of surcharge at a higher rate, interest under section 234B, and the initiation of penalty proceedings under section 271(1)(c) of the Act were challenged by the assessee. The incorrect application of surcharge rate and interest computation were highlighted as errors in the assessment order.

6. The Tribunal, after considering the submissions and relevant case laws, partly allowed the appeal. It directed the AO to restrict the transfer pricing adjustment in respect of non-Denmark associated enterprises as per the Mutual Agreement Procedure (MAP) resolution applicable to Denmark AEs. The decision was based on precedents and upheld the assessee's contentions regarding the application of markup rates for transactions with non-Denmark AEs.