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2022 (6) TMI 1299 - AT - Income TaxTP Adjustment - comparable selection - HELD THAT - Assessee is found to be engaged in the business of designing, developing and manufacturing data storage solutions in a variety of form factors using their flash memory, proprietary controller and firmware technologies, thus companies functionally dissimar with that of assessee need to be deselected. Companies deselected having more than 25% being the threshold limit considered by the Ld.TPO. Working Capital Adjustment not granted to the assessee - After considering the submissions by both sides, we direct the Ld.AO/TPO to compute the Working Capital Adjustment on actuals in order to determine the arms length price of the transaction. Adjustment in respect of interest paid by assessee on ECB loan provided by the AE - AR submitted that the TPO himself accepts that assessee has paid the interest to its AE between 4.5 and 4.8% whereas the RBI rate was determined to be six months LIBOR 500 basis points - HELD THAT - We note that the Ld.TPO has carried out fresh benchmarking analysis without following the principles laid down by Hon'ble Delhi High Court in case of CIT vs. Cotton Naturals (I) Pvt. Ltd. 2015 (3) TMI 1031 - DELHI HIGH COURT We direct the Ld.TPO to follow the principles laid down by this Tribunal in case of Cotton Naturals (supra), having referred to the rate applied by the assessee being within threshold limit as per the RBI Circular No. 12/2015-16 dated 01/07/2015 on ECB. Accordingly, this ground raised by assessee stands allowed for statistical purposes. Recharacterising assessee as an agent under the marketing support service segment - HELD THAT - TPO carried out recharacterisation of assessee without understanding the functions performed by the assessee under the marking support service segment. We are therefore of the opinion that this issue needs to be verified by the Ld.AO/TPO denovo. Assessee is directed to file all relevant information in support of its contention which shall be verified and considered by the Ld.AO/TPO in accordance with law. Needless to say that proper opportunity of being heard must be granted to assessee. Depreciation on the capital asset that was received from the AE - HELD THAT - We therefore direct the Ld.AO to grant depreciation to the assets that stand capitalised by the Ld.AO in accordance with law. Disallowance of salaries paid and reimbursement of expenses made towards seconded employees - HELD THAT - We note that the evidences filed by assessee has not been considered by the revenue authorities. We therefore remand this issue to the Ld.AO to consider the claim in accordance with the decision of Coordinate Bench of this Tribunal in the above referred cases M/s. Toyota Boshoku Automotive India Pvt. Ltd. 2022 (4) TMI 1443 - ITAT BANGALORE and Goldman Sachs Services Pvt. Ltd. 2022 (4) TMI 1444 - ITAT BANGALORE .having regard to the evidences filed by the assessee. Needless to say that proper opportunity of being heard must be granted to assessee in accordance with law. Disallowance of bonding and debonding charges - claim disallowed for not furnishing the evidences as has been observed by the DRP - as submitted that assessee may be alternatively granted depreciation on the assets - HELD THAT - We note that the bonding and debonding expenses have been incurred by assessee in respect of capital asset. Assessee is seeking depreciation on such charges as the same were disallowed u/s. 37 of the Act. The assessee has not filed any evidences in support of its claim however the Ld.AR has submitted that assessee may be provided an opportunity to substantiate the claim. We accordingly remand this issue to the Ld.AO to verify the evidences if any filed by the assessee and to consider the alternate claim of deprecation in accordance with law.
Issues Involved:
1. Assessment and reference to the Learned TPO 2. Fresh comparability/benchmarking analysis 3. Application of arbitrary filters to arrive at a fresh set of companies as comparables 4. Turnover criteria 5. Significant research and development (R&D) activity 6. Onsite filter 7. Data obtained under section 133(6) of the Act 8. Working Capital adjustment 9. Risk adjustment 10. Software Development Services segment 11. Interest on External Commercial Borrowings 12. Marketing support services segment 13. Free of cost assets 14. Disallowance of salaries paid and reimbursements of expenses made towards seconded employees 15. Disallowance of bonding and debonding charges 16. Deduction under Chapter VI-A of the Act 17. Short credit of self-assessment taxes 18. Short credit of advance tax 19. Non-grant of credit of dividend distribution tax 20. Interest under section 234B of the Act 21. Initiation of Penalty Proceedings 22. Relief Detailed Analysis: 1. Assessment and reference to the Learned TPO The appellant argued that the National e-Assessment Centre (NeAC) did not provide an opportunity of being heard before making a reference to the Additional Commissioner of Income-tax, Transfer Pricing Officer (TPO). The Tribunal did not specifically address this issue, indicating it might not require independent adjudication. 2. Fresh comparability/benchmarking analysis The Tribunal noted that the TPO conducted a fresh benchmarking analysis without appropriate basis, using non-contemporaneous data and disregarding the appellant's functional and risk analysis. The Tribunal directed the TPO to exclude certain comparables that were not functionally similar to the appellant. 3. Application of arbitrary filters to arrive at a fresh set of companies as comparables The Tribunal found the application of arbitrary filters by the TPO to be inappropriate and directed the exclusion of certain companies from the final list of comparables. 4. Turnover criteria The Tribunal observed that the TPO did not consider the turnover and size of the appellant while selecting comparables. The Tribunal directed the TPO to apply appropriate turnover filters. 5. Significant research and development (R&D) activity The Tribunal excluded companies with significant R&D activities from the list of comparables, as they were not functionally similar to the appellant. 6. Onsite filter The Tribunal directed the TPO to exclude companies with significant onsite operations from the list of comparables, as the appellant is an offshore service provider. 7. Data obtained under section 133(6) of the Act The Tribunal noted that the data obtained under section 133(6) was not shared with the appellant and directed the TPO to provide an opportunity for the appellant to rebut such data. 8. Working Capital adjustment The Tribunal directed the TPO to compute the Working Capital Adjustment on actuals to determine the arm's length price of the transaction. 9. Risk adjustment The appellant did not press this issue, and it was rejected. 10. Software Development Services segment The Tribunal directed the exclusion of certain companies from the final list of comparables, as they were not functionally similar to the appellant. The Tribunal also directed the TPO to grant Working Capital Adjustment and reconsider the exclusion of Goldstone Technologies Ltd. 11. Interest on External Commercial Borrowings The Tribunal directed the TPO to follow the principles laid down by the Hon'ble Delhi High Court in CIT vs. Cotton Naturals (I) Pvt. Ltd. and consider the interest rate within the threshold limit as per the RBI Circular. 12. Marketing support services segment The Tribunal directed the TPO to re-examine the recharacterization of the appellant as an agent under the marketing support services segment and consider relevant information provided by the appellant. 13. Free of cost assets The Tribunal directed the AO to grant depreciation on the capital assets received from the AE. 14. Disallowance of salaries paid and reimbursements of expenses made towards seconded employees The Tribunal remanded the issue to the AO to consider the claim in accordance with the decisions of Coordinate Bench of this Tribunal, having regard to the evidences filed by the appellant. 15. Disallowance of bonding and debonding charges The Tribunal remanded the issue to the AO to verify the evidences filed by the appellant and consider the alternate claim of depreciation. 16. Deduction under Chapter VI-A of the Act The Tribunal directed the AO to consider the claim in accordance with law, having regard to the evidences filed by the appellant. 17. Short credit of self-assessment taxes The Tribunal directed the AO to grant full credit of the self-assessment taxes paid by the appellant. 18. Short credit of advance tax The Tribunal directed the AO to grant full credit of the advance tax paid by the appellant. 19. Non-grant of credit of dividend distribution tax The Tribunal directed the AO to grant credit for the dividend distribution taxes while computing the taxes in the final assessment order. 20. Interest under section 234B of the Act The Tribunal did not specifically address this issue, indicating it might be consequential in nature. 21. Initiation of Penalty Proceedings The Tribunal did not specifically address this issue, indicating it might be consequential in nature. 22. Relief The Tribunal directed the AO to grant all such relief arising from the preceding grounds and all consequential reliefs. Conclusion: The Tribunal partly allowed the appeal, directing the AO/TPO to reconsider various adjustments and exclusions, and to grant appropriate reliefs based on the evidences filed by the appellant. The Tribunal emphasized the need for proper opportunity of being heard to the appellant in accordance with law.
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