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2022 (3) TMI 1480 - AT - Income TaxTP Adjustment - working capital adjustment - HELD THAT - The coordinate benches already granted working capital adjustment to DPSI assessee. We will no more interfere in the issue. This ground is setting aside for further adjudication to the Ld AO. Erroneous rejection and selection of comparable companies - HELD THAT - TPO was wrong to exclude the Engineers India Ltd so the Engineers India Ltd is included in the TP study. TPO has included L T Limited on the ground that said companies financials are similar to the assessee company. The assessee never disputed the fact that the functions performed by L T Limited is not similar to functions performed by the assessee company but requested to exclude L T Limited only on the ground that its turnover is huge which is almost more than 16 times of turnover of the assessee. We find that the Ld. DRP in its order on page 7 after considering relevant submissions of the assessee has directed the TPO to consider the power segment functionally of L T Limited and then compare with assessee s transactions. In addition to this we also direct the TPO to adopt turnover filter to determine whether the power segment of L T Limited is fit into the turnover category to compare the transactions of the assessee and then re-compute the TP adjustments. Incorrect computation of margin of comparables and adjustment amount - HELD THAT - We herein restore the matter back to the TPO with a direction to calculate OP/OC margin by comparing the entities as mentioned above. The matter is setting aside to AO for further calculation. Transfer Pricing adjustment relating to payment of Technical Royalty - HELD THAT - In this case the AO has given various reasons to reject the TP study conducted by the assessee for benchmarking royalty payment and thus rejected the arguments of the assessee. Having said so let us come back to the comparables selected by the TPO. The TPO has selected two comparables M/s Amanasu Energy Corp. M/s Power verde Inc. According to the ld. Counsel of the assessee both are functionally similar and cannot be compared. He further submitted that in respect of M/s. Power verde Inc. the data relied upon by the TPO pertains to AY 2014- 15 whereas the issue pertains to AY 2015-16. He further claimed that the TPO has failed to apply proper filter to select the companies. Therefore considering the facts and circumstances of the case we are of the considered view that this issue will go back to the file of the TPO for fresh examination of the claim of the assessee to carryout TP analysis in respect of royalty payments. Employees Contribution to PF ESI - payments of assessee made after the due date of the specific act but before the due date of filing return u/s. 139(1) - HELD THAT - The matter is already covered in assessee s own case 2021 (3) TMI 585 - ITAT CHENNAI So the addition made is deleted and accordingly ground of assessee are allowed.
Issues Involved:
1. General grounds 2. Economic Adjustments 3. Erroneous rejection and selection of comparable companies 4. Incorrect computation of margin of comparables and adjustment amount 5. Transfer Pricing adjustment relating to payment of Technical Royalty 6. Corporate Tax Adjustments 7. Consequential Grounds Detailed Analysis: 1. General Grounds: - The assessee contended that the order passed by the AO, based on DRP directions, was bad in law and on facts. The AO, TPO, and DRP modified the economic analysis and applied new filters for identifying comparable companies without establishing any of the conditions specified in Section 92C(3) of the Act. The Tribunal rejected this ground as it was general in nature and did not require specific adjudication. 2. Economic Adjustments: - The assessee argued that the AO, TPO, and DRP erred in not allowing appropriate adjustments under Rule 10B(1)(e)(iii) and Rule 10B(3) to account for differences in working capital of comparables. The DRP rejected this claim, stating that no additional evidence was provided to substantiate the claim. The Tribunal, however, directed the AO to reconsider the working capital adjustment in light of the Tribunal's decision in the assessee’s own case for the earlier year. 3. Erroneous Rejection and Selection of Comparable Companies: - The assessee objected to the exclusion of Engineers India Ltd and the inclusion of Larsen & Toubro Ltd (L&T) by the TPO. The DRP upheld the TPO's decision to exclude Engineers India Ltd, citing its focus on consultancy and engineering in the petrochemical industry. However, the Tribunal included Engineers India Ltd in the TP study, stating that government companies can be treated as comparables. - Regarding L&T, the Tribunal directed the TPO to consider only the power segment of L&T and apply a turnover filter to determine if it fits into the turnover category for comparison. 4. Incorrect Computation of Margin of Comparables and Adjustment Amount: - The assessee contended that the TPO incorrectly computed the operating profit margin of the comparables. The Tribunal restored the matter back to the TPO with a direction to calculate the OP/OC margin by comparing the entities as mentioned by the assessee. 5. Transfer Pricing Adjustment Relating to Payment of Technical Royalty: - The assessee challenged the TPO’s rejection of the "Other method" and the adoption of the CUP method for benchmarking royalty payments. The TPO selected two comparables with an average royalty rate of 2.5%, leading to a downward adjustment. The Tribunal found that the TPO's comparables were not appropriate and directed the TPO to re-examine the claim and carry out a fresh TP analysis for royalty payments. 6. Corporate Tax Adjustments: - The AO disallowed the employee's contribution to PF and ESI amounting to INR 5,100,766 under Section 36(1)(va) due to delayed remittance. The Tribunal deleted this addition, citing that the payments were made before the due date of filing the return under Section 139(1) and referenced several judgments supporting this view. 7. Consequential Grounds: - The assessee did not press these grounds, so they were not adjudicated. Conclusion: - The Tribunal allowed the appeal for statistical purposes, directing the AO to reconsider certain adjustments and computations as per the Tribunal's directions. The order was pronounced on 17th March 2022.
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