2020 (3) TMI 1442 - AT - Income Tax

Transfer Pricing adjustment made in respect of Software Development section - Comparable selection - HELD THAT - ICRA Techno Analytics Ltd - We notice that the TPO has applied RPT filter of 25%. According to the assessee, the RPT works out to 29.36%, while the TPO has worked out the same at 23.15%. We notice that the Ld DRP has not addressed this issue. TPO has also taken the view that the services rendered by this company are not different, while the contention of the assessee is that this company is engaged in providing different kinds of services which are not akin to that of the assessee. Hence we are of the view that this company requires examination afresh at the end of AO/TPO. Accordingly, we restore this company to the file of AO/TPO for examining it afresh. M/s Spry Resources P Ltd. - We notice that the TPO has not examined the aspects relating to software products. We notice that in the case of CGI information systems Management Consultants (P) Ltd (supra), M/s Spry Resources India P Ltd has been taken as a comparable company. All these aspects show that there is no clarity on the factual aspects relating to this company. Accordingly, we are of the view that this company also requires fresh examination at the end of AO/TPO. Accordingly we restore this company to the file of the AO/TPO for examining it afresh. TP made in respect of I.T. enabled services - M/s Universal Print Systems Ltd (seg.)(BPO) was restored back to the file of AO/TPO in the case of CGI Information Systems Management Consultants P Ltd 2018 (4) TMI 1755 - ITAT BANGALORE M/s Infosys BPO Ltd, TCS E-serve Ltd and M/s Excel Infoway Ltd. be excluded.from the final list of comparable companies for the purpose of arriving at the arithmetic mean of comparable companies for the purpose of comparison with the profit margins. Exclusion of M/s BNR Udyog Ltd from the list of comparable companies. Inclusion of M/s Informed Technologies India Ltd as a comparable company. Disallowance u/s 14A - submission of the assessee that it did not earn any exempt income during the year under consideration - HELD THAT - We agree with the contentions of Ld A.R, as the claim of the assessee finds support from the decision rendered in the case of Cheminvest Ltd 2015 (9) TMI 238 - DELHI HIGH COURT . Accordingly we direct the AO to delete this disallowance after satisfying himself that the assessee did not earn any exempt income. Non set-off of the entire brought forward losses, non-grant of MAT credit and short grant of TDS - HELD THAT - All these issues require verification at the end of the AO. Accordingly we restore all these issues to the file of the assessing officer.

Issues Involved:
1. Transfer Pricing adjustment made in respect of Software Development section.
2. Transfer Pricing adjustment made in respect of I.T. enabled services.
3. Disallowance made u/s 14A of the Act.
4. Non set off of entire brought forward losses.
5. Non grant of MAT credit.
6. Short grant of TDS credit.
7. Interest charged u/s 234B & 234D of the Act.

Detailed Analysis:

1. Transfer Pricing Adjustment - Software Development Section:
The assessee adopted the TNMM method and selected 8 comparable companies with an arithmetic mean of 12.42%. The PLI of the assessee was 10.03%. However, the TPO rejected this study and selected 10 different comparable companies, resulting in an adjustment of Rs.10.15 crores. The DRP confirmed this order. The assessee sought exclusion of six companies: Genesys International Corpn. Ltd., ICRA Techno Analytics Ltd., Infosys Ltd., Larsen & Toubro Infotech Ltd., Persistent Systems Ltd., and Spry Resources India Pvt. Ltd., citing various reasons such as functional dissimilarities and lack of segmental information.

2. Transfer Pricing Adjustment - I.T. Enabled Services:
The assessee selected 5 comparable companies with an arithmetic mean of 11.91%. The TPO rejected this and selected 10 different companies, resulting in an adjustment of Rs.1.04 crores. The DRP excluded two companies and retained 8. The assessee sought exclusion of five companies: Universal Print Systems Ltd. (Seg)(BPO), Infosys BPO Ltd., TCS E-Serve Ltd., BNR Udyog Ltd. (Seg)(Medical Transcription), and Excel Infoways Ltd. (Seg)(IT/BPO), and inclusion of Informed Technologies India Ltd. The Tribunal restored Universal Print Systems Ltd. to the AO/TPO for fresh examination and directed the exclusion of Infosys BPO Ltd., TCS E-Serve Ltd., Excel Infoways Ltd., and BNR Udyog Ltd. Informed Technologies India Ltd. was directed to be included.

3. Disallowance u/s 14A of the Act:
The AO disallowed Rs.8,24,996/- u/s 14A. The assessee contended that no exempt income was earned during the year, relying on the decision of the Hon'ble Delhi High Court in Cheminvest Ltd. vs. CIT. The Tribunal agreed with the assessee and directed the AO to delete the disallowance after verification.

4. Non Set-Off of Entire Brought Forward Losses:
The assessee raised this issue, which requires verification by the AO. The Tribunal restored this issue to the AO for verification.

5. Non Grant of MAT Credit:
The assessee raised this issue, which requires verification by the AO. The Tribunal restored this issue to the AO for verification.

6. Short Grant of TDS Credit:
The assessee raised this issue, which requires verification by the AO. The Tribunal restored this issue to the AO for verification.

7. Interest Charged u/s 234B & 234D of the Act:
These issues are consequential in nature and do not require adjudication. The grounds relating to initiation of penalty proceedings are premature and do not require adjudication.

Conclusion:
The appeal of the assessee was treated as allowed for statistical purposes. The Tribunal directed the AO/TPO to re-examine certain comparables and issues, and to verify and adjust the disallowances and credits as per the directions provided.

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