2022 (5) TMI 1535 - AT - Income Tax

TP Adjustment - Comparable selection - functional dissimilarity - HELD THAT - Companies functionally dissimilar with that of assessee as engaged in provision of IT enabled services need to be deselected from final list. Working capital adjustment to iron out the differences, existing between the assessee in the comparables - As relying on case of Huawei Technologies India Pvt.Ltd 2018 (10) TMI 1796 - ITAT BANGALORE we direct the Ld.AR AO/TPO to grant the working capital just and in accordance with law, in respect of the comparables that it is finally retained.

Summary

Issues Involved:
1. Transfer Pricing
2. Corporate Tax

Issue-wise Detailed Analysis:

1. Transfer Pricing:

Grounds 1-12: These grounds were deemed general in nature and not adjudicated upon by the Tribunal.

Ground 13: The assessee sought the exclusion of two comparables: Infosys BPO Ltd. and Crossdomain Solutions Pvt. Ltd.
- Infosys BPO Ltd.: The Tribunal followed the decision in the assessee’s own case for the assessment year 2014-15, where Infosys BPO was excluded due to its diversified activities, ownership of intangible assets, brand value, and significant subcontracting costs, making it functionally different from the assessee.
- Crossdomain Solutions Pvt. Ltd.: This comparable was remanded back to the AO/TPO for verification of its functionality with respect to the assessee, based on the Tribunal's observations in Swiss Re Global Business Solutions Pvt. Ltd.

Ground 14: The assessee sought the inclusion of two comparables: Crystal Voxx Ltd. and Hartron Communications Ltd.
- Crystal Voxx Ltd.: The Tribunal directed its inclusion, noting that it was functionally comparable to the assessee as a BPO company providing ITES, and the exclusion by the TPO and DRP was factually incorrect.
- Hartron Communications Ltd.: This comparable was remanded back to the AO/TPO for verification in light of the observations by the Pune Tribunal in Yazaki India Pvt. Ltd vs. DCIT.

Ground 15: The assessee sought correction in the margin computed for Cosmic Global Ltd. The Tribunal directed the AO/TPO to consider the claim in accordance with the law.

Ground 16: The assessee sought a working capital adjustment to account for differences between the assessee and comparables. The Tribunal directed the AO/TPO to grant the working capital adjustment as per the decision in Huawei Technologies India Pvt. Ltd vs. JCIT, which emphasized the necessity of such adjustments to ensure comparability.

2. Corporate Tax:

Ground 18: The assessee contested the levy of interest under section 234B of the Act, which was consequential to the additions made in the assessment order. The Tribunal did not provide a specific ruling on this ground, as it was consequential to the outcome of the transfer pricing adjustments.

Conclusion:
The appeal was partly allowed. The Tribunal directed the exclusion of Infosys BPO Ltd. and remanded Crossdomain Solutions Pvt. Ltd. for further verification. It also directed the inclusion of Crystal Voxx Ltd. and remanded Hartron Communications Ltd. for verification. Additionally, the Tribunal directed the AO/TPO to correct the margin computation for Cosmic Global Ltd. and to grant the working capital adjustment as claimed by the assessee. The issue of interest under section 234B was not specifically adjudicated.