2020 (9) TMI 1298 - AT - Income Tax

TP Adjustment - MAM - HELD THAT - We find, the tribunal in M/S TOWER WATSON INDIA PVT LTD VERSUS THE DY. C.I.T GURGAON 2019 (5) TMI 327 - ITAT DELHI has thoroughly discussed the issue in question and held that CUP is the most appropriate method in the instant case. Since the facts of the instant case are identical to the facts for the A.Y. 2011- 12, therefore, respectfully following the decision of the Tribunal in assessee s own case and in absence of any distinguishable features brought to our notice, we are of the opinion that CUP is the most appropriate method in the instant case which has been applied by the assessee for benchmarking the transactions for provision of consultancy services rendered. We hold and direct accordingly. Since the ground of appeal No.2 is decided in favour of the assessee. Denial of TDS credit - HELD THAT - We, therefore, deem it proper to restore this issue to the file of the AO with a direction to verify the record and give proper credit of the TDS - AO shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. Ground raised by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Transfer Pricing Adjustments
2. Rejection of Comparable Uncontrolled Price (CUP) Method
3. Application of Transactional Net Margin Method (TNMM)
4. Entity-wide Margin vs. Segmental Margin
5. Identification of Comparable Companies
6. Use of Single-Year Data
7. Financial Year Ending Filter
8. Selection of Companies with Supernormal Profits
9. Denial of TDS Credit
10. Levy of Interest under Section 234B

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustments:
The assessee challenged the adjustment of INR 20,547,164 made by the TPO/AO/DRP to the total income concerning the provision of consulting services to its Associated Enterprise (AE). The Tribunal found that the TPO rejected the assessee’s CUP method and instead applied the TNMM method without sufficient justification.

2. Rejection of Comparable Uncontrolled Price (CUP) Method:
The TPO/AO/DRP rejected the CUP method selected by the assessee, citing insufficient documentary evidence and geographical differences. The Tribunal, however, referenced its earlier decision for A.Y. 2011-12, where it held that CUP was the most appropriate method for the assessee’s transactions. The Tribunal reiterated that the CUP method should be applied, as it was previously upheld in the assessee’s case.

3. Application of Transactional Net Margin Method (TNMM):
The TPO applied the TNMM method, using an average margin of 15.61% from ten comparables, leading to an upward adjustment of Rs. 4,29,90,719/-. The Tribunal noted that the DRP upheld the TPO's approach, but the Tribunal favored the CUP method based on prior rulings.

4. Entity-wide Margin vs. Segmental Margin:
The TPO/AO/DRP used entity-wide margins instead of segmental margins for consulting services provided to AE. The Tribunal’s decision did not specifically address this issue due to the ruling favoring the CUP method.

5. Identification of Comparable Companies:
The TPO/DRP used comparables from previous years without a methodical search process. The Tribunal’s decision emphasized the appropriateness of the CUP method, thus rendering the comparables issue less significant.

6. Use of Single-Year Data:
The TPO/AO/DRP used single-year data for comparability analysis. The Tribunal did not delve deeply into this issue due to its ruling favoring the CUP method.

7. Financial Year Ending Filter:
The TPO/AO/DRP excluded certain companies based on different financial year endings. The Tribunal’s decision did not specifically address this issue, focusing instead on the appropriateness of the CUP method.

8. Selection of Companies with Supernormal Profits:
The TPO/AO/DRP included companies with supernormal profits as comparables. The Tribunal’s decision did not specifically address this issue due to the ruling favoring the CUP method.

9. Denial of TDS Credit:
The AO granted TDS credit of INR 14,705,387 against the claimed INR 18,333,275. The Tribunal restored this issue to the AO for verification and proper credit, directing the AO to provide due opportunity for the assessee to be heard.

10. Levy of Interest under Section 234B:
The AO levied interest of INR 7,224,965 under section 234B. The Tribunal held that the levy of interest under section 234B is mandatory and consequential, thereby dismissing this ground of appeal.

Conclusion:
The Tribunal partly allowed the appeal, favoring the CUP method for transfer pricing adjustments and directing the AO to verify TDS credit claims. The levy of interest under section 234B was upheld as mandatory and consequential. The decision was pronounced on 11.09.2020.