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2016 (6) TMI 172 - AT - Income TaxTransfer pricing adjustment - TPO disallowed 50% of the region allocation expenses amounting to ₹ 4. 50 crores on the ground that there was no proper basis of allocation and backup calculations were not shared, that the DRP had increased the disallowance to hundred percent of the regional allocation expenses - Held that - In the case under consideration actually the TPO had DRP have completely taken over the role of the AO. Instead of deciding the ALP of the IT. s reported by the assessee, they have decided the issue of allowability of expenditure incurred by it. Therefore, in our opinion, their order are not in accordance with the provisions of the Act. As far as comparables of BPO services are concerned it is enough to say that the TPO and the DRP had not dealt with the objections raised by the assessee about the comparables selected by the TPO(Pg. 601-10 of the PB). We do not find even a single word about the objection of the assessee with regard to the comparables. The TPO is authorized to select the comparables, but it is his duty not only to mention the methodology of selection process and to meet the objections raised by the assessee about the selection process or the selected comparables. Considering the above, we hold that the assessee had produced all the necessary documents and that the TPO and the DRP did not consider the same while passing/issuing the order/Directions. Therefore, in the interest of justice, we are of the opinion that the matter should be restored back to the file of the DRP who would decide the both the issues afresh after affording a reasonable opportunity of hearing to the assessee. Objections raised by the assessee, with regard to comparables have to be dealt case by case - Decided in favour of assessee in part Disallowance made u/s. 14A - Held that - Provision of Rule 8D cannot be applied for the year under appeal, as held by the Hon ble Bombay High Court as in the case of Godrej Boyce Mfg Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT ). However, a reasonable disallowance could be made. It is a fact that the assessee had made investment in the AE. s. , that the AO had not proved that interest free funds were used by the assessee to make the investments. Considering these facts we are of the opinion that the matter needs further verification. Therefore, in the interest of justice, we are restoring back the issue to the file of the AO for fresh adjudication. He is directed to afford a reasonable opportunity to the assessee of being heard. Addition made on account of mis-match of AIR data - Held that - We find that in this case the addition was made only on the basis of AIR report, that the assessee had specifically mentioned that the entries did not pertain to it. In our opinion, the AO should have made further investigation before making the addition. If the disputed amount pertained to receipt of rent it was not difficult for the AO to find out the facts. But, he chose not to make any enquiry and made the addition. We are of the opinion that only on the basis of AIR information no addition should be made-specially when there is no other material with the AO to demonstrate that the assessee had received income more than what was declared by it. In the case under consideration, it is found that except for the information available in the form of AIR the AO had nothing in his possession to prove that the assessee had received the amount in question. - Decided in favour of assessee Disallowance of deduction of ₹ 18. 41 lakhs u/s. 10A - Held that - The assessee suo-motu had excluded the disputed amount from the turn over while computing the deduction u/s. 10A of the Act, that the AO/DRP erred in disallowing the same amount, that the assessee suffered double disallowance. We are of the opinion that the matter should be reexamined by the AO and the amount in question should not be disallowed twice
Issues Involved:
1. Transfer Pricing Adjustments on General Services Agreement (GSA) charges. 2. Transfer Pricing Adjustments on Business Process Outsourcing (BPO) services. 3. Disallowance under Section 14A of the Income Tax Act. 4. Addition due to mismatch of Annual Information Return (AIR) data. 5. Disallowance of deduction under Section 10A of the Income Tax Act. Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustments on General Services Agreement (GSA) Charges: The assessee, a wholly-owned subsidiary of VALCON, part of the AC Nielsen group, entered into 36 international transactions with its Associated Enterprises (AEs). The Transfer Pricing Officer (TPO) found that the assessee paid ?11.14 crores to its AE for business support services under the General Services Agreement (GSA). The TPO directed the assessee to justify the Arm’s Length Price (ALP) for these payments. After examining the submissions, the TPO held that the cost allocation was not substantiated with sufficient evidence and made an adjustment of ?4.50 crores. The Dispute Resolution Panel (DRP) upheld the TPO's findings and increased the disallowance to 100% of the regional allocation expenses, concluding that no administrative services were rendered by the AEs to the assessee. The Tribunal found that the assessee had provided sufficient documentation and evidence to justify the payments and that the TPO and DRP had overstepped their authority by questioning the necessity of the expenditure. The matter was remanded back to the DRP for fresh consideration. 2. Transfer Pricing Adjustments on Business Process Outsourcing (BPO) Services: The TPO determined the ALP for the BPO segment using the Transactional Net Margin Method (TNMM) with a set of 25 comparable companies, resulting in an average PLI (Operating Profit to Total Cost) of 33.09%. The TPO made an adjustment of ?4.87 crores to the income from BPO operations. The DRP upheld the TPO’s approach and the adjustment. The Tribunal noted that the assessee had provided detailed segmental data and supporting evidence, which were not adequately considered by the TPO and DRP. The Tribunal remanded the issue back to the DRP for fresh adjudication, emphasizing the need to address the objections raised by the assessee regarding the comparables. 3. Disallowance under Section 14A of the Income Tax Act: The AO disallowed ?2.78 lakhs under Section 14A, applying Rule 8D of the Income Tax Rules, on the grounds that the assessee had not disallowed any expenditure against the exempt income. The DRP upheld this disallowance. The Tribunal held that Rule 8D was not applicable for the year under consideration, as per the Bombay High Court's ruling in Godrej Boyce Mfg Ltd. (328 ITR 81). However, a reasonable disallowance could be made. The Tribunal remanded the issue back to the AO for fresh adjudication, directing the AO to afford a reasonable opportunity to the assessee of being heard. 4. Addition due to Mismatch of Annual Information Return (AIR) Data: The AO added ?17.30 lakhs to the total income of the assessee based on AIR data, which the assessee could not reconcile. The DRP upheld this addition. The Tribunal found that the addition was made solely on the basis of AIR information, without further investigation by the AO. The Tribunal held that no addition should be made solely based on AIR information, especially when there was no other material to demonstrate that the assessee had received income more than what was declared. The Tribunal decided this ground in favor of the assessee. 5. Disallowance of Deduction under Section 10A of the Income Tax Act: The assessee claimed that it had already excluded the disputed amount from the turnover while computing the deduction under Section 10A and that the AO/DRP erred in disallowing the same amount, resulting in double disallowance. The Tribunal remanded the matter back to the AO for reexamination to ensure that the amount in question was not disallowed twice. The ground raised by the assessee was partly allowed. Conclusion: The appeal filed by the assessee was partly allowed, with the Tribunal remanding several issues back to the lower authorities for fresh consideration and adjudication. The Tribunal emphasized the need for proper documentation and evidence to support the assessee's claims and directed the authorities to afford a reasonable opportunity to the assessee for presenting their case.
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