2017 (9) TMI 1108 - HC - Income Tax

TPA - ALP of international transaction - comparable selection and remand proceedings - there are a large number of issues on which there is no finding by the ITAT - as per assessee a mere remand to the TPO of those issues for a fresh determination would undue delay the entire exercise and resultant in multiplicity of proceedings - Held that - The Court finds merit in the contention of learned counsel for the Assessee. The practice of remand to the TPO should be resorted to by the ITAT only where it is absolutely necessary. It could be either because of lack of clarity on factual aspects or because some facts have emerged since the order of the TPO that require to be taken into consideration since it would have a bearing on the outcome. Further the remand order in such circumstances should clearly spell out what the scope of the remand is. Where all the relevant facts are already before the ITAT and the parties have no new material to provide simply remanding the issue to the TPO without rendering a finding thereon would be an abdication of the functions of the appellate body. The Court finds from the impugned order that indeed with regard to the issue concerning exclusion of Sasken there is no finding by the ITAT. That issue ought not to have been remanded without recording a finding. Likewise with regard to the exclusion of Mahindra and WAPCOS and inclusion of Kirloskar as a comparable for the TSS segment the ITAT has simply remanded the matter to the TPO without a finding. Thus the impugned order of the ITAT is modified by directing the following issues will not be remanded to the TPO but will be decided by the ITAT itself on merits after hearing both the parties - issue concerning exclusion of WAPCOS and Mahindra and inclusion of Kirloskar as comparables for the TSS segment issue regarding exclusion of Sasken as comparable for the CDS segment issue of denial of working capital and risk adjustment in both the segments i.e. TSS and CDS and issue of proportionate adjustment in the TSS segment

Summary

Issues involved:
Transfer pricing adjustments for Contract Software Development (CSD) and Technical Support Services (TSS) segments, inclusion/exclusion of comparables, denial of Working Capital and Risk adjustment, proportionate adjustment in TSS segment.

Transfer Pricing Adjustments - CSD and TSS Segments:
The appeal under Section 260A of the Income Tax Act was filed against the ITAT's order concerning transfer pricing adjustments for CSD and TSS segments. The Assessee adopted TNMM for transfer pricing. The ITAT excluded 8 comparables for the TSS segment and remanded the issue of inclusion of certain comparables back to the TPO. However, the ITAT failed to provide a finding on the exclusion of Sasken as a comparable. Similarly, for the TSS segment, the ITAT remanded the issue of exclusion of Mahindra and WAPCOS to the TPO without giving a finding on the inclusion of Kirloskar as a comparable.

Working Capital and Risk Adjustment Denial:
The Assessee raised concerns about the denial of Working Capital and Risk adjustment in both segments. The ITAT did not provide any finding on this issue and simply remanded it back to the TPO. The ITAT's failure to address this issue led to further delays and multiplicity of proceedings.

Proportionate Adjustment in TSS Segment:
Regarding the issue of proportionate adjustment in the TSS segment, the ITAT recorded the contentions of the Assessee but failed to give a finding on this matter. The lack of a conclusive decision by the ITAT on this issue added to the unresolved matters in the appeal.

Court's Directions:
The Court found merit in the Assessee's contention that remanding issues to the TPO should only be done when absolutely necessary, especially if all relevant facts are already before the ITAT. The Court noted that the ITAT failed to provide findings on crucial issues like exclusion of Sasken and inclusion of comparables. Consequently, the Court modified the ITAT's order, directing specific issues to be decided by the ITAT itself after hearing both parties. These issues included exclusion of WAPCOS and Mahindra, inclusion of Kirloskar as comparables for the TSS segment, exclusion of Sasken as a comparable for the CDS segment, denial of working capital and risk adjustment, and proportionate adjustment in the TSS segment. The appeal was restored to the ITAT for further proceedings.

Conclusion:
The Court's detailed analysis and directions aimed to streamline the resolution of transfer pricing adjustments and related issues by ensuring that the ITAT addresses critical matters without unnecessary remands, thereby expediting the resolution process and avoiding prolonged delays and multiple proceedings.