2017 (11) TMI 64 - AT - Income Tax

TPA - selection of comparable - Held that - The assessee is a company engaged in the business of providing ITES Information Technology enabled services registered under Special economic Zones in short SEZ thus companies functionally dissimilar with that of assessee need to be deselected from final list. TPA on account of interest on receivables - Held that - There cannot be any grievance where the ld Transfer Pricing Officer has considered as 30 days credit period. Even before us this credit period was not challenged. In view of this we do not find any infirmity in the order of the ld Transfer Pricing Officer of considering 30 days as normal credit period. The subsequent question arises about the benchmarking analysis and computing the arm‟s length price. In the present case the ld Assessing Officer has computed interest @14.88% applying the CUP method using external CUP. Before us as well as before the ld DRP the assessee could not demonstrate how the method employed by the ld Transfer Pricing Officer using external CUP is erroneous. In view of this we do not have any hesitation in confirming the Transfer Pricing adjustment made by the ld. Transfer Pricing Officer on outstanding receivable beyond 30 days credit period applying the interest rate of 14.88% p.a. and computing the interest receivable at ₹ 31577050/-. Miscalculation of the total amount of adjustment - Held that - It was submitted that the assessee has filed rectification application; however, same has not been attended to. We direct the ld Assessing Officer to consider the rectification application of the assessee and if the rectification request is found in accordance with the provision of section 154 of the Act, same may be rectified within 30 days of the receipt of this order, after granting the assessee appropriate opportunity of hearing Disallowance of deduction u/s 10AA on the basis that export proceeds have not been realized within a period of six months from the end of the previous year - Held that - The provision of section 10A (5) speaks about the audit of the accounts and submission of report of an accountant in specified Performa. In this case same has been complied with by the assessee. Further section 10A (6) speaks about the restrictions of other deduction during the holiday period, which is not the dispute in this case. In view of this it is apparent that there is no time-limit prescribed for bringing the consideration of export into India. Admittedly, the consideration has been received in India, albeit Subsequent to filing of the return by the assessee. However, merely because the consideration has been received after 6 months from the close of the financial year the deduction cannot be denied to the assessee on the sum. In view of this we direct the Ld. assessing officer to consider a sum of ₹ 4.80 crores as export turnover of the assessee and accordingly grant deduction to the assessee under section 10 AA of the income tax act. Accordingly, Ground of the appeal of the assessee are partly allowed.

Summary

Issues Involved:
1. Transfer Pricing Adjustments
2. Deduction under Section 10AA
3. Penalty Proceedings under Section 271(1)(c)
4. Levy of Interest under Sections 234B and 234D

Issue-Wise Detailed Analysis:

1. Transfer Pricing Adjustments:

The primary contention revolves around the inclusion and exclusion of comparable companies for determining the Arm’s Length Price (ALP) of international transactions. The assessee objected to the inclusion of Accentia Technologies Ltd, IGATE Global Solutions Ltd, and Infosys BPO Ltd, while pressing for the inclusion of R Systems Ltd. The Tribunal noted that:

- Accentia Technologies Ltd: The Tribunal found that the functional profile of Accentia Technologies, which includes medical transcription, coding, and billing, is not comparable to the assessee's routine administrative functions. Due to the lack of segmental information and functional dissimilarity, Accentia Technologies was excluded.

- R Systems Ltd: Despite having a different financial year, the Tribunal directed the inclusion of R Systems Ltd if relevant, authentic, and reliable financial information for the comparable period is available.

- Risk and Working Capital Adjustments: The Tribunal upheld the rejection of these adjustments due to the assessee's failure to provide relevant details and workings.

- Interest on Receivables: The Tribunal confirmed the adjustment made by the Transfer Pricing Officer (TPO) for interest on receivables outstanding beyond 30 days, considering it an international transaction. The interest rate of 14.88% p.a. was applied, following the Comparable Uncontrolled Price (CUP) method.

2. Deduction under Section 10AA:

The contention was regarding the disallowance of deduction under Section 10AA due to the non-realization of export proceeds within six months. The Tribunal's findings were:

- Unbilled Revenue: The Tribunal held that unbilled revenue does not qualify as export turnover as per the definition under Section 10AA.

- Foreign Exchange Realization: For the sum of ?4.80 crores received after six months, the Tribunal noted that Section 10AA does not prescribe a time limit for bringing export consideration into India. Thus, the deduction was allowed for this amount.

3. Penalty Proceedings under Section 271(1)(c):

The Tribunal found no specific arguments advanced against the initiation of penalty proceedings, deeming the ground premature and dismissing it.

4. Levy of Interest under Sections 234B and 234D:

The Tribunal noted that the charging of interest under these sections is consequential in nature and dismissed the ground due to the lack of specific arguments.

Separate Judgments for Different Assessment Years:

For AY 2011-12, similar issues were contested. The Tribunal reiterated its findings from AY 2010-11 regarding the exclusion of e-Clerx Services Ltd and TCS e-Serve Ltd, and the inclusion of R Systems Ltd, subject to the availability of relevant financial data. The Tribunal also upheld the disallowance of risk and working capital adjustments and confirmed the adjustment for interest on receivables. The deduction under Section 10AA was allowed for the amount received after six months, following the same rationale as in AY 2010-11. The initiation of penalty proceedings and the levy of interest under Sections 234B and 234D were dismissed as premature and consequential, respectively.

Conclusion:

The Tribunal's detailed analysis addressed the functional comparability of companies for transfer pricing, the conditions for deduction under Section 10AA, and the procedural aspects of penalty and interest levies, providing a comprehensive resolution to the issues raised.