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2017 (12) TMI 924 - AT - Income TaxTPA - selection of comparable - Held that - Assessee is into IT Enabled Back Office Medical Transcription services as part of its business operation providing medical transcription services exclusively to HCR Information Corporation USA the ultimate holding company of The taxpayer - HBTS thus companies functionally dissimilar with that of assessee need to be deselected from final list of comparability Entitled to deduction under section 10A - Held that - Since DRP has given categoric direction to the AO to allow deduction to the taxpayer u/s 10A the AO was under judicial discipline to carry out the deductions. So the AO is directed to comply with the directions issued by ld. DRP. Consequently Ground No.2.1 is determined in favour of the taxpayer.
Issues Involved:
1. Transfer Pricing Adjustments 2. Direct Tax Grounds Detailed Analysis: Transfer Pricing Adjustments: 1. Adjustment of INR 17,403,385 and INR 1,60,81,312: - The taxpayer challenged the adjustments made by the TPO to the value of international transactions related to medical transcription services for the assessment year 2006-07. 2. Use of Financial Information for FY 2005-06: - The taxpayer argued against the use of financial information of comparable companies from FY 2005-06, which was not available when the taxpayer maintained documentation as per the Act. 3. Rejection and Retention of Comparables: - The TPO rejected certain functionally comparable companies due to persistent losses and unpredictable profitability, while retaining super profit-making companies and those with significant related party transactions. - The taxpayer contested the inclusion of Vishal Information Technologies Limited, Nucleus Netsoft & GIS India Limited, and Tricom India Ltd. as comparables due to functional dissimilarities and high related party transactions. 4. Not Granting Comparability Adjustments: - The taxpayer argued that the TPO did not grant adjustments for differences in working capital requirements and risk assumed, and ignored the quantification of these adjustments. 5. Non-Compliance with ITAT Orders: - The taxpayer contended that the TPO did not follow the ITAT's order regarding the applicability of the proviso to section 92C(2) of the Act. 6. Incorrect Computation of Margins: - The taxpayer claimed that the TPO incorrectly computed the margins of some comparables and the margin of Nucleus Netsoft and GIS India Limited. 7. Tax Holiday Entitlement: - The taxpayer argued that being a STPI unit entitled to a tax holiday, there was no motivation for shifting profits through transfer pricing mechanisms. 8. Speaking Order: - The taxpayer contended that the TPO did not pass a speaking order. 9. Interest under Section 234B: - The taxpayer argued against the levy of interest under section 234B based on updated financial data for comparable companies. Direct Tax Grounds: 1. Deduction under Section 10A: - The taxpayer argued that the AO did not follow the directions of the DRP and consequently did not allow the deduction under section 10A of the Act. 2. Credit of Taxes Paid: - The taxpayer contended that the AO did not allow the credit of taxes amounting to ?82,00,000 already paid pursuant to the demand raised. 3. Interest under Section 220: - The taxpayer argued against the charging of interest under section 220 while passing the final assessment order. 4. Levy of Interest under Section 234B: - The taxpayer contended that the levy of interest under section 234B of the Act was consequential in nature. Tribunal's Findings: 1. Transfer Pricing Adjustments: - The Tribunal excluded Vishal Information Technologies Limited, Nucleus Netsoft & GIS India Limited, and Tricom India Ltd. as comparables due to functional dissimilarities, high related party transactions, and outsourcing of work. - The Tribunal directed the AO/TPO to recompute the margin accordingly. - The Tribunal upheld the taxpayer's entitlement to working capital adjustments and the applicability of the proviso to section 92C(2) of the Act, granting a 5% standard deduction while computing the arm's length price. - Grounds related to the incorrect computation of margins and the levy of interest under section 234B were deemed consequential and did not require specific findings. 2. Direct Tax Grounds: - The Tribunal directed the AO to comply with the DRP's directions to allow the deduction under section 10A. - The AO was instructed to verify and allow the credit of taxes already paid by the taxpayer. - The Tribunal directed the AO to follow the findings of the coordinate Bench regarding the charging of interest under section 220, applicable only after the expiry of 35 days from the date of service of the demand notice pursuant to the fresh assessment order. - Grounds related to the levy of interest under section 234B were deemed consequential and did not require specific findings. Conclusion: - Both appeals filed by the taxpayer were allowed, with directions to the AO/TPO to recompute margins and allow deductions and credits as per the Tribunal's findings.
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