9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (3) TMI 938 - AT - Income TaxTransfer pricing adjustment - Rejection of comparables under technical services segment - Held that - The assessee an Indian company is involved in providing services of information dissemination, maintaining customer relationship and market development to its overseas Associated Enterprise (A.E) ExxonMobil Chemical Co., USA. It also provides application research and technical services as well as back office support services to its A.E. Thus companies functionally dissimilar with that of assessee need to be deselected from final list. Working capital adjustment & risk adjustment - Held that - Transfer Pricing Officer has wrongly computed the margin of the comparable companies under both the segments. In this context, he drew our attention to the working of the correct margin as submitted in two separate charts. We direct the Assessing Officer to examine the aforesaid aspect and compute the arm s length price under both the segments by correctly computing the margin of the comparables. Disallowance of entertainment expenditure - Held that - Only because the disallowance of similar nature was made in assessment year 2006 07 either for lack of evidence or some other reasons and the assessee accepted it, disallowance cannot be made in subsequent assessment years. If the assessee through proper documentary evidence is able to prove the genuineness of the expenses, there is no reason to disallow the same. In the facts of the present case, it appears that in the course of assessment proceedings, the assessee did produce sufficient documentary evidences to prove the genuineness of the expenses. Without properly examining the evidence brought on record, the Assessing Officer has disallowed part of expenditure that too on ad hoc basis. DRP has also simply relying upon the fact that similar disallowance was made in assessment year 2006 07 has upheld the disallowance. There being no basis for disallowance of part of the expenses, we delete the disallowance made by the Assessing Officer. This ground is allowed. Disallowance u/s 40(a)(i) - fee for technical services - TDS u/s 195 - income accrued in India - Held that - It has not been established on record that while rendering the services, EMCAP has made available technical knowledge, knowhow, skill, etc., to the assessee in a manner to enable him to apply them independently or on its own. The payment made by the assessee cannot be considered as fees for technical services as defined under Article 12(4)(b) of the India Singapore tax treaty and for this reason also we do not have to examine taxability of the same under section 9(1)(vii) - the payment of global support service fee was made under the agreement which has continued from the year 2003. It is a matter of record that in the preceding assessment years though the assessee has paid global support service fees to EMCAP without deducting tax at source, no disallowance under section 40(a)(i) was ever made. Therefore, there being no difference in facts in the impugned assessment year, considering that the payment was made under the same contract, even, applying the rule of consistency, no disallowance under section 40(a)(i) can be made in the impugned assessment year. - Decided in favour of assessee.
Issues Involved:
1. Rejection of comparables under the technical services segment. 2. Selection/rejection of comparables in the back office support service segment. 3. Benefit of working capital and risk adjustment. 4. Disallowance of entertainment expenditure. 5. Disallowance under section 40(a)(i) of the Income-tax Act. Issue-wise Detailed Analysis: 1. Rejection of Comparables under the Technical Services Segment: The assessee, an Indian subsidiary of ExxonMobil Corporation, benchmarked its transactions using the Transaction Net Margin Method (TNMM). The Transfer Pricing Officer (TPO) rejected three comparables: Pfizer Ltd., ADS Diagnostic Ltd., and Neeman Medical International (Asia). - Pfizer Ltd.: The TPO rejected Pfizer Ltd. due to insignificant revenue from the service segment and high unallocated expenditure. However, the Tribunal noted that Pfizer Ltd. was accepted as a comparable in previous years, including 2006-07, 2009-10, and 2010-11. The Tribunal directed that Pfizer Ltd. be considered as a comparable, applying the rule of consistency. - ADS Diagnostic Ltd.: The TPO rejected this company for being a consistent loss-making entity. The Tribunal found that ADS Diagnostic Ltd. reported a marginal profit in the impugned year, but noted that its functions were not akin to those of the assessee. The Tribunal upheld the rejection but directed the Assessing Officer (AO) to rectify any margin computation errors. - Neeman Medical International (Asia): The TPO rejected this company for being a consistent loss-maker. The Tribunal upheld the rejection, noting that the company incurred losses year after year, including the impugned assessment year. 2. Selection/Rejection of Comparables in the Back Office Support Service Segment: The assessee disputed the selection of certain comparables by the TPO. - HCL Comnet Systems & Services Ltd. and Apex Knowledge Solutions Pvt. Ltd.: The Tribunal found that HCL Comnet's related party transactions (RPT) were within acceptable limits, but directed the AO to exclude Apex Knowledge Solutions Pvt. Ltd. if its RPT exceeded the threshold. - Informed Technologies India Ltd., e-Clerx Services Ltd., and Mouldtek Technologies Ltd. (SEG): The Tribunal directed the AO to exclude these companies if they were found to be providing Knowledge Process Outsourcing (KPO) services rather than Business Process Outsourcing (BPO) services, as KPO services are not comparable to the assessee's BPO services. - Bodhtree Consulting Ltd. (SEG): The Tribunal directed the AO to examine if this company was engaged in software development and exclude it if so. - Asit C. Mehta Financial Service Ltd.: The Tribunal restored the issue to the AO for fresh adjudication, as the assessee had accepted it as a comparable during the transfer pricing proceedings. - ICRA Technical Analysis: The Tribunal directed the AO to exclude this company if relevant segmental data were not available. - Vishal Information Technologies Ltd.: The Tribunal directed the AO to exclude this company due to its functional differences, as it outsourced major parts of its service segment. 3. Benefit of Working Capital and Risk Adjustment: The Tribunal directed the AO to consider the assessee's claim for working capital and risk adjustment on a reasonable and scientific basis after providing the assessee with an opportunity to be heard. 4. Disallowance of Entertainment Expenditure: The AO disallowed 25% of the entertainment expenditure on an ad-hoc basis due to insufficient explanation for the expenses. The Tribunal found that the assessee had provided sufficient documentary evidence to prove the genuineness of the expenses and deleted the disallowance. 5. Disallowance under Section 40(a)(i) of the Income-tax Act: The AO disallowed ?1,25,60,485 paid to EMCAP, Singapore, for global support services, treating it as fees for technical services. The Tribunal held that the payment did not qualify as fees for technical services under Article 12(4)(b) of the India-Singapore tax treaty, as EMCAP did not make available any technical knowledge, skill, or process to the assessee. The Tribunal also noted that no disallowance was made in previous years for similar payments and deleted the disallowance, applying the rule of consistency. Conclusion: The Tribunal partly allowed the assessee's appeal, directing the AO to reconsider certain comparables, examine the working capital and risk adjustment claims, and delete the disallowance of entertainment expenditure and the disallowance under section 40(a)(i).
|
