2018 (6) TMI 153 - AT - Income Tax

Determination of arm s length price - selection of comparables - Held that - The matter is restored to the file of Ld. TPO for re-characterization of profile of the assessee and making fresh selection of comparables functionally similar to the assessee and then decide the arm s length price of the international transaction accordingly - also assessee should be given adequate opportunity of being heard - allowed partly for statistical purposes. Disallowance u/s 40(a)(i) for non-deduction of tax at source on inter-company fee payments - Held that - Ld. DRP has confirmed the disallowance without any detailed reasoning and taking into account the documentary evidences of deposit of tax - thus it is decided to restore this issue to the file of the Ld. AO for deciding afresh after providing adequate opportunity of being heard to the assessee - allowed for statistical purposes.

Summary

Issues Involved:

1. Transfer pricing adjustment.
2. Disallowance under section 40(a)(i) of the Income Tax Act for non-deduction of tax at source.
3. Levy of interest under Sections 234A and 234B of the Income Tax Act.

Detailed Analysis:

1. Transfer Pricing Adjustment:

The assessee challenged the addition of ?3,95,61,889 on account of differences in the arm's length price of international transactions determined by the Transfer Pricing Officer (TPO). The TPO rejected the internal Transactional Net Margin Method (TNMM) used by the assessee, citing that the segmental analysis was not reflected in the audited financial statement. The TPO used external TNMM and selected comparables, computing a mean margin of 25.29%, leading to the proposed adjustment.

The Tribunal noted that the TPO wrongly characterized the assessee as a provider of financial advisory services and compared it with companies engaged in stock broking and trading of shares. This issue was previously raised and resolved in favor of the assessee in earlier assessment years (2010-11 and 2011-12), where the matter was restored to the TPO for fresh analysis. The Tribunal directed the TPO to re-characterize the assessee and select fresh comparables based on the correct characterization, considering only the operating cost of AE transactions for applying the mean margin of comparables.

2. Disallowance under Section 40(a)(i) of the Act:

The assessee contested the disallowance of ?2,17,63,132 for non-deduction of tax at source on inter-company fee payments. The Dispute Resolution Panel (DRP) upheld the disallowance without detailed reasoning or considering the documentary evidence of tax deduction and deposit provided by the assessee. The Tribunal found this action unjustified and restored the issue to the Assessing Officer (AO) for reconsideration, ensuring the assessee is given adequate opportunity to present evidence.

3. Levy of Interest under Sections 234A and 234B:

The assessee also challenged the levy of interest under Sections 234A and 234B of the Income Tax Act. However, this issue was not specifically adjudicated in the Tribunal's decision.

Conclusion:

The Tribunal allowed the appeal for statistical purposes, directing the AO/TPO to re-characterize the assessee, select appropriate comparables, and reconsider the disallowance under Section 40(a)(i) after providing the assessee an opportunity to present evidence. The decision emphasized the importance of accurate characterization and fair consideration of evidence in transfer pricing and tax deduction matters.