2018 (8) TMI 126 - AT - Income Tax

TPA - comparable selection criteria - Held that - In our considered opinion, the comparables selected by the assessee and also by the TPO are functionally different from the functions of the assessee. In the light of findings given in A.Y 2008-09, we are of the view that both the assessee and TPO must carry out fresh search for selection of comparables having functions, similarity in the segment sales and post sales support. We, accordingly, restore this issue to the file of the TPO with the above directions. TPO is directed to decide the issue afresh after giving reasonable opportunity of being heard to the assessee. In so far as provision of management and support services are concerned, we find that the assessee has given complete details of the technical services utilised by it from its AE and the same are exhibited at pages 704 to 708 of the paper book. Details of management services have also been given by the assessee. We find that the TPO/DRP has nowhere considered the details submitted by the assessee. DR pointed out that in so far as management services are concerned, the assessee has not brought anything on record to suggest what type of services were given by the AEs for which the assessee had made the payments. In so far as technical services are concerned, the ld. DR fairly conceded that the details were furnished but not properly appreciated by the TPO. Considering the facts in totality, we are of the considered view that this issue also needs fresh adjudication. We, accordingly, restore this issue to the file of the TPO. The TPO is directed to decide the issue afresh after considering the detailed submissions/documentary evidences furnished by the assessee. The assessee is directed to furnish the details of services utilised by it for which it has made the payments to its AEs. The assessee is further directed to demonstrate what benefits it has received from its AEs. The TPO is directed to consider the same and decide the issue afresh after giving reasonable opportunity of being heard to the assessee.

Summary

Issues Involved:
1. Transfer Pricing Adjustments for Sales and Post-Sales Support Services.
2. Provision of Management and Support Services.
3. Use of Comparables for Benchmarking.

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustments for Sales and Post-Sales Support Services:
The assessee, a subsidiary of Converse Network Systems Europe BV, engaged in providing various services to its Associated Enterprises (AEs), used the Transactional Net Margin Method (TNMM) for benchmarking its international transactions. The Transfer Pricing Officer (TPO) disagreed with the use of multiple year data and the filters applied by the assessee for selecting comparables. The TPO applied his own set of filters and selected different comparables, leading to a higher Arm's Length Price (ALP) and a proposed adjustment. The Dispute Resolution Panel (DRP) upheld the TPO's adjustments. The Tribunal found that the comparables selected by both the assessee and the TPO were functionally different and directed a fresh search for comparables similar to the assessee's functions, restoring the issue to the TPO for reconsideration.

2. Provision of Management and Support Services:
The TPO took the Comparable Uncontrolled Price (CUP) of management and support services at NIL, questioning the tangible benefits derived from such services. The DRP upheld this view. The Tribunal noted that the assessee had provided detailed submissions and documentary evidence regarding the services utilized, which were not properly considered by the TPO/DRP. The Tribunal directed the TPO to re-examine the issue, considering the detailed submissions and evidences furnished by the assessee, and to decide the matter afresh after giving the assessee a reasonable opportunity of being heard.

3. Use of Comparables for Benchmarking:
The TPO rejected the comparables used by the assessee, citing functional differences, and selected his own set of comparables. The Tribunal observed that the comparables selected by both parties were functionally different from the assessee's functions. Referring to a previous decision in the assessee's own case for A.Y 2008-09, the Tribunal directed a fresh search for comparables with functional similarity to the assessee's segment of sales and post-sales support. The TPO was instructed to decide the issue afresh, considering the functions, assets, and risks of the comparables.

Conclusion:
The Tribunal allowed the appeals for statistical purposes, directing the TPO to conduct a fresh search for comparables and to re-examine the provision of management and support services, considering the detailed submissions and evidences provided by the assessee. The TPO was instructed to provide a reasonable opportunity of being heard to the assessee in both matters. The appeals were disposed of accordingly, and the stay petitions became otiose. The order was pronounced in the open court on 31st July, 2018.