2018 (12) TMI 326 - AT - Income Tax

TPA - comparable selection criteria - Held that - The assessee provided software development services (CSD), information technology enabled services (ITES), marketing support services (MSS) to its associated Enterprises (AEs) on cost-plus basis, purchased fixed assets and availed legal, finance, human resource, IT support and other support services from AEs, thus companies functionally dissimilar with that of assessee need to deselected from final list. Exclude the Infosys BPO Ltd on the basis of the high brand value and high turnover of the company.

Issues Involved:

1. Validity of the Assessment Order
2. Non-fulfillment of Conditions under Section 92C(3)
3. Transfer Pricing Adjustments for ITES and MSS Segments
4. Determination of ALP for Intra Group Services
5. Interest on Receivables from AEs
6. Purchase of Fixed Assets
7. Initiation of Penalty Proceedings under Section 271
8. Levy of Interest under Sections 234B and 234C

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order:
The assessee contended that the assessment order passed in compliance with the directions of the Dispute Resolution Panel (DRP) was vitiated as the DRP erred in confirming the addition of ?15,78,02,761/- made by the Assessing Officer (AO). The Tribunal did not find it necessary to adjudicate specifically on this ground and dismissed it as infructuous.

2. Non-fulfillment of Conditions under Section 92C(3):
The assessee argued that the AO failed to appreciate that none of the conditions set out in Section 92C(3) of the Income Tax Act, 1961 were satisfied in the present case. This ground was also dismissed as infructuous.

3. Transfer Pricing Adjustments for ITES and MSS Segments:
The Tribunal examined the inclusion/exclusion of certain comparables under the ITES and MSS segments:

a. Accentia Technologies Ltd:
The Tribunal directed the exclusion of Accentia Technologies Ltd from the final set of comparables as it was engaged in high-end services (KPO) and medical transcription, which were functionally different from the ITES services provided by the assessee.

b. Eclerx Limited:
Eclerx Limited was excluded from the final set of comparables due to its engagement in data analytics and process solutions, making it functionally dissimilar to the assessee's ITES segment.

c. Infosys BPO Limited:
Infosys BPO Limited was excluded from the final set of comparables due to its high turnover, brand value, and functional dissimilarity with the assessee's ITES segment.

d. TCS E-Serve Ltd and TCS E-Serve International Ltd:
These companies were not excluded as they were found to be functionally similar to the assessee, providing ITES services without engaging in software development.

e. Fortune Infotech Ltd:
Fortune Infotech Ltd was excluded due to its use of in-house developed software, making it functionally dissimilar to the assessee's ITES segment.

f. TSR Darashaw Limited and HCCA Business Services Private Limited:
Both companies were excluded from the MSS segment as they were engaged in payroll processing and other back-office support services, which were functionally dissimilar to the assessee's MSS segment.

4. Determination of ALP for Intra Group Services:
The Tribunal restored the issue of adjustment of ?2,12,31,617/- for intra-group services availed from AEs to the TPO for detailed verification, following the decision in the assessee's case for the assessment year 2009-10.

5. Interest on Receivables from AEs:
The ground related to interest on receivables from AEs was not specifically pressed before the Tribunal and was dismissed as infructuous.

6. Purchase of Fixed Assets:
The Tribunal held that the arm's length price (ALP) for the purchase of fixed assets could not be determined at nil. It was noted that the depreciation charged on the purchase of fixed assets was subsumed in the cost base of the assessee and was already offered to tax in India. The Tribunal followed the decision in the case of BC Management Services Private Limited and held that no adjustment could be made by taking the value at nil, considering it a tax-neutral transaction.

7. Initiation of Penalty Proceedings under Section 271:
The Tribunal dismissed the ground related to the initiation of penalty proceedings under Section 271 as premature, as no penalty had been levied in the current proceedings.

8. Levy of Interest under Sections 234B and 234C:
The ground related to the levy of interest under Sections 234B and 234C was consequential and did not require adjudication.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions for the exclusion of certain comparables and the restoration of the issue of intra-group services to the TPO for detailed verification. The Tribunal also held that no adjustment could be made for the purchase of fixed assets by taking the value at nil.

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