2019 (2) TMI 1534 - AT - Income Tax

TP adjustment - comparable selection - exclusion and inclusion of the comparables - functional profile along with FAR analysis - HELD THAT - As regards Revenue s appeal is concerned all the comparables contested by the revenue are already excluded in case of Adidas Technical services (P.) Ltd. vs. DCIT 2016 (2) TMI 916 - ITAT DELHI and the Tribunal in assessee s own case for A.Y. 2010-11 directed the TPO to decide the issue in controversy in the light of the decision of the coordinate Bench of the Tribunal in case of Adidas Technical services (P.) Ltd. and allowed the appeal of the assessee for statistical purpose. The assessee company s profile in the present year also remains the same to that of earlier A.Y. 2010-11. AR pointed out for each of the comparables and its functional profile along with FAR analysis from the records. After going through the records, it can be seen that the DRP has rightly excluded these comparables. Thus, there is no need to interfere with the directions of the DRP. Hence, Ground No. 2 of the Revenue s appeal is dismissed. Development of website and towards legal and professional fees allowability - HELD THAT - DRP has rightly directed the Assessing Officer to verify the submission of the assessee in respect of the nature of the expenses and in case the professional expenses referred to by the assessee are not covered under Section 35DD, then allow the charges paid for development of website and towards legal and professional fees as revenue expenditure. There is no need to interfere with the said directions of the DRP. Thus, Ground Nos. 3 and 4 are dismissed. Exclusion of Global Procurement Consultants Limited and the issue of inclusion of BVG India Limited and Office Care Services Limited, both these aspect has to be looked into by the TPO as the functional profile set out by the assessee before us, it will be appropriate to remand back this issue to the file of the TPO/AO to verify in the light og decision of Tribunal in A.Y. 2010-11. Thus, matter is remanded back to the file of the TPO/AO.

Summary

Issues:
1. Transfer pricing adjustments in international transactions.
2. Exclusion and inclusion of comparable companies for transfer pricing analysis.
3. Treatment of legal and professional fees as capital or revenue expenditure.

Issue 1: Transfer pricing adjustments in international transactions:
The appeal was filed against the Assessment Order for Assessment Year 2011-12, concerning the adjustment of international transactions' arm's length pricing. The Transfer Pricing Officer proposed an addition of INR 54,82,095, which was reduced to INR 26,07,240 by the DRP-2. The Assessing Officer sustained this reduced addition, leading to the appeal by both the assessee and the revenue. The Tribunal upheld the DRP's decision on the transfer pricing adjustment, dismissing the revenue's appeal.

Issue 2: Exclusion and inclusion of comparable companies for transfer pricing analysis:
The dispute revolved around the selection of comparable companies for transfer pricing analysis. The DRP excluded certain comparables like Aptico Ltd., CDSL Ventures Ltd., TSR Darashaw Ltd., and Killick Agencies & Marketing, while the assessee sought the inclusion of BVG India Ltd. and Office Care Services Ltd. The Tribunal found that the DRP's exclusion of comparables was justified based on functional differences and upheld the decision. However, the Tribunal remanded the issue of inclusion and exclusion of specific comparables back to the TPO/AO for further verification.

Issue 3: Treatment of legal and professional fees as capital or revenue expenditure:
The Assessing Officer treated certain expenses, including legal and professional fees and website designing charges, as capital in nature, resulting in additions to the total income. The DRP directed the Assessing Officer to verify the nature of these expenses and allow them as revenue expenditure if not covered under specific sections of the Income Tax Act. The Tribunal upheld the DRP's directions on this issue, dismissing the revenue's appeal. The Tribunal also partially allowed the assessee's appeal for statistical purposes, remanding certain aspects back to the TPO/AO for reevaluation.

Overall, the Tribunal's judgment addressed the issues of transfer pricing adjustments, selection of comparables, and treatment of expenses, providing detailed analysis and directions for further verification where necessary.