2019 (10) TMI 192 - AT - Income Tax

TP Adjustment - Comparable selection - HELD THAT - As per present position of law RPT filter should be applied is at 15%. We therefore set aside order of Ld.AO/TPO and restore back the issue to file of Ld.AO/TPO for fresh decision by applying RPT filter of 15% Companies functionally dissimilar with that of assessee s ITES segment and with a difference risk profile or any extraordinary event like amalgamation seeked need to be deselected from final list.

Summary

Issues Involved:
1. Assessment and reference to Transfer Pricing Officer (TPO)
2. Fresh comparable search by TPO
3. Comparability analysis for arm's length price determination
4. Erroneous data used by AO/TPO
5. Non-allowance of appropriate adjustments
6. Variation of 5% from the arithmetic mean
7. Deduction under section 10A
8. Disallowance of amounts paid to hotels
9. Set off of brought forward losses
10. Short grant of credit for Tax Deducted at Source (TDS)
11. Non-issue of refund
12. Interest under section 234B
13. Interest under section 234D
14. Penalty under section 271(1)(C)
15. Directions issued by the Dispute Resolution Panel (DRP)
16. Relief

Detailed Analysis:

1. Assessment and Reference to TPO:
The assessee challenged the assessment order and the reference to the TPO, claiming it was bad in law and violated principles of natural justice. The TPO's reference was made without recording an opinion that conditions in section 92C(3) were satisfied. The Tribunal found that the TPO did not follow the provisions of section 92CA(1).

2. Fresh Comparable Search by TPO:
The TPO conducted a fresh benchmarking analysis using non-contemporaneous data, which the assessee argued was based on conjectures. The Tribunal observed that the TPO did not demonstrate that the motive was to shift profits outside India. The Tribunal quashed the fresh benchmarking analysis.

3. Comparability Analysis for Arm's Length Price Determination:
The Tribunal analyzed the comparability of the companies selected by the TPO and the assessee. It was found that several companies were not functionally comparable due to differences in business models, turnover, and other criteria. The Tribunal directed the exclusion of certain companies like HCL Comnet Systems, Infosys BPO, and Wipro Ltd. from the final list of comparables due to high turnover and functional dissimilarities.

4. Erroneous Data Used by AO/TPO:
The TPO used non-contemporaneous data and did not apply multiple-year data, which influenced the pricing policy. The Tribunal directed the TPO to use contemporaneous data available in the public domain.

5. Non-Allowance of Appropriate Adjustments:
The AO/TPO did not allow adjustments under Rule 10B for differences in accounting practices, marketing expenditure, R&D expenditure, and risk profile. The Tribunal directed the AO/TPO to allow appropriate adjustments.

6. Variation of 5% from the Arithmetic Mean:
The AO/TPO did not grant the benefits of the proviso to section 92C(2). The Tribunal directed the AO/TPO to grant the benefit of the 5% variation.

7. Deduction Under Section 10A:
The AO reduced foreign travel expenditure, telecommunication expenses, and asset insurance expenses from the export turnover while computing the deduction under section 10A. The Tribunal, following the Karnataka High Court decision in CIT vs Tata Elxsi Ltd, directed the AO to include these expenses while computing the deduction.

8. Disallowance of Amounts Paid to Hotels:
The AO disallowed amounts paid to hotels for room hire charges and food expenses on the ground of non-deduction of tax. The Tribunal found that the payments were for business purposes and not liable for TDS, and thus deleted the addition.

9. Set Off of Brought Forward Losses:
The AO was directed to allow the set-off of brought forward losses against taxable income if the additions/disallowances made in earlier years were deleted by appellate authorities.

10. Short Grant of Credit for TDS:
The assessee claimed a shortfall in TDS credit. The Tribunal directed the AO to verify the details and provide the correct TDS credit.

11. Non-Issue of Refund:
The AO considered a refund as issued to the assessee, which was disputed. The Tribunal directed the AO to verify and issue the refund as per law.

12. Interest Under Section 234B:
The AO levied interest under section 234B. The Tribunal noted that this issue is consequential and does not require adjudication at this stage.

13. Interest Under Section 234D:
The AO levied interest under section 234D. The Tribunal stated that this issue is also consequential and does not require adjudication at this stage.

14. Penalty Under Section 271(1)(C):
The AO initiated penalty proceedings under section 271(1)(c). The Tribunal found this issue to be premature and did not adjudicate it.

15. Directions Issued by the DRP:
The DRP did not take cognizance of the objections filed by the assessee and confirmed the draft assessment order. The Tribunal directed the AO/TPO to reconsider the issues raised by the assessee.

16. Relief:
The Tribunal directed the AO/TPO to grant all reliefs arising from the grounds of appeal and consequential reliefs.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, directing the AO/TPO to reconsider various issues, exclude certain comparables, and grant appropriate reliefs as per the directions provided.