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2020 (2) TMI 972 - AT - Income TaxTP Adjustment - comparable selection - HELD THAT - Assessee is engaged in providing consultancy/ information technology enabled services (ITeS) to its foreign Associate Enterprises (AE), thus companies functionally dissimilar with that of assessee need to be deselected from final list. Thus we direct the AO/TPO to exclude Infosys BPO Ltd., Accentia Technology Ltd., Acropetal Technology Ltd. and Eclerx Services Ltd. and include Datamatics Financial Services Ltd. in the final set of comparable and recompute the ALP of ITeS support services with its AE Exclusion of Eclerx from final set of comparable on functional dissimilarity. Therefore, following the principle of consistency, the AO/TPO is directed to exclude Eclerx from final set of comparable and recompute the ALP of its international transaction with AE.
Issues Involved:
1. Transfer Pricing Adjustment relating to provision of support services. 2. Penalty Proceedings under Section 271(1)(c) of the Income Tax Act. 3. Short credit for advance taxes paid and taxes deducted at source. 4. Consequential reliefs. Detailed Analysis: 1. Transfer Pricing Adjustment relating to provision of support services: - The assessee, a wholly-owned subsidiary of a Swiss company, provides consultancy/ITeS to its foreign Associate Enterprises (AE). For the assessment year 2010-11, the assessee declared a total income of ?7,87,57,222 and reported international transactions using the Transaction Net Margin Method (TNMM) with a margin of 14.86%. - The Transfer Pricing Officer (TPO) adjusted the assessee’s margin to 8.61% by excluding other income and included additional comparables, leading to a proposed adjustment of ?6,84,85,849. - The Dispute Resolution Panel (DRP) directed the inclusion of certain items excluded by the TPO and the Assessing Officer (AO) made the final adjustment. - The Tribunal admitted additional grounds for excluding Infosys BPO Ltd. and other comparables and found that the exclusion of Infosys BPO, Accentia Technologies, Acropetal Technologies, and E-Clerx Services Ltd. would bring the assessee’s margin within the permissible range. The Tribunal also directed the inclusion of Datamatics Financial Services Ltd. - The Tribunal directed the AO/TPO to recompute the Arm's Length Price (ALP) after excluding the specified comparables and including Datamatics Financial Services Ltd., considering the functional dissimilarities and the absence of reliable segmental data. 2. Penalty Proceedings under Section 271(1)(c) of the Income Tax Act: - The assessee challenged the initiation of penalty proceedings under Section 271(1)(c). The Tribunal found this ground premature and did not adjudicate it at this stage. 3. Short credit for advance taxes paid and taxes deducted at source: - The assessee claimed short credit for advance taxes and TDS. The Tribunal directed the AO to verify the facts and grant appropriate relief to the assessee. 4. Consequential reliefs: - The Tribunal acknowledged the need for consequential reliefs arising from the adjudication of the primary grounds. It directed the AO to grant all consequential reliefs, including the correct computation of interest under Sections 234B and 234C of the Income Tax Act. Conclusion: - The Tribunal partially allowed the appeal for the assessment year 2010-11, directing the exclusion of certain comparables and inclusion of Datamatics Financial Services Ltd. for the recomputation of ALP. - For the assessment year 2011-12, the Tribunal followed the same principle of consistency and directed the exclusion of E-Clerx from the final set of comparables. - The Tribunal did not adjudicate the penalty proceedings and directed the AO to verify and grant appropriate relief for short credit of taxes.
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