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2020 (8) TMI 478 - HC - Income TaxTP Adjustment - comparable selection - Whether the Tribunal was right in holding that inclusion of companies with different financial years ending as comparables though Rule 10 B (4) of the Income Tax Rules refers only to data relating to the financial year of the assessee in which the international transaction has been entered into? - HELD THAT - We confirm the finding of the Tribunal directing the exclusion of Infosys BPO Limited from the list of comparables. The conclusion arrived at by us is duly supported by the decision of the Hon'ble Division Bench of the Karnataka High Court in PCIT Vs. Swiss Re Global Business Solutions India 2018 (7) TMI 52 - KARNATAKA HIGH COURT - As excluded from the list of comparables for the reason that it was a giant Company in the area of development of software Rejection of comparable selected by the assessee having different financial year - Tribunal followed the decision in R R Donnelley India Outsource Private Limited 2016 (8) TMI 1165 - ITAT CHENNAI and remanded the matter back to the Assessing Officer by issuing similar direction as issued in the said order - HELD THAT - The argument of the Revenue is that the direction is devoid of reasons. We do not agree with the said submission because the Tribunal had referred to the decision of R R Donnelley India Outsource Private Limited Vs. DCIT (supra). All the directions contained thereunder were issued and the position of law as applied by the Tribunal merits acceptance. Our views/conclusion is strengthened by the decision of the High Court of Delhi in PCIT Vs. Baxter India Pvt. Ltd 2018 (9) TMI 1894 - DELHI HIGH COURT . It is also a case arising out of an assessment for the year 2012-13, wherein the Court took note of the decision in the case of CIT-II Vs. Mckinsey Knowledge Centre Pvt. Ltd. 2015 (3) TMI 1226 - DELHI HIGH COURT wherein it was held that if from the available data, the results for financial year can reasonably be extrapolated then the comparable cannot be excluded. No error in the order passed by the Tribunal on this issue Remove the Cosmic Global Limited from the list of comparables - Tribunal followed the assessee's own case in 2017 (2) TMI 1208 - ITAT CHENNAI arising for the assessment year 2008-09 - therefore we find that the Tribunal was right in directing the Assessing Officer to exclude Cosmic Global Limited from the list of comparables. Suitable adjustment to account for differences in working capital position - Tribunal remanded the matter to the Assessing officer to rework the working capital adjustment - HELD THAT - We find that the issue to be fully factual and no substantial question of law flows from it. While on this issue, we refer to the decision of the Division Bench of this Court in the case of Commissioner of Income Tax Vs. Same Deutz-Fahr India (P) Ltd. 2017 (12) TMI 631 - MADRAS HIGH COURT wherein it was held that the right of appeal under Section 260A of the Act is not automatic and it is limited right of appeal restricted only to cases which involve substantial questions of law and it is not open to the High Court to sit in appeal over the factual findings arrived at by the Tribunal. Order of the Tribunal remitting the matter to the Assessing Officer to rework the working capital adjustment is affirmed and is not interfered as no substantial question of law arises for consideration on the said issue. Order granting risk adjustment at 2% - TPO had denied adjustments on the ground that the information is not readily available in the public domain to fine tune the margins of the comparables on the basis of standard benchmarks to adjust for the differential functional profile of the entities - HELD THAT - Tribunal took note of the arguments of the assessee that they function under limited risk because they are a wholly owned subsidiary of their AE and they are a captive service provider and whereas the comparable Companies has independent entities, the assessee being a captive service provider is a very relevant factor. After noting the factual position, the Tribunal referred to the decision in M/s.KOB Medical Textiles Pvt. Ltd 2017 (5) TMI 1166 - ITAT CHENNAI wherein the Tribunal held that the risk adjustment could be given only to Company to Company basis, considering the level of risk involved between the assessee and the comparable Companies adopting the percentage of risk adjustment granted thereunder. The Tribunal directed the Assessing Officer to grant 2% towards risk adjustment on adhoc basis. We find that no substantial question of law flows from this issue as it is entirely factual. Accordingly, the finding of the Tribunal on this issue does not call for any interference. Disallowance u/s 14A read with Rule 8D - HELD THAT - This Court in the case of Commissioner of Income Tax, Central Board, Chennai Vs. Chettinad Logistics Private Limited 2017 (4) TMI 298 - MADRAS HIGH COURT wherein it was held that Section 14A cannot be invoked. We note that the exempt income was earned by the assessee in the relevant assessment year. The Special Leave Petition filed by the Revenue as against this decision was dismissed by the Hon'ble Supreme Court on the ground of delay as well as on merits in the judgment reported in CIT, Chennai Vs. Chettinad Logistics Pvt. Ltd. 2018 (7) TMI 567 - SC ORDER . Therefore the Substantial question of law has to be answered against the Revenue.
Issues Involved:
1. Inclusion of companies with different financial years as comparables. 2. Granting risk adjustments on an ad hoc basis. 3. Granting working capital adjustment based on previous orders. 4. Removal of comparable companies based on higher turnover. 5. Applicability of Section 14A read with Rule 8D when no exempt income is earned. Issue-Wise Detailed Analysis: 1. Inclusion of Companies with Different Financial Years as Comparables: The Tribunal remanded the matter back to the Assessing Officer, directing to furnish data for the financial year 2009-10 to the TPO, who after verification shall consider the same as comparable to the assessee's case to determine the ALP. This decision was supported by the High Court of Delhi in PCIT Vs. Baxter India Pvt. Ltd., which held that if data from the available financial year can reasonably be extrapolated, the comparable cannot be excluded. The Tribunal's reference to R R Donnelley India Outsource Private Limited Vs. DCIT was deemed sufficient reasoning. 2. Granting Risk Adjustments on an Ad Hoc Basis: The Tribunal directed the Assessing Officer to grant a 2% risk adjustment on an ad hoc basis, referencing the decision in M/s.KOB Medical Textiles Pvt. Ltd. The Tribunal noted that the assessee functions under limited risk as a wholly owned subsidiary and captive service provider, unlike the comparable companies which are independent entities. The Tribunal's factual findings were upheld, and no substantial question of law was found to arise from this issue. 3. Granting Working Capital Adjustment Based on Previous Orders: The Tribunal remitted the matter back to the Assessing Officer to rework the working capital adjustment, considering the value of advances and deposits recoverable. The Tribunal's approach was based on the assessee's own case for the assessment year 2008-09. The court affirmed this decision, noting that it is a factual issue and no substantial question of law arises. 4. Removal of Comparable Companies Based on Higher Turnover: The Tribunal directed the exclusion of Infosys BPO Limited from the list of comparables, referencing the assessee's own case for the assessment year 2008-09 and decisions from various High Courts, including the Karnataka High Court in PCIT Vs. Swiss Re Global Business Solutions India P. Ltd. and the Bombay High Court in CIT vs. M/s.Pentair Water India Pvt. Ltd. The court confirmed the Tribunal's finding, noting that Infosys BPO's turnover was significantly higher than the assessee's, making it an unsuitable comparable. 5. Applicability of Section 14A Read with Rule 8D When No Exempt Income is Earned: The Tribunal held that Section 14A cannot be invoked if no exempt income was earned during the relevant assessment year, referencing the decision in CIT Vs. Chettinad Logistics (P) Ltd. The court upheld this finding, noting that the Special Leave Petition filed by the Revenue against this decision was dismissed by the Supreme Court. Conclusion: The appeal filed by the Revenue was dismissed, with Substantial Questions of Law (i), (iii), (iv), and (v) answered against the Revenue. The question regarding risk adjustments (ii) was found to be fully factual, and no substantial question of law arose from it. The court affirmed the Tribunal's decisions on all issues, finding no errors or grounds for interference.
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