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2021 (1) TMI 1075 - AT - Income TaxTransfer pricing adjustment made in respect of back office support services (ITES services) - Comparable selection - HELD THAT - We direct exclusion of M/s. E-Clerx Services Ltd., ICRA online Ltd. and Infosys BPO Ltd. as functionally dissimilar with that of assessee. The ALP of the international transactions shall be computed afresh accordingly TP adjustment made in respect of distribution segment - Selection of MAM - HELD THAT - As neither the TPO nor the Ld DRP has examined the T.P study of the assessee made by adopting Resale Price Method. Further, as noticed earlier, the TPO was under erroneous belief that the assessee has adopted TNM method for its distribution segment also, which is patently wrong. It is well settled principle that the TPO has to give cogent reason as to why the method selected by the assessee is not an appropriate method in the facts and circumstances of the case, before discarding it. Since the TPO had misdirected himself, there was no occasion for him to examine the Resale price method adopted by the assessee - entire issue relating to Transfer pricing adjustment made in respect of Distribution Segment needs to be examined afresh by duly considering the Transfer Pricing study conducted by the assessee. Computation of deduction u/s 10A - Assessee claimed deduction u/s 10A of the Act without adjusting loss from other units - AO adjusted business losses of other units against the profits of Coimbatore unit and accordingly allowed deduction u/s 10A - HELD THAT - We set aside the order passed by the AO on this issue and direct him to compute the deduction u/s 10A without adjusting losses as held in M/S YOKOGAWA INDIA LTD. 2016 (12) TMI 881 - SUPREME COURT .
Issues Involved:
1. Transfer pricing adjustment in respect of back office support services (ITES services). 2. Transfer pricing adjustment in respect of the distribution segment. 3. Computation of deduction under Section 10A of the Income-tax Act. Detailed Analysis: Transfer Pricing Adjustment in Respect of Back Office Support Services (ITES Services): The assessee adopted the Transactional Net Margin Method (TNMM) with Operating Profit by Operating Cost (OP/OC) as the profit level indicator, declaring a margin of 19%. The Transfer Pricing Officer (TPO) rejected the assessee's transfer pricing study and selected 10 comparable companies, resulting in an average margin of 26.86%. After adjustments, the TPO computed the adjusted margin at 26.63%, leading to a transfer pricing adjustment of ?1,30,63,508/-. The Dispute Resolution Panel (DRP) confirmed this adjustment. The assessee sought the exclusion of three companies—E-Clerx Services Limited, Infosys BPO Limited, and ICRA Online Limited (segment)—arguing they were functionally dissimilar. The Tribunal referenced a similar case (Akamai Technologies India Private Limited) where these companies were excluded due to their functional dissimilarity in providing high-end services compared to the routine ITES services provided by the assessee. The Tribunal upheld the exclusion of these companies, directing a fresh computation of the Arm's Length Price (ALP) for the international transactions. Transfer Pricing Adjustment in Respect of the Distribution Segment: The assessee contended that it engaged in the distribution of pharmaceutical products without value addition and thus, the Resale Price Method (RPM) was the most appropriate method for benchmarking. The TPO, however, misunderstood and believed the assessee had applied TNMM for this segment. The DRP upheld the TPO’s method without addressing the assessee's contentions for adopting RPM. The Tribunal noted that the TPO had erred in understanding the method applied by the assessee and had not provided cogent reasons for rejecting RPM. Consequently, the Tribunal set aside the order and remanded the issue back to the AO/TPO for a fresh examination, considering the Transfer Pricing study conducted by the assessee. Computation of Deduction Under Section 10A of the Income-tax Act: The assessee claimed deduction under Section 10A for its Coimbatore unit without adjusting losses from other units. The AO adjusted the business losses of other units against the profits of the Coimbatore unit, which was upheld by the CIT(A). The Tribunal referenced the Supreme Court's decision in CIT & Ans. Vs. M/s Yokogawa India Ltd., which clarified that the deduction under Section 10A is to be computed independently for each eligible undertaking without reference to other units. The Tribunal directed the AO to compute the deduction under Section 10A without adjusting losses from other units, aligning with the Supreme Court's interpretation. Conclusion: The appeal was allowed for statistical purposes, with the Tribunal directing fresh computations and examinations for the transfer pricing adjustments and the deduction under Section 10A. The Tribunal's decisions were based on established legal precedents and detailed analyses of functional similarities and appropriate benchmarking methods.
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