2021 (7) TMI 582 - AT - Income Tax

Rectification of mistake - ALP adjustment in respect of ITeS services - assessee s contention that the margin of the international transaction of the assessee was 37.54% and that the Average Margin of the comparables adopted by the TPO was 33.13% - HELD THAT - Since the assessee s margin was higher than the Mean Margin of the comparables, the functional dissimilarities or otherwise of the comparable companies was not necessary to be considered and the assessee had agreed for the same at the time of hearing. Even at the time of hearing of the M.A, the learned Counsel for the assessee submitted that the assessee is not pressing this point for rectification. Therefore, on this issue we do not find any mistake which needs rectification. Interest on advances for investment to AEs - We find that in the assessee s own case for the earlier A.Ys 2017 (12) TMI 301 - ITAT HYDERABAD Tribunal has set aside the issue to the file of the AO/TPO with a direction to consider the same denovo. Since facts and circumstances are similar and the assessee had relied upon the same during the course of hearing but the same has not been considered, we agree that there is a mistake apparent from record which needs rectification. Mistake on account of interest on outstanding receivables - We find that while determining the ALP adjustment of ITeS services, we had observed that the Assessing Officer had given the negative working capital adjustment. But the working capital adjustment takes care of the interest on receivables as on the closing date of the accounting year and does not take care of the interest on delayed receivables during the relevant year. Therefore, we do not see any mistake in the order of the Tribunal on this issue and the assessee s argument is accordingly rejected.

Summary

Issues:
1. Rectification of alleged mistakes in the Tribunal's orders related to ITeS segment.
2. Consideration of interest on advances for equity investment.
3. Treatment of interest on outstanding receivables in ALP adjustment.

Issue 1: Rectification of alleged mistakes in the Tribunal's orders related to ITeS segment:
The assessee filed M.As seeking rectification of alleged mistakes in the Tribunal's orders related to the ITeS segment. The Tribunal directed the Assessing Officer to consider only the margin of international transactions with associated enterprises (AEs) and if the margin fell within a certain range, no adjustment would be required. The assessee argued that the Tribunal did not address the exclusion and inclusion of companies raised in specific grounds of appeal, which was a mistake. The Tribunal, after considering contentions, found no mistake in the order regarding the ALP adjustment for ITeS services. It was noted that the assessee's margin was higher than the comparables, making the consideration of functional dissimilarities unnecessary. The Tribunal concluded that no rectification was needed on this issue.

Issue 2: Consideration of interest on advances for equity investment:
The second point raised was regarding additions made for interest on advances. The assessee contended that these advances were given for equity investment, later converted into equity, and shares were allotted to the assessee company. The Tribunal, after examining the issue, found a mistake in not considering its own decision in the assessee's previous case. Therefore, the Tribunal decided to remand the issue to the Assessing Officer/TPO for a fresh examination to determine if the investment was made for equity and whether shares were allotted to the assessee.

Issue 3: Treatment of interest on outstanding receivables in ALP adjustment:
The third issue involved the Tribunal's consideration of interest on outstanding receivables in the ALP adjustment. The assessee argued that the working capital adjustment already accounted for interest on delayed receivables, so no separate addition was necessary. However, the Tribunal clarified that the working capital adjustment only covered interest on receivables as of the closing date of the accounting year, not on delayed receivables during the relevant year. Therefore, the Tribunal rejected the assessee's argument on this issue.

In conclusion, the Tribunal partly allowed the M.As filed by the assessee, addressing the issues raised in each application. The order was pronounced in the Open Court on 14th July 2021.