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2022 (5) TMI 353 - AT - Income TaxTP Adjustment - comparable selection - Selection criteria for ITS and ITeS segments - HELD THAT - We direct the AO/TPO to consider the comparables in both ITS and ITeS segments having turnover of 1-200 crores and decide the issue accordingly. Non-grant of deduction for education cess and secondary higher education cess - HELD THAT - As relying on case of M/S. WIPRO LIMITED 2020 (10) TMI 605 - ITAT BANGALORE we hold that the education cess is allowable as deduction.
Issues Involved:
1. Transfer Pricing Adjustment 2. IT Services Segment Comparables 3. ITeS Segment Comparables 4. Turnover Filter Application 5. Deduction for Education Cess 6. Levy of Interest under Section 234B Detailed Analysis: 1. Transfer Pricing Adjustment: The primary issue concerns the upward adjustment of INR 3,73,66,167 to the assessee's total income by the Assessing Officer (AO) and Transfer Pricing Officer (TPO). This adjustment pertains to the international transactions involving software development services and support services related to clinical trial study configurations provided by the assessee to its Associated Enterprise (AE). The AO and TPO re-determined the Arm's Length Price (ALP), leading to this adjustment. 2. IT Services Segment Comparables: The assessee contended that the AO and TPO erred in rejecting ten out of sixteen comparable companies selected by the assessee for benchmarking IT services transactions. The assessee argued that companies such as Sasken Communication Technologies Limited, Accel Frontline Ltd, and others should be accepted as comparables. Conversely, the AO and TPO included additional companies such as Inteq Software Private Limited and Infosys Limited, which the assessee contested were not comparable. 3. ITeS Segment Comparables: Similar to the IT services segment, the assessee argued that the AO and TPO erroneously rejected twelve out of fifteen comparable companies for the ITeS segment. The assessee proposed companies like Allsec Technologies Limited and Jindal Intellicom Limited as comparables. The AO and TPO included SPI Technologies India Private Limited, which the assessee contested. 4. Turnover Filter Application: The assessee contended that the AO and TPO failed to apply the "upper turnover filter" as held by the Bangalore ITAT in the assessee's own case for previous assessment years. The Tribunal had earlier ruled that companies with turnover ranging from 1 to 200 crores should be considered as comparables, excluding those with higher turnovers. The Tribunal reiterated this position, directing the AO/TPO to reconsider the comparables in both IT services and ITeS segments within the specified turnover range. 5. Deduction for Education Cess: The assessee argued that the AO and Dispute Resolution Panel (DRP) erred in not allowing a deduction for education cess and secondary & higher education cess. The Tribunal referred to the decisions of the Bombay High Court and Rajasthan High Court, which held that education cess is not a tax and is allowable as a deduction. The Tribunal directed the AO to allow the deduction for education cess, aligning with these judicial precedents. 6. Levy of Interest under Section 234B: The assessee contested the levy of interest under section 234B, which is consequential to the grounds of appeal. The Tribunal did not specifically address this issue in the detailed judgment, implying that it is consequential and dependent on the final determination of the other grounds. Conclusion: The Tribunal partly allowed the assessee's appeal for statistical purposes. It directed the AO/TPO to reconsider the comparables for both IT services and ITeS segments within the turnover range of 1 to 200 crores. Additionally, the Tribunal allowed the deduction for education cess, following the judicial precedents set by the Bombay and Rajasthan High Courts. Other grounds not pressed before the Tribunal were dismissed. The judgment emphasizes the importance of consistent application of turnover filters and adherence to judicial rulings on allowable deductions.
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