2022 (11) TMI 186 - AT - Income Tax

TP adjustment - comparable selection - TPO rejecting the comparables of the assessee and choosing a fresh set of comparables - HELD THAT - We notice that for the AY 2015-16 in assessee s own case, the TPO issued a show cause notice to the assessee wherein the TPO proposed to include United Drilling Tools Ltd. and Groz Engg. Tools Pvt. Ltd. as comparable companies. The assessee filed its response raising objections for inclusion of the said two companies - TPO after considering the submissions of the assessee, in the final assessment order ddid not make any adjustments in the manufacturing segment and has accepted the comparables chosen by the assessee. No merit in the argument of the ld. AR that the TPO cannot a different stand in the year under consideration by rejecting the comparables of the assessee and choosing a fresh set of comparables. We therefore hold that the two comparables United Drilling Tools Ltd. and Groz Engineering Tools Ltd. have to be excluded from the comparables. The TPO is directed to recompute the ALP accordingly. Interest on receivables - TPO treated the delayed receivables as a separate international transaction and levied a notional interest using 6 months LIBOR 400 basis points that worked out to 4.485% - HELD THAT - We notice that as per the financials, the assessee is a debt free company. The impugned issue is squarely covered by the decision of the coordinate Bench of the Tribunal in the case of M/s. Barracuda Networks India Private Limited 2022 (5) TMI 322 - ITAT BANGALORE - we remit the issue back to the TPO/AO for bench marking of the transaction of interest on delayed receivables and recomputation of ALP accordingly. TDS u/s 195 - Secondment charges and reimbursement - Addition u/s 40(a)(ia) - HELD THAT - In assessee s case on perusal of records it is noticed that the seconded employee is in the payroll of the assessee and tax has duly been deducted on the salary paid to the employee including what is paid in Italy. It is also noticed that the reimbursement has also been taken into account for the purpose of TDS u/s.192B. We further notice that the reimbursement of expenses towards insurance, travelling expenses of the visiting employees is a cost to cost reimbursement with no element of income. Respectfully following the ratio laid down in M/S. FLIPKART INTERNET PRIVATE LIMITED 2022 (6) TMI 1251 - KARNATAKA HIGH COURT and GOLDMAN SACHS SERVICES PVT. LTD 2022 (4) TMI 1444 - ITAT BANGALORE we hold that the reimbursement towards secondment charges and reimbursement of expenses are not liable for tax deduction u/s. 195 and therefore the disallowance made u/s. 40(a)(i) is not warranted on this count. Levy of interest u/s.234A - HELD THAT - AR during the course of hearing submitted that there is no delay in filing the return of income and therefore there should not be any levy of interest u/s.234A. We direct the AO to examine this fact and not to levy interest u/s.234A if the assessee has filed the return of income before the due date u/s.139(1). It is ordered accordingly.

Summary

Issues Involved:

1. General Grounds
2. Legal Issue Regarding Document Identification Number (DIN)
3. Transfer Pricing (TP) Adjustment in Manufacturing Segment
4. Interest on Delayed Receivables
5. Disallowance of Secondment Charges and Reimbursement of Expenses
6. Levy of Interest under Section 234A
7. Levy of Interest under Sections 234B & 234C

Detailed Analysis:

1. General Grounds:
The general grounds raised by the assessee were not specifically addressed in the judgment, as they were likely procedural or introductory in nature.

2. Legal Issue Regarding Document Identification Number (DIN):
The assessee contended the validity of the order passed under Section 92CA on the basis that it did not bear the mandatory Document Identification Number (DIN). Since the TP adjustment issue was resolved in favor of the assessee on merits, this legal issue was deemed academic and left open.

3. Transfer Pricing (TP) Adjustment in Manufacturing Segment:
The assessee, a private limited company engaged in manufacturing and trading of woodworking machine components, followed the Transactional Net Margin Method (TNMM) for determining the Arm's Length Price (ALP) of its international transactions. The Transfer Pricing Officer (TPO) rejected the 21 comparables chosen by the assessee and selected a new set of comparables, leading to a TP adjustment of Rs. 16,14,17,954. The Dispute Resolution Panel (DRP) confirmed this adjustment. However, the Tribunal noted that for the previous assessment year, the TPO had accepted the comparables chosen by the assessee. Therefore, the Tribunal directed the exclusion of the two comparables (United Drilling Tools Ltd. and Groz Engineering Tools Ltd.) and ordered the TPO to recompute the ALP accordingly.

4. Interest on Delayed Receivables:
The TPO treated delayed receivables as a separate international transaction and levied notional interest using the 6-month LIBOR + 400 basis points, which was later reduced by the DRP to Rs. 22,82,138 using the SBI short-term deposit rate. The Tribunal, referencing the decision in M/s. Barracuda Networks India Private Limited vs. DCIT, held that the interest rate should be based on the currency in which the loan is to be repaid. The issue was remitted back to the TPO/AO for fresh benchmarking and recomputation of the ALP.

5. Disallowance of Secondment Charges and Reimbursement of Expenses:
The AO disallowed Rs. 1,39,07,427 paid towards secondment of employees and Rs. 55,33,442 as reimbursement of expenses, treating them as fees for technical services liable for TDS under Section 195. The Tribunal, referencing the Karnataka High Court's decision in Flipkart Internet Pvt. Ltd. and the Tribunal's decision in Goldman Sachs Services Pvt. Ltd., held that the reimbursements were not liable for TDS as they were cost-to-cost reimbursements with no element of income. The disallowance under Section 40(a)(i) was thus not warranted.

6. Levy of Interest under Section 234A:
The assessee contended that there was no delay in filing the return of income and thus no interest under Section 234A should be levied. The Tribunal directed the AO to verify this fact and not to levy interest if the return was filed before the due date under Section 139(1).

7. Levy of Interest under Sections 234B & 234C:
This ground was deemed consequential and did not warrant separate adjudication.

Conclusion:
The appeal was partly allowed, with directions for recomputation of the ALP for TP adjustments and reconsideration of the interest on delayed receivables and secondment charges. The issue regarding the DIN was left open, and the AO was directed to verify the filing date for the levy of interest under Section 234A.