9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (1) TMI 399 - AT - Income TaxTP Adjustment - Comparable selection - HELD THAT - Companies functionally dissimilar with that of assessee need to be deselected from final list. This Tribunal in Global Logic India Ltd. 2021 (11) TMI 1090 - ITAT DELHI , we direct Ld. AO/TPO to exclude Inteq Software Pvt.Ltd, L T Infotech Ltd., Infobean Technologies Ltd., Thirdware Solutions Ltd. from the final list of comparable for SWD segment. Companies functionally dissimilar with that of assessee need to be deselected. Notional interest on delayed receivables computed by the TPO - AR submitted that the amounts outstanding have been settled by the AE on an on-going basis in the normal course of business having regard to economic and commercial factors - HELD THAT - This Bench referred to decision of Special Bench of Kolkotta Tribunal in case of in case of Instrumentation Corpn. Ltd. 2016 (7) TMI 760 - ITAT KOLKATA held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE., hence it is an international transaction as per explanation to section 92B of the Act. We also perused decision relied upon by Ld.AR. In our considered opinion, these are factually distinguishable and thus, we reject argument advanced by Ld.AR. Alternatively, it has been argued that working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables and loan and advances to international transaction would amount to double taxation. Hon'ble Delhi Tribunal in case of Orange Business Services India Solutions Pvt. Ltd. 2018 (2) TMI 1151 - ITAT DELHI - we deem it appropriate to set aside the impugned order on this issue and remit the matter to the file of the Ld.AO/TPO for deciding it in conformity with the above referred judgment. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such fresh proceedings. Working capital adjustment for computing the margin of the comparables - HELD THAT - As decided in Huawei Technologies India P. Ltd. 2018 (10) TMI 1796 - ITAT BANGALORE there would remain no comparable uncontrolled transactions for the purpose of comparison. The transfer pricing exercise would therefore fail. Therefore, in keeping with the OECD guidelines, endeavor should be made to bring in comparable companies for the purpose of broad comparison. Therefore, the working capital adjustment as claimed by the Assessee should be allowed. We hold and direct accordingly. In view of the above, we remit the issue to the file of AO/TPO to compute the working capital adjustment after necessary examination in the light of the above observation and after allowing an opportunity of hearing to the assessee.
Issues Involved:
1. Validity of the order passed under Section 143(3) read with Section 144C(13) of the Income-tax Act, 1961. 2. Determination of arm's length price (ALP) for software development (SWD) and marketing and sales support services (MSS) segments. 3. Adjustment for notional interest on outstanding receivables. 4. Non-grant of working capital adjustment. 5. Adjustment for differences in risk profiles. 6. Compliance with Dispute Resolution Panel (DRP) directions. 7. Granting consequential relief in computation of interest. 8. Validity of penalty proceedings under Section 271(1)(c). Detailed Analysis: 1. Validity of the Order: The assessee challenged the order dated 07/04/2021 passed by the Deputy Commissioner of Income Tax, National e-Assessment Centre, Delhi, under Section 143(3) read with Section 144C(13) of the Income-tax Act, 1961, asserting that it was bad in law and liable to be quashed. 2. Determination of Arm's Length Price (ALP): The assessee contested the approach of the Transfer Pricing Officer (TPO) and the learned AO in determining the ALP for SWD and MSS services. The issues raised included: - Rejection of Transaction Values: The TPO rejected the value of international transactions recorded in the books of account. - Rejection of TP Documentation: The TPO rejected the transfer pricing documentation maintained by the assessee under Section 92D of the Act. - Application of Rules: The TPO applied Rule 10B(5) read with Rule 10CA(2) and Rule 10CA(4) of the Income-tax Rules, 1962. - Use of Information under Section 133(6): The TPO used information from secret comparable companies not available in the public domain and did not share responses received under Section 133(6) with the assessee. - Filters Applied: The TPO conducted a fresh comparability analysis by rejecting certain filters applied by the assessee, such as R&D > 3% of sales and net fixed assets > 200% of sales, and applied additional filters like export service income > 75% of sales. - Non-contemporaneous Data: The TPO used data not contemporaneous and not available in the public domain at the time of preparing the TP documentation. - Related Party Transaction (RPT) Filter: The TPO applied an inappropriate interpretation of the RPT filter, accepting companies like Persistent Systems Ltd. and Thirdware Solution Ltd. as comparables. - Functional Dissimilarity: The assessee argued for the exclusion of companies functionally different from it, such as RS Software (India) Ltd. and Infosys Ltd., and the inclusion of functionally comparable companies like Akshay Software Technologies Ltd. 3. Adjustment for Notional Interest on Outstanding Receivables: The assessee contested the adjustment of INR 1,954,655 made by the TPO for notional interest on overdue receivables from associated enterprises (AEs), arguing that the outstanding receivables were not a separate international transaction under Section 92B of the Act. The assessee also argued for the use of the LIBOR rate instead of the SBI short-term deposit rate for computing interest if an adjustment was to be sustained. 4. Non-grant of Working Capital Adjustment: The assessee argued that the learned AO and TPO erred in not providing a working capital adjustment for determining the ALP, relying on judicial precedents that were not applicable to the assessee. 5. Adjustment for Differences in Risk Profiles: The assessee contended that suitable adjustments were not provided to account for differences in the risk profile between the assessee and the comparable companies. 6. Compliance with DRP Directions: The assessee argued that the learned AO and TPO did not conform to the directions of the DRP while computing the mark-up on the operating cost of certain comparable companies. 7. Granting Consequential Relief in Computation of Interest: The assessee contended that the learned AO erred in not granting consequential relief in the computation of interest under Sections 234A, 234B, and 234C of the Act. 8. Validity of Penalty Proceedings: The assessee argued that the learned AO erred in serving notice under Section 271(1)(c) of the Act and initiating penalty proceedings for concealment of income and furnishing inaccurate particulars of such income. Judgment: The Tribunal addressed each ground raised by the assessee in detail, considering the submissions made by both parties and the relevant judicial precedents. The Tribunal directed the exclusion of certain companies from the final list of comparables for the SWD and MSS segments due to functional dissimilarities and lack of segmental data. The Tribunal also remitted certain issues back to the AO/TPO for fresh consideration, including the inclusion of certain comparables and the computation of working capital adjustment. The Tribunal set aside the issue of notional interest on delayed receivables for fresh consideration in light of judicial precedents. The Tribunal allowed the appeal of the assessee partly, granting relief on several grounds while remitting others for further examination.
|
