2023 (5) TMI 268 - AT - Income Tax

TP Adjustment - Comparable selection - HELD THAT - SG Analytics Pvt, Ltd - We find that the assessee company is into identification of customers, communication of the customers, market research, liaison, and reporting activities. The comparable is also doing research in financial market for their clients, financial research services to help clients and make the clients to make strategic decisions. Data management and analytics are of the basic parameters to be considered in the market research which will help the client to take prudent commercial decisions in augmenting the profits. The comparable is also offering marketing analytics, customer analytics, research analytics, sale analytics and other analytics which is akin to the functions of the assessee. RPA involves planning, implementing management and operating which is also similar to the function of the assessee which involves planning in identification of the customer and operating and management of the orders and provision of support services to get orders further principle. Both companies involves in providing primary and secondary research and also providing end to end support for their clients. Hence, we hold that the comparable has been rightly selected. Majestic Research Service Solutions Ltd - As seen that there was no mergers/acquisitions in the instant year as contended by the assessee. In fact there was only divestment of shareholdings which has no impact in the instant year's P L account. And, the assessee company's contentions appear to be irrelevant and baseless as far as selection of the company as comparable is concerned. On the issue of rejection by the TPO in the subsequent year we hold that the facts have been examined on year to year basis. During the instant year we find that the comparable is not beyond any filters applied and matches the FAR analysis. We need to look into and examine whether the comparable in question can be considered as right comparable which can be included TP Study for the year before us based on the functions, assets and risks. It is unnecessary to comment without examining the FAR of the subsequent year as to whether this comparable can be included in the current year or not. As the facts pertaining to the instant year are concern we find that Majestic can be considered as a right comparable. Axis My India Limited - The comparable has revenues from Printing of Magazines Periodicals of 17%, from Advertisement of 72% and from Market research and public polling of 11%. Thus, we find the maximum revenue are from advertisement and periodicals. The complete segmental financial of the comparable company are not available. Further, we find that this company is functionally dissimilar as it is engaged in the business of printing custom-made government transactional documents, Railway Reservation Tickets, Electricity Bills, LPG gas bills, envelopes etc. the comparable also undertakes contracts of printing of electricity bill together with customer specific data as provided by the issuer of the bills. Hence, we hereby hold that owing to the dissimilarity in the functions this company be excluded from the comparables. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Corporate tax disallowances under Section 143(1) of the Income Tax Act.
2. Transfer pricing adjustments under Section 92CA(3) of the Income Tax Act.
3. Double disallowance of expenses.
4. Non-cognizance of submissions regarding 'provision for gratuity.'
5. Non-compliance with Section 92C(3) conditions for transfer pricing adjustments.
6. Adjustment related to marketing support services.
7. Inclusion and exclusion of certain companies from the final set of comparables.
8. Incorrect computation of tax demand.
9. Non-granting of tax deducted at source (TDS) credit.
10. Non-granting of excess minimum alternate tax (MAT) credit.
11. Levying of consequential interest under Sections 234B and 234C.

Detailed Analysis:

1. Corporate Tax Disallowances:
The assessee contended that the AO/DRP erroneously made additions amounting to INR 1,96,22,928 on account of corporate tax disallowances and transfer pricing adjustments. The Tribunal reviewed the AO's application of Section 143(1) and found discrepancies in the computation of assessed income, leading to double taxation.

2. Transfer Pricing Adjustments:
The AO made transfer pricing adjustments under Section 92CA(3), which the assessee contested. The Tribunal examined the Transfer Pricing Officer's (TPO) methodology and the selection of comparables. The Tribunal emphasized the need for functional similarity in comparables, as per the Indian Transfer Pricing regulations and judicial precedents.

3. Double Disallowance of Expenses:
The assessee argued that certain expenses, including 'provision for gratuity' and 'middle management incentive,' were disallowed twice, resulting in double taxation. The Tribunal acknowledged the error and directed the AO to rectify the computation.

4. Non-Cognizance of Submissions:
The assessee claimed that the AO ignored submissions regarding the 'provision for gratuity,' which had already been disallowed in the assessee's computation of income. The Tribunal directed the AO to consider these submissions and make necessary adjustments.

5. Non-Compliance with Section 92C(3):
The assessee argued that the AO/TPO/DRP did not satisfy the conditions prescribed under Section 92C(3) before making transfer pricing adjustments. The Tribunal reiterated the importance of adhering to statutory conditions and directed the AO to ensure compliance.

6. Adjustment Related to Marketing Support Services:
The AO made an adjustment of INR 62,79,702 for marketing support services provided to the assessee's associated enterprise (AE). The Tribunal examined the functional, asset, and risk analysis and the application of the Transactional Net Margin Method (TNMM). The Tribunal upheld the adjustment but emphasized the need for a detailed comparability analysis.

7. Inclusion and Exclusion of Comparables:
The assessee contested the inclusion of certain companies (e.g., SG Analytics Pvt. Ltd., Axis My India Ltd.) and the exclusion of others (e.g., Kingston Property Services Private Limited). The Tribunal provided a detailed analysis of each comparable, emphasizing functional similarity and adherence to judicial precedents. For instance, SG Analytics was included due to its broad functional similarity, while Axis My India was excluded due to dissimilarity in functions.

8. Incorrect Computation of Tax Demand:
The assessee highlighted an error in the computation of the final tax demand. The Tribunal acknowledged the mistake and directed the AO to correct the assessed income and corresponding tax demand.

9. Non-Granting of TDS Credit:
The assessee claimed that the AO failed to grant credit for TDS amounting to INR 91,874. The Tribunal directed the AO to verify and grant the appropriate TDS credit.

10. Non-Granting of Excess MAT Credit:
The assessee argued that the AO did not grant credit for excess MAT amounting to INR 1,63,858. The Tribunal directed the AO to verify and grant the excess MAT credit.

11. Levying of Consequential Interest:
The assessee contested the levy of interest under Sections 234B and 234C. The Tribunal directed the AO to recompute the interest after making necessary adjustments to the assessed income.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the AO to rectify errors in the computation of assessed income, ensure compliance with statutory conditions for transfer pricing adjustments, and grant appropriate credits for TDS and MAT. The Tribunal emphasized the importance of functional similarity in the selection of comparables and adherence to judicial precedents.