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2023 (9) TMI 1210 - AT - Income TaxTP Adjustment - comparable selection - functional dissimilarity - HELD THAT - The statement made by assessee that there has been no change in the functions/business model of selected comparables in the impugned assessment year remains unrebutted. Thus, following the decision of Co-ordinate Bench in assessee s own case 2021 (7) TMI 1428 - ITAT MUMBAI and for parity of reasons, we direct the AO to exclude Apitco Limited, B V G India Limited, Axis Integrated Systems Limited and Killick Agencies and Marketing Limited from the list of comparables. Including Quadrant Communication Limited in the list of comparables as per the directions of DRP - DRP while deciding the issue of inclusion/exclusion of comparables has accepted assessee s comparable i.e. Quadrant Communication Limited to be valid comparable for assessment year 2014-15 as well. However, while passing the impugned assessment order, the AO has failed to give effect to the said direction of DRP. After inclusion of Quadrant Communication Limited, the list of comparables to benchmark the transactions of marketing service would have two comparables i.e. Quadrant Communication Limited and Marketing Consultant and Agencies Limited. The TPO is directed to give effect to the order of DRP and recompute ALP for provision of marketing service with the revised set of comparables. The additional ground of appeal is thus, allowed. TP adjustment on the premise that the assessee has recovered less marketing service fee from its AE - AO made adjustment to make good the short fall - HELD THAT - As decided in own case DRP was not justified in disallowing the same There is no doubt about incurring of expenditure by the assessee, as stated earlier The assessee had introduced an incentive scheme and had incurred the expenses - Whether the money received from AE was at arm's length or not is a separate issue But, incurring of expenditure was never in doubt. So, in our opinion, the alternate argument raised by the assessee has to allowed. Disallowance of foreign exchange loss - HELD THAT - We find that this is a perennial issue. The assessee has been claiming foreign exchange loss in the past and the AO has consistently disallowed the same. Tribunal in appeal by the assessee has allowed foreign exchange loss in the past. In AY 2013-14, the Co-ordinate Bench followed the order of Tribunal in assessee s own case 2019 (12) TMI 817 - ITAT MUMBAI and allowed deduction towards foreign exchange loss. In the impugned assessment year, the facts are similar. The AO has not raised any doubt over quantum of charges or loss claimed. Hence, following the earlier order of Tribunal in assessee s own case, ground no. 3 of appeal is allowed, for parity of reason.
Issues Involved:
1. Selection of comparables for benchmarking international transactions. 2. Transfer Pricing Adjustment (TPA) of Rs. 2 crores for marketing service fee. 3. Disallowance of foreign exchange loss. 4. Initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act. Summary: 1. Selection of Comparables for Benchmarking International Transactions: The assessee challenged the selection of comparables by the Transfer Pricing Officer (TPO) for benchmarking its international transactions related to marketing services. The TPO had introduced five new comparables, which the Dispute Resolution Panel (DRP) upheld. However, the Tribunal found that four of these comparables (Apitco Limited, B V G India Limited, Axis Integrated Systems Limited, and Killick Agencies and Marketing Limited) were previously rejected in the assessee's own case for AY 2013-14 due to functional dissimilarities. The Tribunal directed the exclusion of these comparables and inclusion of Quadrant Communication Limited, as accepted by the DRP, for AY 2014-15. The TPO was instructed to recompute the Arm's Length Price (ALP) with the revised set of comparables. 2. Transfer Pricing Adjustment (TPA) of Rs. 2 Crores for Marketing Service Fee: The assessee contested the TPA of Rs. 2 crores made on the grounds of under-recovery of marketing service fees from its Associated Enterprise (AE). The Tribunal noted that a similar adjustment was made in AY 2013-14 and was deleted by the Tribunal. The Tribunal found no new evidence to support the adjustment and directed the Assessing Officer (AO) to delete the addition. 3. Disallowance of Foreign Exchange Loss: The assessee claimed foreign exchange loss on various accounts, which the AO disallowed. The Tribunal observed that this issue had been consistently decided in favor of the assessee in previous years, including AY 2013-14. The Tribunal found no reason to deviate from the earlier decisions and allowed the deduction for foreign exchange loss. 4. Initiation of Penalty Proceedings under Section 271(1)(c): The assessee challenged the initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act. The Tribunal dismissed this ground as premature, stating that the challenge to penalty proceedings at this stage was not appropriate. Conclusion: The appeal was partly allowed. The Tribunal directed the exclusion of certain comparables and inclusion of Quadrant Communication Limited, deletion of the Rs. 2 crores TPA for marketing service fees, and allowed the foreign exchange loss deduction. The challenge to penalty proceedings was dismissed as premature.
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