2023 (10) TMI 688 - AT - Income Tax

Assessment u/s 143(3) r.w.s. 144C(13) r.w.s. 144B pursuant to the directions of DRP - final assessment order passed by the Ld.AO as barred by limitation as it is passed beyond the maximum time prescribed u/s. 144C(13) - HELD THAT - DRP directions were received by the faceless assessment unit that had the jurisdiction to pass the assessment order on 04.07.2022. We also note that an email was sent from the office of the DRP-1, Bengaluru to the DCIT, Transfer Pricing (1)(1)(1), Bangalore on 01.07.2022. Thus in our view, the Ld.AO has passed the impugned assessment order as contained in section 153 i.e., within one month from the end of the month in which such direction is received. Comparable selection - application of turnover filter by adopting the upper turnover filter of Rs. 200 crores - This Coordinate Bench in case of Altair Engineering India Pvt. Ltd 2023 (4) TMI 674 - ITAT BANGALORE has noted that the turnover of the four comparables sought for exclusion by assessee in the present case exceeds Rs. 200 crores whereas the assessee s turnover under ITeS segment is only Rs. 78.66 crores. Respectfully following the above, Infosys BPM Services Pvt. Ltd., Motif India Infotech Pvt. Ltd., Eclerx Services Ltd. and MPS Ltd. stands excluded. Domex E Data (P.) Ltd. has been treated to be a KPO whereas the assessee before us is a contract service provider with limited risks. Manipal Digital Systems (P.) Ltd.- As no segmental details available in respect of this comparable, in order to understand the earnings of the company from ITeS segment, it cannot be considered to be a comparable with that of assessee. Respectfully following the view expressed by Hon ble Delhi High Court in case of Rampgreen Solutions (P.) Ltd 2015 (8) TMI 931 - DELHI HIGH COURT we direct the Manipal Digital Systems (P.) Ltd. to be excluded from the final list. Vitae International Accounting Services (P.) Ltd is carrying on business of data processing, handling back office functions and rendering ITeS to their clients abroad using computer software. The present assessee before us is also the contract service provider with absolutely minimal risk. The only segment with which this company earns income is from sale of services being processing fees. This comparable carries out the basic ITeS services similar to that of assessee and therefore is held to be comparable. Accordingly, we direct this comparable to be included in the final list. Exclusion of Ultramarine Pigment Ltd. company has spent an amount of Rs. 3821.72 lakhs (page 61 of the AR) as against total revenue of Rs. 28252.99 lakhs which comes to 13.52%. Thus, the company fails the employment cost filter adopted by the TPO Exclusion of I Services India (P.) Ltd.as it was not reflected in the search matrix of the TPO - Merely because the comparable does not appear in the search process by the TPO, it cannot be excluded if assessee is able to file the annual reports which are verifiable. As relying on Prism Networks 2022 (2) TMI 1296 - ITAT BANGALORE we accordingly, remand this comparable to the Ld.AO/TPO to reconsider it in the light of the annual reports that will be filed by assessee. In the event they are found to be functionally similar with that of assessee, the same may be included in the final list.

Summary

Issues Involved:

1. Validity of the assessment order.
2. Transfer Pricing adjustments.
3. Inclusion and exclusion of comparables.
4. Levy of interest and penalty proceedings.
5. Admission of additional grounds.

Summary:

1. Validity of the Assessment Order:
The assessee contended that the final assessment order dated 16.08.2022 was barred by limitation under section 144C(13) of the Income-tax Act, 1961. However, it was found that the DRP directions were received by the faceless assessment unit on 04.07.2022, and the impugned order was passed within the permissible time frame. Thus, the additional ground on limitation was dismissed.

2. Transfer Pricing Adjustments:
The assessee challenged the adjustments made by the Assessment Unit to the value of international transactions related to Information Technology enabled Services (ITeS). The Tribunal directed the AO to ensure conformity with the DRP directions in respect of the issues raised. Specific grounds related to the transfer pricing adjustments were dismissed as not pressed.

3. Inclusion and Exclusion of Comparables:
The Tribunal addressed several grounds related to the inclusion and exclusion of comparables for determining the arm's length price:
- Exclusion of Comparables Based on Turnover Filter: The Tribunal excluded Infosys BPM Services Pvt. Ltd., Motif India Infotech Pvt. Ltd., Eclerx Services Ltd., and MPS Ltd. as their turnover exceeded the Rs. 200 crores filter.
- Functional Dissimilarity: Manipal Digital Systems Pvt. Ltd. and Domex E Data Pvt. Ltd. were excluded due to functional dissimilarities with the assessee.
- Inclusion of Comparable: Vitae International Accounting Services Pvt. Ltd. was included as it was found to be functionally similar to the assessee.
- Reconsideration of Comparable: I Services India Pvt. Ltd. was remanded to the AO/TPO for reconsideration based on the annual reports provided by the assessee.

4. Levy of Interest and Penalty Proceedings:
The grounds related to the levy of interest under sections 234B and 234C and the initiation of penalty proceedings under section 271(1)(c) were noted but not specifically adjudicated as they were consequential in nature.

5. Admission of Additional Grounds:
The Tribunal admitted the additional grounds raised by the assessee, following the decisions of the Hon'ble Supreme Court in National Thermal Power Co. Ltd. Vs. CIT and Jute Corporation of India Ltd. Vs. CIT. The additional grounds were found to be directly connected with the main issue of disallowance and did not require investigation of new facts.

Conclusion:
The appeal filed by the assessee was partly allowed, with directions for the AO/TPO to follow the Tribunal's orders and compute the correct margins of the remaining comparables in accordance with the law.