2024 (1) TMI 57 - AT - Income Tax

TP Adjustment - comparable selection - HELD THAT - Respectfully following the view taken by this Tribunal, in case of Exxonmobil Services and Technology Pvt. Ltd. 2023 (7) TMI 1337 - ITAT BANGALORE we direct the Ld.AO/TPO to exclude Infosys BPM Ltd., SPI Technologies India Pvt. Ltd., Manipal Digital Systems Pvt. Ltd., CES Ltd. and Datamatics Financial Services Ltd. Inteq BPO Services Pvt. Ltd. company is involved in business process management services and cannot be considered as a comparable to a company as of assessee. We therefore do not find any reason to interfere with the above observations. Respectfully following the view taken in Mindteck (India) Ltd. 2022 (11) TMI 1367 - ITAT BANGALORE we direct exclusion of this comparable from the final list. R Systems International Ltd. (seg) - Admittedly, we agree with the argument advanced by the Ld.DR. However, the reason for it have excluded by the authorities below are not as per the principles of transfer pricing procedure. In the interest of justice, we remit this comparable to the Ld.AO/TPO to consider the FAR of assessee with that of this comparable and to consider the inclusion in accordance with law. Interglobe Technologies Pvt. Ltd. - AR submitted that this comparable was rejected by the Ld.TPO as it fails employee cost filter. On an objection being raised before the DRP, it was held that this company is not reflecting in the search matrix of the TPO - AR referred to the annual report and submitted that this company has an employee cost ratio of less than 25% and the objection of the TPO is therefore without any basis. In the interest of justice, we remand this comparable back to the Ld.AO/TPO to consider its inclusion in accordance with law. Needless to say that proper opportunity of being heard must be granted to assessee. Working capital adjustment denied - HELD THAT - We are of the opinion that this issue is no longer resintegra as this issue is covered by the decision of Coordinate Bench of this Tribunal in case of Huawei Technologies India (P.) Ltd. v. Jt. CIT 2018 (10) TMI 1796 - ITAT BANGALORE 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 inclined to remit the issue to the file of AO/TPO to determine the correct working capital adjustment. Disallowance u/s. 14A - Sufficiency of own funds - HELD THAT - It is noted that admittedly there is no exempt income earned by assessee during the year under consideration. As in case of Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT has held that in such circumstances, no disallowance u/s. 14A could be made. The disallowance therefore cannot be made in the hands of the assessee based on the above decision and the same is directed to be deleted.

Issues Involved:
1. Transfer pricing adjustment.
2. Disallowance under section 14A.
3. Computation of interest under section 234B and 234C.

Summary:

Transfer Pricing Adjustment:
1. The AO/DRP/TPO erred in making a transfer pricing adjustment of INR 18,34,63,116 for ITeS, alleging services were not rendered at arm's length as per sections 92C(1) and 92C(2) of the Act, read with Rule 10B of the Income-tax Rules, 1962.
2. The AO/DRP/TPO erred in arbitrarily selecting comparable companies based on incorrect appreciation of functional, asset, and risk profile, and arbitrary filters. The Tribunal excluded Infosys BPM Ltd., SPI Technologies India Pvt. Ltd., Inteq BPO Services Pvt. Ltd., Manipal Digital Systems Pvt. Ltd., CES Ltd., and Datamatics Financial Services Ltd. from the final list of comparables.
3. The AO/TPO erred in rejecting R Systems International Ltd. (seg) and Interglobe Technologies Pvt. Ltd. The Tribunal remanded the inclusion of these comparables back to the AO/TPO for reconsideration based on FAR analysis.
4. The AO/DRP/TPO erred in rejecting the transfer pricing study of the Appellant and using arbitrary filters for benchmarking the international transaction pertaining to ITeS. The Tribunal directed the AO/TPO to determine the correct working capital adjustment.
5. The AO/DRP/TPO erred in not granting economic/risk adjustments and working capital adjustment. The Tribunal remanded the issue to the AO/TPO for determination.

Disallowance Under Section 14A:
6. The AO/DRP erred in disallowing INR 18,24,975 under section 14A read with amended Rule 8D(2)(ii) of the Income-tax Rules, 1962. The Tribunal noted that there was no exempt income earned by the Appellant during the relevant AY, and thus, no disallowance could be made under section 14A.
7. The AO erred in not recording satisfaction, which is sine qua non for making disallowance under section 14A.
8. The AO/DRP erred in making disallowance without appreciating that no exempt income was earned by the Appellant during the relevant AY.
9. The AO/DRP erred in making disallowance under section 14A without appreciating that the Appellant has not incurred any expenditure in earning the exempt income. The Tribunal directed the deletion of the disallowance under section 14A.

Computation of Interest Under Section 234B and 234C:
10. The AO erred in computing interest under sections 234B and 234C. This ground was noted as consequential and did not require adjudication.

Conclusion:
The appeal filed by the assessee was partly allowed, with specific directions for exclusion and inclusion of certain comparables, remand for reconsideration on specific grounds, and deletion of disallowance under section 14A.

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