2023 (10) TMI 1415 - AT - Income Tax

TP Adjustment - comparable selection - turnover filter application to choose comparables - HELD THAT - As following the foot prints of Obopay Mobile Technology India Private Ltd 2018 (7) TMI 2129 - KARNATAKA HIGH COURT we hold that the turnover is a relevant criteria for choosing companies as comparables in determining the ALP in Transfer Pricing cases. A consistent view is taken that the application of tolerance range of turnover of ten times on both sides of assessee s turnover was proper. Following the same, we direct the AO to adopt the same for a fresh search. With this view of the matter, we set aside the findings of the authorities below and direct the AO/TPO to take the range of turnover filter at ten times on both the ends and conduct search afresh to take a plausible view. Grounds No. 3 to 8 are accordingly treated as allowed for statistical purposes. Management fee - We deem it just and proper to set aside the findings and restore the issue to the file of the AO/TPO to re-examine the issue in the light of the findings on this issue in 2021 (10) TMI 1358 - ITAT HYDERABAD Adhoc disallowance of 20% of foreign outward remittances - AR submitted that the learned DRP did not consider the submissions of the assessee, and this necessitates the set aside of the findings of the learned DRP and restoration of the issue - HELD THAT - We find the request of the AR reasonable and restore the issue to the file of learned Assessing Officer/learned TPO for considering the above enumerated discrepancies. Ground is accordingly treated as allowed for statistical purposes. Non-grant of credit of the tax deducted at sources attributable to the Infor (Bangalore) Pvt. Ltd . , which was amalgamated with the assessee attributable to the assessee - HELD THAT - We direct the AO to verify the record and allow the same, if it is found to be correct and proper. Appeal of the assessee is accordingly treated as partly allowed for statistical purposes.

Summary

Issues Involved:
1. Transfer Pricing Adjustment on IT enabled services (ITeS)
2. Interest on receivables
3. Management fee
4. Adhoc disallowance of foreign outward remittances
5. Short credit of TDS

Detailed Analysis:

1. Transfer Pricing Adjustment on IT enabled services (ITeS):
The assessee, engaged in software distribution, development, and shared services, filed a return for AY 2018-19. The TPO suggested an upward adjustment based on a fresh search of comparables, leading to a significant increase in assessed income. The assessee contested the inclusion of certain large companies (Infosys BPM Ltd., Tech Mahindra Business Services Ltd., and E-Clerks Services Ltd.) as comparables due to their significantly higher turnovers and brand values. The Tribunal, referencing various judicial precedents, agreed that turnover is a relevant criterion for comparability and directed the AO/TPO to apply a turnover filter of ten times on both ends for a fresh search. Consequently, the grounds related to the Transfer Pricing adjustment were allowed for statistical purposes.

2. Interest on Receivables:
The assessee chose not to press the issue related to interest on receivables. Consequently, Grounds No. 9 to 11 were dismissed.

3. Management Fee:
The issue of management fee was previously restored to the AO for re-examination in past years. The Tribunal followed the same approach for the current year, directing the AO/TPO to re-examine the issue in light of previous findings and relevant judicial precedents. The grounds related to the management fee were allowed for statistical purposes.

4. Adhoc Disallowance of Foreign Outward Remittances:
The assessee argued that the DRP did not consider their submissions and highlighted discrepancies in the figures used by the DRP. Additionally, it was contended that the management fee was doubly disallowed. The Tribunal found the request reasonable and restored the issue to the AO/TPO for reconsideration of the enumerated discrepancies. The ground was allowed for statistical purposes.

5. Short Credit of TDS:
The assessee claimed a short credit of TDS attributable to an amalgamated entity and itself. The Tribunal directed the AO to verify the records and allow the credit if found correct. The appeal was partly allowed for statistical purposes.

Conclusion:
The Tribunal addressed each issue raised by the assessee, providing detailed directions for re-examination and reconsideration by the AO/TPO where necessary. The appeal was partly allowed for statistical purposes, and the stay application was dismissed as infructuous. The judgment emphasized the importance of appropriate comparability criteria in Transfer Pricing cases and the need for thorough verification of claims related to TDS credits and foreign remittances.