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2024 (6) TMI 147 - AT - Income TaxIssues Involved: 1. Determination of the most appropriate method to benchmark the international transaction in respect of IT enabled Services (ITeS). 2. Transfer Pricing (TP) adjustment in respect of the interest on trade receivables. 3. Disallowances u/s 40(a)(ia) of the Income Tax Act, 1961. Summary: 1. Determination of the Most Appropriate Method to Benchmark ITeS: The assessee used internal Transactional Net Margin Method (TNMM) by comparing the ratio of operating profit and operating cost of the AE segment with the non-AEs segment. The TPO, however, disregarded this and adopted external comparables. The Tribunal, referencing a previous decision in the assessee's own case for AY 2009-10, directed the AO/TPO to consider only the operating profit/operating cost of AE transactions and to consider internal TNMM where services rendered by the assessee are similar to both AEs and non-AEs. 2. Transfer Pricing Adjustment in Respect of Interest on Trade Receivables: The TPO made adjustments by adopting SBI short-term deposit rates. The Tribunal, referencing previous decisions, held that the interest rate should be the market-determined rate applicable to the currency concerned, i.e., LIBOR+200 basis points. The Tribunal directed the AO/TPO to adopt this rate for benchmarking the interest on trade receivables. 3. Disallowances u/s 40(a)(ia) of the Act: - Payments to Techno Support Co. Ltd.: The Tribunal restored the issue to the AO to examine additional evidence provided by the assessee regarding the secondment of employees and reimbursement of their salaries. - Payments to Adecco, Thailand: The Tribunal held that the payments classified as Fee for Technical Services (FTS) under the India-Thailand DTAA should be treated as business income, not miscellaneous income. The Tribunal directed the AO to delete the addition of Rs. 44,19,715/-. - Payments to TechM, Gmbh (German entity): The Tribunal upheld the findings that these payments were for software development services and provision of technical personnel, falling under FTS as per the India-Germany DTAA. The addition of Rs. 37,27,534/- was upheld. Conclusion: The appeal of the assessee was partly allowed for statistical purposes. The Tribunal directed the AO/TPO to reconsider certain issues based on the provided guidelines and additional evidence. The order was pronounced in the open court on May 31, 2024.
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