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2024 (8) TMI 1121 - AT - Income TaxTP Adjustment - TPO has made mistakes apparent from record by considering non-AE revenue and non-AE cost in the computation of TP adjustment - as argued TPO has not followed the ITAT order during the remand proceedings and not verified the computation - HELD THAT - We find that the TPO has not followed the ld. DRP directions and not commented on the erroneous computation wherein the non-AE revenue and non-AE cost has been considered for the purpose of computing TP addition. Assessee has also filed a rectification application u/s 154 of the Act against the TP appeal effect order issued by the TPO wherein it was submitted that the TPO has made mistakes apparent from record by considering non-AE revenue and nonAE cost in the computation of TP adjustment. TPO has not followed the directions of the ITAT and Ld. DRP in the second round of litigation and has erroneously considered non-AE revenue and non-AE cost for computation of TP adjustment. This is against the basic principles of transfer pricing regulations and Chapter X of the Act wherein addition on account of transfer pricing adjustment can be made only in respect of international transactions with the AEs and not the non-AEs. Hence, we direct the AO/TPO to consider transactions between the assessee and the AEs only and rectify accordingly. The AO/TPO shall not circumvent the directions given by the ITAT and the ld. DRP. Appeal of the assessee is allowed for statistical purpose.
Issues:
1. Transfer pricing adjustment in SDS segment 2. Transfer pricing adjustment in ITeS segment 3. Inclusion of non-AE revenue and non-AE cost in TP adjustment 4. Failure to follow ITAT and DRP directions Detailed Analysis: Transfer pricing adjustment in SDS segment: The appeal was filed against the order assessing the income of the appellant at a higher amount than declared. The appellant challenged the transfer pricing adjustment made in relation to the provision of software development services (SDS segment). The grounds included errors in selecting comparable companies, retaining certain comparables, and re-computing the appellant's income without considering the ITAT's previous order. The TPO computed the TP adjustment for the SDS segment by considering non-AE revenue and non-AE cost, leading to a discrepancy in the adjustment amount. The TPO failed to rectify this mistake, resulting in an erroneous adjustment. Transfer pricing adjustment in ITeS segment: Similar to the SDS segment, the appellant contested the re-computation of the 'OP/OC' for the ITeS segment by the DRP/TPO/AO without giving effect to the ITAT's previous order. The TPO rectified the mistake in the ITeS segment, leading to the deletion of the addition in that segment. However, the TPO did not rectify the mistake in the SDS segment, limiting the adjustment to that segment only. Inclusion of non-AE revenue and non-AE cost in TP adjustment: The TPO's computation of the TP adjustment included non-AE revenue and non-AE cost, contrary to the directions provided by the ITAT and the basic principles of transfer pricing regulations. The TPO's failure to exclude non-AE transactions from the adjustment calculation was against the provisions of Chapter X of the Act, which allows additions only in respect of international transactions with AEs. The appellant filed a rectification application against the TP appeal effect order, highlighting the TPO's errors in considering non-AE revenue and cost. Failure to follow ITAT and DRP directions: Despite the directions given by the ITAT and the DRP to verify the computation of TP adjustments and consider only AE transactions, the TPO did not adhere to these instructions. The TPO's failure to follow the directions in the second round of litigation resulted in an erroneous computation of the TP adjustment, emphasizing the importance of considering only transactions between the appellant and AEs for TP purposes. In conclusion, the appeal of the assessee was allowed for statistical purposes, highlighting the TPO's errors in computing the TP adjustments and the failure to follow the directions provided by the ITAT and the DRP. The order emphasized the necessity of rectifying the computation errors and considering only transactions with AEs for transfer pricing adjustments.
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