9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2013 (6) TMI 374 - AT - Income TaxUpward adjustment in determining the arm s length price - Rejecting the functional analysis, search process adopted and documentation maintained by the Appellant for this transaction - assessee contested against exclusion of Coral Hubs Ltd. as comparable and for the purpose of taking correct rate of profit in hands of Mold-tek Technologies Limited and Datamatics Financial Services Ltd. - Held that - Respectfully following the decision of in the case of Willis Processing Services (I) (P.) Ltd. (2013 (3) TMI 415 - MUMBAI TRIBUNAL COURT) restore this issue to the file of AO/TPO for verification of the fact that whether for the year under consideration also the activity of ITES is outsourced by Coral Hubs Ltd. If it is so, then the Coral Hubs Ltd. has to be removed from the list of comparables following the aforementioned decisions. Profit margin of Mold-tek Technologies Limited taken by TPO at 96.66%, the assessee has given calculation of profit rate and reference has also been made to the financial account of the said concern. This issue was raised by the assessee before TPO as well as DRP but no specific findings have been given on that. Therefore, it just and proper to restore this issue also to the file of AO/TPO to give specific finding on that and after giving the assessee a reasonable opportunity in this regard, the correct profit margin should be taken. So far as it relates to contention of the assessee that only segmental result should be taken in the case of Datamatics Financial Services Ltd., this issue is also supported by the decision of the Tribunal in the case of Willis Processing Services (I) (P.) Ltd. (supra). Accordingly direct the A0/TPO to take segmental result for the purpose of computing the arithmetic mean of the said comparable. Assessee should be given reasonable opportunity of hearing and after giving such opportunity the mean margin of comparables should be computed and if the mean margin computed is within the safe harbour of 5% then no adjustment should be made - appeal filed by the assessee is partly allowed for statistical purposes.
Issues Involved:
1. Upward adjustment in determining the arm's length price (ALP) of international transactions. 2. Inclusion and exclusion of certain companies as comparables. 3. Use of contemporaneous data and multiple year data. 4. Working capital adjustment and risk level consideration. 5. Computation of ALP without considering the +/- 5% variation. 6. Levying of interest under section 234A of the Income Tax Act. Detailed Analysis: 1. Upward Adjustment in Determining the ALP: The primary dispute is the upward adjustment of Rs. 23,621,580 in determining the ALP for the provision of ITES. The assessee had selected 14 comparables with an arithmetic mean of 14.56%, and after suo-motu adjustments, the assessee's margin was 22%. However, the Transfer Pricing Officer (TPO) was not satisfied and selected 23 comparables with an arithmetic mean of 28.55%, resulting in an upward adjustment. 2. Inclusion and Exclusion of Certain Companies as Comparables: The assessee contended the inclusion of Coral Hubs Ltd., Mold-tek Technologies Ltd., and Datamatics Financial Services Ltd. as comparables: - Coral Hubs Ltd.: The assessee argued that Coral Hubs Ltd. should be excluded as it outsourced a significant portion of its business. This contention was supported by prior ITAT decisions in Maersk Global Service Center and Capital IQ Information System cases. The Tribunal agreed to verify if Coral Hubs Ltd. outsourced its ITES activities for the relevant year and, if so, to exclude it. - Mold-tek Technologies Ltd.: The assessee claimed the TPO incorrectly computed the profit margin at 96.66% instead of 20.64%. The Tribunal directed the AO/TPO to verify and correct the profit margin. - Datamatics Financial Services Ltd.: The assessee argued for considering only segmental results rather than consolidated results. The Tribunal directed the AO/TPO to take segmental results for computing the arithmetic mean. 3. Use of Contemporaneous Data and Multiple Year Data: The TPO rejected the multiple year data used by the assessee and relied only on data for the year ended March 2008. The Tribunal did not provide a specific ruling on this issue but focused on the comparables' inclusion/exclusion. 4. Working Capital Adjustment and Risk Level Consideration: The assessee argued that the working capital adjustment and risk level were not appropriately considered. The Tribunal did not specifically address this issue but implied that the correct computation of comparables would inherently address these concerns. 5. Computation of ALP Without Considering the +/- 5% Variation: The assessee contended that the ALP should be computed considering the +/- 5% variation as permitted under section 92C(2) of the Act. The Tribunal directed that if the recomputed mean margin of comparables falls within the safe harbor of +/- 5%, no adjustment should be made. 6. Levying of Interest Under Section 234A: The assessee argued against the erroneous levy of interest under section 234A, asserting that the return was filed before the due date. The Tribunal did not specifically address this issue in the judgment. Conclusion: The Tribunal directed the AO/TPO to: - Verify if Coral Hubs Ltd. outsourced its ITES activities and exclude it if so. - Correctly compute the profit margin for Mold-tek Technologies Ltd. - Consider segmental results for Datamatics Financial Services Ltd. - Recompute the mean margin of comparables, and if it falls within the +/- 5% range, no adjustment should be made. The appeal was partly allowed for statistical purposes, with directions for reassessment based on the Tribunal's guidelines.
|
