2015 (9) TMI 954 - AT - Income Tax

Transfer pricing adjustment - Held that - If the assessee s claim for revised segmental results are found to be acceptable, there is every possibility that pricing of its international transactions would come within /- 5% of the PLI worked out by the TPO himself. Then the issue regarding exclusion and/or inclusion of comparables may not arise at all. We therefore, set aside the orders of the authorities below and remit the issue back to the file of the AO/TPO for consideration afresh in accordance with law. Right of the assessee to challenge all other aspects of the assessment and conditions are kept open - Decided in favour of assessee for statistical purposes. Selection of comparable - Held that - Eclerx Services Ltd. company cannot be taken as a comparable both for the reasons that it was having supernormal profit and it is engaged in providing KPO services, which is distinct from the nature of services provided by the assessee. Mold-Tek Technologies Ltd (seg) - In recent decision rendered in the case of Adobe Systems India Pvt. Ltd. (2011 (1) TMI 933 - ITAT NEW DELHI) exclusion of comparables showing supernormal profits as compared to other comparable is fully justified. We, therefore set aside the impugned order of the ld. CIT(A) on this issue and restore the matter to the file of the A.O. with a direction to decide the same afresh after taking into consideration the submissions made by the assessee before the learned CIT(A) Vishal Information Technologies Ltd - their annual accounts that the company outsourced a considerable portion of their business. As the assessee carried out entire operations by itself, in our considered opinion, rightly excluded. Re computation of the claim of deduction u/s. 10A - Held that - Since as already directed that reallocation of HO expenditure in between various segments are to be done before comparing the results of the assessee with that of the comparables, while making the TP study, we prefer to keep this issue open. AO can consider the claim of the assessee that deduction u/s. 10A of the Act, has to be given to it after the TP adjustments, if any required for the ITES. - Additional ground allowed for statistical purposes.

Summary

Issues Involved:
1. Admission of additional grounds.
2. Transfer pricing adjustment based on incorrect profit and loss account segmentation.
3. Re-computation of the allowance of claim under section 10A.
4. Transfer pricing adjustments for software development services segment.
5. Transfer pricing adjustments for ITES segment.
6. Compliance with DRP directions on refund calculation.
7. Interest under section 234B.

Issue-wise Detailed Analysis:

1. Admission of Additional Grounds:
The Tribunal considered the assessee's request to admit additional grounds which were crucial to the matter. The additional grounds pertained to the incorrect profit and loss account segmentation and the re-computation of the allowance of the claim under section 10A. The Tribunal admitted these grounds as they were consequential and went to the root of the matter, potentially causing irreparable damage if not considered.

2. Transfer Pricing Adjustment Based on Incorrect Profit and Loss Account Segmentation:
The assessee argued that the transfer pricing adjustment calculated by the TPO was based on an incorrect profit and loss account segmentation, discovered during the assessment proceedings for AY 2008-09. This error was due to the non-allocation of Head Office expenses to the packaging segment. The Tribunal found that similar issues had been addressed in the assessee's own case for AY 2009-10, where the matter was referred back to the TPO for fresh consideration. The Tribunal directed the AO/TPO to reconsider the allocation of costs and re-compute the transfer pricing adjustments accordingly.

3. Re-computation of the Allowance of Claim Under Section 10A:
The Tribunal noted that the re-computation of the allowance of the claim under section 10A was consequential to the correction of the profit and loss account segmentation. The Tribunal directed the AO to re-compute the allowance of the claim under section 10A after considering the revised segmental margins.

4. Transfer Pricing Adjustments for Software Development Services Segment:
The assessee contended that if the Head Office expenses were correctly allocated, no adjustment would be necessary for the software development services segment. The Revenue agreed that the matter required a fresh look. The Tribunal directed the AO/TPO to re-analyze the software development services segment, considering the correct allocation of Head Office expenses.

5. Transfer Pricing Adjustments for ITES Segment:
The assessee argued that the comparables considered by the TPO for the ITES segment were inappropriate. The Tribunal agreed with the assessee that certain comparables, such as Eclerx Services Ltd, Mold-Tek Technologies Ltd (Seg), and Vishal Information Technologies Ltd, should be excluded based on previous Tribunal decisions and the nature of their operations. The Tribunal directed the TPO to exclude these comparables and re-compute the transfer pricing adjustments for the ITES segment after allocating the Head Office expenses correctly.

6. Compliance with DRP Directions on Refund Calculation:
The assessee claimed that the AO/TPO did not comply with the DRP's directions regarding the refund calculation. The Tribunal directed the AO/TPO to verify the assessee's claim and modify the calculation of interest under section 234D accordingly.

7. Interest Under Section 234B:
The Tribunal noted that the issue of interest under section 234B was consequential and did not require specific adjudication.

Conclusion:
The Tribunal allowed the appeal of the assessee for statistical purposes, directing the AO/TPO to re-compute the transfer pricing adjustments and the allowance of the claim under section 10A after considering the correct allocation of Head Office expenses and excluding inappropriate comparables. The Tribunal also directed the AO/TPO to comply with the DRP's directions regarding the refund calculation.