2018 (11) TMI 794 - AT - Income Tax

TPA - Disallowance of payment of Corporate Management Charges CMC - comparable selection - Held that - Referring to assessee s designing services companies companies functionally dissimilar with that of assessee need to be deselected from final list.

Summary

Issues Involved:
1. Disallowance of payment of Corporate Management Charges (CMC).
2. Designing Services and Marketing Support Service Segments.
3. Charging of interest under sections 234A, 234B, and 234C of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Payment of Corporate Management Charges (CMC):
The primary grievance of the assessee pertained to the disallowance of payment of Corporate Management Charges to its Associated Enterprise (AE). The Transfer Pricing Officer (TPO) questioned the Arm's Length Price (ALP) of the intra-group services, emphasizing the need for detailed evidence of services received, economic benefits, cost allocation mechanisms, and comparable independent enterprise behavior. The TPO concluded that the assessee failed to substantiate the receipt and benefit of the services, leading to the determination of the ALP for the transaction at NIL, enhancing the income of the assessee by ?1,10,22,586/-. The Dispute Resolution Panel (DRP) upheld the TPO's decision. However, the Tribunal found that the assessee provided sufficient documentation and that the payment was in line with internationally accepted transfer pricing principles. Citing the Delhi High Court's ruling in EKL Appliances, the Tribunal directed the Assessing Officer to delete the adjustment of ?1,10,22,586/-.

2. Designing Services and Marketing Support Service Segments:
The assessee engaged in several international transactions with its AEs, including the provision of designing and marketing support services. The TPO scrutinized the comparables used by the assessee and introduced new comparables. The Tribunal analyzed the functional profiles and financial data of the disputed comparables. For the business/market support services segment, the Tribunal excluded Global Procurement Consultants Ltd and Kellick Agencies & Marketing Ltd due to functional differences and failure to meet the TPO's filters. Similarly, TSR Darashaw Ltd was excluded for being functionally different. In the designing services segment, the Tribunal directed the inclusion of Neilsoft Ltd, Tata Elxsi Ltd, and Varna Industries based on their functional similarity to the assessee. The Tribunal excluded Archohm Consults Pvt Ltd and Zipper Trading Enterprises due to functional differences.

3. Charging of Interest under Sections 234A, 234B, and 234C:
The final issue related to the charging of interest under sections 234A, 234B, and 234C of the Income-tax Act. The Tribunal directed the Assessing Officer to charge interest as per the provisions of law.

Conclusion:
The appeal was partly allowed, with the Tribunal providing relief on the disallowance of Corporate Management Charges and directing specific inclusions and exclusions of comparables in the designing and marketing support service segments. The Tribunal also directed the proper application of interest charges as per the law. The order was pronounced in the open court on 14.11.2018.