2020 (9) TMI 485 - AT - Income Tax

TP Adjustment - Comparable selection - TCS E Serve International Ltd., TCS E Serve Ltd. chosen by the ld. TPO in order to benchmark its international transactions qua ITES segment - HELD THAT - TCS E Serve International has been found to be not a suitable comparable vis-o-vis ITES provider in case of Avaya India Pvt. 2019 (7) TMI 1279 - DELHI HIGH COURT on ground of having given huge amount to Tata Sons Ltd. towards brand equity; having no segmental bifurcation between transaction processing and technical services; having huge intangible in the form of brand value having considerable effect on its PLI. All the aforesaid facts go to prove that TCS E Serve International, admittedly rejected by the ld. TPO in AY 2011-12, is not a suitable comparable for benchmarking the international transactions qua ITES segment, hence ordered to be excluded. TCS E Serve as not a suitable comparable vis-o-vis routine service provider on grounds of its large scale of operation and clientele base having huge turnover and having given huge amount to Tata Sons Ltd. towards brand loyalty and having no segmental bifurcation between transaction processing and technical services. Rectification u/s 154 - operating cost of the appellant instead of actual operating cost which is a mistake apparent from record thereby resulting in decrease in the operating margin of the Appellant from 17.00% to 9.06% - HELD THAT - Since both the ld. AR for the taxpayer as well as ld. DR for the Revenue have fairly conceded that it is a mistake apparent on record, the AO/TPO are directed to rectify the mistake after duly verifying the records/documents. MAM selection - TPO rejected the method adopted by the taxpayer, applied Comparable Uncontrolled Price (CUP) method and computed the ALP of the transaction at nil - HELD THAT - Issue is remitted back to the ld. TPO/AO to follow the directions given by the ld. DRP and to pass the order accordingly. Disallowance of Travelling and conveyance expenses appearing as credit card payment in the AIR - AO/DRP disallowed the same on the ground that no document evidence viz. bills/vouchers in support of its claim has been brought on record by the taxpayer to establish that the expenses reimbursed by the taxpayer to the employees have been duly considered in computing the taxpayer's income - HELD THAT - No doubt, the taxpayer is having details of expenses claimed as reimbursement by the employees but in order to authenticate the same it has not taken on record the copies of the credit card bills of its employees to prove that the expenses have been incurred by the employees for the business purposes. In these circumstances, we are of the considered view that the issue is required to be remitted back to the AO to decide afresh by providing an opportunity of being heard to the taxpayer to explain the details of the amount reimbursed to the employees. Ground is allowed in favour of the taxpayer for statistical purposes. Determining arm's length interest rate at 10.85% on account of interest on delayed collection of receivables from its AE - HELD THAT - Undisputedly, in AY 2010-11, in taxpayer's own case, ld. DRP held that the period of delay may be restricted to the very same accounting year for which benchmarking is being done i.e., till 31st March and interest should be computed accordingly to the period of delay only. It being an identical issue consistent approach by the Revenue authorities is required to adopt in order to stop unnecessary litigation. So, we are of the considered view that the issue is required to be remitted back to the AO/TPO to decide in accordance with the view taken in AY 2010-11 as well as law laid down in Kusum Healthcare Pvt. Ltd. i 2017 (4) TMI 1254 - DELHI HIGH COURT . So, Ground determined in favour of the taxpayer for statistical purposes.

Issues Involved:

1. Jurisdictional error in reference to the Transfer Pricing Officer (TPO).
2. Transfer Pricing adjustments and benchmarking.
3. Rejection of multiple year data.
4. Determination of arm's length price (ALP) for payment of fees for technical services.
5. Disallowance of travel and conveyance expenses.
6. Initiation of penalty proceedings.
7. Computation of interest under sections 234B, 234A, and 234C.
8. Alleged interest on accounts receivable.
9. Not giving credit for TDS in the final assessment order.

Detailed Analysis:

1. Jurisdictional Error in Reference to TPO:
The appellant argued that the Assessing Officer (AO) did not record any reasons in the draft assessment order for referring the matter to the TPO under section 92CA(1) of the Income Tax Act, 1961. The tribunal did not specifically address this issue, implying it was not considered a significant point of contention.

2. Transfer Pricing Adjustments and Benchmarking:
The tribunal noted that the TPO and DRP had accepted the Transactional Net Margin Method (TNMM) with Operating Profit/Total Cost (OP/TC) as the Profit Level Indicator (PLI) used by the taxpayer. However, the TPO rejected certain comparables chosen by the taxpayer and included new ones, leading to a higher margin and proposed adjustment. The tribunal excluded TCS E Serve International Ltd. and TCS E Serve Ltd. as comparables due to functional dissimilarity, brand value, and lack of segmental information, aligning with the taxpayer's arguments.

3. Rejection of Multiple Year Data:
The tribunal did not specifically address this issue, suggesting that it was not a significant point of contention in the final judgment.

4. Determination of ALP for Payment of Fees for Technical Services:
The TPO applied the Comparable Uncontrolled Price (CUP) method and computed the ALP of the transaction at nil, which the DRP partially upheld. The tribunal remitted the issue back to the TPO/AO to follow the DRP's directions and pass the order accordingly, emphasizing the need for consistent treatment across assessment years.

5. Disallowance of Travel and Conveyance Expenses:
The AO/DRP disallowed the expenses due to a lack of documentary evidence. The tribunal remitted the issue back to the AO to provide the taxpayer an opportunity to explain the details of the amount reimbursed to the employees, emphasizing the need for proper documentation.

6. Initiation of Penalty Proceedings:
The tribunal did not provide specific findings on this issue, suggesting it was not a significant point of contention in the final judgment.

7. Computation of Interest under Sections 234B, 234A, and 234C:
The tribunal did not provide specific findings on this issue, suggesting it was not a significant point of contention in the final judgment.

8. Alleged Interest on Accounts Receivable:
The tribunal noted that the TPO/DRP made a notional addition for interest on delayed collection of receivables. The tribunal remitted the issue back to the AO/TPO to decide in accordance with the view taken in the previous assessment year and the law laid down by the Delhi High Court in Kusum Healthcare Pvt. Ltd.

9. Not Giving Credit for TDS in the Final Assessment Order:
The tribunal did not provide specific findings on this issue, suggesting it was not a significant point of contention in the final judgment.

Conclusion:
The appeals were partly allowed for statistical purposes, with several issues remitted back to the AO/TPO for reconsideration and proper documentation. The tribunal emphasized the need for consistent treatment across assessment years and proper documentation to support the taxpayer's claims.

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