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2021 (4) TMI 1023 - AT - Income TaxTP Adjustment - comparability adjustment on account of abnormal cost - assessee adjusted margin after making the adjustments was worked out at 4.08% - claim of the assessee was rejected by the TPO - HELD THAT - The assessee in appeal before the CIT(A) filed revised calculation of adjusted margin and adjusted margin was calculated at 12.71%. Thus, the claim of comparability adjustment was not made for the first time before the CIT(A) and only the calculation of the amount of adjustment was revised. CIT(A) has given a detailed finding on the TP Adjustment and there is no other ground in respect of corporate issues by the Revenue. In the transfer pricing documentation, the assessee determined arm s length price of the international transaction of rendering BPO services applying CUP method. Since the prices charged by the assessee at USD 19.20 per hour from the AE exceed the prices charged from the unrelated party, i.e., ALP @ USD 14.00 per hour, the international transactions of BPO services were considered being at arm s length, in the Transfer Pricing Documentation. There is no dispute on part of the revenue that in the BPO industry the prevalent rate for services was in the range of USD 8 to USD 15 per hour and was comparable/lower to the rate of USD 19 charged by the assessee from the AE and was at arm s length applying CUP method. Thus, the adjustment made by the TPO is not sustainable even applying the CUP method. Hence, there is no need to interfere with the findings of the CIT(A). Hence, the appeal of the Revenue is dismissed.
Issues Involved:
1. Deletion of addition on account of adjustment in Arm's Length Price (ALP). 2. Violation of Rule 46A by CIT(A) in accepting fresh submissions without giving an opportunity to AO/TPO. 3. Non-consideration of TPO’s findings regarding inadequate documentation by the assessee. 4. Failure to obtain a remand report from AO/TPO while accepting fresh submissions. 5. Acceptance of Net Margins of the assessee after excluding abnormal losses without a remand report. Detailed Analysis: 1. Deletion of Addition on Account of Adjustment in Arm's Length Price (ALP): The Revenue contested the deletion of ?7,32,39,369/- added by the Transfer Pricing Officer (TPO) for the provision of Business Process Outsourcing (BPO) services. The assessee used the Comparable Uncontrolled Price (CUP) method to determine the ALP, asserting that the charged rate of USD 19.20 per hour was higher than the rate charged to unrelated parties, thus meeting the arm's length standard. The CIT(A) accepted the assessee's revised calculation of adjusted margin at 12.71%, which was within the permissible range, leading to the deletion of the adjustment. 2. Violation of Rule 46A by CIT(A) in Accepting Fresh Submissions Without Giving an Opportunity to AO/TPO: The Revenue argued that the CIT(A) violated Rule 46A by considering fresh submissions from the assessee without providing an opportunity to the Assessing Officer (AO) or TPO to review these submissions. The CIT(A) was accused of not adhering to procedural requirements, which necessitate giving the AO/TPO a chance to examine any new evidence or details submitted during the appeal. 3. Non-Consideration of TPO’s Findings Regarding Inadequate Documentation by the Assessee: The Revenue highlighted that the TPO found the documentation provided by the assessee lacking in essential details such as payment terms, service level agreements, and qualifications of personnel deployed in the BPO. The CIT(A) allegedly failed to consider these significant findings, which were crucial for determining the accuracy of the transfer pricing documentation. 4. Failure to Obtain a Remand Report from AO/TPO While Accepting Fresh Submissions: The Revenue contended that the CIT(A) erred by not obtaining a remand report from the AO/TPO while accepting fresh submissions from the assessee. This procedural lapse was seen as a violation of Rule 46A, which mandates obtaining a remand report to ensure a fair assessment process. 5. Acceptance of Net Margins of the Assessee After Excluding Abnormal Losses Without a Remand Report: The CIT(A) accepted the net margins of the assessee at 12.71% after excluding abnormal losses, without calling for a remand report from the AO/TPO. The Revenue argued that this acceptance was in violation of Rule 46A, as the procedural requirement of obtaining a remand report was not fulfilled. Judgment Analysis: The Tribunal noted that the comparability adjustment on account of abnormal cost was initially claimed by the assessee before the TPO, who rejected it. The assessee then revised the calculation before the CIT(A), which was accepted. The CIT(A) concluded that comparing the operating profit margin without appropriate adjustments would contradict the transfer pricing regulations' intent. The CIT(A) found that the adjusted operating margin of the assessee at 12.71% was within the permissible range compared to the TPO's computed margin of 9.66%. The Tribunal upheld the CIT(A)'s findings, emphasizing that the assessee's operating margin, after excluding abnormal costs, was within the acceptable range, thus negating the need for any transfer pricing adjustment. The Tribunal dismissed the Revenue's appeal, stating there was no need to interfere with the CIT(A)'s detailed findings. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the transfer pricing adjustment and confirming that the procedural and substantive grounds raised by the Revenue did not warrant any modification of the CIT(A)'s order. The appeal of the Revenue was thus dismissed in its entirety.
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