2021 (10) TMI 1244 - AT - Income Tax

TP Adjustment - ALP determination at entity level - authorities have computed entity level margin while determining the impugned Arm's Length Price (ALP) adjustment pertaining to software development services resulting in addition - HELD THAT - We note in this factual backdrop that instant issue of Chapter X computation to be restricted to the assessee's international transactions only is no more res integra in light of decision in CIT Vs. Firestone International (P) Ltd. 2015 (6) TMI 1123 - BOMBAY HIGH COURT . We thus decline Revenue's vehement arguments supporting the learned lower authorities' action computing the assessee's impugned ALP at entity level than only pertaining to its international transactions with the AEs involving an amount in issue. We accordingly find prima facie merit in the assessee's instant foregoing argument and restore the instant former issue back to Transfer Pricing Officer (TPO) for his afresh adjudication as per law within three effective opportunities of hearing. Interest on receivables at ALP adjustment computed as per the SBI short term deposit rate - We find from a perusal of the TPO's order dt. 29.10.2019 page 61 that he appears to have gone by earlier estimation only whilst determining a credit period of 30 days only. As in Technimont ICB Limited 2013 (1) TMI 948 - ITAT MUMBAI that an AE itself does not form a comparable since the corresponding transactions would be rendered as controlled ones only. We thus delete the impugned ALP adjustment on receivables in principle and leave it open for the TPO to verify necessary facts as per law.

Summary

Issues:
- Delay in filing the appeal due to pandemic
- Transfer pricing adjustments made by the authorities

Delay in Filing Appeal:
The appellant's appeal for Assessment Year 2016-17 was delayed by 33 days due to the pandemic. The delay was condoned as it was beyond the appellant's control, following legal precedents supporting such situations. The case proceeded for adjudication on merits after the delay was condoned.

Transfer Pricing Adjustments:
The appellant raised various grounds challenging the Transfer Pricing adjustments made by the authorities. The appellant contested the addition of a significant amount to its income, arguing that the conditions under Section 92C(3) of the Income Tax Act were not met. The appellant also disputed the rejection of certain filters and the selection of comparable companies by the Transfer Pricing Officer (TPO) and the Dispute Resolution Panel (DRP). The appellant highlighted errors in computing margins and rejecting companies engaged in software development services. Additionally, the appellant challenged the treatment of bad debts, risk adjustments, segmental profitability, and benchmarking methods for outstanding receivables. The appellant's arguments were supported by legal references and detailed contentions.

Judgment:
The Tribunal acknowledged the appellant's arguments and partially allowed the appeal. The Tribunal directed the TPO to reconsider the computation of the Arm's Length Price (ALP) adjustment related to software development services and restricted it to the appellant's international transactions with Associated Enterprises. The ALP adjustment on receivables, computed based on the SBI short term deposit rate, was deleted, with the TPO instructed to reevaluate the matter. The judgment was pronounced on 20th October 2021, with the appeal partly allowed in favor of the appellant.