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2022 (3) TMI 291 - AT - Income TaxTP adjustment - Addition regarding provision of guarantee - HELD THAT - As relying on own case 2020 (8) TMI 562 - ITAT MUMBAI we hold that ALP of Corporate guarantee shall be computed @ 0.5% of guarantee value and as regards the determination of ALP for provision of performance guarantee, the same is restored to the file of the ld. TPO for fresh adjudication in the light of above mentioned directions given by this Tribunal. Accordingly, the ground Nos. 1-1.5 raised by the assessee are allowed for statistical purposes. TP adjustment made in respect of provision of back office services - TPO had accepted the segmental results of the first two AEs - TPO had only doubted the segmental results of the third AE i.e. Intelenet UK Services Ltd. The allocation method of expenditure are the same for all the three AEs - HELD THAT - We find the basis of allocation of various expenses has been clearly given by the assessee for each of the segments as is evident from the aforesaid table. In any case, we find the main grievance of the ld. DRP seems to be that AE revenue is only ₹ 19 Crores and Non-AE revenue is ₹ 176 Crores and salary cost of back office income unit seems to be more by 24% and requires allocation to non-AE unit. If this observation is to be accepted then, the same would only be beneficial to the assessee as the same would result in increase of margins for the AE BPO segment. This fact itself proves that the ld. DRP had not applied its mind at all on the basis of allocation of expenses between the AE units and the non-AE units. In view of the above, the other grounds raised by the assessee on inclusion and exclusion of the comparables need not be gone into at all and they are left open. Going by the segmental data of back office services income which is evident from the table above, the assessee had earned a margin of 20.45% and even assuming if all the comparables chosen by the ld. TPO are to be accepted, the arithmetical mean margin of comparables is only 20.52%. Hence, the transactions of the assessee would be at arm's length requiring no TP adjustment. Accordingly, the ground Nos. 2.1 to 2.4 raised by the assessee are allowed. Relief for MAT credit - HELD THAT - AO restricted the MAT credit of assessee as per return of income despite the fact that assessee had sufficient brought forward MAT credit. This matter requires factual verification and hence, the same is restored to the file of the ld. AO to re-compute the tax liability of the assessee in accordance with law. Accordingly, the ground No. 3.4 raised by the assessee is allowed for statistical purposes.
Issues Involved:
1. Upward adjustment for transfer pricing on account of provision of guarantee. 2. Transfer pricing adjustment for provision of back office services. 3. Rectification and error in computation of total income. 4. Relief for MAT credit. 5. Chargeability of interest under sections 234B and 234C. 6. Initiation of penalty proceedings under section 271(1)(c). Issue-wise Detailed Analysis: 1. Upward Adjustment for Transfer Pricing on Account of Provision of Guarantee: The assessee challenged the upward adjustment of ?59,31,924/- made by the Transfer Pricing Officer (TPO) regarding the provision of guarantee. The TPO observed that the assessee provided a corporate guarantee to a bank for its wholly owned subsidiary, Snow Holding Company Ltd., and a performance guarantee to a third party customer on behalf of its AE, Intelenet UK. The TPO, following directions from the Dispute Resolution Panel (DRP), considered both guarantees as international transactions and determined the Arm's Length Price (ALP) for the corporate guarantee at 1.25% and the performance guarantee at 1.50%, leading to the adjustment amount. The Tribunal, referencing its own decisions in earlier years, directed that the ALP for the corporate guarantee should be computed at 0.5%, and the determination of ALP for the performance guarantee was remanded to the TPO for fresh adjudication. Consequently, the ground raised by the assessee was allowed for statistical purposes. 2. Transfer Pricing Adjustment for Provision of Back Office Services: The assessee contested the TP adjustment of ?55,29,690/- for back office services provided to Serco UK Services Ltd. The TPO rejected the segmental results provided by the assessee, which showed a margin of 20.45%, and instead used entity-level margins, leading to a negative margin of 17.65%. The Tribunal found that the TPO's rejection of segmental results based on them not being audited was unsustainable. The Tribunal also noted that the allocation methods used by the assessee for expenses were consistent and justified. The Tribunal concluded that the segmental results should be accepted, and the transactions were at arm's length, requiring no TP adjustment. Thus, the ground raised by the assessee was allowed. 3. Rectification and Error in Computation of Total Income: The assessee’s ground regarding rectification and error in computation of total income was rendered moot due to a section 154 order passed by the AO, which rectified the returned income to ?16,80,98,430/- instead of ?138,66,87,018/- following the merger of Intelenet Global Services Pvt. Ltd. and Serco BPO Pvt. Ltd. Consequently, the related grounds raised by the assessee did not survive. 4. Relief for MAT Credit: The assessee sought relief for MAT credit, claiming ?5,45,39,535/- in its return of income. Following the TP adjustment, the income increased, and the assessee was eligible for a higher MAT credit of ?5,82,58,256/-. The AO, however, restricted the MAT credit to the amount claimed in the return. The Tribunal remanded the matter to the AO for factual verification and re-computation of the tax liability, allowing the ground for statistical purposes. 5. Chargeability of Interest under Sections 234B and 234C: The assessee contested the chargeability of interest under sections 234B and 234C, which are consequential in nature. The Tribunal held that interest under section 234C should be charged only on the returned income. 6. Initiation of Penalty Proceedings under Section 271(1)(c): The assessee challenged the initiation of penalty proceedings under section 271(1)(c), which the Tribunal deemed premature for adjudication at this stage and thus dismissed the ground. Conclusion: The appeal was partly allowed for statistical purposes, with specific directions for fresh adjudication and verification on certain issues. The Tribunal's order was pronounced on 22/02/2022.
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