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2023 (8) TMI 211 - AT - Income TaxTP Adjustment - Calculation of segmental profit - assessee has been earning 15% profit on the services rendered to the overseas AE under the EDS and BSS segment, which is as per the Agreement entered with the AEs - HELD THAT -As on going through the schedule No.19 other expenses , we notice that there is sub-contracting expenses of Rs. 54.,23 crores, which are included under the head other expenses and employee benefit expenses is at schedule No.18, which is Rs. 363.17 crores. These are the identifiable expenses and as per the agreement and TP study, assessee is engaged in the sub- contract works also, therefore, these sub-contracting expenses should be apportioned between/among the relevant segments/departments. The assessee has himself accepted that Rs. 55.36 crores are towards employee cost for the business support service segments to which the ld. TPO has rightly distributed. We direct the ld. TPO for the apportionment of rest amount of expenses under the heads other expenses excluding the sub-contracting expenses Rs. 135.61(189.84-54.23) crores should be divided as per the turnover of the segments of the assessee and the assessee is also agree for the apportionment on the basis of turnover. As under schedule No. 19 Other expenses we did not find separate employee benefit expenses, each head of expenses have been characterized and debited with the amount incurred by the assessee and the assessee has also not provided detail of employee cost of Rs. 55.36 crores, in view of this it cannot be said that the employee cost of Rs. 55.36 Crores of expenses are included under the head of Other Expenses in schedule 19. Thus we are sending back the file to the ld. TPO for fresh apportionment/distribution of the expenses among the segments of the assessee and re-calculate the margins. Accordingly, this ground of appeal is allowed for statistical purposes. Comparable selection - HELD THAT - TPO is directed to exclude the company Tech Mahindra Business Services Ltd., Infosys Business Services Ltd. and SPI Technologies India Pvt. Ltd. from the final set of comparables. In the result, the ground raised by the assessee on this issue is allowed. Working Capital Adjustment - HELD THAT - As we noted that the working capital adjustment is to be given and it is a mandatory requirement to allow adjustment if the assessee is able to provide the reasonable/accurate data of the comparable companies - we direct the assessee for providing necessary data for substantiating its claim before the AO/TPO. Accordingly, this ground of appeal is allowed for statistical purposes. Treatment to trade receivables as an international transaction - TPO adopted notional interest rate of 14% being SBI PLR rate - method of computation of such rate to the Appellant - HELD THAT - TPO has observed in this regard in his order that the Assessee was asked to furnish details of trade receivable and details of realization which were submitted. The TPO to determine the interest attributable to delayed realization of trade receivables by applying 6 months LIBOR plus 400 basis points with a mark-up of 100 basis points (which works out to 5.975%). The interest were calculated only for the accrued during the year. After direction of the ld. DRP the adjustment has been come down because as per direction the SBI short term deposit rate was applied. Considering the rival submissions and decisions of the co-ordinate benches of the Tribunal the interest on receivables have been upheld that it is an international transactions and separate bench markings are required to be done for interest on delayed receivables. In view of this we direct to the AO/TPO for calculating afresh after applying 6 months LIBOR plus 300 basis points with a mark-up of 100 basis points and decide the issue as per law. The assessee is directed to provide the necessary documents. This ground of appeal is allowed for statistical purpose.
Issues Involved:
1. Transfer Pricing Adjustments 2. Segmental Computation 3. Application of Filters and Comparables 4. Interest on Outstanding Receivables 5. Corporate Tax Adjustments Summary: Transfer Pricing Adjustments: The learned AO, TPO, and DRP made an adjustment of INR 25,02,52,221/- under section 92CA of the Income-tax Act, 1961, which includes INR 22,45,36,880/- for the ITES segment and INR 2,57,15,341/- for interest on delayed receivables. The AO/TPO/DRP erred in rejecting the TP documentation and conducting a fresh comparability analysis by introducing various filters. The Tribunal directed the AO/TPO to reconsider the comparables and apply appropriate filters. Segmental Computation: The AO/TPO/DRP erred in computing the operating segmental margin by reallocating the employee cost within the EDS segment based on revenue. The Tribunal directed the TPO to re-allocate the expenses among the segments appropriately and recalculate the margins. Application of Filters and Comparables: The Tribunal upheld the application of turnover filters, excluding companies with turnover more than Rs. 200 crores, and directed the TPO to exclude Tech Mahindra Business Services Ltd., Infosys BPM Services Ltd., and SPI Technologies India Pvt. Ltd. from the final set of comparables. The Tribunal also directed the AO/TPO to provide working capital adjustments as per the guidelines, allowing the assessee to provide necessary data. Interest on Outstanding Receivables: The Tribunal directed the AO/TPO to calculate the interest on delayed receivables afresh using 6 months LIBOR plus 300 basis points with a mark-up of 100 basis points, considering it as a separate international transaction. The assessee was directed to provide necessary documents for this calculation. Corporate Tax Adjustments: The Tribunal noted that the AO/DRP erred in disallowing an amount under Sec. 14A read with Rule 8D towards expenses incurred to earn exempt dividend income from mutual funds, without appreciating that investments were made out of internal accruals. The AO was also directed to grant TDS credits and advance tax credits for merged entities and to reconsider the interest levied under Sec. 234B and 234C. Conclusion: The appeal was partly allowed for statistical purposes, with directions to the AO/TPO for fresh calculations and reconsideration of certain adjustments. The Tribunal emphasized the need for appropriate benchmarking and adjustments as per the guidelines and legal precedents.
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