2023 (10) TMI 18 - AT - Income Tax

TP Adjustment - comparable selection - HELD THAT - Exclude M/s. Hartron Communications Ltd. from the list of comparables company has extraordinary profits/ losses in subsequent years, thus we are of the substantive opinion that this company cannot be considered as comparable to the assessee's functional profile and accordingly, direct the AO/ TPO to exclude this this comparable for determining ALP. TPO adopting incorrect PLI of one comparable, namely Microland Limited, as' 17.83% as against 9.84% (before working capital adjustment and risk adjustment) resulting in computation of excessive TP adjustment - HELD THAT - TPO considered the margin in respect of M/s. Microgenetic Systems Ltd. at 17.83%. Similarly, he has considered the margin in the case of Microland Ltd. at 17.83%. The contention of the ld. AR. is that this is a typographical mistake committed by TPO and on earlier occasion, in the first round the TPO considered the margin of Microland Ltd. at 9.84%. In our opinion, this is required to be re-examined by AO/TPO. Accordingly, the issue is remitted to the file of AO/TPO for fresh consideration and take the correct PLI on this comparable. Non-giving of risk adjustment - Since in present case computation of risk adjustment is not provided by the assessee, hence respectfully following the decision of the Bench in the matter of Mercedez 2018 (2) TMI 1975 - ITAT BANGALORE we send back additional ground no.1, to the file of TPO. Non-giving of working capital adjustment - We are of the opinion that this issue came for consideration on earlier round in . 2019 (4) TMI 2125 - ITAT BENGALURU remand this issue to the file of the TPO for the calculating the working capital adjustment, if any, in accordance with law and the TPO shall consider all the binding decisions of the High Court/coordinate bench. These grounds are allowed for statistical purpose. We direct the AO/TPO to pass consequential order in conformity with the above direction as Tribunal on earlier occasion as reproduced herein above. Computing tax on assessed income at the erroneous rate of 34.37% (before surcharge and education cess instead of the applicable tax rate of 30% - After hearing both the parties, we are of the opinion that this ground is consequential since we have remitted certain issue involved in this appeal to the file of AO/TPO for reconsideration, as such the computation of tax liability will change accordingly and the AO is directed to recompute all tax liability in accordance with law. Interest u/s 234D - We are of the opinion that this is required to be examined at the end of the AO/TPO passing consequential order. He should see whether any refund is granted to the assessee u/s 143(1) of the Act. If there is no refund granted to the assessee u/s 143(1) no interest u/s 234D of the Act is to be charged.

Summary

Issues Involved:
1. Legality of the final assessment order.
2. Exclusion of Hartron Communications Ltd. from the list of comparables.
3. Incorrect Profit Level Indicator (PLI) of Microland Limited.
4. Non-granting of risk adjustment.
5. Non-granting of working capital adjustment.
6. Incorrect tax computation rate.
7. Levy of interest under section 234D of the Income Tax Act, 1961.

Summary:

1. Legality of the Final Assessment Order:
The appellant challenged the final assessment order dated 27.01.2023, where the total income was assessed at Rs. 37,97,88,631 against the returned income of Rs. 21,06,71,880. The appellant argued that the directions of the Dispute Resolution Panel (DRP) were laconic and lacked reasoning, and that the Transfer Pricing Officer (TPO) erred in determining an adjustment of Rs. 17,04,89,703 for international transactions. These grounds were considered general and did not require adjudication.

2. Exclusion of Hartron Communications Ltd. from Comparables:
The appellant contended that Hartron Communications Ltd. was functionally different, engaged in diversified services, and had an exceptional year of operations with a steep increase in revenue. The Tribunal agreed, citing previous decisions where Hartron Communications Ltd. was deemed not comparable due to extraordinary profits and functional dissimilarity. The Tribunal directed the AO/TPO to exclude Hartron Communications Ltd. from the list of comparables.

3. Incorrect Profit Level Indicator (PLI) of Microland Limited:
The appellant argued that the TPO incorrectly adopted the PLI of Microland Limited as 17.83% instead of 9.84%. The Tribunal acknowledged this as a typographical error and remitted the issue to the AO/TPO for fresh consideration to take the correct PLI.

4. Non-granting of Risk Adjustment:
The appellant claimed that the TPO did not follow the DRP's directions to grant risk adjustment. The Tribunal remitted the issue back to the AO/TPO to pass a consequent order in conformity with the earlier directions, emphasizing the need for detailed working of the risk assumed by the appellant and comparables.

5. Non-granting of Working Capital Adjustment:
The appellant contended that the AO/TPO did not follow the Tribunal's earlier directions to grant working capital adjustment. The Tribunal directed the AO/TPO to pass a consequential order in line with the previous directions, considering all binding decisions.

6. Incorrect Tax Computation Rate:
The appellant argued that the AO computed tax on the assessed income at an erroneous rate of 34.37% instead of the applicable 30%. The Tribunal noted that this ground was consequential and directed the AO to recompute the tax liability in accordance with the law, considering the remitted issues.

7. Levy of Interest Under Section 234D:
The appellant contended that interest under section 234D could only be levied if a refund was granted under section 143(1) of the Act, which was not the case here. The Tribunal directed the AO/TPO to examine whether any refund was granted under section 143(1). If not, no interest under section 234D should be charged.

Conclusion:
The appeal was partly allowed for statistical purposes, with several issues remitted to the AO/TPO for fresh consideration. The order was pronounced in the open court on 26th June 2023.