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2024 (1) TMI 648 - AT - Income TaxTP Adjustment - international transaction of software development services undertaken by the Appellant with its Associated Enterprises ( AEs ) - Services of the assessee under SWD segment and under ITeS segment - functions performed by the assessee under the software development services segment and ITeS segment - assessee carries out SWD services for its AE and develops, supplies computer software and tests existing programs and also provides technical support services to its AE in China at its request - HELD THAT - On analysis of the functions performed by the assessee under both segments, it is clear that the assessee has provided services to its AE under SWD segment as well as ITeS segment. It is noted that the Ld.TPO also has observed that the services rendered by the assessee are under two segments, but still holds the services of the assessee under SWD segment to be similar to that of the functions performed by the assessee under ITeS segment. We also note that the reasoning by the assessee Ld.TPO to aggregate both these segments are not justifiable and therefore cannot be upheld. We under such circumstances inclined to remand both these segments back to the Ld.TPO/Assessing Officer to reverify the services rendered by assessee under both the segments vis- -vis the specific functions performed by it. The Ld.AO shall not forget that, the assessee has admittedly made a statement in respect of ITeS services being rendered by the assessee for the first time in the financial year relevant to Assessment Year under consideration. Accordingly, grounds 3 to 5 are remanded back to the Ld.TPO/AO for denovo consideration. AO/TPO is directed to recompute the ALP margin of the assessee under both the segments independently based on respective functions performed by the assessee under each segment in accordance with law. Needless to say that proper opportunity of being heard must be granted to the assessee.
Issues Involved:
1. Aggregation of ITeS and SWD Segments. 2. Rejection and Inclusion of Comparables for Transfer Pricing. 3. Transfer Pricing Adjustment and ALP Computation. 4. Penalty Proceedings and Interest Levy. Summary: Aggregation of ITeS and SWD Segments: The assessee argued that the ITeS segment, introduced in FY 2015-16, should not be aggregated with the SWD segment as they are functionally different. The Tribunal found that the functions performed under both segments were distinct and remanded the issue back to the Ld.TPO/AO for a fresh examination. The AO/TPO is directed to recompute the ALP margin independently for each segment based on their specific functions. Rejection and Inclusion of Comparables for Transfer Pricing: The Tribunal noted that the Ld.CIT(A) had accepted the exclusion of certain comparables like Infosys Ltd., Aspire Systems India Pvt. Ltd., and Persistent Systems Ltd. However, the Tribunal remanded the issue of comparables back to the Ld.AO/TPO for fresh consideration, as the aggregation of transactions was also remanded. Transfer Pricing Adjustment and ALP Computation: The Ld.TPO had aggregated the ITeS and SWD segments and selected 14 comparables, leading to a significant adjustment. The Tribunal found the aggregation unjustifiable and remanded the issue back to the Ld.TPO/AO for independent computation of ALP margins for each segment. Penalty Proceedings and Interest Levy: The Tribunal did not adjudicate on the penalty proceedings under Section 271(1)(c) and interest levied under Sections 234B and 234C, as these were consequential in nature. Conclusion: The appeal filed by the assessee was partly allowed for statistical purposes, and the appeal filed by the revenue was dismissed. The Tribunal remanded the issues concerning the aggregation of segments and selection of comparables back to the Ld.TPO/AO for fresh consideration.
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