2024 (6) TMI 722 - AT - Income Tax

TP adjustment - adjustment proposed by TPO for both US and non-US related transactions - TPO/AO computing transfer pricing adjustment on aggregate cost base of the Appellant without excluding the cost pertaining to Appellant's domestic operations - assessee emphasized that the adjustment for US-related transactions had been resolved under Mutual Agreement Procedure (MAP) with the US entity and contention was that the adjustment made for domestic transactions, specifically with Indian entities, was not justified as they fall outside the purview of Indian Transfer Pricing provisions - Whether MGSI's domestic operations do not come under the ambit of Indian Transfer Pricing provisions and hence, the costs pertaining to the same should not be included while computing transfer pricing adjustments? HELD THAT - As if we read paragraph 5 along with the MAP then it is clear that the assessee has transactions with US and domestic transactions. However, the law is fairly settled that the ALP should be determined in respect to the international transactions falling in Chapter X of the Income Tax Act. The determination of the TP adjustment for domestic transfer pricing is to be dealt in accordance with law. In our view, the assessee would be entitled to relief if on verification the Assessing Officer / TPO found that the adjustment with respect to the Microsoft Global Services Centre (India) Private Limited were not warranted in accordance with law. For the above said purposes, we are in agreement with the submissions of the ld.DR that the matter may kindly be remanded back to the Assessing Officer / TPO with the above said direction. In view of the above, we remand the matter back to the TPO for denovo examination of the facts and decide whether the addition as made by the TPO with respect to the domestic services as mentioned hereinabove are sustainable in the eye of law. Accordingly, the appeal of the assessee is allowed for statistical purposes.

Summary

Issues involved:
The appeal challenges the assessment order passed by the Commissioner of Income Tax under sections 143(3), 144C(13), and 144B of the Income Tax Act, 1961 for A.Y. 2016-17. The issues revolve around transfer pricing adjustments, MAP resolution, and the treatment of domestic operations in the assessment.

Transfer Pricing Adjustment Issue:
The assessee, a consulting services company, contested the transfer pricing adjustment proposed by the Transfer Pricing Officer (TPO) for both US and non-US related transactions. The assessee emphasized that the adjustment for US-related transactions had been resolved under Mutual Agreement Procedure (MAP) with the US entity. The contention was that the adjustment made for domestic transactions, specifically with Indian entities, was not justified as they fall outside the purview of Indian Transfer Pricing provisions. The assessee argued that the costs related to domestic operations should not have been included in the transfer pricing adjustments.

MAP Resolution and Domestic Operations:
The assessee presented evidence of MAP resolution between India and the US entity, highlighting the exclusion of US-related adjustments. The assessee pointed out that the revenue from Indian company operations was distinct from international transactions, emphasizing that no transfer pricing adjustment should apply to the domestic revenue. The modified grounds of appeal focused on the incorrect computation of transfer pricing adjustments concerning domestic operations, asserting that such adjustments were not sustainable post-MAP resolution.

Remand for Verification:
After considering the arguments, the Tribunal found merit in the assessee's contentions regarding the treatment of domestic operations in transfer pricing adjustments. The Tribunal agreed with the Revenue's submission to remand the matter back to the TPO for a thorough examination to determine the legality of the adjustments related to domestic services. Consequently, the appeal was allowed for statistical purposes, and the matter was remanded to the TPO for a fresh examination of the facts to ascertain the validity of the adjustments concerning domestic operations.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, remanding the matter to the TPO for a reevaluation of the transfer pricing adjustments concerning domestic operations. The decision was based on the need for a detailed examination to ensure the adjustments align with the legal framework governing transfer pricing in domestic transactions. The order was pronounced in the Open Court on 27th March 2024.