2024 (7) TMI 394 - AT - Income Tax

TP Adjustments - Validity of order passed by the jurisdictional AO not in compliance with the provisions of section 144B - as per Assessee AO did not have the jurisdiction or validity to pass the same as the impugned order should have been passed by NFAC National e-Assessment Centre - HELD THAT - Apparently there was technical glitches faced by the revenue to which the transfer by PCIT to the jurisdictional AO could not have been reflected on the ITBA portal. It is categorically clear from the circular dated 06.09.2021 reproduced hereinabove. In the letter dated 01.08.2023 issued by the DCIT, Circle 7(1)(1) reproduced hereinabove, in para 4, the order sheet entry transferring the case to the jurisdictional Assessing Officer has been recorded which was with the approval of CBDT. TP Adjustment - comparable selection - deselection of comparables for having turnover more than 200 crores, as against the assessee having a turnover of only Rs. 14.53 crores under the ITeS segment. Microland Ltd., AGS Health Pvt. Ltd., Infosys BPM Services Pvt. Ltd., Access Healthcare Services Pvt. Ltd., Eclerx Services Ltd. and MPS Ltd. for failing turnover filter Deselection comparables for having different functional and risk profile as compared to the assessee - Manipal Digital Systems Pvt. Ltd.- As there are no segmental details available in respect of the various services rendered, we direct the Ld.AO/TPO to exclude this comparable from the final list. Working capital adjustment - We are of the opinion that this issue is no longer resintegra as this issue is covered by the decision of Coordinate Bench of this Tribunal in case of Huawei Technologies India (P.) Ltd. 2018 (10) TMI 1796 - ITAT BANGALORE held there would remain no comparable uncontrolled transactions for the purpose of comparison. The transfer pricing exercise would therefore fail. Therefore, in keeping with the OECD guidelines, endeavor should be made to bring in comparable companies for the purpose of broad comparison. Therefore the working capital adjustment as claimed by the assessee should be allowed. Non-granting of set off of the brought forward losses against the final adjustment - AO in his final assessment order dated July 19, 2022 and rectification order dated September 12, 2022 has erred in law by not setting off the bought forward losses with the income/adjustments proposed to the income. We therefore direct the Ld.AO/TPO to grant the set off of brought forward losses to the assessee against the final adjustment.

Issues Involved:

1. Dismissal of certain comparables not pressed by the assessee.
2. Jurisdictional validity of the final assessment order.
3. Exclusion of comparables with turnover exceeding Rs. 200 crores.
4. Exclusion of comparables with different functional and risk profiles.
5. Inclusion of certain comparables.
6. Working capital adjustment.
7. Set-off of brought forward losses against the final adjustment.

Detailed Analysis:

1. Dismissal of Certain Comparables Not Pressed by the Assessee:

The assessee did not wish to press the inclusion of Fuzen Software Pvt. Ltd. and Vitae International Accounting Services Pvt. Ltd. as comparables, as they were not part of the original grounds of appeal. Similarly, the comparables Lycatel BPO Pvt. Ltd. and Cheers Interactive (India) Pvt. Ltd. were also not pressed. Consequently, these comparables were dismissed as not pressed.

2. Jurisdictional Validity of the Final Assessment Order:

The assessee challenged the jurisdictional validity of the final assessment order under Section 144B of the Act, arguing that the order should have been passed by the National Faceless Assessment Centre (NFAC) and not by the jurisdictional Assessing Officer. The Tribunal examined the submissions and communications, including a circular dated 06.09.2021 from the CBDT, which clarified that technical glitches had necessitated the transfer of the case to the jurisdictional Assessing Officer. The Tribunal found no merit in the assessee's argument and dismissed this ground.

3. Exclusion of Comparables with Turnover Exceeding Rs. 200 Crores:

The assessee argued that certain comparables with turnovers exceeding Rs. 200 crores should be excluded due to differences in economies of scale, brand value, and market share. The Tribunal referred to precedents, including decisions from the Coordinate Bench and the Hon'ble Bombay High Court, which supported the exclusion of high-turnover comparables. The Tribunal upheld the exclusion of Microland Ltd., Tech Mahindra Business Services Ltd., Infosys BPM Services Pvt. Ltd., AGS Health Pvt. Ltd., Access Healthcare Services Pvt. Ltd., Motif India Infotech Pvt. Ltd., Eclerx Services Ltd., and MPS Ltd.

4. Exclusion of Comparables with Different Functional and Risk Profiles:

The assessee sought the exclusion of comparables with different functional and risk profiles, specifically Microland Ltd., Infosys BPM Services Pvt. Ltd., Manipal Digital Systems Pvt. Ltd., AGS Health Pvt. Ltd., Access Healthcare Services Pvt. Ltd., Eclerx Services Ltd., and MPS Ltd. The Tribunal had already excluded most of these comparables under the turnover filter. For Manipal Digital Systems Pvt. Ltd., the Tribunal found that it provided pre-press activities, which differed from the assessee's ITeS services. Consequently, this comparable was also excluded.

5. Inclusion of Certain Comparables:

The assessee sought the inclusion of Digicall Global Pvt. Ltd., IGT Solutions Pvt. Ltd., Sundaram Business Services Ltd., Suprawin Technologies Ltd., and Unicita Consulting Pvt. Ltd. The Tribunal remanded these comparables back to the Assessing Officer/TPO for verification in accordance with transfer pricing provisions, ensuring a proper opportunity for the assessee to be heard.

6. Working Capital Adjustment:

The Tribunal referred to the decision in Huawei Technologies India (P.) Ltd. v. Jt. CIT, which supported the allowance of working capital adjustments. The Tribunal remitted the issue back to the Assessing Officer/TPO to determine the correct working capital adjustment, directing them to allow the adjustment as claimed by the assessee.

7. Set-off of Brought Forward Losses Against the Final Adjustment:

The assessee argued that the Assessing Officer had erred by not setting off brought forward losses against the final adjustment in the assessment order and rectification order. The Tribunal directed the Assessing Officer/TPO to grant the set-off of brought forward losses against the final adjustment.

Conclusion:

The appeal filed by the assessee was partly allowed, with specific directions provided for each issue raised. The Tribunal's order was pronounced in the open court on 22nd December, 2023.

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