2016 (4) TMI 1478 - AT - Income Tax

Assessee's Appeal Partly Allowed with Specific Directions for Transfer Pricing

COWI India (P.) Ltd. Versus Assistant Commissioner of Income-tax,

The appeal filed by the assessee was partly allowed. The court provided specific directions for the exclusion or inclusion of certain comparables and ... TPA - comparable selection - selection criteria - Held that:- The Appellant provides mapping services mainly to COWI A/S, which is 59% of the total turnover of the Appellant. As per the functional analysis documented in the Transfer Pricing documentation, the Appellant can be is characterized as a service provider, which assumes less than normal risks associated with carrying out such business, companies functionally dissimilar with that of assessee need to be deselected from final list of comparability. Computing the addition to the international transactions - appellant submitted that its AE segment transactions constitutes only 59% of the total transactions however DRP has held that percentage at 70% without any basis - Held that:- Before us assessee has submitted that it is only 59% and not 70%. The same facts were also put before ld. DRP vide letter dated 16th May 2011 placed at Page No.804 of the Paper Book. In view of the above facts to verify this factual matter as principal has already been accepted by ld. TPO on direction of DRP we set aside this matter to the file of ld. TPO to work out the correct adjustment after verification. Issues Involved:1. Validity of the AO's order.2. Addition to the returned income by re-computing the arm's length price (ALP) of international transactions.3. Selection and rejection of comparable companies.4. Computation of transfer pricing adjustment.5. Denial of the benefit of 5% margin under the Proviso to Section 92 C(2).6. Charging of interest under sections 234B and 234C.7. Initiation of penalty proceedings under section 271(1)(c).Detailed Analysis:1. Validity of the AO's Order:- The appellant contended that the order passed by the AO is 'bad in law and void ab-initio.' However, this ground was dismissed as it was general in nature.2. Addition to the Returned Income:- The AO/TPO/DRP made an addition of Rs. 1,28,31,599/- to the appellant's returned income by re-computing the ALP of international transactions under section 92 of the Act. The appellant argued that the authorities erred in rejecting the ALP determined by the appellant under the TP documentation maintained as per section 92D of the Act read with Rule 10D of the Income Tax Rules, 1962, without satisfying the conditions under section 92C (3). The authorities also erred in carrying out a fresh search by rejecting/modifying the filters applied by the appellant.3. Selection and Rejection of Comparable Companies:- The TPO selected certain comparable companies which the appellant objected to on various grounds, including functional dissimilarity and extraordinary events. The Tribunal examined each comparable in detail:- Accentia Technologies Ltd.: Excluded due to an extraordinary event (amalgamation) during the year.- All SEC Technologies Ltd.: Included as it satisfied the RPT filter and no functional dissimilarity was argued before the TPO.- Ashit C. Mehta Financial Services Ltd.: Included as the new argument regarding employee cost to sales ratio was not raised before the lower authorities.- Bodhtree Consulting Limited: Included as the TPO considered only the ITES segment, and the argument regarding unreliable books was new.- Eclerx Services Limited: Excluded as it operates in the KPO segment, which is not comparable to the appellant's ITES services.- Informed Technologies India Ltd.: Included as abnormal growth and low employee cost to sales ratio were not sufficient grounds for exclusion.- Infosys BPO Limited and Wipro Limited: Excluded due to brand value and ownership of intangibles.- Inserves India Private Limited: Remitted back to the TPO for reconsideration as the plea for exclusion was raised for the first time.- Maple E-Solutions Limited: Excluded due to an extraordinary event (acquisition by Triton Corp Ltd.).- Triton Corp Limited: Remitted back to the TPO for reconsideration as the plea for exclusion was raised for the first time.- Mold-Tek Technologies Limited: Excluded as it is a KPO and not functionally comparable to the appellant's ITES services.- Vishal Information Technologies Limited: Excluded as it operates on an outsourcing model, making it functionally different.4. Computation of Transfer Pricing Adjustment:- The appellant contended that its AE segment transactions constituted only 59% of the total transactions, whereas the DRP held it at 70%. The Tribunal remitted the matter back to the TPO to verify and work out the correct adjustment after verification.5. Denial of the Benefit of 5% Margin:- The ground regarding the benefit of the 5% margin under the Proviso to Section 92 C(2) was dismissed as it was rendered infructuous.6. Charging of Interest:- The ground against charging interest under sections 234B and 234C was dismissed as it was consequential in nature.7. Initiation of Penalty Proceedings:- The ground against the initiation of penalty proceedings under section 271(1)(c) was dismissed as premature.Conclusion:- The appeal filed by the assessee was partly allowed, with specific directions for the exclusion or inclusion of certain comparables and remittance of certain issues back to the TPO for verification. The order was pronounced in the open court on 22/04/2016.