Appeal allowed with directions to recompute ALP of international transactions based on tribunal's findings The appeal is partly allowed, with specific directions to the AO/TPO to recompute the ALP of the international transactions under both segments, ...
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Appeal allowed with directions to recompute ALP of international transactions based on tribunal's findings
The appeal is partly allowed, with specific directions to the AO/TPO to recompute the ALP of the international transactions under both segments, considering the Tribunal's findings and directions on the selection/rejection of comparables and the allowance of risk/working capital adjustments. The issue of interest under Section 234B is left open for future determination based on the final assessed income.
Issues Involved: 1. Selection/Rejection of Comparables in Corporate Support Services Segment. 2. Selection/Rejection of Comparables in Research & Development Services Segment. 3. Allowance of Risk/Working Capital Adjustment. 4. Levy of Interest under Section 234B.
Issue-wise Detailed Analysis:
1. Selection/Rejection of Comparables in Corporate Support Services Segment:
The assessee selected seven companies as comparables in its TP study report, out of which the TPO retained five and rejected two. The assessee objected to three of the retained companies: Caliberpoint Business Solutions Ltd., Cosmic Global Ltd., and Infosys BPO Ltd.
- Caliberpoint Business Solutions Ltd.: The assessee argued that this company should not be treated as comparable as it fails the 25% RPT filter applied by the TPO. The TPO is directed to verify if the RPT as a percentage of sales is more than 25%, in which case it cannot be treated as comparable.
- Cosmic Global Ltd.: The assessee contended that this company outsources its activities, evident from its low employee cost. The Tribunal directed the AO/TPO to exclude this company from the list of comparables, relying on previous ITAT decisions.
- Infosys BPO Ltd.: The Tribunal held that this company cannot be considered comparable due to its significant brand value, diversified activities, and functional dissimilarities. The AO/TPO is directed to exclude this company as comparable.
The assessee also objected to the rejection of CG Vak Software and Exports Ltd. and CEPHA Imaging P. Ltd. by the TPO.
- CG Vak Software and Exports Ltd.: The Tribunal found that this company is predominantly a software development company with insufficient segmental details of expenditure, thus upholding its rejection as comparable.
- CEPHA Imaging P. Ltd.: The Tribunal directed the AO/TPO to verify if the RPT is less than 25%, in which case it should not be rejected as comparable.
2. Selection/Rejection of Comparables in Research & Development Services Segment:
The assessee objected to the selection of Celestial Biolabs Ltd. and TCG Life Science Ltd. as comparables.
- Celestial Biolabs Ltd.: The Tribunal directed the AO/TPO to exclude this company as it is engaged in diversified activities, following the decision of the ITAT Bangalore Bench.
- TCG Life Science Ltd.: The Tribunal upheld the selection of this company as comparable, noting that substantial revenue is earned from R&D activities, and the slight exceedance of the 75% revenue filter does not disqualify it as comparable.
3. Allowance of Risk/Working Capital Adjustment:
The assessee argued for necessary risk and working capital adjustments, claiming it operates under a limited risk environment. The Tribunal directed the AO/TPO to consider the assessee's claim for adjustments on account of risk/working capital while computing the ALP, after allowing the opportunity of being heard to the assessee.
4. Levy of Interest under Section 234B:
The Tribunal noted that the chargeability of interest under Section 234B depends on the income determined in accordance with the Tribunal's directions. The issue is deemed premature at this stage, and the assessee can raise it at the appropriate time.
Conclusion:
The appeal is partly allowed, with specific directions to the AO/TPO to recompute the ALP of the international transactions under both segments, considering the Tribunal's findings and directions on the selection/rejection of comparables and the allowance of risk/working capital adjustments. The issue of interest under Section 234B is left open for future determination based on the final assessed income.
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