2015 (5) TMI 45 - AT - Income Tax

Tribunal directs reassessment of ALP, comparables, and deductions; dismisses penalty proceedings.

M/s TNS India Pvt. Ltd., Hyderabad Versus Dy. Commissioner of Income tax, Circle – 2 (3), Hyderabad

M/s TNS India Pvt. Ltd., Hyderabad Versus Dy. Commissioner of Income tax, Circle – 2 (3), Hyderabad - [2015] 40 ITR (Trib) 125 (ITAT [Hyd]) Issues Involved:1. Transfer Pricing (TP) issues.2. Corporate tax issues.Detailed Analysis:Transfer Pricing (TP) Issues:Issue 1: Determination of ALP for Management Fee and License Fee- The assessee claimed payment of management fee and license fee of Rs. 7,13,18,212 for services provided by Associated Enterprises (AEs). The Transfer Pricing Officer (TPO) rejected this claim, determining the ALP of such services at Nil, stating the assessee failed to substantiate the need for services and whether they were actually rendered or beneficial.- The Dispute Resolution Panel (DRP) upheld the TPO's determination but directed the exclusion of such expenditure from operating costs.- The Tribunal noted that similar issues in the assessee's earlier assessment years (2003-04 to 2005-06 and 2009-10) were decided in favor of the assessee. The Tribunal held that the TPO exceeded his jurisdiction by denying the payment outright and not just determining the ALP. The matter was remitted to the AO/TPO to determine the quantum of management fee and license fee as per the agreement between the parties.Issue 2: Non-consideration of Other Receipts as Part of Operating Revenue- The assessee argued that other income of Rs. 28,69,633 should be included as part of operating revenue for computing the margin.- The DRP agreed with the assessee, but the AO did not implement this in the final assessment order.- The Tribunal directed the AO/TPO to compute the PLI by treating the other income as part of the operating revenue.Issue 3: Selection of Comparables- The assessee objected to certain comparables selected by the TPO, arguing they were functionally different or had extraordinary events affecting their financials.- The Tribunal examined each comparable in detail:- Accentia Technologies Ltd.: Excluded due to extraordinary events (mergers and acquisitions).- Acropetal Technologies Ltd. (Seg.): Excluded as it provided high-end KPO services.- Cosmic Global Ltd.: Remanded to AO/TPO to verify if revenue from BPO services was only Rs. 19.63 lakhs.- Eclerx Services Ltd.: Excluded as it provided KPO services and had super-normal profits.- Genesys International Corporation Ltd.: Excluded due to functional differences (geospatial services).- HCL Comnet Systems and Services Ltd. (Seg.) and Wipro Ltd.: Remanded to AO/TPO to verify functional profiles and segmental data.- Infosys BPO Ltd.: Excluded due to its brand and functional differences.- The Tribunal directed the AO/TPO to compute the ALP considering these observations.Issue 4: Rejection of Certain Comparables by TPO- The assessee challenged the rejection of Accurate Data Convertors Pvt. Ltd. and Informed Technologies Ltd.- The Tribunal remanded the issue back to the TPO for fresh examination, directing the TPO to include these companies if they satisfy all filters applied.Corporate Tax Issues:Issue 1: Non-consideration of Deduction u/s 10A as per Revised Return- The assessee filed a revised return claiming a higher deduction u/s 10A. The AO allowed the deduction as per the original return.- The Tribunal remitted the issue back to the AO to consider the claim as per the revised return.Issue 2: Treatment of Software License Fee as Capital Expenditure- The AO treated the software license fee as capital expenditure and allowed depreciation at 25%.- The Tribunal held that the software license fee should be depreciated at 60% as per the applicable rate for computer software and directed the AO accordingly.Issue 3: Wrong Adjustment of Refund and Levy of Interest u/s 234D- The assessee claimed a wrong adjustment of refund and contested the levy of interest u/s 234D.- The Tribunal directed the AO to verify the claim and grant relief if found correct, also examining the necessity of charging interest u/s 234D.Issue 4: Initiation of Penalty Proceedings u/s 271(1)(c)- The Tribunal dismissed this ground as premature and infructuous.Conclusion:The Tribunal provided detailed directions on each issue, remanding several matters back to the AO/TPO for fresh examination and ensuring compliance with legal standards and precedents. The appeal was partly allowed for statistical purposes.