2017 (5) TMI 1619 - AT - Income Tax

Tribunal sets aside Transfer Pricing issue, directs fresh examination of Employee Stock Options, RSUs

The Tribunal allowed the assessee's appeal for statistical purposes, setting aside the Transfer Pricing issue and additional grounds related to Employee ... TPA - selection criteria for comparables - applying of proper filter of turnover - Related Party Transaction (RPT) filter - Held that:- Both the parties have agreed in principle that 10 times of the assessee’s turnover on both sides shall be applied as a filter for selecting the comparable companies. For Related Party Transaction (RPT) filter TPO applied 25% RPT. We find that neither the TPO nor the assessee has found any difficulty in selection of comparable companies. The TPO has selected as many as 20 companies in the final set of comparables. Therefore this is a normal case of availability of comparables. Accordingly, in view of the consistent view taken by this Tribunal that in the normal circumstances, the RPT tolerance range shall not exceed 15%. Thus the comparability of the entire set of comparables has to be decided by applying the appropriate filter of turnover at 10 times of assessee's turnover on both sides and further RPT filter of 15%. We are of the considered opinion that the entire TP issue requires fresh examination and consideration at the level of TPO/A.O - set aside the TP issue including selection of comparables and functional comparability to the record of the TPO for consideration and adjudication. Computing deduction under Section 10A - AO took the total turnover of the assessee at entity level instead of the turnover of Export Oriented Undertaking (EOU) - Held that:- Assessing Officer took the total turnover of the assessee at ₹ 29.04 Crores whereas the turnover of the EOU undertaking is ₹ 22.88 Crores. Therefore we find that the Assessing Officer has not taken the total turnover of the EOU undertaking. In view of the above facts and circumstances of the case, we direct the Assessing Officer to consider the total turnover of the EOU for the purpose of computing the deduction under Section 10A of the Act. Deduction under Section 10A computation - AO has considered the entire cost of Employees Stock Option and RSU granted to the employees of the company by the holding company of the assessee - Additional ground - Held that:- There is no dispute that the claim made by the assessee in the additional ground was not raised either before the Assessing Officer or before the DRP. Therefore this is fresh plea raised by the assessee at this stage. So far as the legality of the issue is concerned, there is no bar for raising this legal issue at this level which is also covered by the decision of the Special Bench in the case of Biocon Ltd. Vs. DCIT (2013 (8) TMI 629 - ITAT BANGALORE). This issue also involves verification of the various facts and computation of deduction as it involves mixed question of law and facts and not a pure question of law - set aside this issue to the record of the Assessing Officer. - Appeal of the assessee is allowed for statistical purpose. Issues Involved:1. Transfer Pricing Adjustment2. Deduction under Section 10A3. Additional Grounds regarding Employee Stock Options and RSUs4. Levy of Interest under Section 234B5. Initiation of Proceedings under Section 271(1)(c)Issue-wise Detailed Analysis:1. Transfer Pricing Adjustment:The first issue raised by the assessee concerns the Transfer Pricing Adjustment made by the Transfer Pricing Officer (TPO) in respect of international transactions. The TPO selected 20 companies to determine the Arm’s Length Price (ALP). The assessee challenged the comparability of certain companies selected by the TPO before the Dispute Resolution Panel (DRP) but was unsuccessful. Before the Tribunal, the assessee sought the exclusion of 13 companies from the set of comparable companies. The Tribunal noted that the assessee's turnover of international transactions was Rs. 22.88 Crores and agreed that a filter of 10 times the assessee’s turnover on both sides should be applied for selecting comparable companies. Additionally, the Tribunal decided that the Related Party Transaction (RPT) filter should not exceed 15%. Consequently, the Tribunal set aside the TP issue, including the selection of comparables and functional comparability, to the TPO for fresh examination and adjudication, ensuring the assessee was given a proper opportunity to raise objections.2. Deduction under Section 10A:The next issue involved the restriction of deduction under Section 10A of the Act. The Assessing Officer (AO) computed the deduction under Section 10A by taking the total turnover of the assessee at the entity level instead of the turnover of the Export Oriented Undertaking (EOU). The AO considered the total turnover of the assessee to be Rs. 29.04 Crores, whereas the turnover of the EOU was Rs. 22.88 Crores. The Tribunal directed the AO to consider the total turnover of the EOU for the purpose of computing the deduction under Section 10A.3. Additional Grounds regarding Employee Stock Options and RSUs:The assessee raised additional grounds concerning the cost of Stock Options and RSUs granted to employees by the holding company. The assessee claimed a deduction of Rs. 1,55,22,724, with Rs. 1,14,63,811 eligible for the EOU unit. The Tribunal acknowledged that this issue was not raised before the AO or the DRP and involved a mixed question of law and facts. Consequently, the Tribunal set aside this issue to the AO for proper examination and adjudication, considering all relevant facts and computations.4. Levy of Interest under Section 234B:The assessee contested the levy of interest under Section 234B amounting to Rs. 56,26,165. The Tribunal did not provide a detailed analysis of this issue in the judgment.5. Initiation of Proceedings under Section 271(1)(c):The assessee submitted that there was no basis for the AO to propose initiating proceedings under Section 271(1)(c) of the Act. The Tribunal did not provide a detailed analysis of this issue in the judgment.Conclusion:The Tribunal allowed the appeal of the assessee for statistical purposes, setting aside the Transfer Pricing issue and the additional grounds regarding Employee Stock Options and RSUs to the AO for fresh examination and adjudication. The Tribunal directed the AO to consider the total turnover of the EOU for computing the deduction under Section 10A. The issues concerning the levy of interest under Section 234B and the initiation of proceedings under Section 271(1)(c) were not elaborated upon in the judgment.