2015 (9) TMI 1635 - AT - Income Tax

Transfer Pricing Dispute Resolved: Exclusion of Comparables and TDS Credit Allowed

M/s ISG Novasoft Technologies Ltd., Versus The Deputy Commissioner of Income-tax, Circle-3 (1) (1), Bangalore

The appeal primarily focused on Transfer Pricing (TP) matters, specifically challenging the inclusion of functionally different companies as comparables. ... TPA - comparability analysis - functinal similarity - Held that:- M/s Accentia Echnologies Ltd., during the relevant year, and the said company therefore, cannot be considered as comparable due to this extraordinary event which occurred in the relevant year as rightly held by the Tribunal inter-alia in the case of Excellence Data Research Pvt. Ltd (2014 (9) TMI 126 - ITAT HYDERABAD). Direct the TPO to consider M/s MIcroland Ltd., as a good comparable for the purpose of analyzing the pricing of the international transaction undertaken by the assessee. Credit of tds - Held that:- We direct the AO/TPO to verify the claim of the assessee with regard to the tax deducted at source and allow credit if found correct. Issues:1. TP matters - inclusion of functionally different companies as comparables.2. Exclusion of certain comparables by the DRP without providing an opportunity of being heard.3. Disallowance of credit for TDS mentioned in the return of income.Issue 1: TP matters - inclusion of functionally different companies as comparablesThe appeal involved 15 grounds, primarily related to Transfer Pricing (TP) matters. The assessee contested the inclusion of certain companies as comparables, specifically focusing on M/s Accentia Technologies Ltd. The learned counsel argued that M/s Accentia Technologies Ltd. was functionally different as it operated in the healthcare sector, unlike the IT-enabled services provided by the assessee to its associated enterprises. The counsel highlighted the acquisition of a company by M/s Accentia Technologies Ltd. during the relevant year, making it unsuitable as a comparable due to the extraordinary event. The Tribunal, considering the precedents and the segmental data, directed the authorities to exclude M/s Accentia Technologies Ltd. from the list of comparables, thereby allowing ground no.8 of the assessee.Issue 2: Exclusion of certain comparables by the DRP without providing an opportunity of being heardThe assessee raised concerns regarding the exclusion of M/s Microland Ltd. as a comparable by the Dispute Resolution Panel (DRP) without prior objections from the assessee. The DRP cited reasons related to the proportion of revenue from IT Enabled services and the lack of information on export earnings. However, the learned counsel demonstrated that segmental results and export earnings were indeed available in the public domain, contrary to the DRP's assertions. Citing a relevant precedent, the Tribunal overturned the DRP's decision and directed the Tax Authorities to consider M/s Microland Ltd. as a valid comparable for analyzing the international transactions, thereby allowing ground no.11 of the assessee.Issue 3: Disallowance of credit for TDS mentioned in the return of incomeThe assessee contended that the credit for Tax Deducted at Source (TDS) mentioned in the return of income was not allowed. The Tribunal directed the Assessing Officer/TPO to verify the claim regarding TDS and allow the credit if found to be correct. Consequently, ground no.13 was allowed for statistical purposes. Grounds no.14 and 15 were deemed consequential and did not require specific adjudication. Ultimately, the appeal of the assessee was partly allowed for statistical purposes, as pronounced in the open court on September 30, 2015.This detailed analysis of the judgment highlights the key issues addressed by the Appellate Tribunal ITAT BANGALORE in the cited case, providing a comprehensive overview of the legal proceedings and outcomes.