2016 (10) TMI 1266 - AT - Income Tax

Tribunal directs Transfer Pricing Officer to re-evaluate issues following specific directions.

Palred Technologies Ltd., (Formerly known as Four Soft Ltd.) Versus Dy. Commissioner of Incometax, Circle – 1 (3), Hyderabad

The appeal was partly allowed for statistical purposes. The Tribunal directed the Transfer Pricing Officer (TPO) to re-evaluate certain issues, including ... TPA - comparable selection - functional similarity - HELD THAT:- Most of the comparables adopted by TPO does not have segmental information. Without the segmental information on record, it is difficult to adopt the filter of 75% of revenue from services. We are not sure, how the TPO has adopted this filter without this basic information. Accordingly, we direct the TPO to collect information from the respective comparables and adopt this filter with the segmental information. TPO can determine the comparables by adopting the above filter. Hence, we find it appropriate to remit this matter back to the file of AO/TPO to determine the comparables afresh by adopting the above filter. The assessee may be given proper opportunity of being heard. Accordingly, grounds raised by the assessee in this regard are allowed for statistical purposes. Reimbursement of income and expenditure - HELD THAT:- This issue is squarely covered by the decision of the coordinate bench of this Tribunal in assessee’s own case for AY 2007-08 [2014 (4) TMI 285 - ITAT HYDERABAD] as per segmental financials the margin in respect of transactions with AEs is 39.26% as against margin of 6.30% in respect of non AE transactions. Therefore, when segmental details have been furnished by the assessee the TPO should have considered them properly instead of rejecting them with broad and sweeping allegations. It seems, the TPO has not properly allocated the segmental expenditures. If the bad debts etc. are not related to AE transactions they cannot be considered as part of operating cost for determining ALP of the transactions with AE. Similarly, reimbursement on cost to cost basis also cannot be included in the operating cost. Since the issue in the current AY is identical to that of AY 2007-08, respectfully following the decision of the coordinate bench in that year, we remit the issue to the file of the TPO/AO to decide the issue following the directions given by the Tribunal in AY 2007-08. Addition of corporate guarantee - HELD THAT:- As decided in assessee own case since the issue in the present case is identical to the issue decided in case of Infotech Enterprises [2014 (1) TMI 1363 - ITAT HYDERABAD] following the same, we also remit this issue to the file of the TPO to decide the quantum of corporate guarantee rates accordingly. If the assessee is able to bring on record any comparables with regard to corporate guarantee, the TPO may also consider the same while determining ALP of corporate guarantee. The TPO must provide a reasonable opportunity of being heard to the assessee before deciding the issue. This ground is allowed for statistical purposes. Issues Involved:1. Rejection of Transfer Pricing documentation and fresh search of comparables.2. Rejection of use of multiple year data.3. Eligibility under section 10A.4. Rejection of internal comparable transactions.5. Use of information obtained under section 133(6).6. Use of additional filters in comparative analysis.7. Selection of companies earning abnormal high margins.8. Selection of uncomparables.9. Rejection of comparables.10. TP adjustment on transactions with Non-AEs.11. Incorrect working capital adjustment.12. Inclusion of certain amounts in operating cost.13. Adjustment for risk differences.14. Applicability of proviso to Section 92C(2).15. Corporate guarantee provided to the AEs.16. Non-discrimination under India - Netherlands tax treaty.17. Levy of interest under section 234B.18. Initiation of penalty proceedings under section 271(1)(C).Detailed Analysis:1. Rejection of Transfer Pricing Documentation and Fresh Search of Comparables:The Tribunal found that the TPO's method of selecting comparables suffered from defects due to the inclusion of companies without segmental information. The Tribunal directed the TPO to collect relevant segmental information and adopt a filter of 75% revenue from software services for comparables.2. Rejection of Use of Multiple Year Data:This ground was not pressed by the assessee during the hearing and was dismissed as not pressed.3. Eligibility under Section 10A:This ground was also not pressed by the assessee and was dismissed.4. Rejection of Internal Comparable Transactions:Similarly, this ground was not pressed by the assessee and was dismissed.5. Use of Information Obtained Under Section 133(6):The Tribunal did not specifically address this issue in the provided text.6. Use of Additional Filters in Comparative Analysis:The Tribunal noted that the TPO applied filters such as excluding companies with diminishing revenue or loss-making companies, different financial year-end, and onsite revenue in excess of 75%. The Tribunal directed the TPO to ensure that the filter of 75% revenue from software services is applied consistently.7. Selection of Companies Earning Abnormal High Margins:The Tribunal observed that several comparables selected by the TPO did not have segmental information. The Tribunal directed the TPO to exclude these companies and adopt the filter of 75% revenue from software services.8. Selection of Uncomparables:The Tribunal directed the TPO to exclude companies without segmental information and apply the filter of 75% revenue from software services.9. Rejection of Comparables:The Tribunal did not specifically address this issue in the provided text.10. TP Adjustment on Transactions with Non-AEs:The Tribunal did not specifically address this issue in the provided text.11. Incorrect Working Capital Adjustment:The Tribunal did not specifically address this issue in the provided text.12. Inclusion of Certain Amounts in Operating Cost:The Tribunal remitted the issue to the TPO/AO to decide following the directions given by the Tribunal in the assessee's own case for AY 2007-08, where the coordinate bench held that reimbursements on a cost-to-cost basis should not be included in the operating cost.13. Adjustment for Risk Differences:The Tribunal did not specifically address this issue in the provided text.14. Applicability of Proviso to Section 92C(2):This ground was not pressed by the assessee and was dismissed.15. Corporate Guarantee Provided to the AEs:The Tribunal noted that the issue is covered by the decision in the assessee's own case for AY 2007-08. The Tribunal remitted the issue to the TPO to decide the quantum of corporate guarantee rates following the method adopted in the case of Glenmark Pharmaceuticals.16. Non-Discrimination Under India - Netherlands Tax Treaty:The Tribunal did not specifically address this issue in the provided text.17. Levy of Interest Under Section 234B:The Tribunal did not specifically address this issue in the provided text.18. Initiation of Penalty Proceedings Under Section 271(1)(C):The Tribunal did not specifically address this issue in the provided text.Conclusion:The appeal was partly allowed for statistical purposes, with specific directions to the TPO/AO to re-evaluate certain issues, including the selection of comparables and the inclusion of reimbursements in operating costs, following the Tribunal's directions in the assessee's own case for AY 2007-08.