2018 (4) TMI 1755 - AT - Income Tax

Tax appeals allow corrections to TDS and FTC claims, revise ALP for SWD and ITES, leading to deletion of TP adjustments.

CGI Information Systems & Management Consultants (P.) Ltd. Versus Assistant Commissioner of Income Tax, Circle (2) (1) (1), Bengaluru

The appeals were partly allowed, directing the Assessing Officer (AO) to verify and correct the Tax Deducted at Source (TDS) and Foreign Tax Credit (FTC) ... TP Adjustment - determination of Arm's Length Price in respect of international transaction of rendering of Software Development Services and Information Technology Enabled Services by the Assessee to its holding company - Comparable selection - HELD THAT:- Assessee is a company engaged in the business of providing contract Software Development Services (SWD Services) and providing Information Technology Enabled Services (ITES) to its holding company in Netherlands BV as a captive service provider. The transaction of rendering software development services and ITES to holding company was a transaction with an Associated Enterprise (AE) and was therefore an international transaction thus companies functionally dissimilar with that of assessee need to be deselected from final list. Comparability of ITES segment - companies functionally dissimilar with that of assessee need to be deselected from final list. Grant the entire FTC (Foreign Tax Credit) (i.e., credit for tax paid outside India on income which is also included in die total income in me return of income filed in India) - HELD THAT:- The facts in this regard are that in its return of income filed under the Act for the AY 2012-13, the Assessee for the instant assessment year, Assessee has claimed FTC of ₹ 13,94,950/- (relevant details at pages 867 and 894 of the paperbook). However, in the draft assessment order passed by the AO, he allowed FTC only to the extent of ₹ 9,83,255/- without giving any explanation for the short-grant of FTC. Although the Assessee objected to the same before the DRP, it refused to interfere with this issue on the premise that doing so would be beyond the scope of its powers. Consequently, in the impugned final assessment order, FTC was only allowed to the extent of ₹ 9,83,255/- as against the sum of ₹ 13,94,950/- that was claimed by the. Assessee in its return of income. We are of the view that it would meet the ends of justice if a direction is given to the AO to verify the claim of the Assessee and allow tax credit in accordance with law. Issues Involved:1. Determination of Arm's Length Price (ALP) for Software Development Services (SWD) and Information Technology Enabled Services (ITES) for AY 2010-11.2. Determination of ALP for SWD and ITES for AY 2012-13.3. Credit for Taxes Deducted at Source (TDS) for AY 2010-11.4. Foreign Tax Credit (FTC) for AY 2012-13.Detailed Analysis:1. Determination of Arm's Length Price (ALP) for SWD and ITES for AY 2010-11:The primary issue revolves around the determination of the ALP for the international transaction of rendering SWD and ITES by the assessee to its holding company in the Netherlands. The Transaction Net Margin Method (TNMM) was accepted as the Most Appropriate Method (MAM) for determining ALP. The profit level indicator used was Operating Profit/Total Cost (OP/TC). The TPO accepted some comparables suggested by the assessee and added others. The final list included ten comparables, leading to an ALP adjustment. The assessee contested the inclusion of five comparables, and the Tribunal, following previous decisions, excluded these comparables. The revised arithmetic mean of the remaining comparables showed that the assessee's pricing was at arm's length, leading to the deletion of the TP adjustment.2. Determination of ALP for SWD and ITES for AY 2012-13:Similar to AY 2010-11, the TNMM was used for determining the ALP for SWD and ITES for AY 2012-13. The TPO selected ten comparables, leading to an ALP adjustment. The DRP directed the exclusion of some comparables and the inclusion of others. The Tribunal, following previous decisions, excluded certain comparables and included others based on functional similarity. The remaining comparables' arithmetic mean indicated that the assessee's pricing was at arm's length, leading to the deletion of the TP adjustment.3. Credit for Taxes Deducted at Source (TDS) for AY 2010-11:The assessee claimed a TDS credit of Rs. 1,18,40,477, but the AO allowed only Rs. 92,81,177. The DRP directed the AO to verify and allow the correct TDS credit. The Tribunal directed the AO to grant the entire TDS credit after due verification.4. Foreign Tax Credit (FTC) for AY 2012-13:The assessee claimed FTC of Rs. 13,94,950, but the AO allowed only Rs. 9,83,255 without explanation. The DRP refused to interfere, stating it was beyond their scope. The Tribunal directed the AO to verify the claim and allow the FTC in accordance with the law.Conclusion:Both appeals were partly allowed, with directions for the AO to verify and correct the TDS and FTC claims, and adjustments to the ALP determinations based on the revised comparables list.