2019 (2) TMI 1754 - AT - Income Tax

Tribunal remands transfer pricing and R&D issues, rules in favor of assessee on internet charges &D

The Tribunal remanded various issues back to the TPO/AO for fresh examination and adjudication, especially regarding transfer pricing adjustments and ... TP Adjustment - Comparable selection - HELD THAT:- Referring to International transactions of the software development services segment of the assessee companies functionally dissimilar with that of assessee need to be deselected. Internet access charges - AO disallowed the expenses claimed by invoking the provisions of section 40(a)(ia) - HELD THAT:- Respectfully following the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case for Assessment Year 2009-10 [2013 (12) TMI 1419 - KARNATAKA HIGH COURT] , we decide this issue in favour of the assessee. Issues Involved:1. Transfer Pricing Adjustments2. Research and Development Expenses Disallowance3. Internet Access Charges Disallowance4. Set-off of Carry Forward Losses5. Interest under Section 234DDetailed Analysis:1. Transfer Pricing Adjustments:Grounds for Appeal:- The assessee contested the inclusion and exclusion of certain companies in the comparables list used for determining the Arm's Length Price (ALP) of international transactions related to software development services.- Specific grounds included functional dissimilarity, lack of segmental data, and incorrect application of filters by the TPO and DRP.Tribunal's Decision:- Acropetal Technologies Ltd.: Remanded back to the TPO for fresh examination and adjudication on all issues raised by the assessee, including functional dissimilarity and failure of certain filters.- e-Zest Solutions Ltd.: Remanded to the AO for verification and adjudication of functional dissimilarity and other objections.- E-infochips Ltd.: Remanded to the TPO for examination and adjudication on functional dissimilarity and other issues raised.- ICRA Techno Analytics Ltd.: Remanded to the TPO for verification and adjudication on functional dissimilarity and segmental details.- Persistent Systems and Solutions Ltd.: Remanded to the TPO for examination and adjudication on functional dissimilarity and other issues raised.- Thinksoft Global Services Ltd.: Remanded to the TPO for verification of facts and adjudication on forex filter and functional comparability.2. Research and Development Expenses Disallowance:Grounds for Appeal:- The assessee argued that the expenses were revenue in nature and incurred in the normal course of business, and should not be treated as capital expenditure.Tribunal's Decision:- The issue was remanded to the AO for fresh examination and adjudication, following the precedent set in the assessee's own case for Assessment Year 2006-07. The AO was directed to afford the assessee adequate opportunity to present details and submissions.3. Internet Access Charges Disallowance:Grounds for Appeal:- The assessee contended that the payments for internet access charges did not fall under the ambit of section 194J, and hence, TDS was not deductible.Tribunal's Decision:- Following the decision in the assessee's own case for Assessment Year 2009-10, the Tribunal decided the issue in favor of the assessee, allowing the appeal on this ground.4. Set-off of Carry Forward Losses:Grounds for Appeal:- The assessee argued that the AO erred in not adjusting brought forward losses against the assessed income, resulting in an erroneous tax demand.Tribunal's Decision:- The Tribunal did not specifically address this issue in the detailed analysis provided, implying that it was not pressed or considered infructuous based on the grounds urged by the assessee.5. Interest under Section 234D:Grounds for Appeal:- The assessee contested the levy of interest under section 234D of the Act.Tribunal's Decision:- Similar to the set-off of carry forward losses, this issue was not specifically addressed in the detailed analysis, indicating it was not pressed or considered infructuous.Conclusion:The Tribunal remanded several issues back to the TPO/AO for fresh examination and adjudication, particularly concerning the inclusion and exclusion of comparables for transfer pricing adjustments and the nature of research and development expenses. The disallowance of internet access charges was decided in favor of the assessee. Other grounds were either not pressed or rendered infructuous. The appeal was partly allowed.