Tribunal Upholds 1% Risk Adjustment in Tax Dispute Ruling The Tribunal dismissed the Department's appeal against the Commissioner of Income-tax's order for the assessment year 2011-12. The Tribunal upheld the 1% ...
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Tribunal Upholds 1% Risk Adjustment in Tax Dispute Ruling
The Tribunal dismissed the Department's appeal against the Commissioner of Income-tax's order for the assessment year 2011-12. The Tribunal upheld the 1% risk adjustment granted by the Dispute Resolution Panel, emphasizing that the adjustment should be determined in accordance with the law rather than applying a fixed percentage. The Tribunal relied on previous judicial decisions to support its ruling and directed the Transfer Pricing Officer to calculate the risk adjustments percentage appropriately.
Issues: - Appeal against the order of Commissioner of Income-tax, Bangalore dated 31.12.2015 for the assessment year 2011-12. - Dispute regarding risk adjustment and comparables.
Analysis: 1. The appeal was filed against the order of the Commissioner of Income-tax for the assessment year 2011-12. The Department raised grounds of appeal challenging the directions of the Dispute Resolution Panel, specifically objecting to the 1% risk adjustment granted by the Hon'ble DRP. The Department contended that the risk adjustment was granted arbitrarily without proper appreciation of the facts and comparables involved. The Department sought the flexibility to add, alter, amend, or delete any of the grounds mentioned above.
2. The counsel for the assessee argued that the risk analysis adjustment was based on the objections raised by the taxpayer, supported by relevant judicial decisions. Referring to a previous case before the DRP for AY 2010-11, where the assessee's objection was accepted, it was highlighted that the ITAT in a case involving Intellinet Technologies Pvt. Ltd. vs. ITO rejected the argument that a single customer risk borne by the taxpayer was equivalent to the marketing and technical risks of comparables. The ITAT emphasized that the risk of a single customer is anticipated and may or may not occur, unlike the contemporaneous marketing and technical risks faced by comparables. The ITAT directed the Transfer Pricing Officer (TPO) to determine the percentage of risk adjustments in accordance with the law, rather than applying a fixed percentage. Citing the decision in DCIT vs. Hello Soft Pvt. Ltd., where a 1% adjustment was made towards risk differential, the counsel argued for a similar approach in this case.
3. The Tribunal concluded that the Revenue's grounds were misconceived and subsequently dismissed the appeal of the Department. The Tribunal upheld the decision based on the principles laid down in previous judicial decisions and directed the TPO to calculate the risk adjustments percentage in line with the law. The order was pronounced in the open court on 8th September 2016.
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