2018 (3) TMI 1920 - AT - Income Tax

Partial appeal success: comparables adjusted, MAT credit addressed. Other grounds dismissed.

Sun Life India Services Centre Pvt. Ltd, Versus  ACIT, Circle-4, Gurgaon

Sun Life India Services Centre Pvt. Ltd, Versus  ACIT, Circle-4, Gurgaon - TMI Issues Involved:1. Adjustment to total income for international transactions.2. Non-acceptance of economic analysis for Arm's Length Price (ALP) determination.3. Use of multiple year data vs. single year data.4. Rejection of certain comparable companies.5. Selection of companies with supernormal profits.6. Non-adjudication of certain objections.7. Treatment of operating and non-operating items.8. Adjustments for differences in risk profiles.9. Non-following of ITAT orders for earlier years.10. Granting of MAT credit.11. Initiation of penalty proceedings.Issue-wise Detailed Analysis:1. Adjustment to Total Income for International Transactions:The assessee contested an adjustment of INR 30,690,359 made by the TPO/AO/DRP to its total income regarding back office and advisory support services provided to associated enterprises. The Tribunal noted that the assessee is a captive service provider with a computed margin of 14.86% and 15.83%, while the TPO computed margins of 21.01% and 22.22%, leading to the proposed adjustment.2. Non-Acceptance of Economic Analysis for ALP Determination:The Tribunal dismissed grounds 1 and 2 as general in nature. The assessee's economic analysis was not accepted by the TPO/AO/DRP, which led to modifications in determining the ALP of the impugned transactions.3. Use of Multiple Year Data vs. Single Year Data:The TPO/AO/DRP erred in not accepting the use of multiple year data and relied solely on FY 2011-12 data, which was unavailable to the assessee during compliance with Indian TP documentation requirements.4. Rejection of Certain Comparable Companies:The Tribunal dealt with grounds 3, 4, 5, and 6 together. The assessee sought exclusion of Infosys BPO Ltd and TCS E-serve Ltd, which were directed to be excluded based on previous Tribunal decisions. The Tribunal directed the inclusion of R Systems International Ltd and CG Vak Software and Exports Ltd, citing functional comparability and previous decisions.5. Selection of Companies with Supernormal Profits:The Tribunal found that the TPO/AO/DRP erred in selecting companies with supernormal profits as comparables, which led to an unfair benchmarking of the impugned transactions.6. Non-Adjudication of Certain Objections:Ground No. 7 was dismissed as it was not pressed before the Tribunal. The Tribunal noted that the DRP did not adjudicate certain objections, violating the principles of natural justice.7. Treatment of Operating and Non-Operating Items:Ground No. 8 was dismissed as it was not pressed. The assessee contested the treatment of certain operating and non-operating items while computing margins.8. Adjustments for Differences in Risk Profiles:Ground No. 9 was dismissed as it was not pressed. The assessee argued that suitable adjustments were not made to account for differences in risk profiles vis-a-vis comparable companies.9. Non-Following of ITAT Orders for Earlier Years:Ground No. 10 was dismissed as general in nature. The assessee contended that the TPO/AO/DRP did not follow ITAT orders for earlier years, thus not adhering to the principle of binding precedents.10. Granting of MAT Credit:Ground No. 11 was addressed, with the Tribunal directing the AO to verify and grant the MAT credit available to the assessee as per section 115JAA of the Act.11. Initiation of Penalty Proceedings:Ground No. 12 was dismissed as premature. The Tribunal noted that the initiation of penalty proceedings under section 271(1)(c) of the Act was not ripe for adjudication.Conclusion:The Tribunal partly allowed the appeal, directing the exclusion and inclusion of certain comparables and addressing the issue of MAT credit. Other grounds were dismissed as either general, not pressed, or premature.