Tribunal directs AO to reconsider adjustments, allow appeal for statistical purposes. Order issued March 17, 2022.

The Tribunal allowed the appeal for statistical purposes, directing the AO to reconsider certain adjustments and computations as per the Tribunal's directions. The order was pronounced on 17th March 2022.

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Issues Involved:
1. General grounds
2. Economic Adjustments
3. Erroneous rejection and selection of comparable companies
4. Incorrect computation of margin of comparables and adjustment amount
5. Transfer Pricing adjustment relating to payment of Technical Royalty
6. Corporate Tax Adjustments
7. Consequential Grounds

Detailed Analysis:

1. General Grounds:
- The assessee contended that the order passed by the AO, based on DRP directions, was bad in law and on facts. The AO, TPO, and DRP modified the economic analysis and applied new filters for identifying comparable companies without establishing any of the conditions specified in Section 92C(3) of the Act. The Tribunal rejected this ground as it was general in nature and did not require specific adjudication.

2. Economic Adjustments:
- The assessee argued that the AO, TPO, and DRP erred in not allowing appropriate adjustments under Rule 10B(1)(e)(iii) and Rule 10B(3) to account for differences in working capital of comparables. The DRP rejected this claim, stating that no additional evidence was provided to substantiate the claim. The Tribunal, however, directed the AO to reconsider the working capital adjustment in light of the Tribunal's decision in the assessee’s own case for the earlier year.

3. Erroneous Rejection and Selection of Comparable Companies:
- The assessee objected to the exclusion of Engineers India Ltd and the inclusion of Larsen & Toubro Ltd (L&T) by the TPO. The DRP upheld the TPO's decision to exclude Engineers India Ltd, citing its focus on consultancy and engineering in the petrochemical industry. However, the Tribunal included Engineers India Ltd in the TP study, stating that government companies can be treated as comparables.
- Regarding L&T, the Tribunal directed the TPO to consider only the power segment of L&T and apply a turnover filter to determine if it fits into the turnover category for comparison.

4. Incorrect Computation of Margin of Comparables and Adjustment Amount:
- The assessee contended that the TPO incorrectly computed the operating profit margin of the comparables. The Tribunal restored the matter back to the TPO with a direction to calculate the OP/OC margin by comparing the entities as mentioned by the assessee.

5. Transfer Pricing Adjustment Relating to Payment of Technical Royalty:
- The assessee challenged the TPO’s rejection of the "Other method" and the adoption of the CUP method for benchmarking royalty payments. The TPO selected two comparables with an average royalty rate of 2.5%, leading to a downward adjustment. The Tribunal found that the TPO's comparables were not appropriate and directed the TPO to re-examine the claim and carry out a fresh TP analysis for royalty payments.

6. Corporate Tax Adjustments:
- The AO disallowed the employee's contribution to PF and ESI amounting to INR 5,100,766 under Section 36(1)(va) due to delayed remittance. The Tribunal deleted this addition, citing that the payments were made before the due date of filing the return under Section 139(1) and referenced several judgments supporting this view.

7. Consequential Grounds:
- The assessee did not press these grounds, so they were not adjudicated.

Conclusion:
- The Tribunal allowed the appeal for statistical purposes, directing the AO to reconsider certain adjustments and computations as per the Tribunal's directions. The order was pronounced on 17th March 2022.

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