2021 (2) TMI 1322 - AT - Income Tax

Tribunal remands re-characterization issue, emphasizing fair assessment and detailed review by Assessing Officer.

Pangea3 Legal Database Systems Private Ltd Versus DCIT-10 (3) (2), Mumbai

The Tribunal allowed the assessee's appeal partly for statistical purposes, remanding the re-characterization issue to the Assessing Officer for a ... TP Adjustment - Re-characterization of the assessee as a high-end information technology enabled service (ITES)/knowledge process outsourcing (KPO) service provider - TPO has re-characterized the assessee as a KPO service provider - HELD THAT:- Assessee has drew our attention to the Safe Harbour Rules, 2017 issued by the Central Board of Direct Taxes (CBDT) ON 07-06-2017, wherein, various services have been classified under ITeS and KPO categories. As contention of assessee, the services provided by the assessee are coming under the ITeS category even under the Safe Harbour Rules, 2017 of the CBDT, all the aspects have not at all been examined either by the TPO or by learned DRP while re-characterising the assessee as a high-end ITeS/KPO service provider. We restore the issue to the AO for considering assessee’s claim that it is a low end ITeS service provider and not a KPO service provider. While doing so, the Assessing Officer must verify all the documentary evidences furnished by the assessee to demonstrate the exact nature of services provided to the AEs. Further, the Assessing Officer will also examine assessee’s claim that there is no change in the nature of service provided in earlier years, wherein, it has been accepted as a low end ITeS provider. Needless to mention, the Assessing Officer must provide reasonable opportunity of being heard to the assessee before deciding the issue. Assessee’s appeal is partly allowed for statistical purpose. Issues:1. Re-characterization of the assessee as a high-end ITES/KPO service provider.Detailed Analysis:The primary issue in this case revolves around the re-characterization of the assessee as a high-end ITES/KPO service provider, which is the grievance articulated in ground 3 of the appeal. The Transfer Pricing Officer (TPO) re-characterized the assessee based on the functions it performs, particularly focusing on document review services constituting approximately 75% of all functions. The Dispute Resolution Panel (DRP) concurred with the re-characterization, leading to the dispute. The assessee contended that it provides low-end ITES/BPO services, supported by voluminous documents demonstrating the nature of its services. The TPO and DRP, however, did not adequately consider this evidence, leading to the re-characterization dispute.The assessee argued that the TPO's re-characterization was arbitrary and requested the issue to be sent back to the Assessing Officer for fresh adjudication after a thorough examination of the documentary evidence. The Departmental Representative did not object to this request, indicating a willingness to revisit the issue. The Tribunal, after considering the submissions and evidence on record, noted that the TPO's re-characterization solely relied on a previous CESTAT order without adequately considering the nature of the services provided by the assessee. The Tribunal highlighted that the documentary evidence submitted by the assessee had not been properly examined by the authorities, emphasizing the need for a detailed review.The Tribunal further observed that in previous assessment years, the assessee had been characterized as a routine ITES provider, raising questions about the sudden re-characterization in the impugned assessment year. The Tribunal also referenced the Safe Harbour Rules, 2017, to support the assessee's claim that its services fall under the ITES category. Given these factors and the lack of thorough examination by the TPO and DRP, the Tribunal decided to remand the issue to the Assessing Officer for a comprehensive review. The Assessing Officer was directed to verify all documentary evidence, consider the consistency of services provided in earlier years, and provide a fair opportunity for the assessee to present its case before making a decision.The Tribunal, based on the above analysis, allowed the assessee's appeal partly for statistical purposes, emphasizing the need for a detailed reassessment of the re-characterization issue by the Assessing Officer. Other issues raised by the assessee were deemed academic at that stage but were left open for future consideration if necessary.