Transfer pricing adjustments remanded for further verification, comparables analysis reviewed, management fees procedural errors found.

The Tribunal remanded the transfer pricing adjustments in the manufacturing segment for further verification, allowing adjustments for capacity utilization and requiring proper analysis of Forex fluctuations and impairment losses. The comparables analysis was also remanded for fresh examination. In the case of management fees, the Tribunal found procedural errors by the DRP and allowed grounds for statistical purposes. In the ITES segment, adjustments were partly allowed based on the inclusion/exclusion of comparables and working capital adjustments. The protective disallowance of management fees under Section 37 was remitted back for fresh examination. The appeal in IT(TP)A No.790/Bang/2019 was dismissed, while the appeal in IT(TP)A No.103/Bang/2019 was partly allowed.

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Issues Involved:
1. Transfer Pricing Adjustment in Manufacturing Segment
2. Transfer Pricing Adjustment for Management Fees
3. Transfer Pricing Adjustment in ITES Segment
4. Protective Disallowance of Management Fees under Section 37

Detailed Analysis:

1. Transfer Pricing Adjustment in Manufacturing Segment:

*Facts and Contentions:*
- The assessee, a subsidiary of the Brady Group, operates in three segments: Manufacturing, Trading, and Services.
- The TPO recomputed the segment details, disregarding the assessee's adjustments for capacity utilization and Forex fluctuations, and added amounts for exchange and impairment losses.
- The TPO selected a new set of 26 comparables, rejecting the assessee's set of 29 comparables.
- The DRP upheld the TPO's adjustments.

*Tribunal Findings:*
- The TPO did not provide reasons for rejecting the assessee's segmental profit and loss account.
- Transfer pricing adjustments should be restricted to AE-related transactions.
- The issue was remanded to the AO/TPO for verification of the segmental profit and loss account.
- Adjustment for capacity utilization is allowed, referencing the case of IKA India Private Limited.
- The issue of Forex fluctuations needs proper analysis and was remanded to the TPO.
- The impairment loss issue was also remanded for proper analysis.
- The DRP did not properly analyze the comparables; the issue was remanded for fresh TP analysis.

*Result:*
- Grounds 4 to 13 were allowed for statistical purposes.

2. Transfer Pricing Adjustment for Management Fees:

*Facts and Contentions:*
- The assessee justified the ALP of management fees using the TNMM method.
- The TPO did not propose any adjustment, but the DRP unilaterally determined the ALP as Nil and added the entire amount as adjustment.

*Tribunal Findings:*
- The DRP did not provide the assessee an opportunity to furnish information/documents.
- The DRP did not follow the process prescribed under Rule 10B of the TP regulations.
- The issue requires a fresh look, considering whether management fees can be aggregated with the manufacturing segment transactions.

*Result:*
- Grounds 14 to 22 were allowed for statistical purposes.

3. Transfer Pricing Adjustment in ITES Segment:

*Facts and Contentions:*
- The assessee maintained segmental details, but the TPO revised them and selected a new set of six comparables.
- The assessee objected to the inclusion of Infosys BPO Limited and Microland Limited and the exclusion of Informed Technologies, Crystal Voxx, and Jindal Intellicom.

*Tribunal Findings:*
- Infosys BPO Limited and Microland Limited were excluded based on functional differences and significant brand value.
- Informed Technologies, Crystal Voxx, and Jindal Intellicom were included as they met the service income filter and were functionally similar.
- Working capital adjustment should be allowed as per actuals, referencing the case of Huawei Technologies India (P.) Ltd.

*Result:*
- Grounds 23 to 34 were partly allowed for statistical purposes.

4. Protective Disallowance of Management Fees under Section 37:

*Facts and Contentions:*
- The DRP proposed a protective disallowance of management fees under Section 37, citing lack of details.

*Tribunal Findings:*
- The issue needs reconsideration as the transfer pricing adjustment of management fees has been remitted back for fresh examination.

*Result:*
- Grounds 35 to 37 were allowed for statistical purposes.

Conclusion:
- The appeal in IT(TP)A No.790/Bang/2019 was dismissed as infructuous.
- The appeal in IT(TP)A No.103/Bang/2019 was partly allowed.

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