2023 (3) TMI 1392 - AT - Income Tax

Tribunal remands transfer pricing issues, emphasizes detailed reasoning & comparability assessment.

The Tribunal allowed the Revenue's appeal for statistical purposes, remanding various issues back to the Transfer Pricing Officer (TPO) and Commissioner ... TP Adjustment - comparable selection - HELD THAT:- We respectfully, following the decision of the Coordinate Bench in assessee’s own case for the A.Y 2013-14 [2022 (12) TMI 1431 - ITAT HYDERABAD] to exclude M/s. Infosys BPO and M/s. Eclerx Services Ltd from the list of comparables. The TPO is directed to pass the order giving effect in accordance with the law. Inclusion of ACE BPO Services Pvt. Ltd, and Jindal Intellicom (P) Ltd - Respectfully following our decision in the case of assessee for the assessment year 2013-14 [2022 (12) TMI 1431 - ITAT HYDERABAD] we also remand back the inclusion of these two comparables to the file of TPO to pass appropriate order after considering the directions issued by us and also after affording the opportunity to the assessee. M/s. MPS Ltd - CIT(A) have directed the TPO to exclude this comparable, but the order passed by the ld.CIT(A) is lacking in reasoning and basis for arriving at the above said finding. In our view, the objection raised by the Revenue, needs to be allowed and the exclusion of M/s. MPS Ltd. is required to be sent back to the file of the ld.CIT(A) with a direction to pass afresh order considering the rival contentions of the parties. M/s. Datamatics Financial Services Ltd - Contention of the ld.DR that the order passed by the ld.CIT(A) was a cryptic and non-speaking order, and therefore, the issue of inclusion of Datamatics is required to be reconsidered by the ld.CIT(A) after giving the opportunity to the Assessing Officer / TPO acceptable. Interest on outstanding trade receivables - whether assessee has not furnished any inter company agreement to prove the credit period is 90 days and the Ld.CIT(A) erred in adjudicating credit period without remanding to the file of TPO? - HELD THAT:- As no documentary evidence has been brought on record before us so that we can infer that 120 days credit period is a reasonable period. In our view, the approach of ld.CIT(A) cannot be faulted with. Hence, we direct the TPO / Assessing Officer to charge interest at LIBOR + 200 points. Further, we direct the Assessing Officer / TPO to allow the credit period and charge interest over and above the outstanding period of 60 days - we direct the TPO / Assessing Officer to decide the issue afresh after considering our directions reproduced hereinabove at para 9.1. for the current assessment year as well. Issues Involved:1. Exclusion of Comparables: M/s. Infosys BPO Limited, M/s. Eclerx Services Limited, and M/s. MPS Limited.2. Inclusion of Comparables: M/s. Ace BPO Services Pvt. Ltd., M/s. Datamatics Limited, and M/s. Jindal Intellicon Private Limited.3. Interest on Outstanding Trade Receivables.Detailed Analysis:Exclusion of Comparables:M/s. Infosys BPO Limited:- The Revenue argued that M/s. Infosys BPO Limited is functionally comparable to the assessee and that high turnover and brand value do not materially affect profitability. - The assessee contended that M/s. Infosys BPO Limited has diversified functions, a top global brand, and a huge turnover, making it incomparable.- The Tribunal, following its earlier decision, excluded M/s. Infosys BPO Limited from the list of comparables, noting its diversified functions and substantial differences in turnover and brand value.M/s. Eclerx Services Limited:- The Revenue claimed that M/s. Eclerx Services Limited is a KPO and BPO company, making it comparable to the assessee.- The assessee argued that M/s. Eclerx Services Limited is functionally different as it is primarily a KPO.- The Tribunal upheld the CIT(A)'s decision to exclude M/s. Eclerx Services Limited, citing functional dissimilarities and reliance on previous judicial decisions.M/s. MPS Limited:- The Revenue argued that M/s. MPS Limited should be included as it is a leader in its field, similar to the assessee.- The assessee contended that M/s. MPS Limited is engaged in printing and digital services, not meeting the filters applied by the TPO.- The Tribunal remanded the issue back to the CIT(A) for fresh adjudication, noting that the CIT(A)'s order lacked reasoning.Inclusion of Comparables:M/s. Ace BPO Services Pvt. Ltd., M/s. Datamatics Limited, and M/s. Jindal Intellicon Private Limited:- The Revenue challenged the inclusion of these companies, arguing functional dissimilarities and lack of financial information.- The Tribunal remanded the inclusion of these comparables to the TPO for fresh consideration, following its earlier decision in the assessee's case for A.Y. 2013-14.Interest on Outstanding Trade Receivables:- The Revenue argued that the CIT(A) erred in allowing a credit period without proper documentation and in admitting additional evidence without giving the AO an opportunity to respond.- The Tribunal directed the TPO to apply LIBOR + 200 basis points for the outstanding period beyond 60 days, following its earlier decision and correcting typographical errors in its previous order.- The Tribunal emphasized that the issue of outstanding receivables is an international transaction and must be determined at arm's length.Conclusion:The Tribunal allowed the Revenue's appeal for statistical purposes, remanding several issues back to the TPO and CIT(A) for fresh consideration. The assessee's cross-objection was dismissed as not pressed. The Tribunal's directions emphasized the need for detailed reasoning and adherence to previous judicial decisions in determining comparability and interest on trade receivables.