2019 (5) TMI 553 - HC - Income Tax

Review petition granted under Section 260A for errors in ALP determinations and previous decision

M/s. Mckinsey Knowledge Centre India Pvt. Ltd. Versus Pr. Commissioner of Income Tax, Delhi-6

The Court allowed the review petition challenging errors in the final judgment under Section 260A of the Income Tax Act. It found merit in the appellant's ... Review petition before High Court - maintainability of review as Court considered the merits of the case and delivered a reasoned judgment - exclusion of relative comparables held to be relevant for the purpose of ALP determinations - assessee seeks review are firstly that the question of charging interest on delayed receipt of receivables is a separate international transaction under Explanation to Section 92B - HELD THAT:- It is evident that the observation in Khoday India [2019 (3) TMI 232 - SUPREME COURT] , is applicable in the present case, wherein it was held that rejection of the special leave petition by a non-speaking order, did not preclude the maintainability of the present writ petition. As far as the first argument by the review petitioner, i.e., the answer to the question of bringing to tax the interest amounts goes, this Court is of the opinion that the fact that the order to Kusum Health Care [2017 (4) TMI 1254 - DELHI HIGH COURT] had expressly remitted the matter for consideration to the ITAT supports the assessee’s submission. All that the court had stated was that the matter required re-examination by the ITAT in the light of the Kusum Health Care (supra) For these reasons, the judgment to the extent it deals with adjustments made by the TPO, and regarding interest on delayed receipt of receivables, is a clear error. The court also furthermore notes the submissions made with respect to inapplicability to Explanation of Section 92B and its prospective operation. As the order of 07.02.2018 reserved by contentions, this Court does not propose to disturb the effect of that matter. The matter will be considered by the ITAT on its own merits. Exclusion of comparables and whether the assessee rendered services were akin to that of KPO rather than a BPO - here too the court is of the opinion that two clear errors have crept into the judgment. The reliance on Maersk Global [2014 (3) TMI 891 - ITAT MUMBAI] was clearly an error in view of the submission that Rampgreen [2015 (8) TMI 931 - DELHI HIGH COURT] had disagreed with the view of the Special Bench. Furthermore, the court also overlooked the judgment dated 27.03.2015 in the assessee’s case [2015 (3) TMI 1226 - DELHI HIGH COURT] . Lastly, the Court also is of the opinion that the assessee’s argument with respect to separate benchmarking of the knowledge management system, as part of the IT Support segment, is an aspect that requires examination. The judgment sought to be reviewed, clearly is at variance; the view in Rampgreen (supra) about the soundness of Maersk Global (supra) was doubted- as aspect that escaped the main judgment in this case. This Court is of the opinion that the main judgment contains errors apparent on the record. The review petition has to be and accordingly allowed; judgment dated 09.08.2018 is hereby recalled. The appeal is restored to original file of this Court and shall be heard on its merits. Issues:1. Review petition challenging errors in final judgment under Section 260A of the Income Tax Act.2. Question of law regarding exclusion of comparables for ALP determinations.3. Charging interest on delayed receipt of receivables as a separate international transaction.4. Nature of services provided by the petitioner and comparison to KPO services.5. Disagreement with Special Bench decision in Maersk Global Centres case.6. Objection to maintainability of review petition.7. Merits of the grounds urged for review.Analysis:1. The review petition raised errors in the final judgment under Section 260A of the Income Tax Act, specifically challenging the exclusion of certain comparables for ALP determinations. The appellant contended that the judgment contained clear errors apparent on the record, necessitating a review.2. The main issue revolved around the exclusion of comparables for ALP determinations. The appellant argued that the nature of services provided by the petitioner was erroneously categorized as specialized akin to KPO services, contrary to previous findings. The Court acknowledged errors in relying on certain precedents and overlooking relevant judgments, necessitating a review.3. Another critical point of contention was the treatment of interest on delayed receipt of receivables as a separate international transaction. The appellant argued that this question was not framed earlier and that the retrospective application of the relevant provision was not considered, indicating a need for re-examination by the ITAT.4. The nature of services provided by the petitioner was a significant aspect of the review, with a comparison drawn to KPO services. The Court noted discrepancies in the characterization of services and the need for separate benchmarking, highlighting the importance of a comprehensive analysis in determining comparability.5. The disagreement with the Special Bench decision in the Maersk Global Centres case added complexity to the review. The Court referenced conflicting views in previous judgments and emphasized the need for a consistent approach in transfer pricing analysis, indicating a need for clarity in the application of relevant principles.6. The objection to the maintainability of the review petition raised procedural concerns. The Court addressed the arguments regarding the rejection of a special leave petition and its impact on the present petition's validity, emphasizing the need to consider grounds for review independently.7. Lastly, the Court considered the merits of the grounds urged for review, emphasizing the need for a reasoned judgment and a thorough examination of the submissions made by both parties. The decision to allow the review petition and recall the judgment highlighted the importance of addressing errors apparent on the record for a just resolution.In conclusion, the detailed analysis of the issues involved in the judgment underscores the complexity of the legal considerations and the need for a meticulous review to ensure a fair and accurate application of the law.