Tribunal reduces Transfer Pricing adjustment, directs fresh examination of interest charge. Assessee appeal allowed.

The Tribunal partially agreed with the assessee in a case involving Transfer Pricing adjustments for specified domestic transactions, reducing the adjustment amount. The Tribunal also directed a fresh examination of the issue regarding interest charged under Section 234A of the Income-tax Act, 1961, restoring it to the Assessing Officer for verification. The appeal by the assessee was treated as allowed for statistical purposes.

---

---

Issues Involved:
1. Transfer Pricing adjustment in respect of specified domestic transactions.
2. Interest charged under Section 234A of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment in Respect of Specified Domestic Transactions:

The assessee, engaged in providing energy management solutions, contested the Transfer Pricing (TP) adjustment made by the Assessing Officer (AO) for the assessment year 2015-16. The assessee had entered into specified domestic transactions with associated enterprises, including the purchase of power management items and spares, and remuneration, totaling Rs. 327,275,469.

The assessee adopted the Transactional Net Margin Method (TNMM) as the most appropriate method, with the Operating Profit/Operating Revenue (OP/OR) as the profit level indicator (PLI). The assessee's PLI was calculated at 4.24%, and it chose two comparable companies with an average margin of 7.42%, asserting that the transactions were at arm's length after considering a range of +/- 3%.

However, the Transfer Pricing Officer (TPO) noticed discrepancies in the other income reported by the assessee, leading to a revised PLI of 2.16%. The TPO also rejected the assessee's request for a working capital adjustment, citing a lack of specific impact on profit margins. Consequently, the TPO made an adjustment of Rs. 6,18,51,634/-.

Upon appeal, the Dispute Resolution Panel (DRP) partially agreed with the assessee, directing the TPO to restrict the adjustment to specified domestic transactions (SDT) only, reducing the TP adjustment to Rs. 1,75,92,364/-.

The assessee argued that the reimbursement of rental expenditure from GE Power should be considered as operating income if the rental expenditure is treated as operating expenditure. The Tribunal noted that if the rental expenditure is considered operating, the reimbursement should be set off against it. The Tribunal restored this issue to the AO/TPO for fresh examination.

2. Interest Charged Under Section 234A of the Income-tax Act, 1961:

The assessee contended that it had filed the return of income within the due date prescribed under Section 139(1) of the Act, and therefore, no interest should be charged under Section 234A. The Tribunal found that the facts relating to this issue required examination and restored it to the AO for verification.

Conclusion:

The Tribunal restored the issues of transfer pricing adjustment and interest charged under Section 234A to the AO/TPO for fresh examination and verification. The appeal filed by the assessee was treated as allowed for statistical purposes.

---