2021 (7) TMI 756 - AT - Income Tax

Tribunal remands transfer pricing issues, upholds revenue recognition; stresses consistent legal application

The Tribunal partly allowed the appeal, remanding several issues to the AO/TPO for fresh examination based on precedents. The Transfer Pricing adjustments ... Transfer pricing adjustments - providing product safety testing certification services and IT enabled services to its subsidiary/ associate enterprises situated at USA - HELD THAT:- With regard to Transfer Pricing adjustment made in respect of Certification Service Segment, an identical issue was examined by the co-ordinate bench in the assessee’s own case, and the matter was restored back to the file of AO/TPO with a set of directions for examining is afresh. - Matter restored back to the file of AO/TPO. TP adjustment made in respect of ITES segment. - selection of comparable - HELD THAT:- We notice that the co-ordinate bench has directed exclusion of M/s Infosys BPO Ltd and remanded the remaining four comparable companies to the file of AO/TPO. Consistent with the view taken in the above said case, we direct exclusion of M/s Infosys BPO Ltd and remand the remaining four comparable companies to the file of AO/TPO with similar directions. - Further, AP/TPO directed to include the M/s Crystal Voxx Ltd as a comparable company. Issues Involved:1. Transfer Pricing adjustment under “Certification service segment”2. Transfer Pricing adjustment under “ITES segment”3. Addition on account of change in the method of revenue recognition4. Denial of TDS credit5. Non-granting of depreciation on foreign exchange lossDetailed Analysis:1. Transfer Pricing Adjustment under “Certification Service Segment”:The assessee, an Indian subsidiary of a U.S. company, provides product safety testing and certification services. The Transfer Pricing Officer (TPO) made a Transfer Pricing adjustment of Rs. 17.40 crores for the Certification service segment. The assessee argued that similar issues were examined in AY 2009-10, where the matter was remitted back to the AO/TPO for fresh examination with specific directions. The Tribunal followed the precedent set in AY 2009-10 and AY 2013-14, restoring the issue to the AO/TPO with similar directions, including considering foreign exchange loss/gain as part of operating profit/loss, restricting adjustments to transactions with the AE, and applying the RPT filter threshold of 15% or 25%.2. Transfer Pricing Adjustment under “ITES Segment”:The TPO rejected the assessee’s TP study for the ITES segment and selected ten comparable companies. The assessee sought exclusion of five companies, arguing they were not comparable due to factors like employee cost filter, functional differences, and extraordinary events. The Tribunal, referencing decisions in similar cases, directed the exclusion of Infosys BPO Ltd. and remanded the remaining four companies (Universal Print Systems Ltd., BNR Udyog Ltd., Excel Infoways Ltd., and TCS E-Serve Ltd.) to the AO/TPO for fresh examination. Additionally, the Tribunal directed the inclusion of M/s Crystal Voxx Ltd. as a comparable company based on precedents.3. Addition on Account of Change in the Method of Revenue Recognition:The assessee’s change in the method of revenue recognition was rejected by the AO, and this rejection was upheld by the Tribunal. The Tribunal noted that the change was not bona fide as it involved postponing revenue recognition without postponing related costs. This decision was consistent with the Tribunal's findings in AY 2009-10, where the change was deemed improper and not bona fide.4. Denial of TDS Credit:The issue of non-granting of TDS credit was remanded to the AO for factual verification and examination in accordance with the law. This step was necessary to ensure that the assessee's claim for TDS credit was properly assessed and granted if found valid.5. Non-Granting of Depreciation on Foreign Exchange Loss:The issue of non-granting of depreciation on foreign exchange loss disallowed in AY 2009-10 was also remanded to the AO for fresh examination. The Tribunal followed its decision in AY 2013-14, directing the AO to re-examine the issue in accordance with the law.Conclusion:The appeal was partly allowed, with several issues remanded to the AO/TPO for fresh examination and others decided based on precedents. The Tribunal's order emphasized the need for consistent application of legal principles and thorough factual verification.