Tribunal upholds Transfer Pricing adjustments, excludes some entities. Covid-19 delay condoned.

The delay in cross objections by the assessee was condoned due to the Covid-19 pandemic. The Tribunal upheld the deletion of Transfer Pricing adjustments related to a Contractor Agreement with ONGC. Inclusion of Agricultural Finance Corporation Ltd. as a comparable entity was upheld, while exclusion of Office Care Services Ltd. and Vatika Marketing Ltd. was upheld. The notional foreign exchange loss was not considered for taxation purposes. Adjustments on reimbursement and recovery of expenses were deleted. The Revenue's appeal was dismissed, and the cross objections of the assessee were partly allowed.

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Issues Involved:
1. Delay in cross objections by the assessee.
2. Transfer Pricing adjustments by the TPO.
3. Inclusion and exclusion of comparable entities.
4. Notional foreign exchange loss.
5. Reimbursement and recovery of expenses.

Summary of Judgment:

1. Delay in Cross Objections:
The cross objections preferred by the assessee were delayed by 279 days. The delay was condoned due to the relaxation granted by the Hon'ble Supreme Court in light of the Covid-19 pandemic.

2. Transfer Pricing Adjustments:
The Revenue raised issues regarding the inclusion of Agricultural Finance Corporation Ltd. as a comparable entity, deletion of TP adjustment on account of Commission for Procurement and Assignment of Contract, and the basic tenet of Transfer Pricing under Section 92F(ii). The Tribunal found that the assessee had entered into a Contractor Agreement with ONGC for hire of drilling rigs and subcontracted the activity to its group company. The Tribunal upheld the CIT(A)'s decision to delete the TP adjustment, noting that the assessee was only providing coordination and liaison services and did not possess the necessary skill sets or assets for offshore drilling services.

3. Inclusion and Exclusion of Comparable Entities:
(A) The Tribunal upheld the inclusion of Agricultural Finance Corporation Ltd. as a comparable entity, noting that it was functionally comparable with the assessee. The Revenue's objection based on the company being a Government entity was dismissed since the TPO had already included another Government company, Apitco Ltd., as a comparable.

(B) The Tribunal upheld the exclusion of Office Care Services Ltd. due to the lack of details on the nature of services rendered by the company in its annual report.

(C) The Tribunal upheld the exclusion of Vatika Marketing Ltd. as a comparable since it was engaged in providing project maintenance services and lacked segmental details.

4. Notional Foreign Exchange Loss:
The Tribunal allowed the assessee's claim that the notional foreign exchange loss incurred due to re-statement of pending liability as on the balance sheet date should not be included in the cost base for the 10% mark-up. The loss was considered purely notional and not relevant for the purpose of taxation and transfer pricing regulations.

5. Reimbursement and Recovery of Expenses:
The Tribunal found that the expenses reimbursed to the AE were already included in the operating cost on which the assessee had claimed a 10% mark-up. The TPO's adjustment of Rs.19,94,336/- on account of reimbursement of expenses was deleted. Similarly, the recovery of bid bond expenses from the AE with a 10% mark-up was upheld, and the adjustment of Rs.8,11,989/- was deleted.

Conclusion:
The appeal of the Revenue was dismissed, and the cross objections of the assessee were partly allowed.

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