2023 (5) TMI 875 - AT - Income Tax

Tax Appeals Allowed for Statistical Purposes, Issues Referred Back for Fresh Examination

The appeals for A.Y. 2009-10, 2010-11, 2011-12, and 2012-13 were allowed for statistical purposes. The issues regarding adjustments on account of ... TP Adjustment - international transaction of receipt of commission fee, client coordinate fees, advisory services and client creative fees - comparable selection - HELD THAT:- There is an inherent contradiction in the comparability analysis by the learned Transfer Pricing Officer. He accepted one comparable i.e. quadrant communications limited, admittedly i.e. not the KPO and introduced four new comparables which are said to be the KPO. Furthermore, the learned Dispute Resolution Panel held that Transactional Net Margin Method is fairly tolerant about the comparability analysis. It is not so tolerant to include KPO companies with assessee company providing advertisement services of marketing communications and coordination etc. Due to this inherent inconsistency in the comparability analysis, we direct the assessee to first substantiate the comparability analysis by selecting the comparables first in advertisement industry itself providing similar functions. If such comparables are not available, then broader search of comparables may be carried out. Transfer Pricing Officer may examine the same and then decide about computation of Arm's Length Price of the international transaction after giving assessee opportunity of hearing. Accordingly, ground no.1 of the appeal is restored to the file of TPO. Adjustment on account of recovery and reimbursement of expenses - assessee did not produce details of the complete expenses but only on sample basis - DRP directed the TPO to give opportunity to assessee to produce complete invoices, verify the same and then decide the adjustment - HELD THAT:- We find that there is no such opportunity given by the learned TPO. We direct the learned TPO to give effect to the direction no. 12 of the DRP. Assessee is directed to produce the complete details of the reimbursement of expenditure before the learned TPO. Accordingly, ground no.2 of the appeal is also resorted to the file of the learned Transfer Pricing Officer. Depreciation on goodwill - disallowances on protective assessment manner - HELD THAT:- The assessee company entered into business transfer agreement with M/s. Ambience Advertisement Pvt. Ltd. - This sum was capitalized by the assessee as goodwill and claimed deprecation there on at the rate of 25%. The first claim of deprecation was made in A.Y. 2000-01. For that assessment year the assessee approached ITAT and ITAT, has set aside the issue to the file of the learned AO. Therefore, unless the issue of depreciation decided in that year, this ground of appeal cannot be decided. Accordingly, ground of the appeal are also restored back to the file of the learned Assessing Officer to decide it in accordance with the decision for A.Y. 2000-01. Short grant of TDS - HELD THAT:- As we direct the learned Assessing Officer to examine the claim of the assessee and grant appropriate credit for tax deduction at source certificates in accordance with law. Goodwill - difference between the total considerations paid in excess of net tangible asset - assessee has taken over the business including all the assets and liabilities of one company - AO disallowed the claim of the depreciation at the rate of 25% thereon - DRP also confirmed the same - HELD THAT:- AO made the addition/disallowance in the draft assessment order. No reason for the revenue to be aggrieved with the above direction of the learned dispute resolution panel when the learned dispute resolution panel confirms the addition proposed by the learned assessing officer. In view of this we find that the cross objection filed by the learned assessing officer is infructuous, hence dismissed. Issues Involved:1. Adjustment on account of provision of and availing of services.2. Adjustment on account of recovery and reimbursement of expenses.3. Disallowance of depreciation on goodwill.4. Short grant of credit of tax deducted at source (TDS).5. Other errors and conclusions by the Assessing Officer, Transfer Pricing Officer (TPO), and Dispute Resolution Panel (DRP).Summary:1. Adjustment on account of provision of and availing of services:The learned Assessing Officer, DRP, and TPO made an upward adjustment of Rs. 2,48,37,132/- to the total income of the appellant by holding that the international transactions relating to the provision of and availing of services were not at arm's length. The TPO classified the appellant's services as Knowledge Processing Outsourcing (KPO) services, rejecting the comparables selected by the appellant and selecting non-comparable companies. The Tribunal found inconsistencies in the comparability analysis and directed the appellant to substantiate the comparability analysis by selecting comparables from the advertisement industry itself or broader search if not available. The issue was restored to the TPO for fresh examination.2. Adjustment on account of recovery and reimbursement of expenses:The learned Assessing Officer and TPO made an upward adjustment of Rs. 67,10,045/- due to incomplete submission of expense details by the appellant. The DRP directed the TPO to verify the complete invoices, which was not done. The Tribunal directed the TPO to give an opportunity to the appellant to produce complete details and verify the same. The issue was restored to the TPO for fresh examination.3. Disallowance of depreciation on goodwill:The learned Assessing Officer disallowed depreciation on goodwill of Rs. 11,73,198/- and Rs. 9,77,321/- in a protective assessment manner, stating no goodwill exists as per the High Court order. The Tribunal noted that the issue of depreciation on goodwill was pending adjudication for A.Y. 2000-01 and restored the issue to the Assessing Officer to decide based on the decision for A.Y. 2000-01.4. Short grant of credit of tax deducted at source (TDS):The learned Assessing Officer granted TDS credit of Rs. 4,94,69,889/- leading to a short credit of Rs. 2,01,07,508/-. The Tribunal directed the Assessing Officer to examine the claim of the appellant and grant appropriate credit for TDS certificates in accordance with law.5. Other errors and conclusions:The appellant raised various grounds regarding unwarranted and erroneous conclusions by the Assessing Officer, TPO, and DRP. The Tribunal addressed these issues within the context of the primary grounds of appeal and provided directions accordingly.Additional Appeals:A.Y. 2010-11:The issue of disallowance of depreciation on goodwill of Rs. 7,32,991/- was identical to A.Y. 2009-10. The Tribunal restored the issue to the Assessing Officer with similar directions.A.Y. 2011-12:The adjustment of Rs. 59,05,186/- on account of provisioning of advertisement services was made by comparing the appellant to KPO companies. The Tribunal restored the issue to the TPO with similar directions as A.Y. 2009-10.A.Y. 2012-13:The adjustment of Rs. 6,278,920/- and disallowance of depreciation on goodwill of Rs. 21,100,663/- were made. The Tribunal restored the issue of transfer pricing adjustment to the TPO and dismissed the cross-objection by the Assessing Officer regarding depreciation on goodwill.Conclusion:The appeals for A.Y. 2009-10, 2010-11, 2011-12, and 2012-13 were allowed for statistical purposes, and the issues were restored to the respective authorities for fresh examination and decision.