2023 (7) TMI 1143 - AT - Income Tax

Tax Appeal Partially Allowed: Transfer Pricing Adjustments and Deductions Disputed

The appeal was partly allowed in a tax case involving Transfer Pricing Adjustment and disallowance of deductions under Sections 10A/10AA. The court ... TP Adjustment - comparable selection - HELD THAT:- Persistent Systems Limited cannot be accepted as comparable. Accordingly, the AO/TPO are directed to exclude the Persistent Systems Limited from the final set of comparables and re-compute ALP as well as transfer pricing adjustment, if any, accordingly. Wipro Technologies Services Limited/WTSL cannot be selected as a comparable on account of substantial related party transactions. I-Gate Global Solutions Limited be excluded from the list of comparable has been sought by the Appellant, inter alia, for the reason that I-Gate is engaged in IT Services as well as IT enables Services which have been treated as separate international transactions by the TPO. Since no segmental information is available for the financial year relevant to Assessment Year 2011-12, I-Gate cannot be adopted as a comparable. Infosys Technologies Limited (now known as Infosys Limited) - We hold that ITL cannot be accepted as functionally comparable with the Appellant in the present case. Accordingly, the Assessing Officer/TPO are directed to exclude Infosys Technology Ltd. from the final set of comparables and re-compute ALP as well as transfer pricing adjustment, if any, accordingly. Zylog Systems Limited - Absence of any separate segmental result of software development services available in public domain, we reject the company as comparable on functional dissimilarity at entity level. Disallowance of deduction claimed u/s 10A/10AA in respect of receipts under Intellectual Property Services Agreement between Accenture Global Services, GmBH and the Appellant - HELD THAT:- We direct the AO to compute deduction under Section 10A/10AA of the Act taking into account the receipt pertaining to IPSA as per the directions issued by the Tribunal in the aforesaid decisions as well as the directions issued by the DRP for the Assessment Year 2013-14 and 2014-15. Accordingly, Ground raised by the Appellant is allowed. Claim for deduction for education cess - HELD THAT:- In view of retrospective amendment in Section 40(a)(ii) of the Act and the judgment of Joint Commissioner of Income Tax Vs. Chambal Fertilisers & Chemicals Ltd. [2022 (12) TMI 1098 - SC ORDER] we are not inclined to accept the submissions of the Appellant. Accordingly, Ground raised by the Appellant is dismissed. Issues Involved:1. General nature of Ground No. 1.2. Transfer Pricing Addition of INR 622,35,39,483/- (Ground No. 2 to 18 and Ground No. 23).3. Disallowance of deduction under Section 10A/10AA of INR 190,37,22,853/- (Ground No. 19 & 20).4. Levy of interest under Section 234B (Ground No. 21).5. Initiation of penalty proceedings under Section 271(1)(c) (Ground No. 22).6. Claim for deduction for education cess (Ground No. 24).Summary:Ground No. 1:Ground No. 1 raised by the Appellant does not require adjudication and is dismissed as being general in nature.Ground No. 2 to 18 and Ground No. 23:These grounds pertain to the Transfer Pricing Adjustment of INR 622,35,39,483/-. The Appellant challenged the inclusion of five comparables: Persistent Systems Ltd., Wipro Technologies Services Limited (WTSL), I-Gate Global Solutions Limited, Infosys Technologies Limited (now Infosys Limited), and Zylog Systems Limited.- Persistent Systems Ltd.: Excluded due to non-availability of segmental data, following the judgment of the Hon'ble Delhi High Court in Microsoft India (R&D) Private Ltd. vs. Deputy Commissioner of Income Tax. - Wipro Technologies Services Limited (WTSL): Excluded due to significant related party transactions as per the Hon'ble Delhi High Court in Microsoft India Ltd. vs. Deputy Commissioner of Income Tax.- I-Gate Global Solutions Limited: Excluded due to non-availability of segmental data, following the decision in Goldman Sachs Services Pvt. Ltd. vs. DCIT.- Infosys Technologies Limited: Excluded due to functional dissimilarity and non-availability of segmental data, as per the Hon'ble Delhi High Court in Microsoft India (R&D) Private Ltd. vs. Deputy Commissioner of Income Tax.- Zylog Systems Limited: Excluded due to non-availability of separate segmental results for software development services and software products, following the decision in Fiserv India Pvt. Ltd. vs. ACIT.Ground No. 19 & 20:These grounds relate to the disallowance of deduction under Section 10A/10AA of INR 190,37,22,853/- under the Intellectual Property Services Agreement (IPSA). The Tribunal directed the Assessing Officer to compute the deduction following the directions given by the Tribunal for previous assessment years and the DRP for Assessment Years 2013-14 and 2014-15. Ground No. 19 is allowed, and Ground No. 20 is dismissed as it was raised on a without prejudice basis.Ground No. 21:This ground pertains to the levy of interest under Section 234B and is disposed of as being consequential in nature.Ground No. 22:This ground pertains to the initiation of penalty proceedings under Section 271(1)(c) and is disposed of as being premature.Ground No. 24:This ground relates to the claim for deduction for education cess raised for the first time before the Tribunal. In view of the retrospective amendment in Section 40(a)(ii) and the judgment of the Hon'ble Supreme Court in Joint Commissioner of Income Tax vs. Chambal Fertilisers & Chemicals Ltd., the claim is dismissed.Conclusion:The appeal is partly allowed, with specific directions provided for the exclusion of certain comparables and the computation of deductions under Section 10A/10AA. Other grounds are dismissed or disposed of as stated.