ITAT restores TP adjustment to AO for fresh consideration following bilateral APA between India and USA

The ITAT Delhi restored the TP adjustment matter to the AO for fresh consideration after the assessee filed a modified return following a bilateral APA between India and USA covering the assessment year. The tribunal directed the AO to decide the issue afresh considering the APA provisions after providing adequate hearing opportunity. Regarding foreign tax credit, the tribunal noted favorable HC decisions supporting the assessee's position. For TDS credit shortfall, the matter was remanded to the AO for verification and proper credit allowance per legal provisions.

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Issues Involved:
1. Transfer Pricing Adjustment
2. Corporate Tax Issues regarding Foreign Tax Credit (FTC)
3. Short Credit of TDS
4. Penalty Proceedings under Section 270A
5. Charging of Interest under Sections 234B and 234C

Summary:

Transfer Pricing Adjustment:
The assessee contested the adjustment of INR 2,17,53,662 related to international transactions for information technology-enabled services and K-Net charges. The Tribunal noted that the methodology used (Profit Split Method) had been accepted in a Bilateral Advance Pricing Agreement (APA) between India and the USA for the relevant assessment year. The Tribunal directed the Assessing Officer to consider the modified return of income in light of the APA and decide the issue afresh, allowing Ground No. 1 for statistical purposes.

Corporate Tax Issues regarding Foreign Tax Credit (FTC):
The assessee argued that the Assessing Officer erred in not allowing the complete credit of foreign taxes paid, disregarding the Karnataka High Court's decision in the Wipro case. The Tribunal referred to the Delhi High Court's decision in HCL Comnet Systems And Services Ltd, which agreed with the Karnataka High Court's view. Consequently, Ground Nos. 2 to 4 were allowed following the jurisdictional High Court's decision.

Short Credit of TDS:
The Tribunal directed the Assessing Officer to verify the details of TDS and allow credit as per the provisions of law, allowing Ground No. 5 for statistical purposes.

Penalty Proceedings under Section 270A:
The Tribunal noted that Ground No. 6 was premature and did not require a decision at this stage.

Charging of Interest under Sections 234B and 234C:
The Tribunal stated that charging interest is mandatory, but interest under Section 234C should be charged on the returned income, ordering accordingly.

Conclusion:
The appeal for A.Y. 2017-18 (ITA No. 498/DEL/2022) was allowed for statistical purposes, and the appeal for A.Y. 2018-19 (ITA No. 2257/DEL/2022) was allowed, following the same reasoning as for A.Y. 2017-18. The order was pronounced in the open court on 11.03.2024.

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