TaxTMI 
TaxTMI 
TaxTMI 
2023 (4) TMI 520
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.... Rs. 47,25,17,720/-. The assessee was assessed u/s 143(3) and a draft order dated 29th July 2021 was issued by the AO proposing a Transfer Pricing adjustment of Rs.15,43,89,748/-. A rectification application was filed subsequently on receipt of the TP order. The TP adjustment was reduced to Rs.6,57,21,651/- vide order u/s 92 CA read with section 154 of the Income Tax Act, 1961 dated 1st October 2021. The assessee filed objections to the draft Assessment Order of the AO before the Dispute Resolution Panel ['DRP'] seeking deletion of the proposed transfer pricing adjustment. The DRP, vide its directions dated 28-06-2022 upheld the order of the TPO. 4. The present appeal is preferred against the Transfer Pricing adjustment of Rs. 6,55,13,030/- made by the TPO and adopted by the AO in the final assessment order dated 25.08.2022. 5. The issues in the appeal relates to the adjustment to the arm's length price of the international transactions of the assessee made by the learned TPO and upheld by the DRP. The TPO has made the following adjustments aggregating to Rs.6,55,13,030/-: a) Rs.5,96,82,063/- relates to adjustment of arm's length price on the service rendered; and b) Rs.58,3....
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....companies with different financial year ending (i.e., not March 31, 2016) while making the comparable analysis." This is factually wrong since the Assessee had considered all these filters in the TP documentation. Pages 69-70 of the Paper Book I. 2.1.2 The non-application of these filters have resulted in noncompliance to these mandatory requirements specified in the above Rule, and as a result the comparability analysis is not in accordance with the requirements of section 92C read with Rule 10B The Assessee company had applied all the appropriate filters as specified in Pages 69-70 of the Paper book 1. 2.1.3 The assessee had not considered current year data for comparable analysis Data of the relevant year was considered. Pages 69, 72-73 of the Paper Book I. 10. We shall first take up for consideration ground Nos. 2 to 4 raised by the assessee which reads as follows: 2. The learned TPO has erred in making a search for the keywords "ITES", "BPO", "Call Centre", "Medical Transcription", "Computer software", "Business Services & Consultancy" and "Other Consultancy" instead of searching for "Placement & HR Consultancy Service" which is the business of your appellant. The DR....
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.... TPO as key words. Also, the services rendered by the assessee do not fall under these categories of business as Placement and HR consultancy services is completely different from the business of "ITES", BPOs, call centres etc considered by the TPO. 15. The DRP has also upheld the order of the TPO without giving any specific findings for following the same. The DRP has stated in para 2.2.2 as under: "We agree with the TPO in considering the assessee is into the field of staffing and HR services and providing back-end support services to its AEs" 16. The assessee does not provide any back-end support services to its AEs. The TPO has also stated that the assessee has rendered "Placement services" or "recruitment services". Even the definition of ITES as per Rule 10A of the Income Tax Rules, 1962 does not include "Placement and recruitments Services". We are therefore of the view that the addition made on account of transfer pricing should be set aside to the AO/TPO for a fresh analysis considering assessee as Placement and HR Consultancy Service provider. The AO/TPO will do a fresh analysis as stated above after due opportunity to the assessee of being heard. 17. The connected ....
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....ncurred / revenue earned by the Company, without considering the facts that it includes substantial revenue and expenses with non-AEs. The TPO then proportionately reduced the adjustment to AE transactions. 22. The TPO has not assigned any reasons in the order for not considering the allocation of expenses done by the taxpayer. Moreover, certain expenses are incurred exclusively for non-AE transactions. It is not appropriate to allocate the same to AE segment also based on turnover since it has nothing to do with the AE business segment. 23. Certified segmental margin analysis was furnished to the Hon'ble DRP during the course of the proceedings before them on 3rd and 10th June 2022. (Pages 3726-3728 of paper book 9). The DRP ignored this and stated that there is no audited segmental data available in para 2.3.4 of the DRP order dated 28th June 2022. 24. The DRP has also stated in para 2.3.3 of its order that "The entire argument of the assessee is theoretical because we will not be in a position to get information about the comparables at transaction level and hence, no comparison can be carried out at the transaction level." The DRP has also stated further in para 2.3.4 that "....
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....re attributable to particular controlled transactions. Therefore, it would be inappropriate to apply the transactional net margin method on a company-wide basis if the company engages in a variety of different controlled transactions that cannot be appropriately compared on an aggregate basis with those of an independent enterprise. Similarly, when analyzing the transactions between the independent enterprises to the extent they are needed, profits attributable to transactions that are not similar to the controlled transactions under examination should be excluded from the comparison. Finally, when profit margins of an independent enterprise are used, the profits attributable to the transactions of the independent enterprise must not be distorted by controlled transactions of that enterprise." 28. Hence, the guidance from the Indian legislation on transfer pricing as well as the global guidance on transfer pricing, which is followed by several countries, voices out the same principle of benchmarking only the profitability of the international transactions and not the profitability of the whole company. 29. The Hon'ble Mumbai High Court in the case of CIT vs. Thyssen Krupp Indust....
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....sis of the AE and non-AE segment in pages 67-68 of the TP documentation. As can be seen from therein, the net operating margins of the AE segment is 20.20%. (Pages 112-113 of Paper book 1). There was no reason for the TPO to look at the overall margins of the company which includes substantial transactions with non-AEs and to make a transfer pricing adjustment with reference to the total costs incurred / revenue earned by the Company, which includes considerable expenses and sales with non-AEs. This is factually wrong. It may also be noted that the AO has not assigned any reasons for ignoring the margin analysis and allocation of expenses of AE and non-AE segment furnished by the appellant. The AO has also not stated as to why he had redone the margin analysis by allocating all expenses on turnover basis rather than accept the basis of allocation followed by the assessee. 33. For the reasons stated above, we allow ground No.3 raised by the assessee and direct the AO/TPO to consider the margin analysis as provided by the assessee relating to AE segment alone. In view of the decision on ground Nos.2 and 3, grounds 4 to 20 raised by the assessee become academic and hence not adjudica....
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....e with the following facts considered by the TPO and upheld by the DRP: Sl No Facts modified by the TPO Our Objections 1 Wrong number of days considered as period of delay Without prejudice to the submission that no adjustment is required, it was submitted to the TPO that the weighted average collection period was only 55 days. Hence, the delay of 335 days as computed by the TPO is wrong. 2 Wrong rate of interest considered Without prejudice to the submission that no adjustment is required, the DRP had held that interest has to be computed at rates applicable for short term deposits. In the view of the appellant, six months USD LIBOR plus 200 basis points will be an appropriate rate that can be considered for computation of interest. This works out to only 3.318%. The TPO has not given any workings for the interest computation of Rs.58,30,967/- computed by him in the OGE order to DRP directions. 36. It was contended that the TPO has wrongly applied an allowable credit period of 30 days for the assessee. The generally accepted credit period in the absence of agreed credit period is 90 days and this norm has been overlooked. It was contended that as per Rule 10CB of the In....