TaxTMI 
TaxTMI 
2026 (9) TMI 1464
X X X X Extracts X X X X
X X X X Extracts X X X X
....ispute resolution panel-1, Bangalore [the Ld. DRP], and thereafter taxes a sum of Rs. 24,847,270 as interest on the delayed outstanding receivable from its AE, treating it as a separate international transaction. Therefore, the total adjustment of Rs. 47,570,270 is made on account of the determination of the arm's-length price of the international transaction. 02. The Assessee has raised the following grounds of appeal: 1. Incorrect rejection of TP Study by the Transfer Pricing Officer (TPO) 1.1 The Learned Transfer Pricing Officer ("TPO")/National Faceless Assessment Centre ("NFAC") erred on facts and in law in rejecting the Transfer Pricing documentation (TP Study) maintained by the Assessee stating that the filters applied by the Assessee for selection of comparable companies are inappropriate and basis which the TPO erred in rejecting the Arm's Length analysis carried out in the TP Study. 2. Determination of arm's length price by the TPO/NFAC 2.1 The Learned TPO erred on facts and in law in conducting a fresh benchmarking analysis using non contemporaneous data and substituting the Assessee's analysis with fresh benchmarking analys....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n considering outstanding receivables of the Assessee from its AE as separate international transaction and re characterizing the receivables as loan to the AE 4.2 The Hon'ble DRP / Learned TPO has grossly erred in facts by charging notional interest on delayed receipt from associated enterprise 4.3 The Hon'ble DRP/ Learned TPO erred on facts by neglecting to factor in the Assessee's average outstanding payables to its AE, which were higher than receivables in FY 2021-22, resulting in an erroneous interest calculation. 5. Initiation of penalty proceedings 5.1 The Assessee submits that based on the facts and circumstances of the case, there was no basis for NFAC to propose to initiate penalty proceedings under section 270A r.w.s 274 of the Act. 5.2 The NFAC erred in initiating penalty proceedings under section 271B though the Assessee had submitted audited accounts and report u/s 44AB within due date. 5.3 The NFAC erred in initiating penalty proceedings u/s 272A(1)(d) though the Assessee had submitted all the documents in compliance with notices u/s 142(1) as acknowledged by the Assessment Order passed by NFAC. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....capitaline database. He found all 12 filters appropriate. However, with respect to the 25% criterion for related party transactions, he stated that he would like to consider the RPT for sales and purchases separately. With respect to the filter rejecting companies incurring persistent operating losses, the TPO considered it appropriate, but only those comparables that have persistent losses in two or more years are required to be rejected. Regarding the assessee's filter rejecting companies with insignificant foreign exchange earnings, the TPO applied the criterion that all companies with a ratio of foreign exchange earnings to net sales less than 75% should be rejected. The TPO was also of the view that the assessee should have applied a filter requiring 75% of revenue to come from core services, and that companies with employee costs less than 25% of turnover should be excluded. 07. On the basis of the above, he rejected the whole TP study report of the assessee, carried out further search, proceeded to put different keywords on the Prowess database, such as 'computer software', 'software services', and 'consultancy', and reached a comparable set of 24 companies, whose 35t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... applies where the information and documents relating to the international transaction have not been maintained by the assessee in compliance with the provisions of section 92D of the act, and where the information or data used in the computation of ALP is not reliable or correct. He is also authorised in the case where the assessee fails to furnish the requisite information as provided under section 92D of the act. 14. The issue concerns the invocation of power under section 92C(3)(c) of the Act, which provides that information or data used in the computation of the arm's-length price is not reliable or correct. The assessing officer's satisfaction rests solely on the need to tweak some of the filters. There is no dispute about FAR, the database used, or the keywords input by the assessee for the comparability analysis. The only reason is that, out of the 12 filters applied by the assessee, 2 filters are inappropriate. 15. We questioned the learned CIT DR whether those two filters, as directed by the TPO, when applied to the database, which the learned TPO mostly states to be correct, did not result in the correct transfer pricing of the international transaction. If that is....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the computation of arm's-length price are not stated to be unreliable or incorrect. As per the method stated by us above, the learned TPO has accepted everything stated in the TPSR but, because of some tweaking of some filters, has rejected the assessee's TP study report. 19. Considering the above, we hold that the learned transfer pricing officer has rejected the transfer pricing study report prepared by the assessee on incorrect grounds and allow ground No. 1 of the assessee's appeal. 20. As we have already held that the rejection of the transfer pricing study report prepared by the assessee by the learned transfer pricing officer is inappropriate, we now direct the learned assessing officer to examine whether, out of the 491 comparables, the arm's-length price of the assessee's international transactions can be determined by modifying those filters which the transfer pricing officer did not agree to. We direct the assessee to produce before the learned AO the database of the companies after applying the filters modified by the learned transfer pricing officer, and also to produce the accept/reject matrix before him, so that the learned AO may verify the same an....