2022 (8) TMI 1325 - AT - Income Tax

Transfer pricing adjustment qua the comparables - HELD THAT - The assessee is engaged in provision of logistics services to its associated enterprises and also to non-associated enterprises thus companies functionally dissimilar with that of assessee need to be deselected.

Summary

Issues Involved:

1. Addition to the assessee's total income under Chapter X of the Income-tax Act, 1961.
2. Non-consideration of benchmarking analysis conducted by the assessee.
3. Lack of search strategy by the TPO.
4. Arbitrary rejection/selection of comparables.
5. Denial of the benefit of +/-5% as per proviso to section 92C(2) of the Act.
6. Adjustment under Chapter X while calculating book profit under Section 115JB.
7. Levy of interest under Section 234D.
8. Initiation of penalty proceedings under Section 271(1)(C).
9. Non-receipt of refund of INR 48,79,190.
10. Short credit of TDS amounting to INR 17,060.

Detailed Analysis:

1. Addition to the Assessee's Total Income:
The assessee challenged the addition of Rs.1,62,53,950 to its total income under Chapter X of the Income-tax Act, 1961. The Tribunal examined the transfer pricing adjustments made by the TPO and confirmed by the DRP. The primary contention was the selection and rejection of comparable companies for benchmarking the international transactions.

2. Non-consideration of Benchmarking Analysis:
The TPO disregarded the benchmarking analysis and comparable companies selected by the assessee. The Tribunal noted that the TPO applied filters such as related party transactions of less than 25%, rejection of continuous loss-making companies, and data availability for the current year. The Tribunal found that the TPO did not provide specific reasons for rejecting the comparables selected by the assessee.

3. Lack of Search Strategy by the TPO:
The assessee argued that the TPO did not conduct an independent search strategy and arbitrarily selected comparables using non-contemporaneous data. The Tribunal observed that the TPO's approach lacked transparency and failed to adhere to the principles of natural justice.

4. Arbitrary Rejection/Selection of Comparables:
The Tribunal examined the comparables selected by the TPO and those proposed by the assessee. The Tribunal directed the exclusion of Balmer Lawrie and Company Ltd, South India Corporation Ltd, and Om Logistics Limited as comparables due to functional dissimilarities and the presence of un-allocable revenue and expenditure. The Tribunal also directed the inclusion of Gati Ltd. and Gordon Woodroffe Logistics Limited, provided the assessee could furnish extrapolated financial data for the relevant financial year.

5. Denial of the Benefit of +/-5%:
The assessee contended that the TPO arbitrarily rejected the benefit of a 5% reduction from the arithmetic mean as provided in the proviso to Section 92C(2) of the Act. The Tribunal did not specifically address this issue in its detailed analysis.

6. Adjustment under Chapter X while Calculating Book Profit:
The assessee argued that the adjustment made under Chapter X should not be considered while calculating book profit under Section 115JB. The Tribunal did not specifically address this issue in its detailed analysis.

7. Levy of Interest under Section 234D:
The Tribunal noted that the levy of interest under Section 234D was consequential in nature and allowed the ground for statistical purposes.

8. Initiation of Penalty Proceedings under Section 271(1)(C):
The Tribunal dismissed this ground as premature, noting that the initiation of penalty proceedings was not ripe for adjudication.

9. Non-receipt of Refund of INR 48,79,190:
The Tribunal admitted the additional ground regarding the non-receipt of a refund of INR 48,79,190. The Tribunal directed the AO to dispose of the rectification application filed by the assessee under Section 154 of the Act expeditiously.

10. Short Credit of TDS Amounting to INR 17,060:
The Tribunal admitted the additional ground regarding the short credit of TDS amounting to INR 17,060. The Tribunal directed the AO to dispose of the rectification application filed by the assessee under Section 154 of the Act expeditiously.

Conclusion:
The Tribunal allowed the appeal by the assessee for statistical purposes, directing the exclusion and inclusion of specific comparables for benchmarking the international transactions and remanding certain issues to the TPO/AO for de novo adjudication. The Tribunal also directed the AO to address the rectification applications filed by the assessee regarding the non-receipt of refund and short credit of TDS.