2021 (2) TMI 1332 - AT - Income Tax

TP adjustment - international transaction of provision of sales and marketing support services by the Appellant to its associated enterprise ( AE ) - difference between the current assessment year and the subsequent Assessment Years in which the Revenue has accepted the profile of the assessee - HELD THAT - It can be seen that the company profile has remained intact to that of sales and marketing support services in nature of coordination support and the assessee company is not into advertisement and marketing agency. These aspects were not properly taken cognizance by the TPO/AO and hence the matter is required to be remanded back to the file of the TPO/AO. All the other issues have to be decided once the issue of recharacterization has been determined by the TPO/AO. Therefore we are remanding back all the issues to the file of the TPO/AO - Assessee be given opportunity of hearing by following principles of natural justice. Hence appeal of the assessee is partly allowed for statistical purpose.

Summary

Issues:
Transfer pricing adjustment, economic analysis, adjustment under Chapter X, comparability analysis, Profit Level Indicator, selection of comparables, adjustments for working capital and risk profile, penalty proceedings, interest levy.

Transfer Pricing Adjustment:
The appeal was against the Transfer Pricing adjustment made to the returned income for international transactions of provision of sales and marketing support services. The appellant argued that the economic analysis undertaken was in accordance with the Act and Rules, but the ALP determination was not accepted. The Tribunal found that the TPO and AO failed to understand the functions, assets, and risks of the appellant, leading to an incorrect characterization. The issue was remanded back for proper consideration by the TPO/AO.

Adjustment under Chapter X:
The CIT(A) upheld adjustments under Chapter X without returning a finding on specific circumstances as required by the Act. The Tribunal noted this error and remanded the issue back to the TPO/AO for proper assessment in line with the statutory provisions.

Comparability Analysis and Selection of Comparables:
The appellant contested the inclusion and exclusion of companies in the final set of comparables by the Revenue authorities. They argued that the appellant's profile as a sales and marketing support service provider was not correctly understood, leading to incorrect comparability analysis. The Tribunal agreed, remanding the issue for a fresh assessment with proper consideration of the company profile.

Adjustments for Working Capital and Risk Profile:
The TPO/AO failed to make appropriate adjustments for differences in working capital and risk profile between the appellant and comparables. The issue was highlighted, and the Tribunal directed the TPO/AO to consider these factors in the reassessment.

Penalty Proceedings and Interest Levy:
The appellant challenged the initiation of penalty proceedings and levy of interest under specific sections of the Act. The Tribunal did not provide a detailed analysis but mentioned that the appeal was partly allowed for statistical purposes, indicating a possible relief on these issues.

In conclusion, the Tribunal partially allowed the appeal, remanding several issues back to the TPO/AO for a fresh assessment considering the appellant's nature of business and other relevant factors. The decision emphasized the importance of proper understanding and application of transfer pricing regulations and statutory provisions in such cases.