2022 (5) TMI 1612 - AT - Income Tax

TP Adjustment - comparables selected by the assessee and erroneous margin computation in case of some other comparables - HELD THAT - Killick Agencies Marketing Ltd. company is more or less into earning commission income being an agent of certain overseas entities specialized in manufacturing and sale of dredgers dredging equipments rudder propellers etc. Whereas assessee provides sales and support services including warranty and maintenance services. Therefore due to significant differences in the functional profile of the assessee and the selected comparable we hold that this company cannot be treated as comparable to the assessee. Accordingly AO is directed to exclude this company from the list of comparables. Febulka Advertising Pvt. Ltd be excluded due to insufficient information available in public domain regarding the financials of the company as audited annual report of the company is not available in public domain. Info Edge India Ltd company is providing internet based services relating to recruitment matrimony and education etc. Whereas the assessee provides sales and post sales support services to the products sold by its AE. Considering the huge difference in the functional profile between this comparable and the assessee it will fail the functionality test hence cannot be considered as a valid comparable. Interactive Manpower Solution company provides offshore recruitment and staffing solutions. These activities of the company certainly cannot be compared to the sales and post sales services provided by the assessee. It is also observed that the company has reported huge increase in its profit margin. Therefore without properly analyzing the factors leading to abnormal increase in profit margin it would not be safe to include this company as a comparable. In any case of the matter fact remains that the company is functionally dissimilar to the assessee. For this reason alone it cannot be included as comparable. Sasken Network Engineering Ltd. Himachal Futuristic Communications Ltd. and Cameo Corporate Services Ltd. - as argued TPO has incorrectly computed the margin of these comparables by disregarding the working given by the assessee - HELD THAT - We direct the assessing officer to examine the working of margin computation of the comparables stated to have been furnished by the assessee and correctly compute the margin of these three comparables after providing due opportunity of being heard to the assessee. TP adjustment made to the ALP of payment made to the AE towards availing of management services - HELD THAT - When the issue ultimately came up for consideration before the Tribunal 2018 (8) TMI 126 - ITAT DELHI the Tribunal restored the matter back to the assessing officer - we are of the considered view that this issue also needs fresh adjudication. We accordingly restore this issue to the file of the TPO. The TPO is directed to decide the issue afresh after considering the detailed submissions/documentary evidences furnished by the assessee. The assessee is directed to furnish the details of services utilised. Disallowance of deduction claimed u/s 10AA - while the assessing officer has disallowed assessee s claim of deduction u/s 10AA on the reasoning that assessee failed to furnish the complete details called for learned DRP upheld the disallowance by relying upon its decision in assessment year 2015-16 - HELD THAT - Undisputedly the fact whether the assessee had fulfilled the conditions of Section 10AA of the Act was never decided by the Tribunal since the appeal of the assessee was decided on a legal ground and the assessment order was quashed. Therefore the allegation of the departmental authorities that the SEZ unit is nothing but an extension of the existing unit by splitting up or even otherwise requires to be examined. More so when the Assessing Officer has alleged that assessee failed to furnish the complete details. The contention of learned counsel for the assessee that the fulfillment of conditions of section 10AA of the Act cannot be examined in this assessment year as assessee s claim was allowed in assessment year 2015-16 the initial year of claim in our view is unacceptable. This is so because in assessment year 2015-16 the departmental authorities no doubt had rejected assessee s claim of deduction due to alleged non-fulfillment of conditions of section 10AA of the Act. The issue was never examined by the Tribunal on merits while deciding assessee s appeal for assessment year 2015-16. Therefore it cannot be said that fulfillment of conditions of Section 10AA of the Act was examined in assessment year 2015-16. Since AO has alleged that the assessee has failed to furnish complete details/information to evaluate the fulfillment of conditions of eligibility of claim of section 10AA and since learned DRP has simply relied upon its own decision in assessment year 2015-16 without verifying the facts we are inclined to restore the issue to the assessing officer for fresh adjudication after verifying the fact whether the assessee has fulfilled the conditions of section 10AA. This ground of appeal is allowed for statistical purposes.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Transfer Pricing Matters.
3. Corporate Tax Matters.
4. Non-grant of TDS credit.
5. Computation of interest under sections 234A, 234B, and 234C.
6. Initiation of penalty proceedings under section 271(1)(c).

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appellant filed the appeal with a delay of 25 days, citing the COVID-19 pandemic as the reason. The Supreme Court's order extending the limitation period due to COVID-19 was referenced. The Departmental Representative did not oppose the condonation. The Tribunal found the delay reasonable and admitted the appeal for adjudication on merit.

2. Transfer Pricing Matters:
The appellant challenged the transfer pricing adjustments made by the TPO and DRP on several grounds, primarily focusing on the selection of comparables and margin computation.

a. Selection of Comparables:
- Killick Agencies & Marketing Ltd.: The Tribunal found this company functionally different from the appellant as it primarily earned commission income and acted as an agent for foreign principals. It was excluded from the list of comparables.
- Febulka Advertising Pvt. Ltd.: The Tribunal noted the lack of audited financial information in the public domain and excluded this company as a comparable.
- Info Edge India Ltd.: The Tribunal found this company functionally dissimilar as it provided internet-based services and had significant intangibles and advertising expenses. It was excluded from the list of comparables.
- Interactive Manpower Solution: The Tribunal found this company functionally dissimilar as it provided offshore recruitment and staffing solutions. It was excluded from the list of comparables.

b. Margin Computation:
The appellant argued that the TPO incorrectly computed the margins of certain comparables. The Tribunal directed the assessing officer to examine the margin computation and provide an opportunity for the appellant to be heard.

3. Corporate Tax Matters:
The appellant challenged the disallowance of deduction claimed under Section 10AA of the Act.

a. Deduction under Section 10AA:
The assessing officer disallowed the deduction, alleging that the appellant failed to furnish complete details. The DRP upheld the disallowance based on its decision in the previous year. The Tribunal observed that the issue of fulfillment of conditions under Section 10AA was not examined on merits in the previous year. The Tribunal restored the issue to the assessing officer for fresh adjudication, directing the officer to verify whether the appellant fulfilled the conditions of Section 10AA.

4. Non-Grant of TDS Credit:
The appellant raised the issue of non-grant of TDS credit. The Tribunal directed the assessing officer to verify the claim based on the material on record and allow the TDS credit in accordance with the law.

5. Computation of Interest under Sections 234A, 234B, and 234C:
This ground was considered consequential and did not require specific adjudication.

6. Initiation of Penalty Proceedings under Section 271(1)(c):
This ground was deemed premature at this stage and was dismissed.

Conclusion:
The appeal was partly allowed, with specific directions for fresh adjudication on certain issues and exclusion of certain comparables from the transfer pricing analysis. The Tribunal emphasized the need for proper verification and adherence to principles of natural justice.