2021 (10) TMI 1358 - AT - Income Tax

TP Adjustment - Comparable selection - HELD THAT - Companies functionally dissimilar with that of assessee software development service segment need to be deselected from final list. Also companies having huge turnovers need to be deselected. ALP adjustment pertaining to interest on receivables - HELD THAT - As directed the TPO to allow credit period as per agreement between assessee and its AEs - if it turned out that no such period was specified the credit period would be 90 days only - HELD THAT - There is hardly any dispute that the learned lower authorities have gone by SBI short term deposit rates which is in the nature of a loan or cash transaction involving domestic deposits rather than LIBOR rate in international transactions involving the very business segment. Coming to the Revenue s argument that this tribunal has already directed the TPO to go by the agreement between an assessee and its AEs we quote Technimont ICB Pvt. Ltd 2013 (9) TMI 595 - ITAT MUMBAI and Sabic Innovative Plastic India Ltd. 2013 (9) TMI 596 - ITAT AHMEDABAD that an AE could not be adopted as a tested party since lacking uncontrolled comparable transactions. As in CIT Vs B R Constructions 1992 (6) TMI 13 - ANDHRA PRADESH HIGH COURT holds that a co-ordinate bench decision not taking into consideration the relevant law and facts; as the case may be is not a binding precedent. We therefore accept the assessee s instant ground for this precise reason alone and delete the impugned ALP adjustment. Management and consultancy fee involving ALP adjustments - HELD THAT - We are of the view that the learned TPO needs to re-examine the entire issue in light of the assessee s foregoing submissions accordingly pin-pointing; prima-facie a cost to cost reimbursement arrangement between itself its AE and the ultimate payee M/s.KPMG qua the services in issue. We further wish to quote here the foregoing judicial procedents decision that the benefit test also not to be applied whilst determining NIL Arm s Length Price on the ground that the taxpayer had not in fact derived any benefit from the international transactions in issue. The assessee shall also be at liberty to file its additional evidence; if any in consequential proceedings as well. Allow education cess paid as a deduction - HELD THAT - Revenue on the other hand quotes Section 40(a)(ii) of the Act that a cess very much forms part of the clinching statutory expression tax employed therein. And that it is too late now for the assessee to make the impugned claim once the same had not been recorded in the corresponding books of account as well. We find no merit in the Revenue s foregoing arguments in light of Sesa Goa Ltd 2020 (3) TMI 347 - BOMBAY HIGH COURT Chambal Fertilizers and Chemicals Ltd 2018 (10) TMI 589 - RAJASTHAN HIGH COURT holding the impugned cess as an allowable deduction in light of CBDT s circular dt.18-05-1967 that education cess is not included in tax u/s.40(a)(ii) of the Act. We therefore direct the AO to frame consequential computation as per law. Foreign tax payment as a deduction - allowance of foreign tax credit claim u/s.91(1) - HELD THAT - Section 91 of the Act is a specific provision dealing with foreign tax credit to be granted in case of taxes paid in the specified countries i.e. except Pakistan which comes under the latter sub-section 2 thereof. If we go by the assessee s analogy that foreign tax credit to the specified extent u/s.91(1) of a sum calculated on such doubly taxed income at the Indian rate of tax of the said country whichever is the lower or at the Indian rate of tax if both the rates are equal is allowable for the purpose of granting credit and the remaining component is to be granted deduction under Chapter-IV of the Act the same would render the former specific provision itself as otiose going contrary to generalia specialism non derogant which means that a specific provision prevails over the general one. We thus adopt stricter interpretation and conclude whatever is the assessee s unallowable foreign tax credit claim u/s.91(1) since exceeding the specified limit would not be entitled for business expenditure u/s.37.The assessee fails in this ground.

Summary

Issues Involved:
1. Transfer Pricing (TP) Grounds
2. Software Development Services (SDS) Segment
3. ITES Segment
4. Interest on AE Receivables
5. Management Fees
6. Consultancy Fees
7. Corporate Tax (CT) Grounds
8. General Grounds (applicable to both TP and CT)

Detailed Analysis:

1. Transfer Pricing (TP) Grounds:
The assessee challenged the addition of INR 26,07,96,022 to its total income, which included adjustments for software development services, ITES segment, interest on AE receivables, management fees, and consultancy fees. The Tribunal rejected the general/consequential grounds (1st, 2nd, 24th, and 25th).

2. Software Development Services (SDS) Segment:
The Tribunal addressed the selection of comparables for the SDS segment. It directed the exclusion of Infosys Limited and Larsen & Toubro Infotech Limited due to their huge turnovers, following judicial consistency from previous years. Tata Elxsi Limited was also excluded due to its engagement in various activities without segmental information. Persistent Systems Limited, Thirdware Solution Limited, and Cybage Software Private Limited were excluded for being functionally different and having high margins. Aspire Systems (India) Private Limited was excluded due to amalgamation. The Tribunal did not entertain grounds related to Nihilent Limited and Inteq Software Private Limited. For R.S. Software (India) Limited and Infobeans Technologies Limited, the Tribunal directed the TPO to verify segmental details. The issue of Cigniti Technologies Limited was remitted back to the TPO for verification.

3. ITES Segment:
The Tribunal addressed the selection of comparables for the ITES segment. Infosys BPO, Eclerx Services Limited, and Cross Domain Solutions Private Limited were excluded due to diversified activities and huge turnovers. Tech Mahindra Business Services Ltd. and SPI Technologies India Private Limited were excluded due to high turnovers. MPS Limited was included based on previous orders. The Tribunal remitted the issue of Microland MPS Ltd., SPI Technologies India Private Limited, and Infosys BPO for factual verification.

4. Interest on AE Receivables:
The Tribunal addressed the adjustment for interest on AE receivables. It directed the TPO to allow credit periods as per agreements between the assessee and its AEs, or a 90-day credit period if unspecified. The Tribunal rejected the use of SBI short-term deposit rates and directed the use of LIBOR rates, deleting the impugned ALP adjustment of Rs. 2,80,004/-.

5. Management Fees:
The Tribunal remitted the issue of management fees involving ALP adjustments of Rs. 3,95,25,970/- back to the TPO for re-examination, emphasizing that the benefit test should not be applied and considering the cost-to-cost reimbursement arrangement.

6. Consultancy Fees:
Similar to management fees, the Tribunal remitted the issue of consultancy fees involving ALP adjustments of Rs. 1,00,01,279/- back to the TPO for re-examination.

7. Corporate Tax (CT) Grounds:
The Tribunal did not address grounds 16th to 21st related to Section 154 rectification petitions pending before the Assessing Officer. It allowed the deduction of education cess paid (Rs. 52,84,078/-) based on judicial precedents. The Tribunal rejected the claim for foreign tax payment deduction, emphasizing that Section 91 provisions prevail over general provisions, and quoting judicial precedents to support its decision.

8. General Grounds (applicable to both TP and CT):
The Tribunal concluded that the assessee's appeal was partly allowed in the terms discussed above.

Conclusion:
The Tribunal provided a detailed analysis and directions for each issue raised by the assessee, emphasizing judicial consistency, factual verification, and adherence to legal principles and precedents. The appeal was partly allowed, with several issues remitted back to the TPO for re-examination.