2022 (10) TMI 1225 - AT - Income Tax

TP Adjustment - comparable selection - Turnover filter should have an upper limit - HELD THAT - Tribunal has excluded the comparable companies based on the upper turnover filter of Rs. 200 crores. In assessee s case from the table submitted it is evident that the turnover all 10 comparable companies is more than Rs. 200 crores. Therefore respectfully following the M/S BORQS SOFTWARE SOLUTIONS PVT. LTD. case 2021 (10) TMI 1351 - ITAT BANGALORE we hold that the companies having more than 200 crores turnover need to be excluded. We accordingly direct the TPO to exclude these companies while re-computing the ALP. Inclusion of Akshay Software on the ground that the company has incurred significant foreign branch expenditure - remit the issue of to the AO/TPO to consider the comparability of this company afresh while recomputing the ALP. Include I2T2 India Limited as a comparable while re-computing the ALP. TPO rejected the inclusion of Evoke Technologies Ltd. on the basis that the financials of the company has also included the financials of the financial branch which is un-audited and therefore the data is unreliable - e notice that the coordinate Bench in the case of Mindteck India Ltd 2022 (6) TMI 1334 - ITAT BANGALORE has considered the issue of inclusion of Evoke Technologies P. Ltd wherein held comparability of this company was remanded to the TPO for fresh consideration. We are of the view that the comparability of this company has to be remanded to the TPO for fresh consideration in the light of the decision brought to our notice as above Addition made on account of receipt of fixed assets received free of cost/on loan basis - DRP has upheld the addition mainly on the ground that the assessee has not produced invoices and other relevant documents to substantiate that the assets have been received on loan basis/free of cost and also no evidence was produced that the assets have been returned to the lender - HELD THAT - With regard to assets received from Quantum data International the assessee had submitted before the DRP that the customs has wrongly recorded the assets received as replacement for defective assets imported earlier as assets received free of cost. This fact has not been considered or verified by the DRP - we remit the issue back to the AO to verify the invoices and other relevant documents that would substantiate the assessee s claim and decide the issue in accordance with law - This ground is allowed for statistical purposes.

Summary

Issues Involved:
1. Application of turnover filter in selecting comparables.
2. Rejection of additional comparable companies requested by the appellant.
3. Corporate tax adjustment for assets received free of cost/on loan basis.

Detailed Analysis:

1. Application of Turnover Filter:
The appellant argued that the Transfer Pricing Officer (TPO) erred by not excluding comparables with a turnover exceeding INR 200 crores. The Tribunal noted that the TPO applied a lower turnover filter but failed to apply an upper turnover filter. The Tribunal referenced previous cases, such as BORQS Software Solutions Pvt. Ltd., where companies with turnovers exceeding INR 200 crores were excluded. The Tribunal concluded that companies listed by the appellant with turnovers above INR 200 crores should be excluded from the list of comparables. The TPO was directed to exclude these companies while recomputing the Arm's Length Price (ALP).

2. Rejection of Additional Comparable Companies:
The appellant contested the exclusion of certain companies during the Transfer Pricing (TP) assessment. Specifically, the appellant pressed for the inclusion of Akshay Software Technologies Ltd., Evoke Technologies Ltd., and I2T2 India Ltd.

- Akshay Software Technologies Ltd.: The TPO rejected this company due to significant foreign branch expenditure and its engagement in professional services, which was upheld by the Dispute Resolution Panel (DRP). The Tribunal, referencing the case of M/s. Cypress Semiconductor Technology India P. Ltd., remanded the issue back to the TPO for fresh examination.

- I2T2 India Ltd.: The TPO excluded this company due to the lack of Related Party Transactions (RPT) information in its annual report. The Tribunal, citing M/s. Cypress Semiconductor Technology, directed the TPO to include I2T2 India Ltd. as a comparable, noting that the absence of RPT information should not penalize the appellant.

- Evoke Technologies Ltd.: The TPO rejected this company due to un-audited financials from its foreign branch. The Tribunal, following the case of Mindteck India Ltd., remanded the issue back to the TPO for fresh consideration.

3. Corporate Tax Adjustment for Assets Received Free of Cost/On Loan Basis:
The Assessing Officer (AO) added INR 71,55,525 to the appellant's income under Section 28(iv) of the Income-tax Act, considering the receipt of tangible assets free of cost/on loan basis as a taxable benefit. The DRP upheld this addition, stating that the appellant failed to provide documentation to substantiate the terms of the loan arrangement or evidence of returning the assets.

The Tribunal referenced its decision in the appellant's own case for AY 2014-15, where relief was granted to the extent that the appellant could prove the re-export of assets. The Tribunal remanded the issue back to the AO to verify the invoices and relevant documents substantiating the appellant's claim. The AO was directed to decide the issue in accordance with the law, considering the Tribunal's previous decision. The appellant was instructed to produce all relevant documents and cooperate with the proceedings.

Conclusion:
The appeal was partly allowed, with specific directions to the TPO and AO for fresh consideration and verification of the appellant's claims. The Tribunal emphasized adherence to previous decisions and the necessity of accurate documentation in substantiating claims.