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2025 Supreme(Online)(ITAT) 7116
INCOME TAX APPELLATE TRIBUNAL (COCHIN BENCH)
Shri Inturi Rama Rao, ACM, Shri Rahul Chaudhary, J
Applexus Technologies Private Limited – Appellant
Versus
Deputy Commissioner of Income Tax – Respondent
ITA No.955/COCH/2024
For the Appellant/Assessee: Shri Reuben Joseph
For the Respondent/Department: Shri Sanjit Kumar Das
Income Tax assessments require rigorous adherence to transfer pricing regulations, ensuring accurate and fair computations reflecting operational realities, especially in COVID-19 impacted sectors.
Headnote:(A) Income Tax Act, 1961 - Sections 143(3), 144C, and 144B - Transfer Pricing - Assessee challenging the Final Assessment Order based on alleged incorrect rejection of transfer pricing documentation and computation of Arm’s Length Price (ALP) - Key issues included incorrect rejection of TP documentation, calculation of PLI, and impact of COVID-19 on operations - The court held that TP documentation was not considered properly, and the effects of the pandemic were ignored, leading to a flawed transfer pricing adjustment process. (Paras 2, 7, 10, and 12)
(B) Transfer Pricing Documentation - Requirement for maintaining accurate records and the handling of relevant financial data during assessment - The importance of segment-wise PLI calculations vs. entity-level assessments, particularly with regard to international transactions and associated enterprises, was emphasized based on the full spectrum of activities undertaken by the Assessee. (Paras 10, 11)
Facts of the case:
The Assessee, a private limited company engaged in providing consulting services in SAP solutions, contested a transfer pricing adjustment made by the TPO that aggregated to a substantial sum based on alleged inaccuracies in financial submissions.
Findings of Court:
The court determined that the failure to properly account for segmental data and the economic impact of COVID-19 rendered the TP assessment invalid. The Assessee was justified in their segment-wise assertions and documentation efforts.
Issues: The primary issues included the assessment of appropriate financial documentation, validity of UPIs for domestic versus international operations during COVID-19.
Ratio Decidendi: The court outlined that lack of proper substantiation for operational metrics underpinned a skewed PLI calculation and that such determinations must reflect ongoing economic realities, aligning closely with statutory mandates for transfer pricing under the Act.
Result: Appeal partly allowed.
| Table of Content |
|---|
| 1. challenge to final assessment based on transfer pricing adjustments. (Para 1 , 2 , 3) |
| 2. arguments presented regarding the inadequacies of the earlier assessments and documentation. (Para 4 , 5 , 6) |
| 3. court's observations on segment data and economic impact considerations. (Para 7 , 8 , 9) |
| 4. interpretation of pli calculations and segmental analyses under prevailing law. (Para 10 , 11) |
| 5. conclusively allows the assessment appeal partially and directs further consideration. (Para 12 , 13) |
ORDER
Per Rahul Chaudhary, Judicial Member:
1. The present appeal has been preferred by the Assessee challenging Final Assessment Order, dated 13/09/2024, passed by the Assessing Officer under Section 143 (3) read with Section 144C read with Section 144B of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’], as per the directions issued by Dispute Resolution Panel - 2, Bengaluru [for short ‘DRP’], on 12/08/2024 under (5) of the Act for the Assessment Year 2021-2022.
2. The Assessee has raised multiple grounds of appeal which can be grouped as under:
Ground No.1: Incorrect rejection of transfer pricing documentation prepared by the Assessee
Ground No.2: PLI to be calculated only on the export segment related to associate enterprise instead of computing it at entity level
Ground No.3: The comparable companies introduced by the Transfer Pricing Officer should be rejected.
Ground No.4: The comparable companies selected by the Assessee in the TP Report should be accepted
Ground No.5: Interest should not be charged on delayed realization of receivables.
Ground No.6: Claim for market risk adjustment for determination of arm’s length price to be provided.
Ground No.7: Service income threshold of 75 percent to sales should be revised to 50 percent.
Ground No.8: Export service income threshold of 75 percent to sales should be revised to 50 percent.
Ground No.9: Turnover filter should have an upper unit.
3. The relevant facts in brief are that the Assessee is an Indian private limited company engaged in the business of providing consulting services in SAP solutions and products. For the Assessment Year 2021-2022 the Assessee filed return of income on 08/03/2022 which was selected for regular scrutiny. During the assessment proceedings reference was made by the Assessing Officer to the Transfer Pricing Officer (TPO) for determination of Arm’s Length Price of the International Transactions undertaken by the Assessee with its Associated Enterprises (AEs) during the relevant previous year. Vide Order, dated 05/10/2023, the TPO proposed upward transfer pricing adjustment of INR.3,50,58,014/- in respect of transactions with AEs in ITeS Segment and a further transfer pricing adjustment of INR.44,95,811/- as interest income on outstanding receivables. The Assessing Officer passed Draft Assessment Order, dated under Section 144C (1) of the Act proposing aforesaid transfer pricing adjustment aggregating to INR.3,95,53,825/-. Being aggrieved, the Assessee filed objections before the DRP which were disposed off vide Order, dated 12/08/2024. It is the case of the Assessee that the DRP failed to consider the submissions of the Assessee and issued directions rejecting the contentions raised by the Assessee. Based on the directions issued by the DRP, the Assessing officer passed the Final Assessment Order, dated 13/09/2024, making transfer pricing addition of INR.3,95,53,825/-. Being aggrieved, the Assessee has preferred the present appeal raising grounds summarized in paragraph 2 above.
4. When the appeal was taken up for hearing the Learned Authorized Representative for the Assessee pressed into services Ground No.1 & 2 raised in the present appeal.
4.1. It was contended on behalf of the Assessee that the authorities below did not consider the contentions raised by the Assessee and without appreciating the transfer pricing documentations and the response submitted by the Assessee during the course of assessment proceedings, rejected in the transfer
