M/S WSP CONSULTANTS INDIA PVT. LTD.,NEW DELHI vs. DCIT,

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ITA 569/DEL/2017Status: DisposedITAT Delhi24 March 2023AY 2012-1312 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the assessee's segmental analysis for employee costs should be accepted as the costs were separately identifiable and maintained project-wise. It also directed the exclusion of one comparable company due to insufficient information and restored another issue regarding related party transactions to the Assessing Officer.

What were the facts?

The assessee, a subsidiary of WSP GRP Cyprus Holding Ltd., provides design and engineering services. The dispute arose over the allocation of operating costs, specifically employee costs, between associated enterprise (AE) and non-AE segments for transfer pricing purposes.

What were the issues?

Whether operating expenses, particularly employee costs, can be allocated on a turnover basis when they are separately identifiable. Whether certain companies are appropriate comparables for transfer pricing analysis.

Which sections of the Income-tax Act were involved?

Section 144C,Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH: ‘I’ NEW DELHI

Before: SHRI G.S. PANNU, HON’BLE & SHRI SAKTIJIT DEY

Hearing: 15.03.2023Pronounced: 24.03.2023

per the information contained in the website of the company, it is engaged in engineering consultancy services, hence, comparable to the assessee.

1.

4.2 We have considered rival submissions and perused the materials on record. Though, the TPO, referring to the information contained in the website of this comparable has stated that it is engaged in the business of engineering consultancy services, however, on perusal of the annual report of the company placed in the paper-book, it is observed that the information regarding the business profile of the company is sketchy and lacks necessary details. Further, the balance-sheet and profit and loss account do not give the break-up of the source of revenue earned.

Therefore, due to lack of information regarding the functional profile of the company available in the public domain, it cannot be ascertained, whether it is functionally similar to the assessee.

Simply based on certain information in the website of the company functional similarity cannot be adjudged. Therefore, for this reason, the company, in our view cannot be selected as a comparable. 8 | P a g e 4.3 Insofar as the other contention of the assessee regarding substantially less export turnover compared to the assessee, we are unable to accept assessee’s claim as neither the assessee, nor TPO have applied the export turnover filter. However, for the reasons discussed above, we direct the Assessing Officer to exclude this company as a comparable.

5.

The only ground on which the assessee seeks exclusion of the aforesaid company is due to substantially low export sales turnover, which works out to 6.21% of the total turnover as compared to 100% exports of the assessee.

5.1 We have heard the parties and perused the materials on record. On a specific query, learned counsel appearing for the assessee fairly submitted that neither the assessee has applied the export turnover filter in its TPSR, nor the TPO has applied the said filter. Therefore, in our view, at this stage, we cannot introduce a fresh filter to select/reject comparables as it will disturb the entire TP analysis of the assessee and the TPO.

Therefore, we are inclined to uphold the selection of this comparable.

Onward Technologies Ltd. 9 | P a g e

6.

The only ground on which the assessee seeks exclusion of this company is due to failure of Related Party Transaction (RPT) of more than 25%.

6.1 Before us, learned counsel for the assessee submitted that RPT as a ratio of sales works out to 25.78%. However, he fairly submitted, this issue was neither raised before the TPO, nor before the DRP.

6.2 Learned Departmental Representative submitted, since, the assessee is raising this issue for the first time, it may be restored to the AO/TPO.

6.3 Having considered rival submissions, we find, both the TPO and learned DRP have applied RPT filter of more than 25%.

Therefore, any company having RPT of more than 25% has to be excluded. However, considering the fact that the assessee is raising the issue of RPT for the first time before the Tribunal, we are inclined to restore the issue to the Assessing Officer for examining assessee’s claim and excluding the comparable in case RPT is found to be more than 25%. Ground is partly allowed.

7.

In ground no. 4, the assessee has raised the issue of working capital adjustment.

7.1 Having considered rival submissions, we direct the Assessing Officer to examine assessee’s claim, keeping in view the relevant statutory provisions and judicial precedents applicable to the assessee. Needless to mention, the assessee must be afforded reasonable opportunity of being heard to the assessee before deciding the issue. This ground is allowed for statistical purposes.

8.

In ground no. 5, the assessee has raised the issue of computational error in computing the operating profit margins of the comparables.

8.1 Having considered rival submission, we direct the Assessing Officer to examine assessee’s claim with reference to the facts and materials on record and rectify the computational error, if any, in computing the profit margin of the comparables. The assessee must be afforded reasonable opportunity of being heard before deciding the issue.

9.

Ground no. 6 is not pressed, hence, dismissed and ground no. 7, being premature, is dismissed.

10.

In the result, the appeal is partly allowed.

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