The Delhi Bench of the Income Tax Appellate Tribunal ( ITAT ) recently remitted a matter regarding discrepancies in transfer pricing and corporate tax of UK-origin publishing giant Bloomsbury Publishing India Private Ltd. ( Bloomsbury ), observing the need for additional verification and confirmations adduced by the Assessee to render a decision right in law.
An Income Tax Appeal was filed by Bloomsbury challenging an assessment against tax additions on transfer pricing adjustments and increase in sundry creditors, passed on the basis of the directions of the Dispute Resolution Panel (DRP)/ TPO with regards to Assessment Year (A.Y.) 2016-17.
The Assessee filed their returns of income declaring loss of ₹1,19,17,501 which was selected for limited scrutiny due to large increase sundry creditors and liabilities as compared to decrease in business income as compared to the previous year.
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The facts follow the involvement of Bloomsbury in international transactions with its Associated Enterprises (AEs). The concerned Transfer Pricing Officer (TPO) referred to a number of comparables to determine the Arm’s Length Pricing (ALP), in contrast with the benchmarking approach employed by Bloomsbury.
The assessee had computed an Operating Profit to Operating Revenue (OP/OR) margin of 1.79% for its transfer pricing study, while the TPO rejected the assessee’s approach and used a different set of comparables, determining an OP/OR margin of 8.32%. This resulted in an upward adjustment of ₹1.03 crore for the purchase of books from Macmillan Distributors Ltd., which was higher than what the assessee had accounted for.
CA Rakesh Dua, appearing for Bloomsbury filed additional evidence citing that the TPO ignored relevant comparables and failed to consider internal data which affirmed the relevance of the discount structure rendered by Macmillan Distributors to Bloomsbury. The counsel further submitted additional segmental financial data demonstrating that the original TP study was more reliable. On the corporate tax matter, he provided creditor confirmations that were not previously considered by the AO.
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Departmental Revenue Shri S.K. Jadhav opposed the acceptance of additional evidence, arguing that the assessee had multiple opportunities to submit confirmations and segmental data during the assessment and appellate proceedings.
The two-member Bench of S.Rifaur Rahman, Accountant Member and Vimal Kumar, Judicial Member observed that the additional segmental data and creditor confirmations produced by the Assessee warranted fresh verification, observing that the TPO had rejected Bloomsbury’s approach without considering internal comparables and CUP (Comparable Uncontrolled Price) analysis.
In light of the relevance of the new evidence, the Bench proceeded to remand the matter back to the Assessing Officer and TPO for relevant adjudication while directing them to reasses the transfer pricing computation in terms of the segmental data and comparables submitted by Bloomsbury and to verify the sundry creditors’ confirmations and re-evaluate the disallowance made by the AO after providing ample hearing opportunities to the Assessee.
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