The Income Tax Appellate Tribunal (ITAT), Bangalore Bench remitted the issue of determination of ALP in the certification services segment back to Transfer Pricing Officer (TPO).
The assessee, UL India Pvt. Ltd. is an Indian Company and Indian Subsidary of M/s. Underwriters Laboratories Inc., U.S.A. The assessee herein provides product safety testing and certification services. The said services have been titled as “Conformity Assessment Services”.
The assessee has also provided IT enabled services to its Associated Enterprises. The AO made Transfer pricing adjustment of Rs.17.40 crores in respect of Certification service segment and Rs.26.14 lakhs in respect of ITES segment aggregating to Rs.17.66 lakhs. After the DRP’s direction, the aggregate amount of transfer pricing adjustment came to be enhanced to Rs.25.46 crores. The assessee is challenging above said TP adjustments made in both the segments.
With regard to Transfer Pricing adjustment made in respect of Certification Service Segment, the assessee submitted that an identical issue was examined by the co-ordinate bench in the assessee’s own case in AY 2009-10 and the matter was restored back to the file of AO/TPO with a set of directions for examining is afresh.
The Coram of N.V. Vasudevan and B.R. Baskaran held that the issue with regard to the determination of ALP in the certification services segment should be remitted back to the TPO. Accordingly, the issue is restored back to the TPO for fresh consideration with the various directions.
Firstly, the foreign exchange loss/gain to the extent it relates to revenue items and are directly related to certification services rendered by the assessee should be considered as part of the operating profit or loss, as the case may be.
Secondly, the TPO should restrict the addition only in respect of international transactions with the AE. However, the submission made by the department with regard to a part of the certification services having been subcontracted to the AE and receipt of subcontracting charges from the AE to the extent the same will have impact on the consideration received from the AE for rendering the certification services should also be examined by the TPO.
Thirdly, errors, if any, in the computation of margins of comparables should be looked into by the TPO in the set aside proceedings.
Fourthly, the Threshold limit for applying the RPT filter should be 15% or 25% of sales depending upon the availability of comparable companies after all exclusions as held by the Tribunal in the case of Auto Desk India Pvt.
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