2014 (12) TMI 1157 - AT - Income Tax

Transfer pricing adjustment - upward adjustment in Arm s Length Price - selection of M/s Genesys International as comparable - Held that - The assessee files before us annual report of this entity for 2008-09 stating it to be involved in land base mapping and in geographical information systems. This company also claims itself to be capable in GIS consulting, 3D mapping, Navigation maps, LiDAR, Photogrammetry remote sensing services, Utility services, Image processing, surveying, Business geographics & Logistics, Cadastral Mapping, City Scape and Telecommunications. These facts lead to an inference that there is mutually contradictory information in the public domain pertaining to the said entity. In other words, its functions in annual report and public domain differ. Faced with this situation, we are of the view that a remand order simpliciter will not meet the ends of justice. Thus, in the larger of interest of justice, we deem it appropriate that the impugned PLI has to be decided somewhere between 20% and 32.8% i.e @ 23%. The assessee s grounds are partly accepted. The Assessing Officer is directed to pass a consequential order computing upward adjustment accordingly. - Decided partly in favour of assessee.

Summary

Issues:
1. Challenge to the Arm's Length Price adjustment made by the Assessing Officer.
2. Comparability of selected entities for Transfer Pricing analysis.
3. Dispute regarding the functional similarity of Genesys International as a comparable entity.

Analysis:
1. The appellant, a subsidiary of a UK-based entity, challenged the upward adjustment in Arm's Length Price (ALP) of its software export transactions in the assessment year 2009-10. The Assessing Officer referred the matter to the Transfer Pricing Officer (TPO) under section 92CA(1) of the Income-tax Act, 1961. The TPO applied the Transaction Net Margin Method (TNMM) and selected comparables based on turnover filters, resulting in an adjustment proposal due to a significant difference in Profit Level Indicators (PLIs).

2. The TPO's selection of comparables faced objections from the appellant regarding functional dissimilarities. The Dispute Resolution Panel (DRP) upheld the TPO's decision on the comparability of Genesys International, emphasizing its core functions in engineering and geospatial services. The appellant's appeal primarily focused on challenging the comparability of Genesys International, while accepting the PLIs of other selected entities, leading to a partial allowance of the appeal.

3. The core issue revolved around the functional similarity of Genesys International as a comparable entity. The appellant argued that Genesys International's services, as per its annual report, included land base mapping, GIS consulting, 3D mapping, and various other geospatial services, indicating a broader scope beyond engineering services. The discrepancy between public domain information and the TPO's assessment raised doubts on the entity's functions. Consequently, the Tribunal concluded that a remand order would not suffice and adjusted the PLI between 20% and 32.8% to reach a fair decision at 23%, partially accepting the appellant's grounds.

In conclusion, the Tribunal partially allowed the appellant's appeal, directing the Assessing Officer to compute the upward adjustment in line with the adjusted PLI. The decision highlighted the importance of assessing functional comparability in Transfer Pricing analysis to ensure fair and accurate adjustments in Arm's Length Price calculations.