2018 (6) TMI 1637 - AT - Income Tax

TPA - comparable selection - exclusion of TCS- E-serve Ltd - HELD THAT - From the order of the Tribunal in assessee s own case for the A.Y.2011-12 2016 (9) TMI 1425 - ITAT MUMBAI wherein facts and circumstances were similar and Tribunal have directed for exclusion of TCS- E-serve Ltd. from the final set of comparables on account of functional dissimilarity ownership of significant intangibles and impact of TATA brand on its profitability. . Respectfully following the order of the Tribunal we direct the AO to exclude TCS- E-serve Ltd. from the final set of comparables.

Summary

Issues:
- Exclusion of TCS E-Serve Ltd. from the final set of comparables in the matter of transfer pricing adjustment for provision of IT-enabled services.

Analysis:
The appeal filed by the assessee challenged the order of the DRP-1(WZ), Mumbai for A.Y.2013-14 regarding the exclusion of TCS E-Serve Ltd. from the final set of comparables. The assessee contested the transfer pricing adjustment of ?25,27,43,714 in the international transaction of providing IT-enabled services. The learned AR referred to the Tribunal's decision in the assessee's own case for A.Y.2011-2012, where TCS E-Serve Ltd. was excluded based on functional dissimilarity, ownership of significant intangibles, and the impact of the 'TATA' brand on profitability. The Tribunal's observation highlighted the company's engagement in ITES services, BPO services, and technical services, emphasizing its significant intangible assets and brand value, making it incomparable to the assessee. The AR argued that TCS E-Serve Ltd.'s functional profile remained unchanged from AY 2011-12 to AY 2013-14, warranting its exclusion as a comparable entity.

Furthermore, the AR relied on the Mumbai Tribunal's decision in Willis Processing Services (India) Pvt. Ltd. vs. DCIT for A.Y. 2010-11, which also excluded TCS E-Serve Ltd. due to functional dissimilarity and ownership of significant intangibles. After reviewing the orders of the lower authorities and the Tribunal's decision in the assessee's A.Y. 2011-12 case, where TCS E-Serve Ltd. was previously excluded, the ITAT Mumbai directed the AO to exclude TCS E-Serve Ltd. from the final set of comparables. The Tribunal's decision was based on the functional dissimilarity, ownership of significant intangibles, and the precedent set by previous cases, thereby allowing the appeal of the assessee and ordering the exclusion of TCS E-Serve Ltd. from the comparability list.

In conclusion, the ITAT Mumbai's judgment focused on the functional dissimilarity, ownership of significant intangibles, and the impact of brand value on profitability as key factors in excluding TCS E-Serve Ltd. from the final set of comparables for the transfer pricing adjustment related to the provision of IT-enabled services. The decision was consistent with previous rulings and upheld the principle of comparability in transfer pricing analysis.