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2020 (8) TMI 892 - AT - Income TaxTP Adjustment - comparability of a single comparable viz. Axis Integrated Systems Ltd. - HELD THAT - In case of Arkay Logistics Ltd. 2019 (11) TMI 1075 - ITAT MUMBAI the Tribunal while examining the comparability of this very company has also found it to be functionally dissimilar to a routine marketing service provider. Though the aforesaid decisions pertain to the assessment year 2013 14 however the material facts on the basis of which such decisions have been rendered are no different from the facts involved in the impugned assessment year insofar as it relates to this comparable. We hold that Axis Integrated Systems Ltd. cannot be treated as a comparable to the assessee hence should be excluded from the list of comparables. Before us the learned Counsel for the assessee has filed a written note as per which on exclusion of Axis Integrated Systems Ltd. the weighted average margin of rest of the comparables would work out to 15.36%. Assessee s margin would be within the acceptable range requiring no further adjustment. We direct the Assessing Officer to compute the margin of comparables afresh and grant consequential relief to the assessee.
Issues involved:
1. Challenge on the comparability of a single comparable company, Axis Integrated Systems Ltd. Detailed Analysis: 1. The appeal was filed against the assessment order for the assessment year 2014-15 under the Income Tax Act, 1961, regarding the comparability of a single comparable, Axis Integrated Systems Ltd. The dispute revolved around the adjustment made to the arm's length price of provision of marketing support services to the Associated Enterprise (AE) of the assessee. 2. The assessee, engaged in marketing nutrition and health care products, benchmarked the transaction using the transactional net margin method (TNMM) with three comparables. The Transfer Pricing Officer proposed an adjustment due to margin differences, including Axis Integrated Systems Ltd. and BVG India Ltd. The draft assessment order was framed based on this proposal. 3. The Dispute Resolution Panel (DRP) partially accepted the assessee's claim and directed the exclusion of BVG India Ltd., reducing the adjustment amount. The counsel for the assessee objected to the inclusion of Axis Integrated Systems Ltd., arguing functional dissimilarity based on the company's business activities and services provided. 4. The Departmental Representative argued for the inclusion of Axis Integrated Systems Ltd. as comparable, citing the consultancy and liaisoning services segment as comparable to the assessee. However, upon analyzing the financial statements and services provided by the disputed company, it was found that the services were in relation to foreign trade, customs, excise, and GST matters, making it functionally dissimilar to the assessee. 5. Referring to previous decisions and the High Court's ruling, it was established that a comparison could not be drawn between a captive service provider and a company like Axis Integrated Systems Ltd., providing liaisoning services to multiple entities. Therefore, the Tribunal held that Axis Integrated Systems Ltd. should be excluded from the list of comparables. 6. As the arguments were limited to the comparability of Axis Integrated Systems Ltd., other issues raised in the appeal were not addressed. Consequently, the appeal was allowed based on the exclusion of Axis Integrated Systems Ltd. from the list of comparables, directing the Assessing Officer to recompute the margin of comparables and grant relief to the assessee accordingly.
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