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2020 (7) TMI 816 - AT - Income TaxTP Adjustment - comparable selection - TPO characterising the assessee as KPO - HELD THAT - As assessee despite bringing the fact on record that Excel Infoways was excluded by DRP itself in AY 2012-13, the DRP upheld the order of TPO, without bringing material difference for the year under consideration to justify its inclusion. We have further noted that the TPO himself identify this company as back office services to its AE‟s. More over unusual business year is also not disputed by the TPO. Even otherwise this comparable was included by TPO by treating the assessee as KPO. The assessee has placed on record the annual report of this company. We have carefully perused the annual report of this comparable company. Perusal of annual report of this comparable company shows that this company is engaged in providing business support service; IT enabled services and development of infrastructure facilities. Considering the segmental reporting of the comparable company, in our view this is not a valid comparable with the assessee which is engaged in providing non-binding investment advisory services. Therefore, we direct the TPO to exclude this comparable from the final set of comparable. Considering the decision of Tribunal in assessee‟s own case for earlier year wherein three comparable namely Almond, Crisil and ICRA was considered as valid comparable. We have directed to exclude Excel Infoways Ltd on the basis of order of DRP for AY 2012-13 and our discussion therefore, we find that both the substantial ground of appeal are covered in favour of assessee. Considering the facts that we have allowed both the substantial ground of appeal in favour of assessee therefore, adjudication on the issue related with economic analysis has become academic.
Issues Involved:
1. Re-characterisation of the assessee by the Transfer Pricing Officer (TPO) as a Knowledge Process Outsourcing (KPO) service provider instead of a non-binding investment advisory and related support services provider. 2. Exclusion/inclusion of various comparable companies for determining the arm's length price of the international transactions. Detailed Analysis: 1. Re-characterisation of the Assessee: The primary issue was whether the assessee should be re-characterised as a KPO service provider instead of a non-binding investment advisory and related support services provider. The TPO re-characterised the assessee based on the high salaries of its employees and the nature of services provided. The assessee contended that it should be characterised based on the functions performed, assets employed, and risks assumed (FAR analysis), and that it was a limited risk-bearing captive investment advisory services provider. The Tribunal noted that in the assessee's own cases for A.Y. 2012-13 and A.Y. 2013-14, it was held to be providing non-binding investment advisory services, and not comparable to KPOs. This was affirmed by the Bombay High Court. The Tribunal found no change in the facts or functions undertaken by the assessee since the service agreement effective from 01.04.2006 was still in place. Therefore, the Tribunal held that the lower authorities were not correct in re-characterising the assessee as a KPO. This ground of appeal was allowed in favor of the assessee. 2. Exclusion/Inclusion of Comparable Companies: The second issue was the exclusion and inclusion of certain comparable companies for determining the arm's length price. The TPO had rejected three comparables selected by the assessee (Almondz Global Securities Ltd., Crisil Risk & Infrastructure Solutions Ltd., and ICRA Management Consulting Services Ltd.) and included Excel Infoways Ltd. Inclusion of Almondz, Crisil, and ICRA: The Tribunal noted that these comparables were accepted in the assessee's own case for A.Y. 2013-14. The Tribunal found that: - Crisil Risk & Infrastructure Solutions Ltd.: Provided advisory services similar to the assessee and was wrongly excluded by the TPO based on the export filter, which was not relevant. - Almondz Global Securities Ltd.: Was engaged in research-based investment advisory services and was wrongly excluded based on the export filter. - ICRA Management Consulting Services Ltd.: Provided management consultancy services, which were comparable to the assessee's investment advisory services. The Tribunal directed the TPO to include these companies in the final list of comparables. Exclusion of Excel Infoways Ltd.: The Tribunal found that Excel Infoways Ltd. was predominantly engaged in outsourcing services, had abnormal business activities, and fluctuating margins. The Tribunal noted that this comparable was excluded by the DRP in A.Y. 2012-13 and found no material difference for the year under consideration. The Tribunal directed the TPO to exclude Excel Infoways Ltd. from the final set of comparables. Conclusion: The Tribunal allowed the appeal filed by the assessee, holding that the lower authorities were incorrect in re-characterising the assessee as a KPO and directed the inclusion of Almondz, Crisil, and ICRA, and the exclusion of Excel Infoways Ltd. from the comparables. The issue related to economic analysis became academic and was not adjudicated. The appeal was allowed in favor of the assessee.
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