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2022 (8) TMI 1379 - AT - Income TaxTP Adjustment - comparable selection - ALP of the international transaction pertaining to administrative support and back-office services provided by the Appellant to its associated enterprises - rejection of two concerns i.e. M/s. CG-Vak Software and Exports and M/s. R. Systems International - HELD THAT - As relying on American Express (I) (P) Ltd. 2019 (7) TMI 1663 - ITAT DELHI case we direct the TPO/AO to consider these two entities for benchmarking the international transactions. M/s Acropetal Technologies Ltd. cannot have been considered as a valid comparable, and therefore, we direct the TPO to exclude the same. M/s Infosys BPO Ltd - As decided in Swiss Re Services India Pvt. Ltd 2020 (2) TMI 972 - ITAT MUMBAI wherein on similar facts and circumstances, Infosys BPO was rejected as a comparable as it was a huge company with different risk profile and nature of services, having its own brand value and IPs, unlike the assessee which broadly provided only back office support services to its AEs.We accordingly direct the AO to exclude M/s Infosys BPO Ltd from final set of comparables. TPO/AO is accordingly directed to re-work the arm s length margin of the finally selected comparables and benchmark against the assessee s margin and/or international transactions.
Issues Involved:
1. Upward Transfer Pricing Adjustment 2. Rejection of Transfer Pricing Documentation 3. Inclusion/Exclusion of Comparable Companies 4. Use of Contemporaneous and Multiple Year Data Detailed Analysis: 1. Upward Transfer Pricing Adjustment: The primary issue raised by the assessee was the upward transfer pricing adjustment of INR 29,289,858 made by the Assessing Officer (AO) in determining the arm's length price (ALP) for administrative support and back-office services provided to associated enterprises (AEs). The assessee argued that the AO erred in making this adjustment after considering the directions issued by the Dispute Resolution Panel (DRP). 2. Rejection of Transfer Pricing Documentation: The assessee contended that the AO erred in rejecting the transfer pricing documentation maintained, which was not in conformity with Section 92C(3) of the Income Tax Act. The AO, supported by the Transfer Pricing Officer (TPO), applied additional filters that resulted in the exclusion of certain companies identified by the assessee and the inclusion of new comparables. The TPO's adjustments led to a revised ALP, causing a transfer pricing adjustment of Rs. 4,11,38,316/-. 3. Inclusion/Exclusion of Comparable Companies: The assessee objected to the exclusion of M/s. CG-Vak Software and Exports and M/s. R. Systems International as comparables, arguing that their segmental results were functionally comparable. The Tribunal referred to a similar case (American Express (I) (P) Ltd. Vs. DCIT) where these companies were considered comparable. Consequently, the Tribunal directed the TPO/AO to include these entities for benchmarking the international transactions. Conversely, the Tribunal agreed with the assessee that M/s. Acropetal Technologies Ltd and M/s. Infosys BPO Ltd were not suitable comparables. Acropetal was rejected due to its high onsite development charges and low employee cost ratio, and Infosys BPO was excluded as it was a giant company with a different risk profile, brand value, and nature of services. The Tribunal directed the TPO/AO to exclude these companies from the final set of comparables. 4. Use of Contemporaneous and Multiple Year Data: The assessee argued against the AO's reliance on single-year data (for the year ended 31 March 2010) for determining the ALP, advocating for the use of contemporaneous and multiple-year data available at the time of filing the return of income. However, this specific issue was not elaborated further in the judgment. Conclusion: The Tribunal directed the TPO/AO to re-work the arm's length margin of the finally selected comparables and benchmark against the assessee's margin and/or international transactions. The assessee was to be given a reasonable opportunity of hearing in such proceedings. The appeal was allowed for statistical purposes, and the order was pronounced on 11/08/2022.
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