2023 (8) TMI 1420 - AT - Income Tax

TP Adjustment - comparable selection - HELD THAT - Axis Integrated System Limited cannot be properly comparable to be included as one of the comparable to the assessee company. Killick Agencies and Marketing Limited, we observe that this company is acting as agent for various foreign principals for sale of Dredgers, dredging equipment, Steerable Rudder Propellers, Maritime and aviation lighting, Acoustic communication equipment etc., and it also offers after sales services. Further, this company is involved in exports of micro switches, engineering items, acoustics items head-sets. It has declared income which consist of commission and services income and it has not bifurcated the commission and other services income. Therefore, there is no segmental reporting of agency and other services. We also observe that it has recorded the royalty expenditure which is almost 30% of the income earned by them. We observe that Coordinate Bench in the case of Sabre Travel Technologies private limited 2021 (7) TMI 1428 - ITAT MUMBAI We direct the Assessing Officer/TPO to exclude Axis Integrated System Limited and Killick Agencies and Marketing Limited as comparable. Spectrum Business Solutions Limited is an Internet marketing company inter-alia engaged in admin support services like Virtual Assistant and research and management etc. All the assets necessary for conducting the business will be employable by the assessee and assessee does not own any intangibles. It is totally different from the internet marketing company which is engaging admin support services through virtual basis and also it has research and management etc., these are all the functions performed by the Spectrum Business Solutions Limited which is completely different from the services provided by the assessee. As discussed above, assessee does not own any intangible assets and all the marketing services involved are the informations gathered from the market data whereas the Spectrum Business Solutions Limited, it is performing research and management services and also employs virtual assistants which is mainly based on virtual software. Further, we observe from the financial statements of Spectrum Business Solutions Limited, the employee cost to the revenue is 88% whereas the ratio of assessee's business is only 61%. There is considerable variation in both the companies. Therefore, these two companies cannot be compared, accordingly, we are not in agreement with the submissions of the Ld. AR and accordingly, we are not inclined to direct AO/TPO to include this as comparable. Accordingly, the ground raised by the assessee with regard to exclusion of comparable are allowed and with regard to inclusion of comparables are rejected. Accordingly, appeal filed by the assessee is partly allowed.

Summary

Issues Involved:
1. Transfer Pricing Adjustments
2. Comparable Companies Inclusion/Exclusion

Summary:

Transfer Pricing Adjustments:
The appeal was filed by the assessee against the final Assessment Order and the order of the Learned Commissioner of Income Tax (Ld. DRP-1), Mumbai, dated 25.01.2022 for A.Y. 2014-15, passed u/s 144C(5) of the Income-tax Act, 1961. The assessee, a wholly-owned subsidiary of Juniper Networks International Inc., reported several international transactions, including Software Development Services (SDS), Information Technology Enabled Services (ITeS), and Marketing Support Services (MSS). The assessee's AE, Juniper Networks Inc., filed a MAP application under Article 27 of the India-United States Tax Treaty to resolve transfer pricing disputes. The Indian and US Competent Authorities agreed to resolve the MAP application, covering SDS, ITeS, and mark-up on ESPP costs. However, MSS issues were not covered under MAP.

Comparable Companies Inclusion/Exclusion:
The assessee objected to the inclusion of Axis Integrated System Limited and Killick Agencies and Marketing Limited as comparables and the exclusion of Spectrum Business Solutions Limited. The Coordinate Bench previously ruled that Axis Integrated System Limited was functionally not comparable, as it provided professional consultancy services rather than marketing support services. Similarly, Killick Agencies and Marketing Limited was excluded due to its involvement in various unrelated business activities and lack of segmental reporting. Spectrum Business Solutions Limited was not included as a comparable due to its different business model, primarily involving internet marketing and virtual assistant services, which differed significantly from the assessee's marketing support services.

Decision:
The Tribunal directed the Assessing Officer/TPO to exclude Axis Integrated System Limited and Killick Agencies and Marketing Limited as comparables. However, it did not include Spectrum Business Solutions Limited as a comparable. Consequently, the appeal filed by the assessee was partly allowed.