2017 (11) TMI 182 - AT - Income Tax

TPA - selection of comparable - Held that - The assessee Exxon Mobile Co. India Pvt. Ltd., (in short EMCIPL) is a company of Exxon Mobile Corp. Group of US and is responsible for information dissemination, maintaining customer relationship and market development for it s A.E. Exxon Mobile Chemical Co. USA (in short EMC). It is also providing application research and technical services to associated enterprises and in addition provides back office support services to the A.E., thus comparables functionally dissimilar with that of assessee need to be deselected from final list.

Issues Involved:
1. Inclusion/Exclusion of Comparable Companies for Technical Services.
2. Inclusion/Exclusion of Comparable Companies for Back Office Support Services.
3. Application of +/-5% Benefit under Proviso to Section 92C(2).
4. Application of Provisions of Chapter X to Transactions.
5. Rejection of Contemporaneous Documentation and Use of Multiple Year Data.
6. Risk Adjustment.
7. Computation of Interest under Section 234B.

Detailed Analysis:

1. Inclusion/Exclusion of Comparable Companies for Technical Services:

The Revenue challenged the inclusion of Pfizer Limited as a valid comparable for technical services transactions. The CIT(A) included Pfizer Limited, noting its role in clinical trials and data management, and its acceptance as a comparable in previous years. The Tribunal upheld this decision, emphasizing consistency in the functional profile and previous acceptance by ITAT and DRP.

The Revenue also contested the exclusion of Vimta Labs Ltd. The CIT(A) included Vimta Labs Ltd. as comparable, stating that its functional profile remained unchanged from the previous year and that higher profits alone were not a sufficient reason for exclusion. The Tribunal agreed, finding no extraordinary circumstances to justify exclusion.

2. Inclusion/Exclusion of Comparable Companies for Back Office Support Services:

The Revenue disputed the exclusion of several companies (Airline Financial Support Services, Fortune Infotech Ltd., North Gate PO Services Ltd., Datamatics Technologies Ltd., and Tricom Ltd.) as comparables for back office support services. The CIT(A) excluded these companies due to substantial related party transactions, functional differences, or lack of segmental information. The Tribunal upheld these exclusions, noting detailed findings by CIT(A) regarding substantial related party transactions and functional differences.

The Assessee contested the inclusion of Northgate BPO Services Ltd. and Ultramarine & Pigments Ltd. The CIT(A) retained Northgate BPO Services Ltd., finding no substantial related party transactions and no evidence of significant functional differences. The Tribunal agreed, noting the company's ITES segment activities. Ultramarine & Pigments Ltd. was also retained, with the CIT(A) rejecting arguments of abnormal high margins and functional differences. The Tribunal upheld this decision, emphasizing the normal course of business profits.

3. Application of +/-5% Benefit under Proviso to Section 92C(2):

The Revenue argued against the CIT(A)'s allowance of the +/-5% benefit. The Tribunal did not specifically address this issue in detail, implying acceptance of the CIT(A)'s application of the benefit.

4. Application of Provisions of Chapter X to Transactions:

The Assessee argued that the application of Chapter X provisions to technical services and back office support services transactions was incorrect. The CIT(A) applied these provisions, and the Tribunal upheld this application, finding no error in the CIT(A)'s approach.

5. Rejection of Contemporaneous Documentation and Use of Multiple Year Data:

The Assessee contested the rejection of its contemporaneous documentation and the use of multiple year data. The CIT(A) and Tribunal upheld the TPO's approach of using single-year data for comparability analysis, consistent with the Indian transfer pricing regulations.

6. Risk Adjustment:

The Assessee reserved the right to carry out risk adjustment. The Tribunal did not specifically address this issue, implying no change to the CIT(A)'s findings on this matter.

7. Computation of Interest under Section 234B:

The Assessee argued for the apportionment of self-assessment tax paid against interest computed under Section 234B. The CIT(A) did not direct the AO to make this adjustment. The Tribunal did not specifically address this issue, implying agreement with the CIT(A)'s decision.

Conclusion:

The Tribunal upheld the CIT(A)'s order, affirming the inclusion/exclusion of specific comparables for technical services and back office support services based on detailed functional analysis and related party transactions. The appeal of the Revenue and the cross-objection of the Assessee were both dismissed.

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