2018 (8) TMI 658 - AT - Income Tax

Transfer pricing - arms length price (ALP) - selection of comparable - international transactions with its AE - adoption of TNMM as the most appropriate method - The assessee raised its objections to all the comparables proposed by the TPO. However, the TPO rejected the assessee s objections -Held that - assessee s appeal is partly allowed for statistical purposes.

Issues Involved:
1. Transfer Pricing Adjustment
2. Selection of Incomparable Companies
3. Error in Computation of Margin of Comparable Companies
4. Rejection of Comparable Companies
5. Adjustment Should Be Restricted to the International Transactions
6. Use of Filters
7. Rejection of Use of Multiple Year Data
8. Adjustment for Risk Differences
9. Arm's Length Range of 3%

Detailed Analysis:

1. Transfer Pricing Adjustment:
The assessee challenged the transfer pricing adjustment of ?3,42,12,559 made by the TPO/AO/DRP on account of provision of IT-enabled services (ITeS) to its Associated Enterprises (AEs). The TPO rejected the assessee's transfer pricing documentation and conducted a fresh economic analysis, leading to the adjustment.

2. Selection of Incomparable Companies:
The assessee contested the inclusion of Capgemini Business Services (India) Ltd, Infosys BPO Ltd, and Hartron Communications Ltd as comparables. The Tribunal found Infosys BPO Ltd to be functionally dissimilar due to its niche services, high turnover, and brand value, and directed its exclusion. Capgemini Business Services was also excluded due to its diversified activities and lack of segmental results. The issue concerning Hartron Communications Ltd was remitted to the AO for verification of the assessee's contentions regarding its diversified activities and lack of segmental information.

3. Error in Computation of Margin of Comparable Companies:
Grounds 6 and 7, which addressed the treatment of provisions for bad and doubtful debts as non-operating expenses, were not adjudicated as the relevant companies (Capgemini Business Services and Infosys BPO Ltd) were excluded from the final list of comparables.

4. Rejection of Comparable Companies:
The assessee sought the inclusion of Ace BPO Services Ltd, Caliber Point Business Solutions Ltd (Seg.), Informed Technologies Ltd, Jindal Intellicom Ltd, and Crystal Voxx Ltd as comparables. The Tribunal directed the AO to verify and consider Ace BPO Services Ltd and Informed Technologies Ltd as comparables if they meet the relevant criteria. The exclusion of Caliber Point Business Solutions Ltd was confirmed. The issue of Jindal Intellicom Ltd's comparability was remitted to the TPO for fresh analysis based on its acceptance in previous assessment years. The comparability of Crystal Voxx Ltd was also remitted to the TPO for fresh analysis.

5. Adjustment Should Be Restricted to the International Transactions:
The Tribunal directed that only the operating revenue and operating cost of the international transactions should be considered for the ALP adjustment, thereby allowing this ground for statistical purposes.

6. Use of Filters:
The assessee did not press grounds related to the use of different financial year-end filters, service income filters, and the upper limit for sales turnover filter (grounds 13 to 15), and these were accordingly rejected as not pressed.

7. Rejection of Use of Multiple Year Data:
The assessee did not press this ground (ground 16), and it was accordingly rejected as not pressed.

8. Adjustment for Risk Differences:
The assessee did not press this ground (ground 17), and it was accordingly rejected as not pressed.

9. Arm's Length Range of 3%:
The assessee did not press this ground (ground 18), and it was accordingly rejected as not pressed.

Conclusion:
The assessee's appeal was partly allowed for statistical purposes, with directions for fresh analysis and verification of certain comparables and adjustments. The Tribunal emphasized the need for functional comparability and accurate segmental information in the selection of comparables.

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