Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding
  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2018 (8) TMI AT This

  • Login
  • Cases Cited
  • Referred In
  • Summary

Forgot password       New User/ Regiser

⇒ Register to get Live Demo



 

2018 (8) TMI 1712 - AT - Income Tax


Issues Involved:

1. Transfer Pricing Adjustment
2. Selection of Comparable Companies
3. Application of Turnover Filter
4. Functional Dissimilarity of Comparables
5. Disallowance under Section 14A

Detailed Analysis:

1. Transfer Pricing Adjustment:
The assessee company, engaged in data processing and data entry services, provided services to its Associated Enterprises (AEs) and non-associated enterprises. For benchmarking international transactions, the assessee selected the Cost Plus Method (CPM) but also conducted secondary benchmarking under TNMM. The TPO rejected the CPM approach, applied TNMM, and selected 10 comparables, resulting in a proposed Transfer Pricing Adjustment of ?3,27,13,144/-. The DRP allowed partial relief, reducing the adjustment to ?3,19,42,549/-.

2. Selection of Comparable Companies:
The assessee contested the inclusion of 10 comparables and sought the inclusion of 3 others. The key arguments were based on functional dissimilarity and the presence of extraordinary activities or financial events affecting the comparables.

3. Application of Turnover Filter:
The TPO applied a turnover filter of ?5 crore, which the assessee argued should be ?1 crore, consistent with the previous assessment year. The ITAT noted that turnover filters should not be rigid and depend on each case's specifics.

4. Functional Dissimilarity of Comparables:
The ITAT reviewed each contested comparable:
- E4E Healthcare: Excluded due to functional dissimilarity, providing high-end healthcare business services and software development.
- Fortune Infotec: Excluded due to functional dissimilarity and extraordinary activities like the sale of a subsidiary.
- I-Gate Global: Excluded for providing a broad range of services, including CIS & BPO, which are not comparable to the assessee's services.
- Jindal Intellicom Ltd: Excluded due to the financial year comprising 15 months instead of 12.
- Omega Healthcare: Excluded for being engaged in medical coding, billing, and providing healthcare facilities, unlike the assessee.
- TCS E-Serve International Ltd: Excluded due to providing IT-enabled services/BPO to specific industries and benefiting from the Tata brand.
- TCS E-Serve Ltd: Excluded for similar reasons as TCS E-Serve International Ltd.
- Accentia Technologies Ltd, Cosmic Global Ltd, Infosys BPO Ltd: Excluded due to functional dissimilarity, consistent with previous ITAT decisions.

For inclusion:
- Microgenetic Systems Ltd: Rejected based on previous ITAT decisions, noting functional dissimilarity.
- Suntech Web Services P. Ltd: Remanded to the TPO for verification of functional similarity.
- BSI Financial Services: Remanded to the TPO for reconsideration as an internal comparable.

5. Disallowance under Section 14A:
The assessee contested the disallowance of ?3,68,759/- under Section 14A but did not press the issue due to the small amount involved. The ITAT dismissed this ground with liberty to raise it in other assessment years if needed.

Conclusion:
The ITAT directed the exclusion of several comparables due to functional dissimilarity and extraordinary activities. It remanded the inclusion of two comparables to the TPO for further verification. The appeal was partly allowed, and the disallowance under Section 14A was dismissed as not pressed.

 

 

 

 

Quick Updates:Latest Updates