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2019 (8) TMI 647 - AT - Income TaxTP adjustment - international transaction of provision of investment/economic/business research services provided - comparable selection - HELD THAT - Perusal of order of Ld. TPO for AY 2012- 13, would reveal that revised margins of USA UK AEs have been accepted to be 1.05% 1.71% respectively and the assessee has agreed for TP adjustment of ₹ 81 Lacs after considering 1% profit retention by its AEs being bare minimum that could be allowed to be retained by AEs as a risk free distributor. Similar methodology has been accepted by Ld. TPO for AY 2015-16 vide its order dated 31/10/2018 although with slight modification of minimum margin that could be retained by its AE. In AY 2015-16 the Ld. TPO, has restricted the margins of assessee s AE to 0.5% of sales of the AEs. Therefore, keeping in view the rule of consistency and in view of the fact that this methodology has been accepted by the assessee as well as revenue, we direct TPO to adopt the same methodology for the year under consideration and work out TP adjustment by accepting AE s margin to be 0.5%, as adopted in the latest order. The assessee is directed to provide the working of the same.
Issues:
1. Acceptance of comparables by DRP without considering degree of comparability. 2. Upholding or rejecting TP adjustment made by the assessee. 3. Selection of comparables by TPO and DRP. 4. Methodology for TP adjustment based on profits of AEs. Issue 1 - Acceptance of comparables by DRP: The revenue appealed the final assessment order, challenging the acceptance of four comparables by the DRP without considering the degree of comparability as required by Rule 10B(2) of the Income Tax Rules, 1962. The DRP had included E4e Healthcare Business Services Limited, Dion Global Solutions Limited, Omega Healthcare Management Services Pvt. Ltd, and Informed Technologies India Limited as comparables. The revenue contended that these companies were not similar to the functions performed by the assessee, leading to a lack of comparability. Issue 2 - Upholding or rejecting TP adjustment: The assessee filed cross-objections against the final assessment order, arguing that the TPO erred in rejecting the transfer pricing documentation and economic analysis. The assessee claimed that the comparable companies selected in the transfer pricing documentation were indeed comparable to the assessee. Additionally, the assessee disputed the selection of Accentia Technologies Limited and Eclerx Services Limited as comparables for benchmarking the international transaction, stating that they were not functionally comparable to the assessee. Issue 3 - Selection of comparables by TPO and DRP: The TPO rejected the initial benchmarking methodology of the assessee, leading to the selection of Accentia Technologies Limited and Eclerx Services Limited as comparables with a mean margin of 43%. The DRP upheld the TPO's selection of these two entities but also agreed with the assessee's submissions for the inclusion of four additional entities. The revenue was aggrieved by the inclusion of these four entities and appealed the decision. Issue 4 - Methodology for TP adjustment based on profits of AEs: The assessee argued that the total TP adjustment should not exceed the total profits of the group, as determined to be ?147.54 Lacs. The DRP, relying on previous decisions, directed the TPO not to make any adjustment exceeding the total profits of the AEs. This direction resulted in reducing the TP adjustment to Nil in the final assessment order. The revenue appealed this decision, while the assessee filed cross-objections. In the final judgment, the tribunal dismissed the revenue's appeal and partly allowed the assessee's cross-objections for statistical purposes. The tribunal directed the TPO to adopt a specific methodology for TP adjustment based on the profits of the AEs, consistent with previous decisions and the latest order.
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