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2021 (1) TMI 911 - AT - Income TaxTP Adjustment - comparable selection - TPO had rejected Jindal Intellicom Pvt. Ltd. and R System International Limited as non comparable companies while determining the Arm s Length Price (ALP) - HELD THAT - Assessee is a captive entity (i.e. risk mitigated entity) mainly engaged in providing Information Technology (IT) enabled services in the nature of call center and low end back office support to its associated enterprises (AE) and billing them at cost plus 15%. Jindal Intellicom Private Limited company has been accepted as comparable company for assessment years 2011-12 2012-13 and also 2014-15. That further this company does not earn any revenue from sale of products. The only area of earning of revenue is from sale of services. This company is engaged in the call center business and hence comparable company with that of the assessee. The TPO/AO is directed to include Jindal Intellicom Private Limited in the final list of comparables in respect of the assessee while determining the TP adjustment. R. System International Limited having different financial year cannot be a comparable company with that of the assessee company. It has been therefore rightly rejected by the TPO as well as DRP and that view is hereby sustained. Thus ground raised in appeal by the assessee is partly allowed. Ninestars Information Technologies Limited company is functionally non comparable with that of the assessee company. That also there is also non availability of reliable segmental report in respect of this company. We direct the TPO/AO to exclude this company from the final list of comparables with that of the assessee company.
Issues Involved:
1. Inclusion of Jindal Intellicom Pvt. Ltd. as a comparable company. 2. Inclusion of R. System International Limited as a comparable company. 3. Exclusion of Ninestars Information Technologies Limited as a comparable company. Detailed Analysis: 1. Inclusion of Jindal Intellicom Pvt. Ltd. as a Comparable Company: The assessee argued for the inclusion of Jindal Intellicom Pvt. Ltd. in the final list of comparable companies for determining the Arm's Length Price (ALP) for the assessment year 2013-14. The Transfer Pricing Officer (TPO) had rejected Jindal Intellicom Pvt. Ltd. due to operational loss. The assessee contended that Jindal Intellicom Pvt. Ltd. had earned profits during the financial year 2012-13 and that the filter applied by the TPO lacked economic rationality. The assessee cited multiple judicial precedents supporting the inclusion of companies with non-persistent losses. The Tribunal found merit in the assessee's submissions, noting that Jindal Intellicom Pvt. Ltd. had been accepted as a comparable in previous and subsequent assessment years. The Tribunal directed the TPO/AO to include Jindal Intellicom Pvt. Ltd. in the final list of comparables. 2. Inclusion of R. System International Limited as a Comparable Company: The TPO rejected R. System International Limited as a comparable due to its different financial year. The assessee argued that the financial data for all quarters was available, making it possible to determine the value of transactions and profitability for the corresponding period. The Tribunal referred to the decision of the Hon'ble Bombay High Court in the case of CIT Vs. PTC Software (I)(P) Ltd., which upheld the requirement that data for comparability analysis should pertain to the same financial year as the international transactions. Hence, the Tribunal sustained the rejection of R. System International Limited as a comparable company. 3. Exclusion of Ninestars Information Technologies Limited as a Comparable Company: The assessee sought the exclusion of Ninestars Information Technologies Limited, which the TPO had included as a comparable. The Ld. DRP held that Ninestars Information Technologies Limited was engaged in IT enabled services (ITes) activities, making it comparable to the assessee. However, the assessee argued that Ninestars was functionally different, engaged in high-end digitization and media monitoring services, and utilized proprietary tools. Additionally, the assessee pointed out the non-availability of reliable segmental information. The Tribunal, after examining the relevant documents, concluded that Ninestars Information Technologies Limited was functionally non-comparable and lacked reliable segmental reporting. The Tribunal directed the TPO/AO to exclude Ninestars Information Technologies Limited from the final list of comparables. Conclusion: The appeal was partly allowed, with the Tribunal directing the inclusion of Jindal Intellicom Pvt. Ltd. and the exclusion of Ninestars Information Technologies Limited from the final list of comparable companies. The rejection of R. System International Limited as a comparable was upheld. The order was pronounced on January 19, 2021.
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