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2023 (2) TMI 20 - AT - Income TaxTP Adjustment - comparable selection - Functional dissimilarity - HELD THAT - We notice that the TPO in defining the profile of the assessee has stated that the activities of the assessee are classified into Compliance management, supplier management services, staff welfare support and other support functions. The DRP has stated that Ugam s services falls within the ambit of market support services and a proper comparable. We also notice that the coordinate bench of the Tribunal in the case of Epson India 2022 (7) TMI 1377 - ITAT BANGALORE has excluded Ugam as a comparable company to Epson based on the functions performed by Ugam. Therefore it is important to analyse the functions performed by Ugam during the year under consideration, before applying the ratio laid down by the Hon ble Tribunal. We therefore remit the issue back to the AO/TPO to look into the functions performed by Ugam based on the various details submitted by the assessee and decide accordingly. Axience Consulting Private Limited (Axience) is mainly into analysis and research and is into strategic human capital services. We also notice that the DRP has confirmed the inclusion by stating that the company is into marketing support service and therefore to be included whereas the assessee is mainly into business support services and this fact has been acknowledged by the TPO. In the light of this we are of the considered view that Axience is not functionally comparable to the assessee and we hold accordingly. Platinum Advertising Private Limited (Platinum) is not a comparable company with that of the assessee as Platinum s functions i.e. advertising agency services, and media planning and ancillary services is different from the functional profile of the assessee which is mainly into business support services. We therefore direct the AO/TPO to exclude Platinum from the comparable list. Killick Agencies and Marketing Limited (Killick) and ICC International Agencies Limited (ICC) - We notice that the assessee has not contended the exclusion of ICC before the lower authorities and that the submissions made with regard to exclusion of Killick has not been considered. In view of this we remit the issue back to the TPO/AO for fresh consideration. The TPO/AO is directed to keep the decisions of the coordinate bench in assessee s own case 2021 (10) TMI 1392 - ITAT BANGALORE and Epson India 2022 (7) TMI 1377 - ITAT BANGALORE while deciding the issue after giving a reasonable opportunity of being heard to the assessee. It is ordered accordingly. Concept Public Relations India Ltd (Concept) - We have in earlier part of this order has excluded companies who are into marketing support services for the reason that it is functionally different from the profile of the assessee which is into business support services. Further Concept is in public and media relations which is functionally different from the activities of the assessee. Hence we hold that concept cannot be included as a comparable and the ground raised by the assessee in this regard is rejected. Priya International Ltd - On perusal of the annual report it is noticed that the company is into three different segments Indenting business, Trading business of chemicals and electronics. It is also noticed that the assessee has included the indenting business for the purpose comparison. However the nature of business the revenue of which is reported under indenting business is not coming out clearly from the annual report. The ld AR also could not substantiate that the activity reported under indenting business is functionally comparable to that of the assessee. Considering the overall nature of business of the company which is mainly into trading, we are of the considered view that the company is not functionally comparable with the assessee and need to be excluded. The assessee s ground in this regard is dismissed. EDCIL (India) Limited (EDCIL) - We notice that the coordinate bench in assessee s own case has held that EDCIL be excluded from the comparables for AY 2011-12 by relying on the decision in assessee s own case for AY 2008-09. The year under consideration being AY 2015-16, it is important to verify whether the facts are identical before applying the decision of the Hon ble Tribunal. Therefore we remit the issue back to the TPO/AO to verify the facts and if there is no change i.e. facts are being identical with that of earlier year in which the above decision is rendered, then follow the decision of the Hon ble Tribunal. Needless to say that the assessee be given a reasonable opportunity of being heard. It is ordered accordingly. Assessee seeking for considering the correct margins of the comparable - We direct the TPO/AO to consider the correct margins of the final list comparable that will be arrived at after considering the directions given in the above paragraphs of this order after giving a reasonable opportunity of being heard to the assessee. Working capital adjustment - Respectfully following the above decision of the Co-ordinate Bench in the case of Huawei Technologies India (P.) Ltd. 2018 (10) TMI 1796 - ITAT BANGALORE we hold that the working capital adjustment is to be allowed as per actuals, after considering the decisions rendered in this order on the exclusion/inclusion of comparable companies out of/into the final set of comparables. The TPO/AO is also directed to consider the submissions made by the assessee in this regard.
Issues Involved:
1. Acceptance/Rejection of Comparable Companies 2. Computation of Operating Margins 3. Working Capital Adjustment Issue-Wise Detailed Analysis: 1. Acceptance/Rejection of Comparable Companies: The primary issue revolves around the acceptance or rejection of certain companies as comparables for the purpose of Transfer Pricing (TP) adjustments. The Assessee contested the inclusion of Ugam Solutions Private Limited, Axience Consulting Private Limited, Platinum Advertising Private Limited, Killick Agencies and Marketing Limited, and ICC International Agencies Limited, arguing that these companies were functionally different from the Assessee. - Ugam Solutions Private Limited: The Assessee argued that Ugam Solutions is engaged in managed analytics services, which is different from the business support services provided by the Assessee. The Tribunal remitted the issue back to the AO/TPO to analyze the functions performed by Ugam during the year under consideration. - Axience Consulting Private Limited: The Tribunal found that Axience is mainly into analysis, research, and strategic human capital services, which are not comparable to the Assessee's business support services. Therefore, Axience was excluded from the list of comparables. - Platinum Advertising Private Limited: The Tribunal concluded that Platinum, being engaged in advertising agency services and media planning, is functionally different from the Assessee. Hence, Platinum was directed to be excluded from the comparable list. - Killick Agencies and Marketing Limited & ICC International Agencies Limited: The Tribunal noted that Killick is involved in commission and service income, and ICC operates in commission and servicing activity and trading activity, both of which are not comparable to the Assessee. The issue was remitted back to the TPO/AO for fresh consideration with directions to keep in mind the decisions of the coordinate bench in the Assessee's own case and Epson India case. 2. Computation of Operating Margins: The Assessee argued that the operating margins of certain companies were wrongly computed. The Tribunal directed the TPO/AO to consider the correct margins of the final list of comparables after considering the directions given in the order. 3. Working Capital Adjustment: The Assessee contended that suitable adjustments should be made to account for differences in working capital between the Assessee and the comparable companies. The Tribunal, following the decision in Huawei Technologies India (P.) Ltd., held that working capital adjustments should be allowed as per actuals. The TPO/AO was directed to consider the submissions made by the Assessee and allow the working capital adjustment accordingly. Additional Grounds: - The Tribunal admitted the additional grounds raised by the Assessee, which did not require examination of new facts, relying on the judgment of the Hon'ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC). Conclusion: The appeals for AYs 2015-16 and 2016-17 were partly allowed. The Tribunal directed the AO/TPO to re-evaluate the comparables and make necessary adjustments as per the directions provided, ensuring that the Assessee is given a reasonable opportunity of being heard. The working capital adjustments were to be allowed as per actuals, and the correct margins of the comparables were to be considered. Pronouncement: The judgment was pronounced in the open court on the 20th day of October, 2022.
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