2023 (12) TMI 868 - AT - Income Tax

TP Adjustment - Comparable selection - Excluding two comparable companies M/s Exclerx Services Ltd. and M/s Vishal Information Technologies Ltd. from the set of comparables for benchmarking assessee s international transaction of provision of back office support services - HELD THAT - Vishal Information Ld. Outsourced significant portion of its business whereas assessee company entirely carried out its business without outsourcing therefore we justify the decision of ld. CIT(A) in excluding this company from the list of comparable. In respect of Eclerx Service Ltd. we find that the function of that company was not similar to the assessee company therefore we do not find any merit in the ground of appeal of the Revenue. No infirmity in the decision of ld. CIT(A). Accordingly, ground no. 1 of the appeal of the revenue is dismissed. M/s R System International Ltd. company was functionally comparable with the assessee company and consistently accepted as a comparable for the earlier years by the lower authorities, we don t find any reason to interfere in the decision of ld. CIT(A) for including this company in the set of comparable. Therefore this ground of appeal of the revenue is dismissed.

Summary

Issues involved:
The judgment involves issues related to transfer pricing adjustments for international transactions and the selection of comparable companies for benchmarking purposes.

Issue 1: Exclusion of two comparable companies from benchmarking:
The Tribunal considered the objection raised by the appellant regarding the inclusion of two companies, M/s Exclerx Services Ltd. and M/s Vishal Information Technologies Ltd., as comparables for benchmarking the back office support services provided by the assessee. The Tribunal noted the functional differences between the services provided by these companies and the assessee, ultimately upholding the decision of the CIT(A) to exclude them from the list of comparables.

The Tribunal observed that Vishal Information Technology Ltd. outsourced a significant portion of its business operations, unlike the assessee who conducted its operations internally. Similarly, Eclerx Services Limited was engaged in data analytics and knowledge process outsourcing, which differed from the services provided by the assessee. Citing relevant case law, the Tribunal concluded that the functional dissimilarities justified the exclusion of these companies from the list of comparables.

Issue 2: Inclusion of M/s R System International Ltd. as a comparable:
The Tribunal examined the inclusion of M/s R System International Ltd. as a comparable for benchmarking the international transaction of professional services provided by the assessee. While the TPO initially rejected this company from the list of comparables, the CIT(A) accepted the contention of the assessee and included R System International Ltd. in the list.

The assessee argued that R System International Ltd. was engaged in BPO services and was functionally comparable to the assessee company. The Tribunal noted that this company had been accepted as a comparable in previous assessment years by the lower authorities, indicating functional comparability. Consequently, the Tribunal upheld the decision of the CIT(A) to include R System International Ltd. in the set of comparables.

In conclusion, the Tribunal dismissed the appeal of the revenue, affirming the decisions of the CIT(A) regarding the exclusion and inclusion of comparable companies for benchmarking purposes in the context of transfer pricing adjustments for international transactions.