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2024 (1) TMI 841 - AT - Income TaxTP Adjustment - comparable selection f or determining ALP in respect of Marketing Support Services - HELD THAT - Axis Integrated System Ltd. - As per the marketing support services agreement the assessee was engaged in providing services to its associate enterprise regarding the marketing of product whereas the Axis Integrated System Ltd. was engaged in providing services related to Directorate General of Foreign Trading, customers/ excise and tax related services which were in the nature of professional consultancy services. Similarly, in the case of the assessee itself for A.Y. 2014-15 2023 (8) TMI 1420 - ITAT MUMBAI after following the above referred decision directed the AO/TPO to exclude the Axis Integrated System Ltd. as comparable. Following the decision of the ITAT as referred supra the AO is directed to exclude the AISL from the list of the comparable, therefore, ground of appeal no. 1.6 to 1.8 are allowed. Killick Agency and Marketing Ltd. be excluded considering the different function and revenue and activity. Majestic Research and Solution Ltd. was engaged in various activity like study, design, data collection etc. and the function was not comparable with the assessee company, thus we direct the assessing officer to exclude this company from the list of comparable.
Issues Involved:
1. Adjustments to international transactions pertaining to software development, IT-enabled services, marketing support services, and employee stock option plan expenses. 2. Determination of arm's length price (ALP) for software development services, IT-enabled services, and marketing support services. 3. Inclusion and exclusion of certain companies in the final set of comparable companies. 4. Working capital adjustment to the Profit Level Indicator (PLI). 5. Deduction of education cess. Summary: Issue 1: Adjustments to International Transactions The learned Assessing Officer (AO) completed the assessment under section 144C(13) read with section 143(3) of the Income-tax Act, 1961, making adjustments to the international transactions. The total income was assessed at INR 276,61,63,621 against the returned income of INR 194,22,84,460. Issue 2: Determination of Arm's Length Price (ALP) Software Development Services: Grounds 1.2 to 1.5 were not pressed by the assessee and hence dismissed. Marketing Support Services: The assessee rendered marketing support services to its associate enterprise on a cost-plus basis, with a margin of 11%. The Transfer Pricing Officer (TPO) included Axis Integrated Systems Limited in the final list of comparables, which the assessee objected to, arguing it was not functionally comparable. The Dispute Resolution Panel (DRP) upheld the TPO's decision. However, the ITAT, following its previous decision for the assessee's own case, directed the exclusion of Axis Integrated Systems Limited from the list of comparables. Employee Stock Option Plans: Grounds 1.9 and 1.10 were not pressed by the assessee and hence dismissed. Working Capital Adjustment: Ground 1.11 was not pressed by the assessee and hence dismissed. Deduction of Education Cess: Ground 1.12 was not pressed by the assessee and hence dismissed. Additional Grounds: The assessee filed additional grounds to exclude Killick Agencies and Marketing Limited and Majestic Research Services and Solutions Limited from the list of comparables due to functional dissimilarity. The ITAT, considering the functional differences and judicial precedents, directed the exclusion of these companies from the list of comparables. Conclusion: The appeal was partly allowed, with specific directions to exclude certain companies from the list of comparables for determining the ALP for marketing support services. The additional grounds filed by the assessee were also allowed.
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