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2024 (1) TMI 1030 - AT - Income TaxTP Adjustment - comparable selection - functional comparisons - HELD THAT - Domex is not functionally comparable to assessee as is engaged in diversified activities including software development KPO and BPO services and hence is directed to be excluded from the list of comparables. MPS - As Acquisition/amalgamation/mergers are extraordinary events in the life circle of company which substantially impact the margins of the acquiring company in the relevant financial years. The Tribunal has been consistently holding that where there is an extraordinary event in a relevant year the company should not be accepted as comparable. Thus in the facts of the case we find merit in argument of the assessee to exclude MPS Ltd. from the list of comparable. We direct accordingly. Vitae company is engaged in providing diversified services cannot be considered as comparable to ITES service provider. Taking into consideration entire facts we direct the TPO to exclude Vitae from the list of comparables. Access Healthcare company is engaged in providing professional technical and business services. The nature of services provided by the company falls into the category of KPO. Thus the services rendered by the company requires higher level of skill and specialized knowledge. The companies rendering KPO services are not comparable to the company providing ITES BPO services. R. Systems International Ltd. rejected as comparable on the ground of different financial year - It is not the case of Revenue that the company is in any manner functionally different from that of the assessee or the said company does not fall within any of the parameters of filters applied. The Hon ble Delhi High Court in the case of CIT vs. Mc Kinsey Knowledge Centre India Pvt. Ltd 2015 (3) TMI 1226 - DELHI HIGH COURT has held that if from the available data on record the results for financial year can reasonably be extrapolated then the comparable cannot be excluded solely on the ground that the comparables have different financial year endings. Thus in light of our above observations we hold R-Systems to be a valid and good comparable and direct the A.O to include R-Systems in the list of comparables. Sundaram Business Services excluded on the ground of functional disparity - Once the company has been accepted as functionally comparable in the preceding and the subsequent assessment years there can be no plausible reason to reject the same on the ground of functional disparity in the sandwich assessment year. Hence the said company is directed to be included in the list of comparables.
Issues Involved:
1. Exclusion of certain comparables from the Transfer Pricing study. 2. Inclusion of certain comparables in the Transfer Pricing study. 3. Levy of interest under sections 234B and 234D of the Income Tax Act. 4. Initiation of penalty proceedings under section 270A of the Income Tax Act. Summary: 1. Exclusion of Comparables: Domex E-data Pvt. Ltd. (Domex): The assessee argued that Domex is functionally different as it provides knowledge processing services and engages in diversified activities including software development without segmental data. The Tribunal agreed, citing previous cases (Katerra Technology Services LLP vs. ACIT and Altair Engineering India (P) Ltd. vs. ACIT), and directed Domex to be excluded from the list of comparables. MPS Ltd. (MPS): The assessee contended that MPS is functionally dissimilar due to its engagement in content creation and extraordinary events like acquisitions impacting margins. The Tribunal found merit in these arguments and directed the exclusion of MPS from the list of comparables. Vitae International Accounting Services Pvt. Ltd. (Vitae): The Tribunal noted that Vitae is engaged in diversified services such as accounting, auditing, and staffing, making it functionally different from the assessee. The Tribunal directed the exclusion of Vitae from the list of comparables. Access Healthcare Services Pvt. Ltd. (Access Healthcare): The Tribunal held that Access Healthcare provides KPO services requiring higher skill levels, making it non-comparable to the assessee's ITES-BPO services. The Tribunal directed the exclusion of Access Healthcare from the list of comparables. 2. Inclusion of Comparables: R. Systems International: The TPO rejected this comparable due to a different financial year. However, the Tribunal noted that audited quarterly financial results are available and that the TPO had accepted R. Systems in other assessment years. Citing the Delhi High Court's decision in CIT vs. Mc Kinsey Knowledge Centre India Pvt. Ltd., the Tribunal directed the inclusion of R. Systems in the list of comparables. Sundaram Business Services: The TPO rejected this comparable on functional disparity grounds. The Tribunal observed that the TPO had accepted Sundaram in previous and subsequent assessment years without any change in business activities. Thus, the Tribunal directed the inclusion of Sundaram in the list of comparables. 3. Levy of Interest: The assessee's challenge to the levy of interest under sections 234B and 234D was dismissed as charging of interest under these sections is mandatory and consequential. 4. Penalty Proceedings: The assessee's challenge to the initiation of penalty proceedings under section 270A was dismissed as premature. Conclusion: The appeal of the assessee was partly allowed, with specific directions for the inclusion and exclusion of certain comparables in the Transfer Pricing study. The challenges regarding the levy of interest and initiation of penalty proceedings were dismissed.
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