2024 (2) TMI 1486 - HC - Income Tax

TP Adjustment - comparable selection - ITAT justification in deleting the comparable TCS e-Serve on the basis of the said comparable having a high profitability and brand when TNMM Transactional Net Margin Method as an appropriate method is deployed to iron out the differences among the comparables for the sake of a broad comparison - HELD THAT - We find that the issue of TCS e-Serve being used as a comparable came up for consideration in PCIT v. B.C. Management Services Pvt. Ltd 2017 (12) TMI 255 - DELHI HIGH COURT wherein held Income-tax Appellate Tribunal observed that though there is a close functional similarity between that entity and the assessee however there is a close connection between TCS E-serve and TATA Consultancy Service Ltd. which was high brand value ; that distinguished it and marked it out for exclusion. The Income-tax Appellate Tribunal recorded that the brand value associated with TCS Consultancy reflected/impacted TCS E- serve profitability in a very positive manner. This inference too in the opinion of the court cannot be termed as unreasonable. The rationale for exclusion is therefore upheld. Decided in favour of assessee.

Summary

Issues:
1. Justification of ITAT in deleting TCS e-Serve as a comparable for TNMM method.
2. Deletion of addition to book profit under Section 115 JB by ITAT.

Analysis:
The High Court considered the appeal where the Commissioner challenged the ITAT's judgment regarding the exclusion of TCS e-Serve as a comparable and the addition made to book profit under Section 115 JB. The Court referred to a previous case where the exclusion of comparables based on functional dissimilarities and absence of segmental data was upheld. The Court noted that the ITAT excluded TCS e-Serve due to its close connection with TATA Consultancy Service Ltd. and high brand value, impacting its profitability positively. The Court found this rationale for exclusion reasonable and in line with the legal position. The Court also mentioned the exclusion of Accentia, a software development company, based on functional differences and unavailability of segmental data. The Court held that no substantial question of law arose from these findings and dismissed the appeals.

Regarding the second issue, the Court considered the contention of Mr. Kalra, who referred to a Supreme Court judgment in Apollo Tyres Ltd. v. CIT, stating that question B, regarding the addition to book profit, should be answered in favor of the assessee. The Court, in line with the legal position and the view taken by the ITAT, found that the appeal did not raise any substantial question of law. Therefore, the Court dismissed the appeal, upholding the decision of the ITAT.