2017 (12) TMI 196 - AT - Income Tax

TPA - comparable selection criteria - Held that - Assessee is engaged in providing business support services, thus companies functionally dissimilar with that of assessee need to be deselected from final list.

Issues Involved:
1. Validity of the assessment order under section 143(3) read with section 144C.
2. Transfer Pricing (TP) adjustment of ?63,54,367.
3. Rejection of TP documentation by the Transfer Pricing Officer (TPO).
4. Use of inappropriate filters by the TPO to find comparables.
5. Rejection of multiple year data by the appellant.
6. Rejection of comparables adopted by the appellant and inclusion of new comparables by the TPO.
7. Disregard of additional comparables proposed by the appellant.
8. Rejection of risk adjustment due to difference in risk profiles.
9. Incorrect calculation of profit margins of comparables.
10. Charging of interest under sections 234B, 234C, and initiation of penalty proceedings under section 271(1)(c).

Issue-wise Detailed Analysis:

1. Validity of Assessment Order:
The appellant challenged the assessment order passed under section 143(3) read with section 144C, arguing that it failed to appreciate the facts and applicable law. This ground was dismissed as it was general and covered by other specific grounds.

2. TP Adjustment of ?63,54,367:
The appellant contested the addition of ?63,54,367 to its income on account of TP adjustment. The TPO had proposed an adjustment based on a different set of comparables, leading to this addition. The Tribunal examined the comparables and adjustments proposed by the TPO.

3. Rejection of TP Documentation:
The TPO rejected the TP documentation of the appellant, which used the Transaction Net Margin Method (TNMM) with operating profit/total cost as the profit level indicator. The Tribunal upheld the TPO's rejection, noting the use of inappropriate filters and comparables.

4. Use of Inappropriate Filters:
The appellant argued that the TPO used inappropriate filters to find comparables. The Tribunal found that the TPO's filters were not appropriate and directed the inclusion of certain comparables proposed by the appellant.

5. Rejection of Multiple Year Data:
The appellant's use of multiple year data was not pressed, and this ground was dismissed.

6. Rejection and Inclusion of Comparables:
- EDCIL (India) Ltd.: The Tribunal held that the financial data from the MCA website should be considered as public domain information. EDCIL was found to be functionally comparable and included in the final analysis.
- Aptico Limited: The Tribunal found that Aptico provided high-end consultancy services, which were not comparable to the appellant's business support services, and directed its exclusion.
- TSR Darashaw Limited: The Tribunal held that TSR Darashaw provided share registry services, which were not comparable to the appellant's services, and directed its exclusion.
- Cameo Corporate Services Limited: Similar to TSR Darashaw, Cameo was found to be primarily engaged in registry and share transfer services and was excluded.

7. Disregard of Additional Comparables:
- Marketing Consultants & Agencies Ltd.: The Tribunal directed the inclusion of this company, noting that segmental data for service income was available, making the application of the service income filter unnecessary.
- Sporting & Outdoor Ad-Agency Pvt. Ltd.: The Tribunal directed the inclusion of this company, noting that a minor decline in revenue did not justify its exclusion.
- Overseas Manpower Corporation Ltd.: The Tribunal found this company to be functionally comparable and directed its inclusion.

8. Rejection of Risk Adjustment:
The appellant did not press this ground, and it was dismissed.

9. Incorrect Calculation of Profit Margins:
The appellant contested the profit margin calculation of HSCC (India) Ltd. The Tribunal directed the TPO to verify and correct the margin calculation, considering bad debts and provision for doubtful debts as operating expenses.

10. Charging of Interest and Penalty Proceedings:
The Tribunal found these issues to be consequential and premature, refraining from adjudicating on them and dismissing the grounds.

Conclusion:
The appeal was partly allowed, with specific directions for inclusion/exclusion of certain comparables and correction of profit margin calculations. The Tribunal upheld the rejection of multiple year data and risk adjustment claims while dismissing general and premature grounds. The final order was pronounced on 30.11.2017.

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