2020 (3) TMI 278 - AT - Income Tax

TP Adjustment - comparable selection - HELD THAT - Assessee provided software development services ; information technology enabled services and marketing support services to its associated enterprises on cost plus mark-up basis and availed of the management support services in the nature of legal, finance, human resource, information technology support and other support services from Avaya Singapore, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Exclusion of government companies - Because of the absence of the profit motive and discharge of the social obligations, the Government companies stand on a different pedestal and are not good comparable to the entities like the assessee.

Issues Involved:
1. Inclusion of HCCA Business Services Private Limited as a comparable.
2. Inclusion of HSCC (India) Limited as a comparable.
3. Inclusion of Empire Industries Limited as a comparable.
4. Exclusion of Kestone Integrated Marketing Services Private Limited as a comparable.

Detailed Analysis:

1. Inclusion of HCCA Business Services Private Limited as a Comparable:
The assessee argued that HCCA Business Services Private Limited is functionally dissimilar as it is engaged in payroll processing and compensation restructuring. It was noted that in the assessee’s own case for the assessment year 2010-11, this company was held not to be a suitable comparable due to functional dissimilarity. The Tribunal agreed with the assessee, holding that the functions of both the assessee and HCCA Business Services Private Limited remained unchanged, thus following the earlier decision that HCCA Business Services Private Limited is not a good comparable to benchmark the international transaction.

2. Inclusion of HSCC (India) Limited as a Comparable:
The assessee objected to the inclusion of HSCC (India) Limited, stating it is engaged in multiple business activities and lacks segmental accounts. Moreover, HSCC (India) Limited is a wholly owned Government enterprise, which secures key contracts through Government backing, contrasting with the competitive environment in which the assessee operates. The Tribunal referenced several decisions, including CIT v. Thyssen Krupp Industries India P. Ltd. and Pr. CIT v. International SOS Services India P. Ltd., which held that Government enterprises are not suitable comparables due to their non-profit motives and social obligations. Following these precedents, the Tribunal held that HSCC (India) Limited is not a good comparable and should be excluded from the list.

3. Inclusion of Empire Industries Limited as a Comparable:
The assessee contended that Empire Industries Limited is functionally dissimilar as it is involved in manufacturing and distribution of high-tech machines and pharmaceuticals, and trading activities. The Tribunal referred to the decision in Philip Morris Services India SA (India Branch) v. ADIT, which found Empire Industries Limited unsuitable as a comparable for companies rendering market support services. Given the functional dissimilarity, the Tribunal directed the deletion of Empire Industries Limited from the list of comparables.

4. Exclusion of Kestone Integrated Marketing Services Private Limited as a Comparable:
The assessee sought the inclusion of Kestone Integrated Marketing Services Private Limited, arguing that the Transfer Pricing Officer excluded this comparable without giving the assessee an opportunity to dispute its exclusion. The Tribunal agreed to remit the issue back to the Transfer Pricing Officer/Assessing Officer for reconsideration, allowing the assessee to present their objections.

Conclusion:
The Tribunal dismissed the stay application filed by the assessee and allowed the appeal in part for statistical purposes. The decisions on the inclusion/exclusion of comparables were made based on functional similarity and adherence to precedents, ensuring a fair assessment of the assessee’s international transactions.

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