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2020 (3) TMI 1021 - AT - Income TaxTP Adjustment - comparable selection - functional dissimilarity - HELD THAT - Assessee rendered Information Technology Enabled Services ITES to its AE, thus companies functionally dissimilar with that of assessee need to be deselected from final list. We uphold the exclusion of Genesys International Corporation Ltd., and Mold-tek Technologies Ltd., by the CIT(A) and dismiss the relevant grounds of appeal of the revenue. We also direct exclusion of the following six companies sought by the Assessee in its appeal, viz., Accentia Technologies Ltd., Acropetal Technologies Ltd., Crossdomain Solutions Pvt. Ltd., Eclerx Services Ltd., Infosys BPO Ltd., and WIPRO Ltd. We also direct the TPO while giving effect to this order to verify the correctness of the claim of the Assessee with regard to incorrect profit margin of comparable companies considered by the CIT(A) in the impugned order as stated in the application filed u/s.154 of the Act and if found correct, adopt the correct profit margins as reflected in the TPO s order. The TPO shall recomputed the ALP in the light of the directions given above after affording opportunity of being heard to the Assessee.
Issues Involved:
1. Determination of Arm's Length Price (ALP) for international transactions related to Information Technology Enabled Services (ITeS). 2. Selection and exclusion of comparable companies for Transfer Pricing analysis. 3. Clerical errors in the computation of profit margins of comparable companies. Issue-Wise Detailed Analysis: 1. Determination of ALP for International Transactions Related to ITeS: The case involves the determination of the ALP for international transactions carried out by the assessee with its Associated Enterprise (AE) in respect of ITeS. The assessee received ?20,05,56,461 from its AE for providing these services and justified this amount as being at arm's length using the Transactional Net Margin Method (TNMM) with Operating Profit to Operating Cost (OP/OC) as the profit level indicator (PLI). The Transfer Pricing Officer (TPO), however, proposed a different set of 20 comparable companies and determined an ALP of ?22,92,66,890, resulting in a shortfall of ?2,87,10,429, which was treated as a transfer pricing adjustment. 2. Selection and Exclusion of Comparable Companies: The CIT(A) directed the exclusion of Genesys International Corporation Ltd., Coral Hub Ltd., and Mold-tek Technologies Ltd. from the list of comparable companies chosen by the TPO, leading to a revised profit margin of 24.23%. The assessee pointed out clerical errors in this calculation, which were pending rectification. The revenue appealed against the exclusion of Genesys International Corporation Ltd. and Mold-tek Technologies Ltd., while the assessee sought the exclusion of six additional companies: Accentia Technologies Ltd., Acropetal Technologies Ltd., Crossdomain Solutions Pvt. Ltd., Eclerx Services Ltd., Infosys BPO Ltd., and WIPRO Ltd. The Tribunal referred to a previous decision in the case of Symphony Marketing Solutions India (P) Ltd. Vs. ITO, where the comparability of the same companies was considered. It was held that these companies were not functionally comparable with a company rendering ITeS such as the assessee. The Tribunal upheld the exclusion of Genesys International Corporation Ltd. and Mold-tek Technologies Ltd. and directed the exclusion of the six additional companies sought by the assessee. 3. Clerical Errors in the Computation of Profit Margins: The assessee pointed out clerical errors in the computation of profit margins of comparable companies by the CIT(A). The Tribunal directed the TPO to verify the correctness of these claims and adopt the correct profit margins if found accurate. The TPO was instructed to recompute the ALP in light of these directions after providing the assessee with an opportunity to be heard. Conclusion: The Tribunal partly allowed the appeal of the assessee and dismissed the appeal of the revenue. The TPO was directed to verify and correct the profit margins of the comparable companies and recompute the ALP accordingly. The decision emphasized the importance of selecting functionally comparable companies and addressing clerical errors in the computation process.
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