2022 (1) TMI 1045 - AT - Income Tax

TP Adjustment - Comparable selection - HELD THAT - Axis Integrated System Ltd. be excluded from the list of comparables as not functionally similar, engaged in addressing regulatory and licensing requirements and acts as a liaison between all related Government and regulatory agencies and providing specialized consultancy services. Excludability of HSCC (India) Ltd. - On a careful consideration of the orders of the authorities below in the light of the material available on record, we are of the considered opinion that the provision of the professional consultancy services in healthcare and other social sector has to be compared with the functions performed by the assessee, and that aspect needs proper verification as the data before us cannot convey as to how this comparable has to be excluded or included. Therefore, it will be appropriate to remand the issue relating to its comparability to the file of the Ld. TPO/learned Assessing Officer for thorough verification and if found to have been performing different functions, the same should be excluded from the list of comparables, after hearing the assessee. Computation of the working capital adjustment - As computation of the working capital adjustment was not properly done and the same has to be done in accordance with the ALP margins, and accordingly directed the TPO/learned Assessing to re-compute the working capital adjustment as per the ALP margins, after affording an opportunity to the assessee of being heard. Both the counsel submitted that the same course may be adopted for this year also. Recording the same, we restore this issue to the file of the Ld. TPO/learned Assessing Officer to re-compute the working capital adjustment as per the ALP margins, after hearing the assessee.

Summary

Issues:
1. Exclusion of certain comparables for benchmarking international transactions.
2. Inclusion of specific comparables for benchmarking international transactions.
3. Working capital adjustment in the assessment.

Issue 1: Exclusion of certain comparables for benchmarking international transactions:
The appellant contested the exclusion of Hi Tech Laboratories and India Tourism Development Corporation Ltd. as comparables. The argument focused on the functional similarity of these companies to the assessee's operations. The Tribunal directed the Assessing Officer to include India Tourism Development Corporation Ltd. as a comparable due to its functional similarity, despite being a government-owned entity. Similarly, Hi Tech Laboratories was directed to be included as a comparable, disregarding its lower turnover for the specific year under consideration.

Issue 2: Inclusion of specific comparables for benchmarking international transactions:
The appellant challenged the inclusion of Kestone Integrated Mktg. Services Pvt. Ltd. and HSCC (India) Ltd. as comparables. The Tribunal excluded Axis Integrated Systems Ltd. based on its dissimilarity in functions compared to the assessee, following a similar decision in a previous year. Regarding HSCC (India) Ltd., the Tribunal remanded the issue for further verification on comparability due to the nature of professional consultancy services provided by the company.

Issue 3: Working capital adjustment in the assessment:
The Tribunal noted discrepancies in the working capital adjustment computation and directed the Assessing Officer to re-compute the adjustment as per Arm's Length Price (ALP) margins, following a similar decision in a previous case. Both parties agreed to this course of action for resolving the working capital issue. Consequently, the appeal of the assessee was allowed in part for statistical purposes.

In conclusion, the judgment addressed the exclusion and inclusion of specific comparables for benchmarking international transactions, emphasizing functional similarity and turnover considerations. Additionally, the working capital adjustment issue was resolved by directing a re-computation in line with ALP margins, ensuring fairness and accuracy in the assessment process.