2023 (3) TMI 960 - AT - Income Tax

TP Adjustment - Comparable selection - HELD THAT - Assessee is into providing Information Technology Enabled Services (ITES), thus companies functionally dissimilar with that of assessee need to be deselected from final list. Revenue challenging the direction issued by Ld. CIT(A) to TPO to recalculate the margins of comparables - Revenue contended that since Ld. TPO has no such power to set aside the order of the Ld. TPO u/s 251 of the Act the directions are not sustainable - HELD THAT - CIT(A) issued the direction by noticing the patent irregularity committed by the Ld. TPO by not computing the correct margin. Moreover, when M/s. Jindal Intellicom Ltd. passes the export filter for F.Y. 2012-13 with export to sales ratio of 81.85%, the correct margin needs to be calculated. So we find no illegality in issuing directions by Ld. CIT(A) to the Ld. TPO to verify the facts after providing opportunity of being heard to the assessee. Hence, ground No.2 is also determined against the Revenue.

Summary

Issues:
1. Exclusion of MPS Ltd. as a comparable company.
2. Challenge to the direction given by Ld. CIT(A) to TPO to recalculate margins of M/s. Jindal Intellicom Ltd.

Analysis:

Issue 1: Exclusion of MPS Ltd. as a comparable company
The appellant, ACIT, Mumbai, filed an appeal to set aside the order passed by the Assessing Officer (AO) regarding the assessment year 2015-16. The main contention was the exclusion of MPS Ltd. as a comparable company. The Revenue argued that MPS Ltd. is functionally similar to the assessee, being a BPO company. However, the assessee contended that MPS Ltd. is a KPO company and a product company, making it functionally dissimilar. The Tribunal analyzed the functional profile of MPS Ltd., which highlighted its high-end services and product-oriented nature, contrasting with the routine ITES services provided by the assessee. The Tribunal agreed with the Ld. CIT(A) that MPS Ltd. was not a valid comparable, considering its services and risk profile. The Tribunal upheld the exclusion of MPS Ltd. as a comparable, ruling against the assessee on this ground.

Issue 2: Challenge to the direction to recalculate margins of M/s. Jindal Intellicom Ltd.
The second ground of appeal challenged the direction given by Ld. CIT(A) to the Transfer Pricing Officer (TPO) to recalculate the margins of M/s. Jindal Intellicom Ltd. The Revenue argued that the Ld. TPO had no power to set aside the order under section 251 of the Act. However, the Ld. CIT(A) directed the TPO to adopt the correct margin after providing an opportunity to the assessee. The Tribunal found that the Ld. CIT(A) issued the direction due to a clear irregularity by the TPO in not computing the correct margin for M/s. Jindal Intellicom Ltd. The Tribunal upheld the direction given by the Ld. CIT(A) as it was necessary to verify the correct margin, especially when the company passed the export filter for the relevant year. Consequently, the Tribunal ruled against the Revenue on this ground as well.

In conclusion, the Tribunal dismissed the appeal filed by the Revenue, upholding the decisions regarding the exclusion of MPS Ltd. as a comparable company and the direction to recalculate margins for M/s. Jindal Intellicom Ltd. The order was pronounced on 29.07.2022.