2023 (5) TMI 1063 - AT - Income Tax

TP adjustment - international transaction relating to ITeS segment - comparable selection of Domex e-Data Pvt. Ltd - HELD THAT - As observed from the annual report that Domex e-Data Pvt. Ltd. is also into software development product renovation etc. and, therefore, this company is doing various activities and is different from the functions performed by the assessee before us. When the revenue authorities have not specifically examined and brought out why a particular company in the ITeS segment is specifically similar with that of the functions performed by the assessee and when the reason for inclusion of such comparable has not been analyzed with regard to the specific business, in such case, we are of the considered view in the given set of facts and circumstances and even considering the decision of coordinate benches, this company i.e. Domex e-Data Pvt. Ltd. is functionally dissimilar with that of the assessee company. We therefore, direct the AO/TPO to exclude Domex e-Data Pvt. Ltd. from the final set of comparables. Since on this issue, the assessee succeeds and Domex e-Data Pvt. Ltd. is excluded while benchmarking of the ITeS segment from the final list of comparables in the case of the assessee, therefore, all other transfer pricing grounds raised in this appeal becomes academic. With these observations, the appeal of the assessee stands allowed.

Summary

Issues Involved:
1. Transfer Pricing adjustment on account of the international transaction relating to Information Technology enabled Services (ITeS).
2. Exclusion of Domex e-Data Pvt. Ltd. from the final list of comparables.

Summary:

Transfer Pricing Adjustment:
The appeal concerns the assessment of the total income of INR 1,71,54,680 against the returned income of INR 88,61,750 for A.Y. 2018-19. The primary issue is the transfer pricing adjustment of INR 82,92,925 related to ITeS transactions. The Assessee contended that the Ld. AO/TPO/DRP erred in upholding the transfer pricing addition, disregarding the economic analysis in the TP documentation, applying additional quantitative filters, and including/excluding certain companies in/from the final list of comparables. The Assessee also challenged the initiation of penalty proceedings u/s 270A and the computation of interest under sections 234B and 234C of the Act.

Exclusion of Domex e-Data Pvt. Ltd.:
The Assessee argued for the exclusion of Domex e-Data Pvt. Ltd. from the list of comparables, citing functional dissimilarities, lack of segmental details, and reservations in the auditor's report. The TPO and DRP retained Domex e-Data Pvt. Ltd. in the final list, considering its principal business of providing e-commerce services similar to ITeS. However, the Tribunal found that Domex e-Data Pvt. Ltd. is engaged in diversified activities, including software development, KPO, and BPO services, making it functionally dissimilar to the Assessee's ITeS functions. The Tribunal referenced previous decisions where Domex e-Data Pvt. Ltd. was excluded from the comparables for ITeS benchmarking.

Conclusion:
The Tribunal directed the AO/TPO to exclude Domex e-Data Pvt. Ltd. from the final set of comparables. With this exclusion, the Assessee's margin falls within the comparable range, rendering other transfer pricing grounds academic. Consequently, the appeal of the Assessee was allowed.