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2024 (7) TMI 708 - AT - Income TaxTP Adjustment - Comparable selection - HELD THAT - Nihilent Limited company deals in Enterprise transformation and change management, Digital transformation services and Enterprise IT services. We also observe that there is no segmental reporting made in the annual report. It is seen that the assessee is engaged in business requirement gathering, business solution design, software design, software development/implementation/support services, project management, software QA, software support services, technical documentation etc. We are of the opinion that the services provided by the assessee company are routine services whereas Nihilent Limited is providing services which are in the area of transformation of the enterprises and change management which are quite different from the services provided by the assessee. Thus, we are of the opinion that Nihilent Limited cannot be used as a comparable to the assessee. We direct the Ld. TPO/AO to exclude this company from the set of comparables.
Issues Involved:
Transfer Pricing Adjustment based on Selection of Comparable Companies Analysis: 1. The appeal was filed by the Assessee against the final assessment order passed by the Deputy Commissioner of Income Tax under sections 143(3), 144C(13), and 144B of the Income Tax Act, 1961 for the Assessment Year 2016-17 based on directions from the Dispute Resolution Panel, Mumbai. 2. The Assessee, engaged in providing IT support services, contested the inclusion of certain companies by the Transfer Pricing Officer (TPO) as comparables for benchmarking purposes. The TPO proposed an adjustment of INR 4,64,42,458, which was later revised to INR 2,05,14,870 based on the final set of comparables. 3. The Assessee approached the Dispute Resolution Panel (DRP) to challenge the selection of new companies by the TPO as comparables. The DRP sought a remand report from the TPO, leading to the exclusion of certain companies based on the additional evidence provided by the Assessee. 4. The final comparables selected by the TPO/AO included companies like Evoke Technologies, CG VAK Software, Harbinger System, Rheal Software, RS Software India, among others, with margins ranging from 4.30% to 84.37%. The adjustment was recalculated at INR 2,05,14,870 using the median margin of 21.14%. 5. During the hearing, the Assessee challenged the inclusion of four comparables: Nihilent Ltd., Infobeans Technologies Ltd., Thirdware Solutions Ltd., and Cybercom Datamatics Information Solutions Ltd. The Assessee argued that these companies were engaged in diverse activities and lacked segmental reporting, making them incomparable to the Assessee. 6. The Tribunal analyzed each company individually and concluded that Nihilent Limited was not comparable to the Assessee due to its focus on enterprise transformation and change management services, unlike the routine IT support services provided by the Assessee. Consequently, the Tribunal directed the exclusion of Nihilent Limited from the set of comparables. 7. The Tribunal noted that excluding Nihilent Limited alone would result in the deletion of the entire adjustment. Therefore, the Tribunal did not address the arguments against the other three companies, deeming the discussion on those companies academic. The Assessee was allowed to challenge the comparability of these companies in future assessments. 8. As a result, the appeal of the Assessee was partly allowed, and the order was pronounced on 29th Jan, 2024.
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