ITES transfer pricing comparables excluded for functional dissimilarity, extraordinary events and faulty segmental margin computation.

In ITES transfer pricing benchmarking under TNMM, Accentia Technologies Ltd. was excluded because extraordinary events such as acquisition and amalgamation distorted comparability. Cosmic Global Ltd. and Informed Technologies India Ltd. were also rejected as comparables due to their outsourced business model, lower employee-cost intensity and functional dissimilarity with a captive ITES provider. Jeevan Softech Ltd.'s margin required correction because segmental ITES revenue had not been properly considered. With the comparables revised, the transfer pricing adjustment had to be recomputed, the challenge to single-year data failed for want of a legal basis, and the connected interest, penalty and risk-adjustment grounds did not survive.

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Issues: Whether, in benchmarking the assessee's ITES international transactions, Accentia Technologies Ltd., Cosmic Global Ltd. and Informed Technologies India Ltd. were to be excluded from the comparables, whether the margin of Jeevan Softech Ltd. required correction, and whether the related transfer pricing adjustment and connected grounds could be sustained.

Analysis: The assessee was an ITES provider and the benchmarking was done under the Transactional Net Margin Method. Accentia Technologies Ltd. was held to be unsuitable because the record showed extraordinary events during the relevant year, including acquisition and amalgamation, affecting comparability. Cosmic Global Ltd. was found to function under a different business model with substantial outsourcing and low employee-cost intensity, making it functionally dissimilar to a captive ITES provider. Informed Technologies India Ltd. was also excluded because it followed a similar outsourced model, had a materially lower employee-cost ratio, and showed abnormal profitability trends. The margin of Jeevan Softech Ltd. was accepted as requiring correction because the segmental ITES revenue had not been properly considered. In view of the corrected comparables, the objection regarding CSS Technology Ltd. was rendered infructuous, and no separate risk adjustment survived once the arm's length position was to be recomputed. The challenge based on use of single-year data failed in the absence of a legal basis to insist on multi-year data. The grounds relating to interest and initiation of penalty were consequential or premature.

Conclusion: Accentia Technologies Ltd., Cosmic Global Ltd. and Informed Technologies India Ltd. were directed to be excluded, Jeevan Softech Ltd.'s margin was to be corrected, the transfer pricing adjustment was to be recomputed accordingly, and the remaining connected grounds were rejected or treated as infructuous.

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