2016 (6) TMI 1267 - AT - Income Tax

Tribunal directs re-computation of arm's length price adjustment, addresses inappropriate comparables

The Tribunal partially allowed the appeal, directing the AO/TPO to re-compute the arm's length price adjustment based on a revised list of comparables. ... TPA - selection of comparable - Held that:- Assessee has generated revenue under the following categories hiring solutions, marketing solutions, premium subscriptions. The company has characterised itself as being engaged in marketing and sales promotion activities with its AE and is a Support service provider that does not own any intangibles, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Issues Involved:1. Assessment of total income.2. Transfer pricing adjustment for marketing support services.3. Inclusion of inappropriate comparables.4. Rejection of certain functionally comparable companies.5. Charging of interest under Sections 234B and 234D.6. Initiation of penalty proceedings under Section 271(1)(c).Detailed Analysis:1. Assessment of Total Income:The appellant contested the assessment of total income at Rs. 1,95,95,410/- against the returned income of Rs. 71,44,336/-. The Tribunal reviewed the assessment order and the appellant's submissions but did not find grounds to interfere with the assessment of total income as determined by the Assessing Officer (AO).2. Transfer Pricing Adjustment for Marketing Support Services:The AO, based on the Transfer Pricing Officer (TPO)'s findings, made an adjustment of Rs. 1,23,17,594/- to the international transaction related to marketing support services, alleging it was not at arm's length. The Tribunal noted that the appellant did not dispute the use of the Transactional Net Margin Method (TNMM) but contested the selection of comparables used by the TPO.3. Inclusion of Inappropriate Comparables:The TPO included certain companies as comparables which the appellant argued were not functionally comparable. Specifically, the Tribunal examined the inclusion of Media Research Users Council and Info Edge India Ltd.:- Media Research Users Council: The Tribunal found that this company, being a non-profit organization generating revenue from subscription fees, was not functionally comparable and should be excluded.- Info Edge India Ltd.: The Tribunal noted that this company operates across multiple verticals with significant advertising expenses and owns valuable online portals, making it functionally dissimilar to the appellant. Thus, it was excluded from the list of comparables.4. Rejection of Certain Functionally Comparable Companies:The appellant argued for the inclusion of Concept Communication Ltd. and India Exposition Mart Ltd.:- Concept Communication Ltd.: The Tribunal found that this company provides a wide range of services including advertising and public relations, which are not comparable to the appellant's marketing support services. Therefore, it was excluded.- India Exposition Mart Ltd.: The Tribunal observed that this company is involved in diverse activities such as event management and interior decoration, making it functionally different from the appellant. Consequently, it was also excluded.5. Charging of Interest Under Sections 234B and 234D:The appellant contested the charging of interest under Sections 234B and 234D. The Tribunal did not adjudicate on this ground as it was consequential in nature.6. Initiation of Penalty Proceedings Under Section 271(1)(c):The appellant challenged the initiation of penalty proceedings for furnishing inaccurate particulars and concealment of income. The Tribunal dismissed this ground as premature at this stage.Conclusion:The Tribunal directed the AO/TPO to re-compute the arm's length price adjustment, if any, based on the revised list of comparables. The appeal was partly allowed, addressing the issues of comparables while leaving other grounds as either consequential or premature. The order was pronounced in open court on 23rd June, 2016.