2019 (2) TMI 1957 - AT - Income Tax

Tribunal rejects Revenue's challenges on comparables for AY 2011-12, stresses functional comparability.

Dy. Commissioner of Income Tax, Versus M/s. C-Cube Solutions Pvt. Ltd.,

The Tribunal upheld the Dispute Resolution Panel's decision to exclude Acropetal Technologies Ltd. and Jeevan Scientific Technology Ltd. as comparables ... TP Adjustment - Comparability - Application of onsite revenue filter – M/s. Acropetal Technologies Ltd. - HELD THAT:- We find that the DRP has excluded ‘Acropetal’ from the list of comparables on the grounds of it being functionally not comparable to the assessee in the case on hand and not on the ground of application of ‘on-site’ filter as alleged by Revenue in the grounds raised - Revenue in this appeal has neither challenged DRP’s action in excluding ‘Acropetal’ from the list of comparables on grounds of not being functionally comparable to the assessee nor has Revenue been able place on record any factual evidence to controvert DRP’s finding that ‘Acropetal’ is not functionally comparable to the assessee who is engaged in provision of ITES/BPO services - we find no merit in the grounds raised by Revenue and consequently uphold the DRP’s order excluding Acropetal Technologies Ltd., from the list of comparables as it is not functionally comparable to the assessee in the case on hand. Exclusion of /s. Jeevan Scientific Technology Ltd., (‘Jeevan’) - Revenue has challenged the exclusion of ‘Jeevan’ from the list of comparables to the assessee by the DRP on grounds of application of service income filter of 75%; which was infact a filter applied by the TPO. Apart from raising this ground (supra), Revenue has not placed on record any factual material evidence to controvert the DRP’s finding that this company ‘Jeevan’ had passed the 75% revenue filter applied by the TPO. Even otherwise, the DRP has, inter alia, excluded ‘Jeevan’ on grounds of its huge fluctuating margins over the last few years which has not been challenged by Revenue. In this factual matrix of the case, as discussed above, we uphold the action of the DRP of excluding this company ‘Jeevan Scientific Technology Ltd.,’ from the list of comparables for failing the 75% revenue filter applied by the TPO and on account of its hugely fluctuating margins over the last few years which indicate that there were certain peculiar circumstances influencing the profit margins of the company. Issues:1. Application of onsite revenue filter2. M/s. Jeevan Scientific Technology LimitedIssue 1 - Application of onsite revenue filter:The appeal by Revenue challenged the final assessment order for Assessment Year 2011-12, focusing on the application of the onsite revenue filter by the Dispute Resolution Panel (DRP). The Revenue contended that M/s Acropetal Technologies Ltd. should not have been excluded as comparable due to satisfying all qualitative and quantitative filters. The DRP's decision to exclude Acropetal based on significant onsite revenues was disputed by Revenue. However, the DRP justified the exclusion of Acropetal on functional comparability grounds, as it provides engineering design services unlike the ITES/BPO functions of the assessee. The Tribunal upheld the DRP's decision, emphasizing that Acropetal was not functionally comparable to the assessee, leading to the dismissal of Revenue's grounds.Issue 2 - M/s. Jeevan Scientific Technology Limited:In this issue, Revenue contested the exclusion of M/s. Jeevan Scientific Technology Ltd. as a comparable by the DRP. The Revenue argued against the application of the service income filter and sought exact comparability under the TNMM method. However, the DRP excluded Jeevan based on failing the 75% revenue earning filter applied by the Transfer Pricing Officer (TPO) and significant fluctuations in profit margins over the years. The Tribunal reviewed the DRP's decision and found that Revenue did not provide evidence to challenge the 75% revenue filter or the fluctuating margins of Jeevan. Consequently, the Tribunal upheld the exclusion of Jeevan from the list of comparables, leading to the dismissal of Revenue's grounds. Ultimately, the Tribunal dismissed the assessee's appeal for Assessment Year 2011-12 based on the detailed analysis and findings on the issues raised.This judgment provides a comprehensive analysis of the application of transfer pricing regulations, comparability analysis, and the role of the Dispute Resolution Panel in resolving disputes related to international transactions. The Tribunal's decision was based on a thorough examination of factual evidence and legal principles, ensuring a fair and justified outcome in the assessment of income tax liabilities for the concerned Assessment Year.