Appeal Allowed: Exclusion of Comparable Company Upheld

The appeal was allowed based on the exclusion of Axis Integrated Systems Ltd. from the list of comparables, directing the Assessing Officer to recompute the margin of comparables and grant relief to the assessee accordingly. The Tribunal found Axis Integrated Systems Ltd. functionally dissimilar to the assessee, as it provided services related to foreign trade, customs, excise, and GST matters, unlike the marketing support services in question. The decision was in line with previous rulings and highlighted the inability to compare a captive service provider with a company offering services to multiple entities.

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Issues involved:
1. Challenge on the comparability of a single comparable company, Axis Integrated Systems Ltd.

Detailed Analysis:
1. The appeal was filed against the assessment order for the assessment year 2014-15 under the Income Tax Act, 1961, regarding the comparability of a single comparable, Axis Integrated Systems Ltd. The dispute revolved around the adjustment made to the arm's length price of provision of marketing support services to the Associated Enterprise (AE) of the assessee.

2. The assessee, engaged in marketing nutrition and health care products, benchmarked the transaction using the transactional net margin method (TNMM) with three comparables. The Transfer Pricing Officer proposed an adjustment due to margin differences, including Axis Integrated Systems Ltd. and BVG India Ltd. The draft assessment order was framed based on this proposal.

3. The Dispute Resolution Panel (DRP) partially accepted the assessee's claim and directed the exclusion of BVG India Ltd., reducing the adjustment amount. The counsel for the assessee objected to the inclusion of Axis Integrated Systems Ltd., arguing functional dissimilarity based on the company's business activities and services provided.

4. The Departmental Representative argued for the inclusion of Axis Integrated Systems Ltd. as comparable, citing the consultancy and liaisoning services segment as comparable to the assessee. However, upon analyzing the financial statements and services provided by the disputed company, it was found that the services were in relation to foreign trade, customs, excise, and GST matters, making it functionally dissimilar to the assessee.

5. Referring to previous decisions and the High Court's ruling, it was established that a comparison could not be drawn between a captive service provider and a company like Axis Integrated Systems Ltd., providing liaisoning services to multiple entities. Therefore, the Tribunal held that Axis Integrated Systems Ltd. should be excluded from the list of comparables.

6. As the arguments were limited to the comparability of Axis Integrated Systems Ltd., other issues raised in the appeal were not addressed. Consequently, the appeal was allowed based on the exclusion of Axis Integrated Systems Ltd. from the list of comparables, directing the Assessing Officer to recompute the margin of comparables and grant relief to the assessee accordingly.

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