2020 (11) TMI 1089 - AT - Income Tax

ITAT Delhi upholds exclusion of companies in transfer pricing analysis for AY 2012-13

The ITAT Delhi upheld the CIT(A)'s decision to exclude Accentia Technologies Ltd., Acropetal Technologies Ltd. (Seg), and Eclerx Services Ltd. from the ... TP Adjustment - Comparable selection - exclusion of three companies, namely M/s. Accentia Technologies Ltd., M/s. Eclerx Services Ltd. and M/s. Acropetal Technologies Ltd. from the list of comparable companies - HELD THAT:- As far as the exclusion of Accentia Technologies Ltd. is concerned, we find that CIT(A) after considering the submission of the assessee has given a finding that it is engaged in rendering high end services and the nature of its activities are more in the nature of KPO services whereas the services rendered by the Assessee are of ITeS Services. He has therefore held Accentia Technologies Ltd. to be not a comparable to that of assessee. With respect to Acropetal Technologies Ltd. and Eclerx Services Ltd., we find that CIT(A) has noted that in assessee’s own case for A.Y. 2008-09, CIT(A) had held these two companies to be functional dissimilar to that of assessee. He has further noted that there are no changes in the facts and circumstances in the year under consideration and that of A.Y. 2008-09. Before us, no fallacy in the findings of CIT(A) has pointed out by the Revenue. In such a situation, we find no reason to interfere in the order of CIT(A) and thus the ground of Revenue is dismissed. Issues:1. Transfer Pricing Adjustment - Exclusion of Comparable CompaniesAnalysis:The appeal before the Appellate Tribunal ITAT Delhi involved the issue of transfer pricing adjustment concerning the exclusion of certain comparable companies by the Commissioner of Income Tax (A). The case pertained to the Assessment Year 2012-13 and revolved around the determination of Arm's Length Price (ALP) in relation to international transactions conducted by the assessee with Associated Enterprises (AE)/ concerns. The Transfer Pricing Officer (TPO) initially suggested an adjustment of Rs. 1,94,32,824, which was later revised to Rs. 53,86,94,824 due to errors in the initial order. Subsequently, the Assessing Officer (AO) made an addition to the total income of the assessee based on the revised ALP adjustment. The assessee appealed to the CIT(A) challenging the inclusion of certain comparables by the TPO for computing margins.In its order dated 13.11.2017, the CIT(A) directed the TPO to exclude Accentia Technologies Ltd., Acropetal Technologies Ltd. (Seg), and Eclerx Services Ltd. from the list of comparable companies. The Revenue, aggrieved by this decision, filed an appeal before the ITAT Delhi. The main contention raised by the Revenue was the exclusion of these three companies from the list of comparables, arguing that they should have been considered as comparable companies for the transfer pricing analysis. The Revenue contended that the TPO had rightly included these companies in the list.During the proceedings before the ITAT, the Learned DR representing the Revenue reiterated that the TPO had properly included Accentia Technologies Ltd., Acropetal Technologies Ltd. (Seg), and Eclerx Services Ltd. as comparable companies. On the other hand, the Learned AR for the assessee argued that these companies were not functionally comparable to the assessee and should be excluded. The AR highlighted that Accentia Technologies Ltd. was engaged in high-end services, different from the ITeS services of the assessee, and that Acropetal Technologies Ltd. and Eclerx Services Ltd. had been previously deemed functionally dissimilar to the assessee in earlier assessment years.After considering the submissions of both parties and examining the facts, the ITAT upheld the decision of the CIT(A) to exclude the three companies from the list of comparables. The ITAT concurred with the CIT(A)'s findings that Accentia Technologies Ltd. was engaged in different services, making it incomparable to the assessee, and that Acropetal Technologies Ltd. and Eclerx Services Ltd. were functionally dissimilar to the assessee based on past assessments. The ITAT found no merit in the Revenue's arguments and dismissed the appeal, affirming the exclusion of the three companies from the comparable list.In conclusion, the ITAT Delhi dismissed the appeal of the Revenue, upholding the decision of the CIT(A) to exclude Accentia Technologies Ltd., Acropetal Technologies Ltd. (Seg), and Eclerx Services Ltd. from the list of comparable companies for the transfer pricing analysis in the Assessment Year 2012-13.