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 list of comparable companies for transfer pricing analysis in the Assessment Year 2012-13. The Revenue's appeal challenging the exclusion was dismissed, with the ITAT determining that these companies were not functionally comparable to the assessee, leading to the affirmation of their exclusion from the comparable list.

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Issues:
1. Transfer Pricing Adjustment - Exclusion of Comparable Companies

Analysis:
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.

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