AISL excluded from transfer pricing comparables due to distinct service profiles versus marketing support functions

ITAT Mumbai held that AISL should be excluded from comparables for transfer pricing adjustment. The taxpayer's Marketing Support Segment provided sales and marketing services to associated enterprises, while AISL offered professional consultancy services including customs, excise, and trade-related liaison services to multiple customers and traded in digital certificates. The tribunal found these functions were not comparable, as AISL's liaison services differed significantly from the taxpayer's dedicated marketing support services to AEs. The TPO erred in treating these distinct service profiles as comparable for benchmarking purposes.

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Issues:
1. Transfer pricing adjustment on international transaction of Marketing Support services.
2. Exclusion of comparable companies in transfer pricing documentation.
3. Application of export filter on selected comparable companies.
4. Profit Level Indicator adjustments and working capital adjustments.
5. Levying of interest under sections 234A and 234B of the Act.
6. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Transfer pricing adjustment on international transaction of Marketing Support services:
The appeal was against the Assessment Order for the Assessment Year 2013-14 under the Income Tax Act. The Appellant challenged the Transfer Pricing Adjustment made by the Assessing Officer in relation to international transactions involving Marketing Support Services. The Appellant adopted the Transactions Net Margin Method (TNMM) with weighted average Net Cost plus Mark Up as the Profit Level Indicator (PLI). The TPO selected 3 comparables, including Axis Integrated Systems Limited (AISL), which the Appellant objected to as not functionally comparable. The DRP upheld the inclusion of AISL. The Tribunal ruled in favor of the Appellant, excluding AISL from the list of comparables, as AISL's services were not functionally comparable to the Appellant's marketing support services.

Exclusion of comparable companies in transfer pricing documentation:
The Appellant raised concerns about the exclusion of certain comparable companies and the inclusion of others in the transfer pricing documentation. The Tribunal directed the Assessing Officer to exclude AISL from the list of comparables due to functional dissimilarity, thereby addressing this issue raised by the Appellant.

Application of export filter on selected comparable companies:
The Appellant argued that the export filter should have been applied to the selected comparable companies for the marketing support services transactions. However, the Tribunal's decision primarily focused on the functional comparability of AISL, resulting in the exclusion of AISL from the comparables list.

Profit Level Indicator adjustments and working capital adjustments:
The Appellant contended that adjustments to the Profit Level Indicator (PLI) of comparable companies were not made as required by law, and working capital adjustments were not provided. The Tribunal's decision did not specifically address this issue, as the exclusion of AISL resolved the primary transfer pricing adjustment concern.

Levying of interest under sections 234A and 234B of the Act:
The Appellant disputed the levying of interest under sections 234A and 234B of the Act. However, the Tribunal's decision did not mention any specific ruling on this issue in the summarized judgment.

Initiation of penalty proceedings under section 271(1)(c) of the Act:
The Appellant objected to the initiation of penalty proceedings under section 271(1)(c) of the Act. The Tribunal's decision did not address this issue in the summarized judgment, focusing primarily on the transfer pricing adjustment related to the Marketing Support services transactions.

In conclusion, the Tribunal partially allowed the appeal by directing the exclusion of AISL from the list of comparables, as it was not functionally comparable to the Appellant's marketing support services. The decision addressed the primary concern raised by the Appellant regarding the transfer pricing adjustment, rendering other grounds raised in the appeal academic.

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