Assessee wins transfer pricing dispute with comparable exclusion and PLI re-computation ordered

The ITAT PUNE ruled in favor of the assessee on multiple transfer pricing issues. The tribunal excluded Accentia Technologies Ltd. from comparables as it was a KPO company, following precedent from BNY Mellon case. For PLI computation, the tribunal directed inclusion of DTA unit income as operating revenue and service tax refund per DRP directions, resulting in assessee's PLI of 5.20%. The tribunal also ordered re-computation of PLI for Informed Technologies Ltd. and Jindal Intellicom Ltd. as per DRP directions, and allowed working capital adjustment given assessee's better financial position with advances from associated enterprises and no debtors.

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Issues Involved: Transfer pricing adjustments, computation of Profit Level Indicator (PLI), inclusion/exclusion of comparable companies, and working capital adjustment.

1. Transfer Pricing Adjustments:

The assessee contested the enhancement of the price of the international transaction of ITES services by Rs.1,81,42,166/-. The Tribunal noted that the assessee had initially adopted the TNMM method but later relied on the CUP method for benchmarking. The TPO selected 6 comparable companies, resulting in an arithmetic mean margin of 13.65%, leading to an upward adjustment of Rs.1,81,42,166/-.

2. Inclusion/Exclusion of Comparable Companies:

The assessee opposed the inclusion of Accentia Technologies Ltd., arguing it was not functionally comparable as it was engaged in KPO services. The Tribunal referenced the Hon'ble Bombay High Court's decision in Pr.CIT Vs. BNY Mellon International Operations (India) (P) Ltd., which excluded Accentia Technologies Ltd. for similar reasons. Thus, the Tribunal directed its exclusion from the final set of comparables.

3. Computation of Profit Level Indicator (PLI):

The assessee raised issues regarding the inclusion of expenses related to the DTA unit and the exclusion of service tax refunds in the PLI computation. The Tribunal directed the TPO/Assessing Officer to include the income of the DTA unit and the service tax refund as part of the operating revenue, and to re-compute the PLI accordingly.

4. Re-computation of PLI for Specific Comparables:

The Tribunal noted that the DRP had directed the re-computation of PLI for Informed Technologies Ltd. and Jindal Intellicom Ltd., which had not been carried out. The Tribunal issued a direction to re-compute the PLI as per the DRP's instructions.

5. Working Capital Adjustment:

The assessee claimed a working capital adjustment due to receiving advances from associated enterprises and having no debtors. The Tribunal found merit in this claim and directed the Assessing Officer/TPO to allow the working capital adjustment and rework the margins of comparables.

Conclusion:

The Tribunal partly allowed the appeal, directing the re-computation of the PLI, exclusion of Accentia Technologies Ltd. from comparables, and granting of working capital adjustment, among other directions.

Order pronounced on this 5th day of April, 2019.

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