Tribunal directs AO/TPO to re-examine comparables, profit margins, adjustments.

The Tribunal allowed the appeal, directing the AO/TPO to re-examine the inclusion of certain comparables, computation of profit margins, and granting of working capital and risk adjustments, after providing the assessee with an opportunity to present necessary details.

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Issues Involved:
1. Wrong inclusion of certain comparable companies.
2. Non-granting of working capital adjustment and risk adjustment while computing Transfer pricing adjustment.

Issue-wise Detailed Analysis:

1. Wrong Inclusion of Certain Comparable Companies:

The assessee contested the inclusion of certain companies as comparables for Transfer Pricing purposes. The Tribunal examined the functional dissimilarity of the following companies:

(A) HCCA Business Services Pvt. Ltd.:
The assessee argued that HCCA Business Services Pvt. Ltd. is engaged in HR consultancy services, which includes payroll processing, compensation structuring, and other HR operations, making it functionally different from the assessee's marketing services. The Tribunal referenced a coordinate bench decision in the case of Electronics for Imaging India Pvt. Ltd., which excluded HCCA Business Services Pvt. Ltd. due to its functional dissimilarity. The Tribunal directed the AO/TPO to exclude HCCA Business Services Pvt. Ltd. from the list of comparables.

(B) Killick Agencies & Marketing Ltd.:
The assessee contended that Killick Agencies & Marketing Ltd. is involved in the business of supplying construction and earthmoving machinery, and its revenue from services is less than 75%, failing the service revenue filter. The Tribunal noted that Killick Agencies & Marketing Ltd. acts as an agent for foreign principals and deals in maritime and aviation equipment, which is different from the assessee's marketing support services. The Tribunal directed the exclusion of Killick Agencies & Marketing Ltd. from the comparables.

(C) Hindustan Housing Co. Ltd.:
The assessee argued that Hindustan Housing Co. Ltd. provides diversified services, including air-conditioning, lift services, and administrative services, and has related party transactions exceeding 25%. The Tribunal, following a coordinate bench decision in the case of Alcon Laboratories Pvt. Ltd., restored the issue to the AO/TPO for fresh examination, particularly considering the RPT filter.

2. Non-Granting of Working Capital Adjustment and Risk Adjustment:

The assessee claimed that the TPO did not grant working capital adjustment and risk adjustment due to the lack of required details. The Tribunal noted that such adjustments are commonly granted in various cases. The Tribunal directed the assessee to furnish the necessary details to the AO/TPO and restored the issue to the AO/TPO for examination and appropriate decision.

Profit Margin of IDC (India) Limited (Cyber Media Research Ltd.):
The assessee contended that the TPO incorrectly computed the profit margin of IDC (India) Limited by excluding depreciation and including financial costs in the operating cost. The Tribunal emphasized the need for a uniform methodology in computing operating costs and restored the issue to the AO/TPO for re-examination.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the AO/TPO to re-examine the inclusion of certain comparables, the computation of profit margins, and the granting of working capital and risk adjustments, after affording the assessee an adequate opportunity to present the required details.

Order Pronounced:
The order was pronounced in the open court on 20.03.2020.

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