Tax Appeals: Tribunal directs re-evaluation of comparables & working capital adjustments for AYs 2015-16, 2016-17

The appeals for AYs 2015-16 and 2016-17 were partly allowed. The Tribunal directed the AO/TPO to re-evaluate the comparables and make necessary adjustments as per the directions provided, ensuring that the Assessee is given a reasonable opportunity of being heard. The working capital adjustments were to be allowed as per actuals, and the correct margins of the comparables were to be considered.

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Issues Involved:
1. Acceptance/Rejection of Comparable Companies
2. Computation of Operating Margins
3. Working Capital Adjustment

Issue-Wise Detailed Analysis:

1. Acceptance/Rejection of Comparable Companies:

The primary issue revolves around the acceptance or rejection of certain companies as comparables for the purpose of Transfer Pricing (TP) adjustments. The Assessee contested the inclusion of Ugam Solutions Private Limited, Axience Consulting Private Limited, Platinum Advertising Private Limited, Killick Agencies and Marketing Limited, and ICC International Agencies Limited, arguing that these companies were functionally different from the Assessee.

- Ugam Solutions Private Limited:
The Assessee argued that Ugam Solutions is engaged in managed analytics services, which is different from the business support services provided by the Assessee. The Tribunal remitted the issue back to the AO/TPO to analyze the functions performed by Ugam during the year under consideration.

- Axience Consulting Private Limited:
The Tribunal found that Axience is mainly into analysis, research, and strategic human capital services, which are not comparable to the Assessee's business support services. Therefore, Axience was excluded from the list of comparables.

- Platinum Advertising Private Limited:
The Tribunal concluded that Platinum, being engaged in advertising agency services and media planning, is functionally different from the Assessee. Hence, Platinum was directed to be excluded from the comparable list.

- Killick Agencies and Marketing Limited & ICC International Agencies Limited:
The Tribunal noted that Killick is involved in commission and service income, and ICC operates in commission and servicing activity and trading activity, both of which are not comparable to the Assessee. The issue was remitted back to the TPO/AO for fresh consideration with directions to keep in mind the decisions of the coordinate bench in the Assessee's own case and Epson India case.

2. Computation of Operating Margins:

The Assessee argued that the operating margins of certain companies were wrongly computed. The Tribunal directed the TPO/AO to consider the correct margins of the final list of comparables after considering the directions given in the order.

3. Working Capital Adjustment:

The Assessee contended that suitable adjustments should be made to account for differences in working capital between the Assessee and the comparable companies. The Tribunal, following the decision in Huawei Technologies India (P.) Ltd., held that working capital adjustments should be allowed as per actuals. The TPO/AO was directed to consider the submissions made by the Assessee and allow the working capital adjustment accordingly.

Additional Grounds:

- The Tribunal admitted the additional grounds raised by the Assessee, which did not require examination of new facts, relying on the judgment of the Hon'ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC).

Conclusion:

The appeals for AYs 2015-16 and 2016-17 were partly allowed. The Tribunal directed the AO/TPO to re-evaluate the comparables and make necessary adjustments as per the directions provided, ensuring that the Assessee is given a reasonable opportunity of being heard. The working capital adjustments were to be allowed as per actuals, and the correct margins of the comparables were to be considered.

Pronouncement:

The judgment was pronounced in the open court on the 20th day of October, 2022.

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