Assessee's Appeal Partially Allowed on Transfer Pricing Adjustments

The appeal by the assessee was partly allowed in a case involving transfer pricing adjustments for Marketing & Distribution Services and Backend Processing Services. The Tribunal directed the exclusion of certain companies in both segments and instructed the AO/TPO to re-compute the arm's length price of international transactions. An additional ground challenging the levy of dividend distribution tax was dismissed. The decision was pronounced on 16.6.2023.

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Issues Involved:
1. Transfer pricing adjustments in respect of "Marketing & Distribution Services."
2. Transfer pricing adjustments in respect of "Backend Processing Services."
3. Additional ground challenging the levy of dividend distribution tax.

Summary:

Issue 1: Transfer Pricing Adjustments in Marketing & Distribution Services

The assessee contested the transfer pricing adjustment of Rs. 38.71 crores made by the TPO for Marketing services, which was confirmed by the CIT(A). The TPO had used current year data of comparable companies, leading to an arithmetical mean of 65.33%. The assessee argued for the exclusion of Birla Global Asset Finance Co. Ltd., citing its new financing activities and incorrect margin computation by the TPO. The Tribunal agreed with the assessee, noting that Birla Global's new financing activities made it non-comparable. Consequently, the Tribunal directed the exclusion of Birla Global Asset Finance Co. Ltd. and did not find it necessary to adjudicate on the other two companies (CRISIL Ltd. and ING Vysya Financial Services Ltd.).

Issue 2: Transfer Pricing Adjustments in Backend Processing Services

The TPO made a transfer pricing adjustment of Rs. 3.06 crores for Backend Processing Services, confirmed by CIT(A). The assessee sought the exclusion of eight companies, arguing functional dissimilarities and prior Tribunal decisions. The Tribunal referenced previous cases, such as WTW Global Delivery and Solutions India P Ltd and DBOI Global Services P Ltd, to justify the exclusion of the eight companies (Mold-Tek Technologies Ltd, E-clerx Services Ltd, Accentia Technologies Ltd, Vishal Information Technologies Ltd, Infosys BPO Ltd, Wipro Ltd, HCL Comnet Systems & Services Ltd, and I Services India Pvt Ltd). The Tribunal directed the AO/TPO to re-compute the arm's length price of international transactions in both segments.

Issue 3: Additional Ground on Dividend Distribution Tax

The assessee raised an additional ground challenging the levy of dividend distribution tax but chose not to press the issue. Consequently, the Tribunal dismissed this ground.

Conclusion:

The appeal filed by the assessee was partly allowed, with instructions for the AO/TPO to re-compute the arm's length price of international transactions in the Marketing & Distribution Services and Backend Processing Services segments. The additional ground on dividend distribution tax was dismissed.

Pronounced in the open court on 16.6.2023.

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