Revenue's transfer pricing appeal dismissed as tribunal upholds exclusion of three dissimilar comparables for BPO services

The ITAT Delhi dismissed the Revenue's appeal regarding transfer pricing comparable selection. The tribunal upheld the CIT(A)'s exclusion of three comparables: Accentia Technologies Ltd (provided KPO services versus assessee's BPO activities), TCS E-Serve International Ltd (lacked segmental information and benefited from Tata Brand), and TCS E Serve Limited (functionally dissimilar due to software development and testing services, plus owned substantial intangibles and Tata Brand benefits). The tribunal found no valid reason to interfere with the lower authority's findings on comparable exclusions.

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Issues:
The appeal filed by the Revenue against the order of the ld. Commissioner of Income Tax (Appeals)-38 for assessment year 2010-11.

Issue 1: Adjustment under Section 92C(2) of IT Act and comparables exclusion
The Revenue challenged the deletion of adjustment under Section 92C(2) of IT Act and the direction to remove certain companies from the final list of comparables. The Tribunal noted that Accentia Technologies Ltd. was previously excluded for providing KPO services not comparable with the BPO activities of the assessee. The Tribunal also agreed with the exclusion of TCS E-Serve Ltd. and TCS E-Serve International Ltd. as comparables due to functional dissimilarity and economic benefits from Tata brand equity. The ld. CIT (Appeals) reasoning was upheld, and the Revenue's appeal on this issue was dismissed.

Issue 2: Reliance on Delhi High Court decision
The Revenue contended that the ld. CIT (A) erred by relying on the decision of Delhi High Court in the case of M/s. Rampgreen Solutions(P) Ltd. v CIT [2015] 377 ITR 533 (Delhi) without appreciating the facts and circumstances of the case under consideration. However, the Tribunal found no valid reason to interfere with the detailed reasoning of the ld. CIT (Appeals) in excluding the comparables, including TCS E-Serve Ltd. and TCS E-Serve International Ltd., based on functional dissimilarity and economic benefits. The appeal on this issue was rejected.

Issue 3: Profit or loss as a criterion for comparables
The Revenue argued that the ld. CIT (A) was not justified in holding that profit or loss can be a criterion for acceptance/rejection of a comparable. The Tribunal, after considering submissions and findings, upheld the exclusion of comparables based on functional dissimilarity, economic benefits, and lack of segmental information. The appeal on this ground was dismissed, and the Revenue's appeal overall was rejected.

Separate Judgment:
The order was pronounced by Shri Challa Nagendra Prasad, Judicial Member, on 16/10/2023.

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