Assessment order valid despite ITBA portal technical glitches with CBDT approval; comparables excluded for turnover mismatch

The ITAT Bangalore upheld the jurisdictional AO's validity to pass the assessment order despite technical glitches preventing proper transfer reflection on the ITBA portal, noting CBDT approval was obtained. The Tribunal directed exclusion of six comparables due to turnover exceeding Rs. 200 crores against assessee's Rs. 14.53 crores, and removal of Manipal Digital Systems for lacking segmental details. Working capital adjustment was allowed following Huawei Technologies precedent. The AO was directed to set off brought forward losses against final TP adjustments in compliance with statutory provisions.

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Issues Involved:

1. Dismissal of certain comparables not pressed by the assessee.
2. Jurisdictional validity of the final assessment order.
3. Exclusion of comparables with turnover exceeding Rs. 200 crores.
4. Exclusion of comparables with different functional and risk profiles.
5. Inclusion of certain comparables.
6. Working capital adjustment.
7. Set-off of brought forward losses against the final adjustment.

Detailed Analysis:

1. Dismissal of Certain Comparables Not Pressed by the Assessee:

The assessee did not wish to press the inclusion of Fuzen Software Pvt. Ltd. and Vitae International Accounting Services Pvt. Ltd. as comparables, as they were not part of the original grounds of appeal. Similarly, the comparables Lycatel BPO Pvt. Ltd. and Cheers Interactive (India) Pvt. Ltd. were also not pressed. Consequently, these comparables were dismissed as not pressed.

2. Jurisdictional Validity of the Final Assessment Order:

The assessee challenged the jurisdictional validity of the final assessment order under Section 144B of the Act, arguing that the order should have been passed by the National Faceless Assessment Centre (NFAC) and not by the jurisdictional Assessing Officer. The Tribunal examined the submissions and communications, including a circular dated 06.09.2021 from the CBDT, which clarified that technical glitches had necessitated the transfer of the case to the jurisdictional Assessing Officer. The Tribunal found no merit in the assessee's argument and dismissed this ground.

3. Exclusion of Comparables with Turnover Exceeding Rs. 200 Crores:

The assessee argued that certain comparables with turnovers exceeding Rs. 200 crores should be excluded due to differences in economies of scale, brand value, and market share. The Tribunal referred to precedents, including decisions from the Coordinate Bench and the Hon'ble Bombay High Court, which supported the exclusion of high-turnover comparables. The Tribunal upheld the exclusion of Microland Ltd., Tech Mahindra Business Services Ltd., Infosys BPM Services Pvt. Ltd., AGS Health Pvt. Ltd., Access Healthcare Services Pvt. Ltd., Motif India Infotech Pvt. Ltd., Eclerx Services Ltd., and MPS Ltd.

4. Exclusion of Comparables with Different Functional and Risk Profiles:

The assessee sought the exclusion of comparables with different functional and risk profiles, specifically Microland Ltd., Infosys BPM Services Pvt. Ltd., Manipal Digital Systems Pvt. Ltd., AGS Health Pvt. Ltd., Access Healthcare Services Pvt. Ltd., Eclerx Services Ltd., and MPS Ltd. The Tribunal had already excluded most of these comparables under the turnover filter. For Manipal Digital Systems Pvt. Ltd., the Tribunal found that it provided pre-press activities, which differed from the assessee's ITeS services. Consequently, this comparable was also excluded.

5. Inclusion of Certain Comparables:

The assessee sought the inclusion of Digicall Global Pvt. Ltd., IGT Solutions Pvt. Ltd., Sundaram Business Services Ltd., Suprawin Technologies Ltd., and Unicita Consulting Pvt. Ltd. The Tribunal remanded these comparables back to the Assessing Officer/TPO for verification in accordance with transfer pricing provisions, ensuring a proper opportunity for the assessee to be heard.

6. Working Capital Adjustment:

The Tribunal referred to the decision in Huawei Technologies India (P.) Ltd. v. Jt. CIT, which supported the allowance of working capital adjustments. The Tribunal remitted the issue back to the Assessing Officer/TPO to determine the correct working capital adjustment, directing them to allow the adjustment as claimed by the assessee.

7. Set-off of Brought Forward Losses Against the Final Adjustment:

The assessee argued that the Assessing Officer had erred by not setting off brought forward losses against the final adjustment in the assessment order and rectification order. The Tribunal directed the Assessing Officer/TPO to grant the set-off of brought forward losses against the final adjustment.

Conclusion:

The appeal filed by the assessee was partly allowed, with specific directions provided for each issue raised. The Tribunal's order was pronounced in the open court on 22nd December, 2023.

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