TaxTMI 
TaxTMI 
2025 (5) TMI 1398
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....other: 1:0 On the facts and in the circumstances of the case, and in law, the learned Assistant Commissioner of Income Tax Mumbai (the 'AO') erred in making an addition of Rs. 13,10,59,610/- to the total income and assessing the total income of the Appellant for the captioned AY at Rs. 25,37,46,510/-. Transfer pricing issues: 2:0 Transfer Pricing Adjustment of Rs. 10,14,93,918/- in relation to the international transaction of receipt from production services ['ITeS services'): 2:1 The AO/Learned Transfer Pricing Officer (the 'TPO') / Learned Commissioner of Income Tax Appeals [the 'CIT (A)] have erred on the facts of the case and in law in making an upward adjustment of Rs. 10,14,93,918/- to the total income of the Appellant by holding that the international transaction relating to ITeS services provided by the Appellant to its associated enterprises ('AEs') is not at arm's length. 2:2 The learned AO/TPO/CIT (A) erred on facts and in law in disregarding the benchmarking analysis conducted by the Appellant based on the contemporaneous data in the Transfer pricing study report ('TP Study Report&#....
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....ited iii. Genesys International Corporation Ltd iv. IRIS Business Services Limited v. Crossdomain Solutions Private Limited vi. MPS Limited vii. Microland Limited viii. eClerx Services Limited 3:0 Transfer Pricing Adjustment of Rs. 2,95,65,692/- in relation to the international transaction of receipt from software development services ["IT services"]: 3:1 The AO/TPO/ CIT (A) have erred on the facts of the case and in law in making an upward adjustment of Rs. 2,95,65,692/- to the total income of the Appellant by holding that the international transaction relating to IT services provided by the Appellant to its associated enterprises ('AEs') is not at arm's length. 3:2 The AO/TPO/ CIT (A) erred on facts and in law in disregarding the benchmarking analysis conducted by the Appellant based on the contemporaneous data in the Transfer pricing study report (TP Study Report) maintained as per section 92D of the Act read with Rule 100 of the Rules. 3:3 The AO/TPO/CIT (A) have erred in rejecting the economic analysis and methodical search process undertaken by the Appellant to identify compa....
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....l." 2. The brief facts of the case are that the assessee is a wholly owned subsidiary of HERE Singapore Limited. The primary services rendered by assessee to its Associated Enterprises (AEs) are production service (ITES), Software Development Service (IT) and promotion services and support services. The assessee company is engaged in business of developing marketing, licensing and distribution of MAP and related allocation-based data, software and services for use in mobile invocation and other invocations and GIS applications and devices in India. The assessee e-filed its return of income for the year ended 31/03/2014 on 26/11/2014, declaring total income of Rs. 12,26,86,900/-. The assessee's case was taken for scrutiny and the matter referred to the TPO related to transaction with AE. Finally, the draft assessment order under section 143(3) read with section 144C(1) of the Act was passed on 11/12/2017 proposing to assess total income of assessee for the impugned assessment year at R. 25,37,46,510/-. The said order was duly served on the assessee. In response to that the assessee vide letter dated 08/01/2018 informed that the company wishes to exercise its option to appeal befo....
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....of the assessment proceedings the Id. TPO vide show cause notice dated 12/10/2017, asked the assessee to show-cause and explain why the set of comparable companies selected by the Id. TPO in his order for AY 2012-13 and AY 2011-12, including the comparable companies which were not rejected by the Ld. TPO in these years, should not be accepted to benchmark the transaction pertaining to provision of ITES services for AY 2014-15 also. The above comparable companies were analysed and a submission was made before the Ld. TPO, that even after considering all the companies from the previous two AY's TP order's no adjustment to the arm's length markup for ITES services was warranted. Further to this, the Id. TPO issued a second show-cause notice dated 24/10/2017, again asking the assessee to explain why some additional companies proposed by him should not be accepted as comparables to benchmark the transaction pertaining to provision of ITES services. Both the above two list of comparable companies proposed by the ld. TPO in the two show-cause notices were not selected by following a methodical search and were selected on an ad-hoc basis. In response to above, the assesse....
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.... economic analysis and search in accordance with the provisions of the law. The assessee had undertaken the preparation of TP Study Report using the databases PROWESS and CAPITALINE PLUS. The Ld. AR submitted that it had made reasonable efforts as provided in Section 92C of the Act read with Rule 10C of the Rules to identify independent comparable companies for benchmarking its international transactions. Because of the lack of sufficient data for FY 2013-14, the assessee had used the multiple year data which was in accordance with proviso to Rule 10B(4) of the Rules. The assessee wishes to submit that there is no non-compliance in the manner in which it has undertaken the analysis and that the assessee has complied with all requirements as per Section 92, Section 92C, Section 92D, Section 92E, rule 108, 10C, 10D, 10E for computing its income having regard to ALP, and maintaining necessary information and documentation for determination of ALP. This was done as per procedures outlined and in good faith to comply with all the provisions of law and to provide a true and fair analysis that was undertaken with fair and prudent business intent. Accordingly, the assessee submits that no ....
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....ud-based publishing platforms. The learned CIT(A), vide impugned order, disagreed with the submissions of the assessee and upheld the inclusion of this company for benchmarking the international transaction pertaining to "Receipt from Production Services". Being aggrieved, the assessee has challenged the inclusion of this company as comparable. 16. During the hearing, the learned AR reiterated the submissions made before the lower authorities. On the other hand, the learned DR vehemently relied upon the orders passed by the lower authorities and submitted that data digitalisation is the primary activity of this company and no R&D expenditure was incurred. 17. We have considered the submissions of both sides and perused the material available on record. From the perusal of relevant extracts of the annual report of MPS Ltd., as reproduced on page 736 of the paper book, we find that MPS Ltd. provides publishing services relating to typesetting of books and journals, composing of yellow page advertisements and catalogues, data coding, conversion, indexing, editing, editorial services, software development, maintenance and support to global publishers. As regards the s....
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.... the TPO which are not in dispute by the Appellant, this company accepted by the TPO is not disturbed." The Ld. AR respectfully relied on ruling of the coordinate bench of ITAT-Mumbai in assessee's own case bearing ITA No. 5919/Mum/2024 date of order 17/03/2025. the details of which are as under: - "(iii) IRIS Business Services Ltd. 18. The next comparable challenged by the assessee is IRIS Business Services Ltd. This company was included as comparable by the TPO, vide order passed under section 92CA(3) of the Act, on the basis that this company is carrying out activities which are functionally similar to the assessee and this company also qualifies all the filters. Before the learned CIT(A), the assessee objected to the inclusion of this company as comparable on the basis that this company is functionally not comparable. The learned CIT(A), vide impugned order, disagreed with the submissions of the assessee and upheld the inclusion of this company for benchmarking the international transaction pertaining to "Receipt from Production Services". Being aggrieved, the assessee has challenged the inclusion of this company as comparable. 19. During the heari....
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....at the entire revenue from product or services amounting to INR 139,10,73,488 was earned from the transaction with related party. Thus, it is evident that this company fails the filter of RPT more than 25% of the operating revenue applied by the TPO. Accordingly, we direct the TPO/AO to exclude Omega Healthcare Management Services Pvt. Ltd. while benchmarking the international transaction pertaining to "Receipt from Production Services". 24. To sum up, we direct that the four companies, i.e., Excel Infoways Ltd., IRIS Business Services Ltd., MPS Ltd. and Omega Healthcare Management Services Pvt. Ltd., be excluded while benchmarking the international transaction pertaining to "Receipt from Production Services". Ground No.2 raised in assessee's appeal is decided accordingly." 8.4. ICRA Techno Analytics: - The relevant part of the appellate order is reproduced as below: - "6.15 ICRA Techno Analytics: As per the Appellant this company Fails RPT filter. However, after perusal of the RIPT working & can be observed that the Appellant has compared the RPT Income and expenses transaction with only Total revenue. Instead of that the Appellant should have compared the ....
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....ty in order to ensure comparability, it would be proper if a float of +/- 1% is allowed. Accordingly, it directed the ld. TPO to reverify the computation of the assessee and include the comparable after the RPT is found to be in excess of the prescribed filter. The ld. TPO again verified the workings of the assessee and observed as under: On verification of the annual report of the company it is seen that a) Services rendered related parties is -Rs. 6.22 Crores b) Reimbursement of expenses by related parties - Rs. 0.6 Crores c) Reimbursement of expenses to related services - Rs. 0.4 Crores Hence, RPT divided by sales is (service rendered to related parties + reimbursement of expenses by related parties) divided by sales(Rs. 6.22 Crores +.6 Crores)/27.9 x 100 = 24.4%. The ld. TPO observed that the assessee had taken both reimbursements paid to and received from related parties while calculating the RPT ratio and accordingly objected that the same is above 25%. 13.4.1. The ld. TPO did not agree to this computation made by the assessee and accordingly held that since the RPT transaction are not more than 25%, the said company is a ....
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.... India with appx 62% cost is employee cost the Appellant is not less than KPO/BPO service provider. 6.14 Further, in respect of Hyundai case law the nature of business of that Appellant was difference from that of e-Clerx and therefore it was not comparable. Considering above this company accepted by the TPO is not disturbed." Here, the Ld.AR respectfully relied on the following observations of the coordinate bench of ITAT Mumbai for A.Y. 2010-11 in assessee's own case in ITA No. 1383/Mum/2016 date of order 22/02/2019. The relevant paragraph is reproduced as below: - "5.1. We find in respect of Eclerex Services Ltd., the Ld. DRP had granted relief to the assessee by placing reliance on the decision of Hon'ble Delhi High Court and Mumbai Special Bench of this Tribunal as stated supra. The only argument of Ld. DR in this regard is that the SLP filed by the revenue against the decision of Hon'ble Delhi High Court is admitted by the Hon'ble Supreme Court and the same is pending. We find that as on date, the issue has already been decided by the Hon'ble Delhi High Court in favour of the assessee, wherein, Eclerex Services Ltd., has been stated to be ....
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....l/2018 (AY 2014-15) 6.20.1 The Appellant has relied on the above case wherein the Appellants were engaged in the business different from that of the comparable companies selected by the TPO. In the present case the Appellant and the comparable is into provision of IT services which are functionally comparable to the Appellant. Considering this company accepted by the TPO is not disturbed." the Ld.AR respectfully relied on the following observations of the coordinate bench of ITAT Mumbai, K- Bench in M/s Emerson Electric Company (India) Private Ltd vs. ACIT-9(2)(2), Mumbai bearing ITANo. 6908 & 531/Mum/2018 date of order 14/06/2019. The relevant paragraph is reproduced as below: - "13.2. Exclusion of Infobeans Systems India Pvt. Ltd - Margin of 48.97% With regard to this comparable, assessee has pleaded before the ld. TPO that the said company is engaged in diversified activities such as automation engineering services, ServiceNow implementation, big data, UI and UX customised software, data mining, data modelling, statistical analysis, machine learning techniques etc., whereas the assessee herein was engaged only in routine software development service....
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.... exclude this company from the list of comparables." 9.2. Thirdware Solutions Ltd In argument the Ld. AR stated that the comparable is functionally distinguishable. The same view was taken by the coordinate bench-K of ITAT-Mumbai in case of Lionbridge Technologies Pvt Ltd vs. ACIT 15(2)(1), Mumbai bearing ITA No. 6791/Mum/2018 date of pronouncement 02/08/2019. The relevant paragraphs are reproduced as below:- "(d) Thirdware Solutions Ltd. The assessee claims that the company is into high end software development and functionally not similar. Further the company has its product sales reported and IPs in the accounts, hence the said comparable need to be rejected. It is noted that merely because the company has some product sales and IP's, one cannot reject the comparable. Hence, the claim of the assessee is rejected." 12. Now in appeal before us, learned Counsel of the assessee has confined his argument towards following comparable: - i) Thirdware SolutionsLtd.: - Learned Counsel of the assessee contended that exclusion of Thirdware Solutions as a comparable has been accepted by the ITAT in its order for A.Y. 2013-14. For the same reason....
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....ve stands. It is evident from the record that the assessee is a wholly owned subsidiary of HERE Singapore Ltd., engaged in providing Information Technology Enabled Services (ITES) and Software Development Services (IT Services) to its AEs on a cost-plus basis, operating as a captive service provider with minimal risk. The assessee conducted a detailed economic analysis supported by a TP Study Report and selected comparables following the requirements under Section 92C and Rule 10B of the Rules. 12. The primary grievance of the assessee relates to the inclusion and exclusion of certain comparables by the TPO, which was upheld by the Ld. CIT(A) while determining the ALP of the international transactions. It is the assessee's consistent submission that many of the companies included by the Ld. TPO are functionally not comparable or fail key filters such as RPT, absence of segmental data, supernormal profits, or engagement in diversified activities, as supported by decisions of various coordinate benches of ITAT. 13. We find merit in the contentions of the assessee with respect to the following comparables: • MPS Ltd is engaged in activities involving significant R&D....