TaxTMI 
TaxTMI 
2025 (6) TMI 152
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....llant based on the contemporaneous data in the transfer pricing study report maintained as per section 92D of the Act. 3. Rejecting comparable companies functionally comparable to the Appellant and including comparable companies functionally not comparable to the Appellant. 4. Cherry picking high margin companies and rejecting low margin companies by applying arbitrary filters to arrive at a revised set of comparable companies. 5. Erroneously computing the operating margins of the companies selected as comparable in the TP order. 6. Erroneously computing the operating margin of the Appellant by considering certain items as non-operating/operating which are operating/ non-operating in nature. 7. Not allowing economic adjustments, like Risk, R&D, marketing adjustment in accordance with the provisions of Rule 10B of the Rules. 8. Not sharing the search strategy adopted for selection of alleged comparable companies during the course of assessment proceedings. 9. Not accepting the additional comparable companies in the final set of comparables which were included by the Appellant during the course of Transfer Pricing (TP') Assessment proceedings. 10. The Assessee sub....
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....e Act making two adjustments. Firstly by computing the Operating Profit Margin (OPM) @8.80% as against 12.49% declared by the assessee and for arriving at the OPM @8.80% ld. TPO did not consider the Net gain/Loss on Foreign Currency transactions and Translations and gain on measurement of defined benefit obligations treating them to be non-operating income. Secondly, ld. TPO examined the Arms Length Price (ALP) of the international transaction of the Information Technology Enabled Services (ITeS) between the assessee and its AE amounting to Rs. 119.89 crore approx and observed that assessee's has calculated the ALP based on the Transactional Net Margin Method (TNMM) considering various comparables. Ld. TPO rejected some of the comparables adopted by assessee and also introduced certain comparables for the purpose of calculating Profit Level Indicator (PLI) and after detailed discussion in para 24 of the order TPO's has calculated the median PLI at 24.02%. Ld. TPO applied PLI 24.02% on the total operating cost since the total operating revenue of the assessee company was from ITeS provided to AE. Ld. TPO accordingly calculated the ALP of the international transaction at 138.67 crore....
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....has submitted that if the assessee did not opt for Safe Harbour Rules as provided in Rule 10TA of the Income Tax Rules, 1962, then as per the Organisation for Economic Cooperation and Development (OECD), if the Foreign Exchange Gain/loss is related to trade receivable and payable then it has to be consistently accounted for the purpose of calculating PLI. Further certain judicial pronouncements have been referred by ld. Counsel for the assessee and observing the same we find that Hon'ble High Court of Delhi in the case of PCIT Vs. B.C. Management Services Pvt. Ltd. judgment dated 28.11.2017 has held that Foreign Exchange Fluctuations in relation to trading items and emanating from international transactions, direct value derived from it cannot be treated non-operating loss/gain. Following the said judgment, this Tribunal in the case of Transperfect Solutions India Pvt. Ltd., Vs. ACIT [ITA No.331/PUN/2021, order dated 29.07.2022], has held that Foreign Exchange fluctuations cannot be treated as nonoperating loss/gain. So far as the contentions made by ld. DR that under the Safe Harbour Rules, Foreign Exchange gains/losses are to be excluded, we on going through the decisions of ....
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.... Systems Pvt. Ltd. 2 C E S Ltd. 3 M P S Ltd. 4 Domex E-Data Pvt. Ltd. 5 Tech Mahindra Business Services Ltd. 6 Integra Software Services Pvt. Ltd. 7 Vitae International Accounting Services Pvt. Ltd. 8 Access Healthcare Services Pvt. Ltd. 13. Before us, Ld. Counsel for the assessee at the outset has submitted companies mentioned at Sl.Nos. 1 to 4 were included by ld. TPO while carrying out the proceedings for A.Y. 2017-18 also and this Tribunal in ITA No.198/PUN/2022 order dated 12.04.2023 has held that all these four comparables needs to be excluded as the services rendered by these comparables are not similar to the activity carried by the assessee and are functionally different and therefore are not good comparables. Ld. Departmental Representative failed to controvert the contentions put forth by ld. Counsel for the assessee. We therefore respectfully following the decision of this Tribunal in assessee's own case for A.Y. 2017-18 hold that the comparables namely (1) Manipal Digital Systems Pvt. Ltd.(2) C E S Ltd.(3) M P S Ltd. and (4) Domex E-Data Pvt. Ltd. are hereby excluded from the list of comparables adopted by ld. TPO and should not be considered for ....
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....the National Company Law Tribunal's [in short "NCLT"] order to this effect in the relevant previous year. Faced with the situation, we direct the learned Transfer Pricing Officer [in short "TPO"] to exclude all the instant six comparables and compute the assessee's arm's length price [in short "ALP'] adjustment accordingly." 16. Going through the above decision of this Tribunal, we find merit in the contention of ld. Counsel for the assessee and are inclined to hold that since these three companies have been held to be not good comparables for determining the ALP of ITeS segment by this Tribunal in Rage Frameworks India Private Limited (supra) and ld. Departmental Representative having failed to controvert by placing any binding precedence in favour of Revenue, the same are hereby directed to be excluded from the list of comparables adopted by ld. TPO for the purpose of calculating PLI. 17. To conclude, out of eight comparables referred in the list above only one comparable namely Tech Mahindra Business Services Ltd. is held to be a good comparable included by ld. TPO and all the remaining comparables are hereby excluded. 18. Now we take up the list of comparables included by th....
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....wing the judicial precedent in ITA No.198/PUN/2022 dated 12.04.2023, we direct the Assessing Officer/ld. Transfer Pricing Officer to include R systems International Ltd. as a comparable for calculating PLI. 21. Next comparable provided by the assessee is Global Healthcare Billing Pvt. Ltd. This was an additional comparable submitted at the TPO level and functions as a business process outsourcing provider. Ld. TPO rejected the comparable on account of assets turnover and profit being substantially affected on acquisition of a company. Ld. DRP has also upheld the rejection of the company stating that extraordinary event of acquisition of subsidiary has impacted the financials of the company. Before us, Ld. Counsel for the assessee has stated that the company has been excluded by ld. TPO/DRP merely because there was an acquisition during the year which has impacted and double its Revenue and profits. However, the acquisition of share of a company is in the nature of investment does not affect the nature of business in which the company operates. We observe that the comparable company namely Global Healthcare Billing Pvt. Ltd. is mainly in the Healthcare services and is functionally ....
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....r, we do not find it to be a fit comparable because the Revenue in the case of the assessee are consistent whereas the Revenue in the case of Digicall Global Pvt. Ltd. are on the diminishing side. There may be many reasons for such diminishing Revenue and due to diminishing Revenue profits will also be on a decreasing trend. As we have discussed above that for the purpose of including the comparables most of the parameters should be similar. In the case of Digicall Global Pvt. Ltd. eventhough functionally they are comparable to some extent but it cannot be included as a good comparable because the Revenue are not consistent and are not at par with the Revenue consistency of the assessee company. Therefore, we hold that Digicall Global Pvt. Ltd. is not a good comparable and the request of the assessee for inclusion of this comparable in the list of comparables is hereby rejected. 23. To conclude, the summary of the list of alleged comparables directed to be excluded/included is given below : List of comparables introduced by TPO : Sr.No. Name of the Company Our direction 1 Manipal Digital Systems Pvt. Ltd. Excluded 2 C E S Ltd. Excluded 3 M P S Ltd. Excluded ....