AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 303
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....ities underwriting and corporate finance services in India. The assessee also provides Information Technology-enabled Services ("ITeS") to certain affiliated companies through its branch in Bangalore. For the year under consideration, the assessee filed its return of income on 25.02.2022, declaring a total income of Rs. 372,79,47,300/-. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served to the assessee. Pursuant to the reference by the learned Assessing Officer ("AO") under section 92CA(1) of the Act, the Transfer Pricing Officer ("TPO") vide order dated 09.10.2023 passed under section 92CA(3) of the Act proposed a total transfer pricing adjustment of Rs. 14,84,49,910. In conformity, the AO passed the draft assessment order dated 20.12.2023 under section 144C(1) of the Act after incorporating the transfer pricing adjustments proposed by the TPO. In conformity with the directions issued by the learned DRP under section 144C(5) of the Act, the AO passed the final assessment order dated 24.10.2004 under section 143(3) r.w.s. 144C(13) r.w.s. 144B of the Act, assessing the total inco....
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....arch process in identifying companies and not providing the search criteria/ strategy adopted for identifying such additional comparable companies; c) Rejecting the following functionally similar companies selected as comparables by the Appellant in the transfer pricing documentation: * Virinchi Limited * Microland Limited * Datamatics Business Solutions Limited d) Rejecting R Systems International Limited (BPO Segment) merely on account of different financial year (FY): e) Rejecting the following companies by applying turnover filter; * I Services India Private Limited * Anderson Business Solutions Private Limited f) Including MPS Limited in the final set of comparables without considering the following contentions of the Assessee: * Functionally different: The functions of MPS Limited are different to those performed by the Assessee. * Earns supernormal profits: Considering MPS Limited as comparable to the Assessee despite it earning supernormal profit of 47.38%. * Insufficient segmental information * Research and development activities g) Without prejudic....
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....taining to this issue, as emanating from the record, are: During the year under consideration, the assessee, inter alia, entered into international transaction pertaining to provision of non-binding investment advisory and support services to its associated enterprises in respect of strategic investments into India, for which it received advisory fees of Rs. 9,10,32,834/- at the mark-up of 22%. The assessee benchmarked the said transaction by adopting the Transactional Net Margin Method ("TNMM") as the most appropriate method with the Profit Level Indicator ("PLI") of operating profits to operating costs ("OP/OC"). By considering itself as the tested party, the assessee identified six companies as comparable with a 35th to 65th percentile range between 1.97% to 4.70%, with a median of 2.19%. As the assessee had earned an operating profit margin of 22%, it claimed that the international transaction pertaining to the provision of non-binding investment advisory and support services is at arm's length price ("ALP"). 6. The TPO, vide its order dated 09.10.2023 passed under section 92A(3) of the Act, rejected four companies considered as comparable by the assessee and arrived at a se....
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.... to A.Y. 2021-22 (B) 90,00,000 Revised operating cost C=(A+B) 8,36,17,077 Mark-up on existing cost base (D) = A*22% 1,64,15,757 Mark-up on revised cost base (E) =C*22% 1,83,95,756.94 Shortfall being adjustment u/s. 92CA(E-D) 19,80,000 9. The learned DRP vide its direction issued under section 144C(5) of the Act rejected the objections filed by the assessee on this issue and upheld the action of the TPO in taking the carried interest in the cost base of the assessee for computing the transfer pricing adjustment. Being aggrieved, the assessee is in appeal before us. 10. We have considered the submissions of both sides and perused the material available on record. Based on discussions with the current employees of the assessee who were part of the non-binding investment advisory team during APA proceedings in preceding years, it was observed that these employees earned incentive/carried interest from the GS group in the range of approximately Rs. 1.5 crore to Rs. 5 crore. Accordingly, following the approach adopted by the TPO in the earlier years, which were covered under the APA proceedings, the TPO concluded that in the year under consideration, the ....
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....hat the employee can continue to hold the allotted carried interest units even after such employee discontinues to be employed with GS. * In most cases, the Funds in which the employees are entitled to carried interest have made global investments (and not India specific that are recommended by the employees of GS/SPL). Accordingly, there is no direct linkage between the accrual/entitlement of carried interest and advisory services provided by the employees of GS/SPL. * The entitlement of carried interest to an employee is by virtue of his/her investment in the carry plan offered by Group. Carried interest is contingent on the performance of the Fund. Accordingly, any benefit that accrues on the said investment should be the personal income of the employee." 12. From the perusal of the record, we find that there is no dispute amongst the parties that the assessee was compensated on a cost-plus basis. Further, it is evident from the record that the TPO, as per its computation, following the approach adopted in preceding years, came to the conclusion that during the year under consideration, an amount of Rs. 90 lakh was received by employees of the assessee who w....
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.... 7,46,17,077 Add: Carried interest attributed to AY 2021-22 C 90,00,000 Revised operating cost D=B+C 8,36,17,077 Existing revenue E 9,10,32,834 Add : Carried interest attributed to A.Y. 2021-22 F = C 90,00,000 Revised Revenue G=E+C 10,00,32,834 Revised operating profit H=G-D 1,64,15,757 Revised Profit Level Indicator (PLI)/ margin I=H/D 19.63% 15. Since the arithmetic mean margin of the companies considered as a comparable by the TPO was only 7.93%, therefore it is evident that by any manner, i.e., either by considering Rs. 90 lakh as an additional revenue or by further adding a mark-up of 22%, in respect of provision of non-binding investment advisory services, the assessee had earned margin more than the comparable companies. Accordingly, we do not find any basis for sustaining the transfer pricing adjustment in respect of this international transaction. As a result, Ground No. 1 in assessee's appeal is allowed. 16. The issue arising in Ground No. 2, raised in assessee's appeal, pertains to the transfer pricing adjustment in relation to international transaction pertaining to the provision of ITeS to its associa....
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.... by the TPO on the basis that it has a different financial year ending. The learned DRP upheld the rejection of this company as comparable on the same basis. During the hearing, the learned AR submitted that R Systems International Ltd. is functionally comparable to the assessee and the extrapolated quarterly results for the year under consideration are available in the public domain. 21. From the relevant portion of the financial statements of R Systems International Ltd., forming part of the paper book dated 18th June 2025, we noticed that this company is maintaining its accounts with the year ending December. On the other hand, the assessee, i.e., the tested party in the present case, is maintaining its account with the year ending March. Thus, it is evident that the company sought to be included by the assessee as a comparable has a different financial year ending. It is pertinent to note that, for the purpose of proper comparability, it is relevant that both the tested party and the comparable should have similar financial year endings for proper analysis of the functions performed, assets employed and risks assumed. It is also pertinent to note that the company, which is o....
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.... accordingly. Ground No.2 raised in assessee's appeal is decided accordingly. 23. The issue arising in Grounds No.3 and 4, raised in assessee's appeal, pertains to the addition of Rs. 33,35,64,406/- vide intimation issued under section 143(1) of the Act in respect of the refund received towards Goods and Services Tax ("GST"). 24. We have considered the submissions of both sides and perused the material available on record. Vide intimation dated 22.09.2022 issued under section 143(1) of the Act, the return filed by the assessee was processed, and the refund of Rs. 33,35,64,406/- of GST, which was disclosed in the tax audit report, was added to the total income of the assessee. It is evident from the record that no query in this regard was raised during the scrutiny assessment proceedings. Thus, this issue does not arise from the scrutiny assessment proceedings resulting in the present appeal. During the hearing, the learned AR submitted that the assessee filed a rectification application dated 21.10.2002 under section 154 of the Act on this issue, which is still pending consideration. Accordingly, in view of the aforesaid observations, we are not expressing any finding on the ....