TaxTMI 
TaxTMI 
2025 (9) TMI 446
X X X X Extracts X X X X
X X X X Extracts X X X X
.....6.2024 wherein the assessee's objection against the draft assessment order passed u/s. 144C of the Act dated 29.9.2023 pursuant to the order of The DCIT, TP 1(3)(1), Bengaluru [ld.TPO] passed u/s. 92CA(3) dated 28.6.2023 proposing adjustment of Rs. 2,27,76,555. 2. The assessee is aggrieved and in appeal before us raising the following grounds :- "1. The Final Assessment order of the DCIT-3(1)(1) is not justified in law and on the facts and circumstances of the case. 2. The Directions of the DRP are not justified in law and on facts and circumstances of the case. 3. As regards the DRP directions dated 10.06.2024: 3.1. The Honourable DRP is not justified in confirming the TPO's action of invoking provisions of section 92C(3)(c) of the Income Tax Act. 3.2. The Honourable DRP is not correct in stating that the assessee had not adopted appropriate filters justified i.e., adopting turnover filter between Rs. 1 crore & Rs. 200 crore, not adopting employee filter and not adopting 'income from core services > 75% of sale' filter, without duly applying its mind to the submission made by the Appellant and confirming the TPO's ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant i.e., Scioinspire Consulting Services (India) Pvt Ltd which was rejected on the ground that it fails export filter in the show cause notice wherein it satisfies the export filter. 4.5. The Lower Authorities are not justified in failing to adopt the upper turnover filter of Rs. 200 crores that resulted in wrongful selection of following 2 companies selected by the TPO: 1) Tech Mahindra Business Services Ltd. 2) Infosys B P M Services Pvt. Ltd. 4.6. The Learned TPO has erred in comparing companies who are having significant brand value and are not comparable to Assessee company who are captive service provider to its AEs. 4.7. The Learned TPO has erred in selecting Savitriya Technologies Pvt. Ltd. Ignoring extraordinary event such as merger with MYBMS Software Pvt Ltd has taken place during the year under consideration. 5. Without prejudice to the above the Learned Assessing officer computed the assessed income as Rs. 1,46,78,480 without considering the current year returned loss of Rs. 27,94,85,850 resulting in tax demand of Rs. 58,30,570/-. For the above reasons and for such other reasons which may be allowed by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ilter and income from core services filter and accordingly TP Study Report [TPSR] was rejected. 9. The ld. TPO carried out fresh search on the above basis and initially selected 12 comparables and after considering the objections of the assessee, selected final set of 17 comparables whose 35th percentile margin is 18.49% and 65th percentile PLI is 25.38% computing the arm's length price [ALP] at Rs. 21,51,88,521/- against the price received by the assessee of Rs. 19,24,11,956/- proposed a shortfall adjustment of Rs. 2,27,76,555/-. In the process the ld. TPO considered the comparables selected by the assessee and found that Scionspire Consulting Services (India) Pvt. Ltd. fails export filter and further MAA Business Solutions Pvt. Ltd. is not part of the search matrix of the TPO, therefore they were excluded. 10. The assessee filed objections before the ld. DRP. After the directions were issued on 10.6.2024, the ld. TPO was given a direction with respect to four comparable companies which were examined and order giving effect was passed. Based on this, a shortfall was computed at Rs. 1,46,70,674/-. Accordingly final assessment order was passed on 23.7.2024 incorporating the ab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....group. 14. Thus the question is that whether higher turnover companies are comparable with companies having relatively small turnover. It is undisputed that lower turnover filter of Rs 1 Crore is accepted by assessee as well as the learned transfer pricing officer to remove insignificant companies from comparability analysis. Therefore turnover filter should be applied for comparability analysis or not. If higher and lower turnover filter is applied, it truncates large number of comparable, by eliminating comparable which have fairly large turnover compared to the tested entity. Naturally, large turnover companies have economies of scale compared to lower turnover entity. 15. Para number 3.43 in OECD Guidelines on Transfer Pricing (2022) says that in practice, both quantitative and qualitative criteria are used to include or reject potential comparable. Examples of qualitative criteria are found in product portfolios and business strategies. The most commonly observed quantitative criteria are Size criteria in terms of Sales, Assets or Number of Employees. The size of the transaction in absolute value or in proportion to the activities of the parties might affect the relative....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e that turnover of these two comparable companies is more than 200 times of the turnover of the assessee company, naturally from the comparability analysis of ITeS services, those should be excluded. 18. Both these companies also have huge brand value as those belong to very large groups, which have different capabilities of influencing customers and getting niche advantage, so, not comparable with the small company like assessee, who provides service to its holding company, does not need any leverage of brand, even if it has. Therefore, also same are excluded. 19. We have also examined the analysis made by the ld. TPO by considering the annual accounts of Wipro, Infosys and TCS limited. The claim of the ld. TPO is that increase in turnover did not impact margins. With respect to Infosys limited it says that with the increase in turnover of the company for the year 2002 to 2022 margins were hovering around 40 % only. In case of Wipro turnover increased from 2002-2022 to 20 times margins have reduced. In case of TCS, turnover of the company increased by 20 times, but margins hovered around 38%. 20. When above analysis looked at from the tables produced, wide variation in ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....will set the entire process to be carried out once again. 26. In view of this, it is not correct to include the comparable which was not part of search matrix of the ld. TPO. Naturally, that amounts to cherry picking. It was also not shown before us that in the Accept/Reject matrix of the TPO at any point of search step this company was included. Accordingly, we find no infirmity in the direction of the ld. DRP in exclusion of the above company. 27. Similarly with respect to MAA Business Solutions Pvt. Ltd., this company was also not part of search matrix of TPO, and it was not shown that at any point of search process this company was falling into Accept/Reject matrix of the TPO. Accordingly, we find no infirmity in the direction of the ld. DRP and action of the ld. TPO in not including the above company. 28. The assessee also objected for not including iSN Global Solutions Pvt. Ltd. in the comparability analysis which was rejected by the TPO because it did not appear in the search matrix of the ld. TPO. For the similar reasons given in MAA Business Solutions Pvt. Ltd., we do not find any infirmity in not including the above comparable as it was not part of search matrix ....