TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 950
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....Year 2021-22 on 26.02.20222 vide acknowledgement no.262650710260222 in ITR-6 declaring return income of Rs. 8,46,22,740/-. The case was selected for scrutiny under CASS and notice under section 143(2) of the Income-tax Act, 1961 (for short 'the Act') was issued on 28.06.2022 and duly served upon the assessee. The case was selected for scrutiny under CASS on the following grounds: (a) International transaction(s) arising out/being part of business restructuring or reorganization (T.P. risk parameter. 3. During the year, the assessee has undertaken the following international transactions/specified domestic transaction :- S.No. Nature of international transaction Amount in (INR) 1 Provided back-office services ITES services 90,30,69,262 4. At the time of hearing, ld. AR of the assessee brought to our notice the relevant facts which are reproduced below: 1.1 During FY 2020-21, Assimilate Solutions India Private Limited ("Assessee" or "Appellant" or "Company") continued, as in the past, to be engaged in the business of providing back office/other information technology enabled services ("ITES") to Assimilate Solutions LLC of USA ("AE"). ....
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.... selected and considered to be the most appropriate method by the Assessee for justifying its ALP as charged for the services exported to its AE. 1.7 Assessee benchmarked its international transaction with its AE using PLI of OP/OC as per TNM method with 8 comparables with 35th and 65th percentile computed at 6.67 % and 18.55% respectively and since the PLI of the Assessee of 12.53% was within such range as determined, the international transaction with AE was considered by the Assessee to be on arm's length - kindly see TP study report atpages97-158 of PB (refer to page 133). 5. Further submitted that TPO made upward TP adjustment/addition of Rs. 5,74,93,755 as under: a. TPO vide his order under section 92CA(3) dated 30/10/2023 accepted the TNM method as adopted by the Assessee to be the most appropriate method and also accepted various filters as used by the Assessee for benchmarking purposes except the export filter as applied was not considered to be an appropriate filter by the TPO. b. TPO rejected ERP Soft Systems Ltd. as being one of the 8 comparables selected by the Assessee by incorrectly stating that this company fails the turnover filter in ....
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....order, the assessee preferred an appeal before DRP. After Considering the submissions of the assessee, passed order under section 144C(5) giving partial relief as under: a. DRP vide its directions dated 30.08.2024 have rejected the legal grounds as raised by the Assessee including violation of principles of natural justice and further directed as under: b. Accepted Assessee's contention that application of export filter is valid and accordingly threshold of 75% is to be applied for such purpose (refer to para 5.3 at pages 10 & 11 of DRP order). c. Upheld the Rejection of ERP Soft Systems Ltd. as a comparable Co. (refer to para 6.2 & 6.3 at pages 12 & 13 of DRP's order). d. Out of the 9 additional comparable companies selected by the TPO, DRP has accepted that following3 companies are to be excluded from such list of comparable companies (refer to pages 22 & 23 of DRP's order): * Vitae International Accounting Services Pvt. Ltd. * E Care India Pvt. Ltd. * Datamatics Business Solutions Ltd. e. AO/TPO to recompute the profit margins of the selected comparables on the basis of audit reports and in line with margins....
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....ncluded the following companies as comparables for benchmarking purposes whereas the same ought to have been excluded since they failed to satisfy the export filter test as was accepted to be an appropriate filter by the DRP: - MAA Business Solutions Pvt. Ltd. - Cosmic Global Ltd. - Allsec Technologies Ltd. (iv) That on the facts and circumstances of the Appellant's case and in law, the DRP and consequently the TPO/AO have erroneously//incorrectly excluded DRP Soft Systems Ltd. as comparable company for benchmarking purposes whereas the same ought to have been included since it satisfies the turnover/service income as well as all other filter tests as applied and accepted. (v) That on the facts and circumstances of the Appellant's case and in law, the DRP and consequently the TPO/AO have erroneously/incorrectly included WNS Global Services Ltd. as comparable company for benchmarking purposes whereas the same ought to have been excluded since it fails the appropriate RPT filter test as was also accepted by the TPO in her remand report to the DRP. (vi) That without prejudice to the above and on the facts and circumstances ....
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....rged/levied interest of Rs. 4,89,944 under section 234C of the Act, which is illegal and at any rate, without prejudice, is very excessive (xi) That the income tax demand of Rs. 2,24,63,883 as created is very excessive. (xii) That the penalty under section 270A of the Act, as initiated for alleged under- reporting of income in consequence of misreporting of income is not applicable on the facts and under the law in the Appellant's case. (xiii) The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal at any time before or at the time of hearing of the appeal so as to enable the Hon'ble Income Tax Appellate Tribunal to decide this appeal according to the law." 10. At the time of hearing ld. AR of the submitted that Copy of TPO's order dated 20.09.2024 giving effect to directions of the DRP was not provided to the Assessee prior to passing of final assessment order. Such TPO's order has been provided subsequently on request of the Assessee as is evident from Assessee's application dated 09.05.2025 enclosed at page 162 of PB and copy of such TPO's order dated 20.09.2024 enclosed at pages 163-168 of PB. ....
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.... * Sony India Pvt. Ltd. vs ACIT, reported in 157 Taxman 125 (Delhi Trib.). Relevant findings from Head Notes are reproduced below: "Sub-section (3) of section 92C envisages the Assessing Officer having to form an opinion on the existence of the factors enumerated in clauses (a) to(d) as a pre-condition to proceeding to himself determine the ALP. In other words, acceptance of the ALP declared by the assessee is the rule and its rejection is the exception posited on the presence of the factors enumerated in clauses (a) to (d)......" * NLC Nalco (India) Ltd. vs DCIT 71 taxmann.com 57 (Kol Trib). Relevant extract of its observations/findings from para 19 are reproduced below: "We have gone through the data as well through the details filed by assessee in its paper book and the TPO himself mentioned in his order that the assessee performed arm's length analysis in respect of all the international transactions entered into by assessee with its associated enterprises under section 92C of the Act read with rule 10B and 10C of the Rules. And that nothing was found in the TPO's order which was indicative of the existence of any of the circumstances ....
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....rt filter test but has inadvertently included MAA Business Solutions Pvt. Ltd despite the fact that this Co. did not have any gain or loss on exchange rate fluctuation meaning thereby that it did not derive any export revenue and accordingly failed to satisfy the export filter test. No reasons whatsoever were provided by the TPO in her order dated 20.09.2024 for not excluding MAA Business Solutions Pvt. Ltd. from the list of final comparables. Ground No. (iv) read with (ii) for inclusion of ERP Soft Systems Ltd as a comparable company: TPO vide its order under section 92CA(3) dated 30.10.2023 had accepted the following filters, amongst others, for selecting comparables for benchmarking purposes: * Reject companies with Turnover < Rs 1 Cr (refer to Sr.No.2 of para 2.2 at page 3 of TPO's order). * Companies whose Service income < Rs 1 Cr are excluded (refer to para 2.4(ii) at page 4 of TPO's order). In other words, any comparable company having Turnover or Service income of Rs. 1 Cr or more would satisfy the Turnover and Service income filter as specified to be an appropriate filter by the TPO himself. However, TPO vide its afores....
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....ance is placed on the following judicial precedents where it has been held that there cannot be cherry picking for deciding parameters of rejection of a comparable: * ITAT Delhi order in the case of DCIT v. Panasonic AVC Networks India Co. Ltd. (ITA 4620/Del/2011), reported in42 taxmann.com 420. Relevant extract of findings of ITAT from para 9 of its order are reproduced below: ".....In our considered view also, there cannot be a cherry picking for deciding parameters of rejection of a comparable, and the parameters have to be broad enough of being general application. In the scheme of things envisaged under the TNMM, it is inevitable that there will be some differences between the comparables and the tested party but the impact of these differences is substantially mitigated by the averaging. If a comparable is being sought to be rejected on the ground of its differences vis-à-vis the tested party, similar criteria must be adopted for deciding suitability of other comparables as well. It cannot be open to any judicial authority to reject a comparable on the ground that the comparable has significant differences vis-à-vis the tested party, unless the....
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.... other filters applied by the TPO himself particularly when DRP has not rejected such filters as were adopted and applied by the TPO. Ground No. (v)for exclusion of WNS Global Services Pvt. Ltd. as a comparable company WNS Global Services Pvt. Ltd. has been erroneously directed to be included as comparable by DRP vide para 7.4 at internal pages 21 & 22 of its order when the TPO himself vide her remand report dated 08.08.2024 enclosed at pages 197-202 of PB(refer to page 200) had accepted that this Co. fails the RPT filter test. Extract of such remand report has also been reproduced in DRP's order (refer to internal page 20of DRP order). Hence, DRP had inadvertently included WNS Global Services Pvt. Ltd. to be a comparable Co. vide internal page 22 of its order. Accordingly, WNS Global Services Pvt. Ltd. may be directed to be excluded from the list of comparables since it admittedly fails to satisfy the RPT filter test. Ground No. (vi)is for rectifying the operating margins of four additional companies as retained by the TPO as comparable companies TPO/AO have taken incorrect operating margins of following comparable companies fo....
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....tion is called for since declared operating margin of 12.53% is within the range of 35th percentile of 6.67% and 65th percentile of 21.38%of final 8 comparable companiesand therefore, the entire TP adjustment/addition of Rs. 4,83,44,771 as sustained deserves to be deleted. At any rate, without prejudice, such TP adjustment/addition is very excessive even if no changes in the final list of comparable companies are to be made since there are factual errors/mistakes in the operating margin of 4 additional companies as retained by TPO/AO as also submitted in Ground No. (vi) above. The factual errors/mistakes in such 4 additional companies are also reflected in the chart of 9 companies (enclosed at page 585 of PB) as considered/taken by TPO/AO as per the impugned final assessment order. Ground Nos. (x)& (xi): The income tax demand of Rs. 2,24,63,883 as created in the impugned final assessment order by the AO is illegal at any rate, without prejudice, the same is excessive for various reasons including but not limited to the following: a) Surcharge erroneously/incorrectly taken @12% instead of applicable 7% on income tax as payable (refer to computatio....