TaxTMI 
TaxTMI 
2026 (6) TMI 596
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....revenue from sale of services for ITES and low profitability (T.P. risk parameter)". During the course of assessment proceedings, a reference under section 92CA(1) was made to the Transfer Pricing Officer [hereinafter referred to as "TPO"] for determination of the Arm's Length Price of the international transactions entered into by the assessee with its Associated Enterprises (AE). The TPO, vide order passed under section 92CA(3) dated 27.01.2025, proposed an adjustment of Rs. 6,99,33,200/- in respect of such transactions. Consequent to the said adjustment, the Assessing Officer passed a draft assessment order under section 143(3) read with section 144C(1) on 04.02.2025 proposing to assess the total income at Rs. 9,55,73,610/-. Aggrieved by the variations proposed therein, the assessee filed objections before the DRP in terms of section 144C(2). The DRP, after considering the objections and submissions of the assessee, passed directions under section 144C(5) on 30.09.2025, whereby the transfer pricing adjustment proposed by the TPO was confirmed. Pursuant thereto, the Assessing Officer passed the final assessment order under section 143(3) read with section 144C(13) determining the....
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....im, was lower than the stipulated markup of 5% under the service agreement. On this basis, the TPO held that the benchmarking analysis carried out by the assessee was not reliable and required adjustment. 7. Aggrieved by the draft assessment order, the assessee filed objections before the Dispute Resolution Panel raising both jurisdictional and substantive grounds. The principal contentions of the assessee were that: • The draft assessment order was invalid in law as it was passed without issuing a show cause notice for the proposed variations, thereby violating the mandatory procedure prescribed under section 144C(1) and the principles of natural justice. • The TPO failed to correctly appreciate the functional profile of the assessee, which was confined to Human Resource Management Consultancy Services, and erroneously treated it as generic management consultancy. • The comparables selected by the assessee were arbitrarily rejected and replaced by functionally dissimilar companies engaged in diverse activities such as IT consulting, real estate advisory, public relations, marketing and education services, without conducting proper FAR anal....
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.... Officer ("Ld. TPO") in arbitrarily and suo motu selecting ten (10) functionally dissimilar comparables through a cherry-picking approach under the pretext that "under TNMM, some degree of functional diversity is permissible," and is in gross violation of Rule 10B of the Income-tax Rules, 1962 ("the Rules") 3. That the Learned DRP has erred in accepting the action of Transfer Pricing Officer ("Ld. TPO"), despite acknowledging that 100 percent of the assessee's turnover comprises export revenue earned from its Associated Enterprise ("AE"), has failed to apply the export filter without any cogent reasoning or legal justification vitiating a comparability analysis. 4. That the Learned DRP has erred in accepting the action of Transfer Pricing Officer ("Ld. TPO") has erred in including large-scale entities with extraordinarily high turnovers far exceeding Rs. 200 crores - such as Bain & Company India Pvt. Ltd., Cushman & Wakefield (India) Pvt. Ltd., EdCIL (India) Ltd., and Right Management India Pvt. Ltd. - whereas the assessee's turnover is only Rs. 66 crores. 5. That the Learned DRP has erred in accepting the action of Transfer Pricing Officer ("Ld. TPO") an....
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....staff members, including recruitment of personnel possessing requisite skill sets and deploying them for execution of services. The assessee, in its capacity as employer, undertakes complete responsibility for compliance with labour laws and other statutory regulations and exercises control over the staff members by way of supervision, allocation of work, determination of working hours, performance evaluation and disciplinary control. 11. The Ld. AR further submitted that the assessee, through its designated manager, provides instructions and supervision to the staff members and acts as a liaison with the Associated Enterprise, ensuring proper execution and monitoring of the services rendered. The services are performed with due care and responsibility, and periodic reporting of progress is made to the Associated Enterprise as per contractual obligations. It was further submitted that as per Schedule 1 of the agreement, the assessee functions as a service provider to its foreign Associated Enterprises and renders a bouquet of business support services, which inter alia include human resource services, management consultancy services, market research and marketing support, busine....
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.... applied and only those companies having export turnover greater than 0% were retained, resulting in elimination of a substantial number of companies. Thereafter, a related party transaction filter was applied whereby companies having related party transactions exceeding 25% of revenue were excluded to ensure independence, and the set was further reduced. The Ld. AR submitted that an employee cost filter was then applied by selecting companies having employee cost exceeding 50% of operating cost, so as to ensure comparability with the assessee's service-oriented and labour-intensive business model. This resulted in a further narrowing down of the list to 21 companies. Finally, a qualitative review was undertaken wherein companies found to be functionally dissimilar or otherwise not comparable were excluded with recorded reasons. Pursuant to such detailed analysis, the assessee arrived at a final set of 7 comparable companies along with their respective operating profit margins for the purpose of benchmarking. Following are the final set of comparable companies with their respective profile: S. No. Company Name Key Business Activities & Functional Profile 1. Hurix Sys....
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....e company works with customers on engineering design, product lifecycle support, and domain-specific technology solutions. 6. TVS Next Ltd. TVS Next Ltd. is a technology and digital consulting firm that provides digital transformation and enterprise technology services. Its activities include Technology consulting, software engineering, cloud engineering, Experience engineering, data strategy and analytics, AI and machine learning, quality assurance, experience engineering and agile Program Management. The company works with enterprises to modernise legacy systems, develop digital platforms, and leverage data and AI to drive business outcomes. 7. CG-VAK Software & Exports Ltd. CG-VAK Software & Exports Ltd. is a technology company engaged in offshore software development and IT consulting services. Its business activities include Product Engineering, Mobile Apps Development, Progressive Web App, Web Application Development, Ecommerce Solutions, Healthcare IT Solutions, Education IT Solutions, IT Consulting, Cross Platform, Cloud Computing, software development and product development. The company serves clients internationally across sectors such as healthcare, ed....
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.... in compliance with the directions contained in the notice issued by the TPO under section 92D(3), the assessee undertook a fresh search for comparables by applying the modified filters as prescribed by the TPO. It was submitted that despite adopting the revised filters in entirety, including the modified turnover range, export turnover threshold, and qualitative parameters, the search process conducted on the ACE TP Database yielded the same set of comparable companies as originally identified by the assessee. 17. The Ld. AR thus contended that the outcome of the fresh search clearly demonstrates that the comparables selected by the assessee were robust and satisfied even the stricter and modified criteria suggested by the TPO. The Ld. AR further submitted that based on such revised set of comparables, the arm's length range computed between the 35th percentile and 65th percentile worked out to 1.97% to 15.75%, respectively. The assessee's margin, determined at 4.76%, fell well within the aforesaid arm's length range, thereby demonstrating that the international transactions undertaken by the assessee were at arm's length. 18. The Ld. AR submitted that the aforesaid factual ....
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....fore functionally not comparable. 20. The Ld. AR submitted that, on this premise, the TPO disregarded not only the original set of comparables selected by the assessee but also the set of comparables which continued to qualify even after applying the filters prescribed by the TPO himself. Thereafter, the TPO proceeded to undertake a fresh search by applying an altogether new set of filters, without providing any justification for deviating from the earlier filters. 21. It was submitted that the fresh search conducted by the TPO was based on parameters such as data pertaining to Financial Year 2021-22, turnover range between one-tenth and ten times of the assessee's turnover, service income exceeding 50%, related party transactions less than 25%, and selection of companies having positive net worth and consistent profitability, along with qualitative exclusion of functionally dissimilar companies. 22. The Ld. AR submitted that based on the search process conducted by the TPO, the following companies were identified by the TPO as comparable companies. The Ld. AR further submitted that the main nature of operations of these comparables and also the reasoning as to why these c....
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....siness challenges. 2. GoGlobal India Pvt Ltd focuses exclusively on Human Resources Management Consultancy for its Associated Enterprise (AE), providing recruitment, training, compliance, and staffing solutions to optimize workforce productivity and meet operational needs. 3. Channelplay Ltd. 1.99 % Channelplay Ltd is a leading provider of technology-driven business solutions, specializing in retail management, channel management, and sales enablement services. The company offers a wide range of innovative solutions aimed at optimizing sales, enhancing customer engagement, and improving operational efficiency various across industries. With expertise in digital transformation and data analytics, Channelplay Ltd helps businesses achieve greater visibility, streamline processes, and drive growth. 1. Channelplay Ltd specializes in technology-driven solutions for retail, channel management, and sales enablement, targeting external client-facing operations to enhance customer engagement, optimize sales, and improve efficiency across industries. 2. GoGlobal India Pvt Ltd, on the other hand, focuses exclusively on Human Resources Management Consultancy, providing r....
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....pany offers a range of services, including educational infrastructure development, digital education systems, advisory services, and skill development programs. EdCIL plays a key role in enhancing educational delivery through digital classrooms, university management systems, and ICT labs, while also providing training and impact assessments for educational schemes. The company has been instrumental in the development of prominent institutions in India, focusing on education quality improvement and skill development. 1. EdCIL (India) Ltd. specializes in the education sector, providing consultancy services in areas like educational infrastructure, digital education, advisory services, and skill development programs. It plays a significant role in enhancing educational delivery and institution development. 2. GoGlobal India Pvt. Ltd. focuses exclusively on Human Resources Management Consultancy, providing recruitment, training, and staffing solutions to its Associated Enterprise (AE), with an emphasis on workforce optimization and legal compliance. 7. Infollion Research Services Ltd. 18.45 % Infollion Research Services Ltd. is a market research and business intellig....
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....g services like brand strategy, digital marketing, public relations, and cause-related campaigns aimed at enhancing brand presence, reputation, and social impact. 2. GoGlobal India focuses solely on Human Resources Management Consultancy, providing recruitment, training, and workforce solutions exclusively for its Associated Enterprise (AE). 9. P R Pundit Public Relations Pvt. Ltd. 12.93 % PR Pundit Public Relations Pvt. Ltd. is a full-service public relations firm specializing in brand communications, influencer marketing, and social media marketing, corporate communications. The company offers a comprehensive suite of services designed to enhance brand visibility and reputation, including strategic planning, creative solutions, and strong media relations across various sectors such as luxury, lifestyle, and business. PR Pundit has demonstrated expertise in building and promoting heritage brands, particularly in the luxury and wines and spirits industries, showcasing a deep understanding of brand storytelling and market positioning. The firm's commitment to creativity, efficiency, and innovation has established it as a trusted partner for clients seeking to e....
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....se undertaken by the TPO in rejecting the assessee's comparables and selecting a new set of comparables is arbitrary, inconsistent and contrary to the settled principles governing transfer pricing analysis. 24. The Ld. AR further submitted that, apart from the primary factual and legal contentions as discussed hereinabove, the assessee had also raised specific additional grounds before the DRP challenging the approach adopted by the TPO in the selection of comparables. It was submitted that the TPO, despite categorically acknowledging that the assessee's entire revenue was derived from export of services to its Associated Enterprises, arbitrarily failed to apply an appropriate export filter. The Ld. AR contended that such omission is contrary to the settled principles of comparability analysis, as companies having predominantly domestic operations cannot be considered comparable with an entity having 100% export-oriented operations. It was further submitted that the TPO had also erred in including companies having disproportionately high turnover, far exceeding Rs. 200 crores, as comparables. The Ld. AR contended that such high-turnover entities possess significant advantages in....
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....king and is not permissible in law. The Ld. AR specifically drew our attention to the findings of the Bench in para 12 wherein it has been observed as under: "the turnover filter must be applied not as a tool for cherry picking at a later stage but at the time of the search process... There cannot be a pick and choose of comparables every year..." 27. It was further submitted that the Bench in the said decision has categorically held that a company which is otherwise functionally comparable cannot be rejected solely on the basis of turnover, particularly when such filter is introduced subsequently and not applied consistently at the stage of initial search. 28. Per contra, the Ld. Departmental Representative (DR) strongly relied upon the orders of the lower authorities and supported the action of the TPO and the Assessing Officer. 29. The Ld. DR drew our attention to the findings recorded by the TPO while rejecting the comparables selected by the assessee and submitted that the TPO had categorically observed that the search criteria and the acceptance or rejection matrix applied by the assessee for selection of comparables were not appropriate. It was further subm....
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....comparable. The Ld. DR specifically relied upon the findings of the Bench wherein it has been held that: "the turnover filter of 10 times more or less of assessee's turnover has been correctly applied by the learned TPO... especially when Hon'ble High Court of Mumbai and Hon'ble High Court of Delhi has also upheld the same."(para 21) 32. It was further submitted that the Bench in the said case has taken note of judicial precedents including those of the Hon'ble High Courts, which have approved the application of turnover filters as a valid parameter in transfer pricing analysis. 33. On the basis of the above, the Ld. DR contended that the reliance placed by the assessee on the decision in DNV Business Assurance India Pvt. Ltd. is distinguishable on facts and cannot be applied mechanically. It was submitted that the application of turnover filter in the present case is justified, as it is intended to ensure selection of comparables having similar scale of operations and does not, by itself, amount to cherry picking. 34. In conclusive rebuttal, the Ld. AR submitted that the assessee had undertaken a systematic and bona fide search for comparables by using the AC....
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....ted. It was also submitted that the DRP has failed to record any specific findings with regard to the comparables selected by the assessee as well as those selected by the TPO, thereby mechanically affirming the action of the TPO without independent application of mind. 37. In view of the aforesaid facts and submissions, the Ld. AR prayed that the transfer pricing adjustment made by the Assessing Officer and confirmed by the DRP be deleted. 38. We have carefully considered the rival submissions, perused the orders of the lower authorities and the material placed on record, including the Transfer Pricing Study, Master Service Agreement, FAR analysis and the comparative analysis of the comparables. 39. At the outset, the primary controversy before us pertains to determination of the Arm's Length Price of the international transactions undertaken by the assessee and, more particularly, whether the comparables selected by the assessee were rightly rejected by the TPO and substituted with a fresh set of comparables. 40. On perusal of the Master Service Agreement and the FAR analysis, we find that the assessee is engaged in rendering Human Resource Management Consultancy Serv....
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....d a detailed tabular comparison of each of the comparables selected by the TPO vis-à-vis its own functional profile. From the said comparison, it is evident that the companies selected by the TPO are engaged in: i. IT consulting and software development ii. Cybersecurity and analytics iii. Real estate advisory iv. Public relations and marketing v. Strategic management consulting 44. These activities are clearly high-end, knowledge-intensive and diversified services, which are fundamentally distinct from the routine HR support services rendered by the assessee. We find that neither the TPO nor the DRP has dealt with this detailed functional comparison. There is no discussion as to why the objections raised by the assessee against each of these comparables are not acceptable. Such non-consideration of relevant material vitiates the comparability analysis. 45. Another significant aspect which merits consideration is the conduct of the TPO in repeatedly modifying the filters. The sequence of events shows that: • The TPO initially rejected the assessee's filters and prescribed new filters. • The assessee....
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.... particularly with regard to Functional dissimilarity, Export filter, Turnover disparity and Tabular comparison. Such non-speaking confirmation cannot be sustained. 52. The Ld. DR has placed reliance on clause (g) of Rule 10TA to contend that the services rendered by the assessee fall within the category of "knowledge process outsourcing services" on the ground that the said definition includes "human resources services". 53. We have carefully considered the said contention.Rule 10TA(g) defines "knowledge process outsourcing services" as business process outsourcing services provided mainly with the assistance or use of information technology requiring application of knowledge and advanced analytical and technical skills, and thereafter illustratively includes certain services such as human resource services, engineering services, analytics, market research, etc. In our considered view, the emphasis in the said definition is not merely on the nomenclature of the service, but on the nature and complexity of the functions performed, particularly whether such services require application of advanced analytical and technical skills. 54. In the present case, on examination of t....