TaxTMI 
TaxTMI 
2026 (8) TMI 276
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....ing the income of the Appellant under section 143(3) read with section 144C(13) read with section 1448 of the Act, for AY 2021-22 by INR 4,39,59,554 for provision of back office support services holding that the international transaction pertaining to provision of back office support services do not satisfy the arm's length principle envisaged under the Act. 2. On facts and in law, the Ld. Ld. TPO / Hon'ble Dispute Resolution Panel ('DRP') erred in rejecting the economic analysis adopted by the Appellant in its Transfer Pricing ('TP') Documentation, by modifying/adding/selecting filters thus rejecting comparable companies and selecting non-comparable companies, thereby contravening the provisions of Rule 10B(2) of the Income Tax Rules, 1962 ('the Rules'). 3. On facts and in law, the ld. TPO/Hon'ble DRP has further erred in including the following companies which are non-comparable to the Appellant in view of their functions performed, assets owned, risks assumed vis-à-vis the Appellant : a) Russell Reynolds Associates India Pvt. Ltd. b) Kamdar & Kamdar Associates Pvt Ltd c) Global Innovsource So....
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.... 9.3 disregarding the fact that no interest has been charged by the AE on such outstanding payables 9.4 in alleging that funds carrying interest cost were utilized by the Appellant to grant extra credit period to AEs. This is grossly incorrect given that the Appellant is a debt-free company. 10. On the facts and circumstances of the case and in law, the assessment proceedings are barred by limitation in view of Section 153 read with Section 144C of the Act. 11. That on the facts and circumstances of the case and in law, the AO erred in levying interest u/s. 234A, 2348 and 234C of the Act. 12. On the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 270A of the Act. 2. Grounds No. 1 and 2 are general in nature, hence not adjudicated. 3. With regard to Ground No. 5, ld. AR submitted that Ground no. 5 with respect to erroneous exclusion of companies having significant Related Party Transaction ('RPT') is not being pressed by the assessee. While as per the financials, the RPT disclosure shows no RPT, the AOC 2 filed by the said comparable companies discloses tha....
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....les 88,437 Total Adjustment 4,39,59,554 10. Ld. AR submitted that under the provision of back-office support services segment, the assessee undertakes low end IT enabled services with respect to accounting, finance, accounts payable, administration and human resource management. During the year, the assessee earned an operating margin on costs of 11.61%. He further submitted that the summary of the proceedings are as under: Particulars Position as per TP Documentation Approach adopted by Ld. TPO (TP order dated 28.10.2023) Approach adopted by Ld. DRP (DRP directions dated 31.08.2024; TPO appeal effect order giving effect to DRP directions dated 24.09.2024 and AO order dated 25.09.2024 Arm's Length margins No. of comparables : 11 Unadjusted Range : 6.34% to 13.60% No. of comparables : 11 Unadjusted Range : 15.80% to 32.51% Median : 28.78% No. of comparables : 10 Unadjusted Range : 15.08% to 33.84% Median : 28.28% Ground No. 3, 4 & 6 - Inclusion/ Exclusion of comparable companies 11. Ld. AR submitted that on facts and in law, the Hon'ble DRP/ Ld. TPO erred in rejecting the economic analysis adopted by the Assessee in its TP docu....
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....ained by the assessee for AY 2019-20 and AY 2020-21, Sundaram has been consistently selected as a comparable company.(Refer page 3 of Annexure 1) Reliance placed on: Syngenta Services (P.) Ltd. vs. ACIT {[2023] 157 taxmann.com 306 (Mumbai - Trib.)} - Assessee's business profile: Engaged in low end IT enabled services with respect to accounting, finance, accounts payable, administration and human resource management Syngenta Service's business profile: "3. Support Services to its Affiliate Companies in. Engaged in the business of providing Business relation to finance, human resources and Corporate Information Technology." Sundaram's business profile: "4.1. ... Sundaram Business Services is engaged in the business of processing and ITES in the areas of accounting, insurance, banking, human resources, etc." Considering the business profile of the assessee and Syngenta Services is similar and Sundaram was considered to be a comparable company in Syngenta Services (supra) for benchmarking the transaction of business support services to its AE, placing reliance on the said case, Sundaram ought to be included in the final list of comparable when there is no cha....
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....ion 1. Insufficient financial information -The financial data of the company is not available on Ministry of Corporate Affairs ('MCA') (refer screenshots furnished by the Assessee vide show cause reply dated 24 October 2023 on pg. no. A73-A74 of Volume I of the paper-book)or on any other public platform. Since data availability is the lifeline of any analysis, the assessee is not able conclude whether the same is a fit comparable. • Reliance placed on the following case laws IHG IT Services (India) Pvt. Ltd. vs DCIT (ITA No. 6381/Del/2022) "3. ... when the assessee asked for the complete annual report at the time of the original TP proceedings or the proceedings pursuant to the DRP, the TPO failed to provide the complete annual report of the said comparable to the assessee. If the TPO wanted to use Wipro BPO as a comparable, the onus was on him to provide the complete annual report to the assessee. It is a settled law that onus is on the person who asserts the facts. In any case, we fail to see how without the complete annual report of Wipro BPO, the DRP upheld the inclusion of the said company. From the Annual Report, which is few pages of the extr....
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.... inquiry with this company either by issuing notice under section 133(6) of the Act or in any other manner." 2. Functionally dissimilar -On review of limited information available in public domain, it is observed that pre-amalgamation during the year, company was engaged in providing high-end management consultancy services which if at all can be classified as KPO services. Hence, not comparable to the back-office support services provider like assessee.(Refer Page A74 of Volume I of the paper-book) TPO Order " ... after perusal of the records it could be seen that the comparable is engaged in back office work which is similar to the assessee's profile. Thus the contentions of the assessee is rejected. Therefore, this comparable is included in the final list." (Refer Page 194 of appeal set) DRP Directions "TPO has not passed speaking remarks in the draft order to hold aforesaid companies as comparable. Assessee has contended about applicability of filters. TPO is directed to re-verify FAR profile and applicability of filters and re determine inclusion/exclusion in the final list." (Refer Page 50 of appeal set) (Refer Pg 25 of appeal set - OGE) 4 Ru....
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.... renders the company incomparable. TPO Order "This company is engaged in financial services and it is similar to the profile of the assessee therefore the contention of the assessee is rejected. Thus, this comparable is included in the final set." (Refer Page 192 of appeal set) DRP directions "TPO has not passed speaking remarks in the draft order to hold aforesaid companies as comparable. Assessee has contended about applicability of filters. TPO is directed to re- verify FAR profile and applicability of filters and re determine inclusion/exclusion in the final list." (Refer Page 50 of appeal set) (Refer Pg 24 of appeal set - OGE) 5 Kamdar & Kamdar Associates Private Limited Seeking Exclusion 1. Functionally dissimilar - On review of the annual report of the Company, it is engaged in providing consultancy services on Foreign Trade Policy and is a recognised export house providing services in the nature of Duty Exemption / Remission Scheme, E.P.C.G. Scheme, Promotional Schemes, Export & Import Registrations. It is professionally managed consultancy company providing services for claim of benefits of export promote on schemes under foreign trad....
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....e website of the company that it offers certain products/ software to its customer. (Refer Page 5-6 of Annexure 1) 4. Owns significant intangibles - The entity owns significant intangible asset and have intangibles under development. (Refer Page B331 and B398-B406 of Volume II of the paper-book) The assessee does not own any intangible asset/ have intangible asset under development nor provide product/software to its customers. Thus, the said company is not comparable to the assessee. TPO Order " ... after perusal of the records it could be seen that the comparable is engaged in HR compliance services work which is similar to the assessee's profile. Thus the contention of the assessee is rejected. Therefore, this comparable is included in the final list." (Refer Page 195 of appeal set) DRP directions "TPO has not passed speaking remarks in the draft order to hold aforesaid companies as comparable. Assessee has contended about applicability of filters. TPO is directed to re-verify FAR profile and applicability of filters and re determine inclusion/exclusion in the final list." (Refer Page 50 of appeal set) (No remarks but included in the final set o....
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....ompany was formed as a joint venture with the West Bengal Industrial Development Corporation which is a Government of West Bengal undertaking. Most of the Revenue comes from government and functions performed by this company are also not comparable with that of the assessee. Exclusion is upheld." The order of Hon'ble ITAT was also upheld by the Hon'ble High court. Considering, the above high-end services being provided to government companies could not be compared to engineering design services, the same cannot be compared with back-office support services in the nature of accounting and other related support. Hence, a company rendering services to government company on a tender basis is not comparable to a cost-plus captive entity company rendering services to it AE. Therefore, AAA Technologies Limited is not comparable to the assessee. TPO Order " ... after perusal of the records it could be seen that the comparable is engaged in Auditing and Consulting Company work which is similar to the assessee's profile. Thus the contention of the assessee is rejected. Therefore, this comparable is included in the final list." (Refer Page 194 of appeal set) D....
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....hat this company is engaged in the back-office work which is also similar to the profile of the assessee. With regard to AAA Technologies Ltd., he submitted that they are engaged in auditing and consultancy company work which is also similar to the profile of the assessee company. Therefore, he heavily relied on the detailed findings of the Assessing Officer/TPO. 14. Considered the rival submissions and material placed on record. Before us the assessee had raised grounds of appeal and argued that the comparables selected and excluded by the TPO in order to benchmark the ALP is not proper and not justified. He made detailed submissions as discussed above. We shall deal with each comparables as under: Inclusion: a. With regard to Sundaram Business Services, we observed that it is engaged in provision of information technology enabled services in the areas of accounting, insurance, banking, human resources, document conversion, data processing, health care, media and publishing, telecom and other areas for and on behalf of banks, companies, bodies corporate, trusts, funds, firms, associations, institutions, individuals and any other person in India and abroad. The function....
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....e time of the original TP proceedings or the proceedings pursuant to the DRP, the TPO failed to provide the complete annual report of the said comparable to the assessee. If the TPO wanted to use Wipro BPO as a comparable, the onus was on him to provide the complete annual report to the assessee. It is a settled law that onus is on the person who asserts the facts. In any case, we fail to see how without the complete annual report of Wipro BPO, the DRP upheld the inclusion of the said company. From the Annual Report, which is few pages of the extract, we take note that no revenue or segmental break up is available between software services and infrastructure support services and no information about the nature of business is available in the annual report. We find force in the submissions advanced by ld. AR that in the absence of the Director's Report and Notes to Account for this comparable are not available in public domain it would not be prudent to take this company as a comparable. Ld. DR has not been able to controvert this fact. Since sufficient information for this comparable is not available, we direct exclusion of this company as a comparable as we have done in the ca....
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....yer that it is functionally dissimilar. We observed that it is engaged in providing consultancy services on Foreign Trade Policy and is a recognised export house providing services in the nature of Duty Exemption / Remission Scheme, E.P.C.G. Scheme, Promotional Schemes, Export & Import Registrations. This cannot be different than the BPO services and back-office support services. There is no separate skill required for such advisory services. Therefore, we are inclined to dismiss this prayer and retain the same as comparable. d. With regard to Aparajitha Corporate Services Private Limited, we observed that TPO had retained the above company as comparable in OGE. We observed that in the original TP order, the company was selected by the TPO as comparable to the assessee even though the assessee had objected to the same. Before Ld DRP also, raised objections but Ld DRP had not discussed regarding this comparable in their final order. Since, the TPO had retained the same as comparable in the final OGE, the assessee had raised the issue of exclusion of this comparable before us. We observed from the financial statements, it is into management consultancy activities whereas the....
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....overnment agencies, whether it is substantial or part of the business. We cannot take decision on the basis of incomplete data. Since, the services offered by this company is high end, the same cannot be included in the final comparables. f. With regard to Interactive Manpower Solutions, we observed that TPO had retained the above company as comparable in OGE. We observed that in the original TP order, the company was selected by the TPO as comparable to the assessee even though the assessee had objected to the same. Before Ld DRP also, raised objections but Ld DRP had not discussed regarding this comparable in their final order. Since, the TPO had retained the same as comparable in the final OGE, the assessee had raised the issue of exclusion of this comparable before us. We observed from the submissions made before us that this company is engaged in recruitment process outsourcing services and it is additional leg in terms of overseas HR desk in short listing of CV and coordinating for conducting interviews. The information submitted by the assessee from the financial statements that the principal business activities is recruitment process outsourcing services, ....
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....bmitted that this issue is covered by the decision of Hon'ble Delhi High Court in the case of PCIT vs Kusum Healthcare Pvt. Ltd. [TS-412-HC-2017(DEL)-TP] [Delhi HC] wherein appeal of the Revenue has been dismissed. He further brought to our notice the relevant findings of the aforesaid decision as under : "8. In view of the above, a working adjustment appropriately takes into account the outstanding receivable. Therefore, the assessee has undertaken a working capital adjustment to reflect these differences by adjusting for differences in working capital and thereby, profitability of each comparable company. Accordingly, while calculating the working capital adjusted, operating margin on costs of the comparable companies, the impact of outstanding receivables on the profitability has been taken into account. If the pricing/ profitability of the assessee are more than the working capital adjusted margin of the comparables, then additional imputation of interest on the outstanding receivables is not warranted. ............... 14. As mentioned earlier, the differential impact of working capital of the assessee vis-a-vis its comparable has already been fac....
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....ction was that the TPO imputed the interest at the rate of 6 month LIBOR plus 425 basis points i.e., at the rate of 4.621% for the delays exceeding 90 days and referred to Page 38 of the appeal set. 23. Further, ld. AR submitted in his contentions that : • Outstanding receivables cannot be considered as a separate international transaction At the outset, it may be inferred that early or late realization of service proceeds is incidental to the transaction of sale/ service, and not a separate transaction in itself. Once ALP is determined in respect of the service transaction, it would be deemed to be covering all the elements and consequences of such transactions. • Comparison of Average Realization period ('ARP') of the Appellant vis-à-vis the comparable companies The ARP in case of independent comparable companies was 161 days whereas that in case of the Appellant was only 15 days. (Refer Annexure 2) The ARP of comparable companies is higher than that of the Appellant, hence it can be inferred the period of realization of payment by the Appellant is lower than the market scenario. Hence, no adjustment is warran....