TaxTMI 
TaxTMI 
2026 (8) TMI 1773
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....of the case and in law, the Ld. Assessing Officer/ Hon'ble Dispute Resolution Panel ("Hon'ble DRP") has erred in not appreciating and not considering the information /documentary evidence furnished by the Appellant before the Hon'ble DRP during the proceedings in relation to addition/ disallowance made in the impugned assessment order. 3. That the Hon'ble DRP ignored the judicial pronouncements and erred in dismissing the grounds of objections raised by the Appellant and upholding the adjustment proposed by the Ld. Assessing Officer/ Learned Transfer Pricing Officer ("Ld. TPO") without providing any cogent reasons for the same. Transfer Pricing 4. That the Ld. AO / Ld. TPO/ Hon'ble DRP erred in enhancing the income of the Appellant by INR 13,48,26,867/- pertaining to the provision of services that do not satisfy the arm's length principle envisaged under the Act and in doing so, have grossly erred in: 4.1. erroneously rejecting the economic analysis undertaken by the Appellant in the Transfer Pricing ("TP") documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ("....
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....gin as per Ld. TPO Arm's length margin as per Ld. TPO Adjustment in INR 1 Provision of support services TNMM OP/OC 6.26% 10.66% - 27.77% 13,48,26,867 Total adjustment in TP order 13,48,26,867 II. Provision of support services (Ground No. 4, page 8 of Merit Appeal) 5. In this segment, the Assessee provides support services in connection with business and technology consulting, manpower support, system integration, software development, testing and validation services etc., covered under the umbrella of ITeS sector with its AE, namely Incedo Inc. 6. At the outset, the ld. AR brought to our attention the economic analysis undertaken by the Hon'ble DRP/Ld. TPO and submitted that it is grossly incorrect as the companies which have been selected are primarily engaged in design & engineering services and business process outsourcing services which are not similar to support services rendered by the Assessee. 7. The final list of comparable companies as selected by the ld.TPO to benchmark the transaction of provision of technical manpower support services is tabulated below: Table 2: Comparables selected for provision of service segment in th....
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....d vs JCIT, [IT(TP)A No. 178/Bang/2022] * Altisource Business Solutions Pvt. Ltd v. ITO, [IT(TP)A No.3368/Bang/2018] * Samsung R&D Institute Bangalore Pvt. Ltd. [I.T.A No. 622 of 2017] * OLF (India) Software Pvt. Ltd. v/s ACIT [IT(TP) A No. 182/Bang/2021] * DCIT v/s Cisco Systems BV-India Branch [IT(IT) A No.309&426/Bang/2016] * Lam Research India Pvt. Ltd v/s DCIT [405&468/Bang/2016 2011-12] * LSI India Research & Development (P.) Ltd. v/s DCIT [2021] [IT(TP) APPEAL NO. 3170 (BANG) OF 2018] [124 taxmann.com 83] * M/s CISCO Systems (India) Private Limited Vs. DCIT [IT(TP)A No.271/Bang/2014] * 3DPLM Software Solutions Limited vs. DCIT [2014] 42 taxmann.com 333 (Bangalore - Trib.) * Intoto Software India (P.) Ltd. vs. ACIT [2013] 35 taxmann.com 421 (Hyderabad - Trib.) Incurring huge marketing expense  M/s. Hyundai Motor India Engineering Pvt. Ltd (ITA No.1807/Hyd/2017) Evalueserve.Com P. Ltd, New Delhi vs ACIT, Circle-8(2) ITA No. 5148/DEL/2017 11. With regard to incorrect inclusion of TTEC India, ld. AR submitted that this company is not functionally comparable and the compan....
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....s mentioned above, ld. AR submitted that the OP/OC range of comparable companies is 3.99% to 9.80% with median of 6.36% as against the OP/OC of 6.26% of Assessee. Thus, the international transactions undertaken by the Assessee with the AEs, would be considered to be at arm's length from an Indian TP regulations perspective. 16. It was submitted that the Ld DRP/TPO had rejected the segmental accounts submitted by the assessee, (ground no, 4.3) and the detailed submissions are as below: 17. Ld. AR submitted that segmental accounts prepared on a cogent basis cannot be rejected without providing any reasons for rejection of the same. He further submitted that the Segment Reporting mandated under Accounting Standard ("AS") 17 is with the objective of reporting information on different types of product and services provided by a company as well as about the different geographical regions it operates. He submitted that on the hand, segmentation under transfer pricing would include all of the above and may additionally include: * Segregation of transactions into related and unrelated segments even if the product or services offered are identical; and * Segregation o....
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.... submitted that several ITAT judgments have clearly held that the segmental data, though not audited, cannot be randomly rejected and that reasonable allocation basis should be used and accepted for segmentation. The ITAT, Delhi Bench in case of Lummus Technology Heat Transfer BV (ITA No 6227/Del/2012), held as follows: "5. Rule 10B(1)(e) of the Income Tax Rules, which deals with the Transactional Net Margin Method, provides requires that "the net profit margin realised by the enterprise (i.e. the Assessee) from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base" is compared with " the net profit margin realised by the enterprise ( i.e. the Assessee) or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base" - of course, subject to comparability adjustments which could affect the amount of net profit margin in uncontrolled conditions. It is not at all necessary, as the authorities below seem to suggest, tha....
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....erved that the TPO had bench marked the transaction of provision of support services to its AEs by adopting TNMM as the MAM and determined the margin of the assessee at 6.26% and that of comparable companies at the median of 10.66%. The TPO selected 16 comparables and determined the ALP of Rs. 13,48,26,867/-. Before us, the assessee had brought to our attention three comparables, which are not comparables based on their functionalities, the relevant contested comparables are Tata Elxsi Limited, TTEC India and CHEERS. After considering the detailed submissions, we observed as under: a. With regard to Tata Elxsi Limited, we noticed that they are engaged in the business of providing design and engineering services to the consumer electronics, communications and transportation industries etc. It also provides digital content creation for media and entertainment industry along with R & D activities. It is observed that majority of the revenue are earned from the software development and it has substantial intangibles. Whereas the assessee is engaged in providing technical testing services, technical resource deployment and other related services which are in the nature of Infor....
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.... 'Profit & Loss Account' it was that the first item under head 'Income' is Income from Software Development, Services & Products', which had been split into two parts, namely, 'Overseas' and 'Domestic' markets. Under the head 'Significant Accounting Policies', said company had provided under the head 'Revenue recognition' - that the revenue from software development services and products were recognized on completion of contract or stage of completion as per the applicable terms and conditions agreed with customers. Perusal of Schedule-12 detailing 'Income from Software Development, Services & Products' in 'Overseas' market, showed that apart from earning income. from Software services, said company also earned income from 'Business process outsourcing services', which fell in the realm of IT. enabled services. 'Note no. 6 to Notes annexed and forming part of the accounts for the year further divulges that said company earned income from 'Medical transcription', which was categorized as 'Business process outsourcing' services. Directors' report under the head 'Review of Business&....