TaxTMI 
TaxTMI 
2026 (9) TMI 130
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.... facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in including the comparable R. Systems International Ltd. in the final list of comparables. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in excluding the comparable Accentia Technologies Ltd. 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in excluding the comparable I-Gate Global Solutions Ltd. 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in excluding the comparable Infosys BPO Limited. 5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in excluding the comparable TCS E-Serve Ltd. and TCS E-Serve International Ltd. 6. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in excluding the comparable Fortune Infotech Ltd. 7. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in excluding the comparable ICRA Techno Analytic Ltd. (Segmental). 8. Whether on the....
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.... a comparable company 5. That on the facts and circumstances of the case and in law, the CIT(A) erred in upholding the rejection Caliber Point Business Solutions Limited as a comparable company by the AO/ TΡΟ on the ground that it follows a different financial year." 4. We have heard the rival submission and perused the materials available on record. The assessee is providing back office support services which include providing finance and administration services and ticket reservation management and ITES services (both voice and non-voice based) in and outside India. The company also provides marketing support services as well as supply chain management services to unrelated third parties. The international transactions carried out by the assessee are tabulated at page 4 of the order of the ld TPO as under:- S. No, International Transaction 1 Back Office Support Services 22 2 IT Support Services !u 3 Fees for Management Services 29. 4 Interest on ECB 1 6,2 5 Interest on Corporate Guarantee 1 3,8. 6 Reimbursement of Expenses (Paid) 1 20,1 5. The assessee applied Transactional Net Margin....
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.... AE's as well as non-AE's wherein the functions performed and risk assumed in relation to the provision of such services are sinidar and comparable. Therefore, based on the Functions, Assets and Risk ie. FAR analysis and the availability of data for determining the Arms' Length Price of its international transactions, the assessee applied internal TNMM and compared the OP/OC margin of AE claimed with OP/OC margin of non-AE segment. Since the OP/OC margin of 12.8% in its AE segment was higher than 7.24% OP/OC margin earned in the non-AE segment, it was concluded that the international transaction in respect of provision of ITeS undertook by the assessee are at Arms' Length in accordance with Indian TP Regulations. The TPO in the show cause notice, proposed to reject internal TNMM applied by the assessee for benchmarking provision of ITeS. However, the submissions of the assessee in this respect were not considered. The TPO proceeded to apply external TNMM to benchmark the said international transaction. Further, the DRP while dealing with internal TNMM applied by the assessee, rejected the project stating that the nature of services being performed in AE Segment are ....
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....sed in 2013 (UN manual) also provides that TNMM is less dependent on product comparability because net margins are less influenced by differences in products and functions, as compare to other methods like CUP. The Ld. AR relied upon the following cases wherein it has been held that TNMM is not dependent on product similarity, and in TNMM, broad nature of Services/functions is to be seen: * DCIT vs. Isagro (Asia) Agrochemicals Pvt. Ltd. (ITA No. 5093/Mum/2017) * Diageo India Pvt. Ltd. Vs DCIT (2013) 59 SOT 150 (Mumbai Tri.) * Eaton Fluid Power Ltd. Vs. ACTI (2015) 56 Taxman.com 135 (Pune Tri.) 8. The Ld. AR further submitted that the DRP observed that the segments furnished by the assessee were not audited. But the DRP or the TPO did not highlight any defect or discrepancy that led to such a conclusion. The segmental analysis was based on valid allocation keys and the same was furnished in the TP study. The Ld. AR relied upon the following decisions wherein it has been held that segments do not have to be audited and that they cannot be rejected without any basis: * Lummus Technology Heat Transfer BV Vs. DCIT (2014) 64 SOT 47 (Delhi Tri.....
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....here were no audited segments maintained. But at the same time, the TPO/AO has not pointed out any discrepancy related to segmental analysis based on valid allocation keys furnished by the assessee in its TP study. Therefore, these two aspects cannot be valid for rejecting the internal TNMM. The DRP was not correct in considering the services/scope of work from the agreement entered into by the assessee with its AE for 'procurement of IT Services' and comparing the same with the back-end ITeS Services provided by the assessee to AEs. In the present case best suited method is that of internal TNMM. The financial data pertaining to internal segmentation is more reliable and accurate, as compared to financial data of external comparable companies, therefore, it will be appropriate to apply internal benchmarking analysis over external benchmarking analysis. This finds support from the "OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations" which highlight the preference of internal comparables over external comparables. (relied upon Para 3.27 and 2.58 of OECD guidelines). In fact, the United Nations Practical Manual on Transfer Pricing for Developing Co....