TaxTMI 
TaxTMI 
2026 (9) TMI 1062
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.... per the provisions of Section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962, or that the information or data used in computation of the arm's length price was unreliable or incorrect; thereby rendering the rejection of the Appellant's Transfer Pricing documentation arbitrary, unsustainable in law and liable to be quashed. II. Ground of Objection No. 2: Wrong elimination of Comparable when the same were accepted in earlier assessment The Learned Authorities Below erred in eliminating several functionally comparable companies which were accepted as comparables in the immediately preceding assessment year 2021-22, without there being any material change in the business profile, functional characteristics, risk profile, or turnover range of either the Appellant or such comparable companies, thereby violating the settled principle of consistency laid down by judicial precedents. III. Ground of Objection No. 3: Wrong elimination of companies applying turnover criteria The Learned Authorities Below erred in applying an arbitrary turnover filter of 1/10th to 10 times of the Appellant's turnover and consequently eliminating 7 functional....
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....nge. 3. Assessee is a private limited company incorporated in India in the year 2011 and is part of the Celltick group. As recorded by ld. DRP, assessee is engaged in the business of distributing livescreen and other software solutions to customers in the Indian subcontinent. For the year under consideration, assessee filed its return of income on 29.11.2022, reporting total income at Rs. 6,85,57,915/-. Case was selected for scrutiny, inter alia, on account of transfer pricing risk parameters relating to international transactions in the nature of intangible property, intra-group services and service fees. The international transactions were referred to the Transfer Pricing Officer ("TPO") under section 92CA of the Act. Assessee had undertaken benchmarking under the Transactional Net Margin Method ("TNMM") and had maintained its transfer pricing documentation in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ("the Rules"). 3.1. Ld. TPO, however, did not accept the benchmarking undertaken by assessee. In particular, ld. TPO applied an additional turnover filter, rejected seven companies selected by assessee, introduced ten companies into the c....
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....1 Ascendum Solutions India Ltd - 33.40% Rejected Ground no 6 - Selective Exclusion 35th Percentile 2.01% 14.65% Median 2.11% 18.08% 65th Percentile 2.55% 24.93% 3.2. Based on above, resultant adjustment was determined at Rs. 3,21,47,310/-. Relevant computation recorded by the ld. TPO is as under: Particulars Amount Operating Revenue Rs. 39,93,48,000/- Operating Cost Rs. 35,85,11,000/- Operating Profit Rs. 4,08,37,000/- Assessee's OP/OR 10.23% ALP Profit Margin 18.08% ALP Profit Rs. 7,21,73,310/- TP Adjustment Rs. 3,21,47,310/- 3.3. Assessee raised eight objections before ld. DRP. The principal objections concerned rejection of its transfer pricing documentation, exclusion of comparables accepted in the immediately preceding year, application of the turnover filter, RPT filter, functional comparability, selective exclusion of a comparable, the earlier APA entered into with CBDT and, without prejudice, exclusion of Rishabh Software Pvt. Ltd. and Greeksoft Technologies Pvt. Ltd. Objection....
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....ssertion that comparability is year-specific is not sufficient to discard the evidentiary relevance of an earlier APA where assessee demonstrates continuity in the FAR profile. Accordingly, Ground No. 7 is allowed. 5. Ground No. 2 concerns the exclusion of comparables which had been accepted in the immediately preceding assessment year, whereas Ground No. 3 challenges the application of the turnover filter of 1/10th to 10 times. Since both grounds arise from the same exercise of selection of comparables, they are considered together. The record shows that assessee had considered eleven companies in the transfer pricing study for both AY 2021-22 and AY 2022-23, namely: 1. NTT India Private Limited; 2. Sonata Information Technologies Limited; 3. Team Computers Private Limited; 4. Compuage Infocomm Limited; 5. Galaxy Office Automation Private Limited; 6. IRIS Computers Limited; 7. Softcell Technologies Global Private Limited; 8. Informatics Technologies Private Limited; and 9. Datasoft Network Solutions Private Limited. 10. ILife IT Solutions Pvt Ltd 11. Astute Systems Pvt Ltd 5.1.....
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....ments otherwise applicable. Ground Nos. 2 and 3 are allowed. 6. Ground No. 4 concerns inclusion of Rishabh Software Private Limited by the authorities below. Assessee demonstrated before ld. DRP that the said company had related party transactions as follows: Particulars FY 2021-22 Sales/provision of services to related parties Rs.25,21,81,000/- Revenue from operations Rs.99,90,62,000/- RPT Income 25.24% Remuneration/salaries to related parties Rs.3,23,30,000/- RPT Expense 3.24% Aggregate RPT 28.48% 6.1. Ld. DRP nevertheless upheld ld. TPO's approach of considering sales and purchases separately. The fundamental purpose of the RPT filter is to ensure that a company whose profitability is materially influenced by controlled transactions does not enter the uncontrolled comparable set without appropriate scrutiny. In the present case, assessee has demonstrated from the figures recorded in ld. DRP order itself that the related party service transactions alone constitute 25.24% of operating revenue, while the aggregate of the RPT income and RPT expense is 28.48%. Assessee had therefore raised a specific and quantifiable objection to th....
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....percentile : 4.29% Median : 18.08% 65th percentile : 22.63% Assessee's own operating margin : 10.23%. 7.1. Thus, even on the restricted basis as suggested by assessee, its margin of 10.23% falls within the arm's length range of 4.29% to 22.63%. Ld. DRP has not disputed the mathematical computation or demonstrated any error in the figures placed before it. It merely rejected the ground by referring back to its findings on the preceding objections. Once assessee's margin falls within the statutory arm's length range, no transfer pricing adjustment is warranted. There is no dispute regarding assessee's operating margin for the year. In our considered view, the transfer pricing adjustment of Rs. 3,21,47,310/- cannot survive. Accordingly, the impugned transfer pricing adjustment of Rs. 3,21,47,310/- is deleted. Ground No. 8 is allowed. All the other grounds not specifically adjudicated upon in the above paragraphs are rendered academic and therefore left open. 8. In view of our findings above, the transfer pricing adjustment of Rs. 3,21,47,310/- made by ld. TPO and incorporated by the Assessing Officer in the final assessment order is delet....