TaxTMI 
TaxTMI 
2026 (9) TMI 1460
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.... ground of unaudited segmental data and alleged non-allocation of certain expenses, without appreciating the fact that such data was procured directly from the entity vide issuing a statutory notice to the entity and hence, the same should have been considered as reliable?" 2) Ground 2. "Whether on the facts and circumstances of the case and in law, ld. CIT(А) was correct in directing the exclusion of the comparable M/s Datamatics Financial Services Ltd. (Segment) based on an Hon'ble ITAT decision in M/s Dimension Data India which the said comparable's segments were held to be 'unreliable' due to apparent misallocation of costs between 10A eligible and non-10A eligible units, ignoring the fact that the same does not impact the business segment profitability as a whole, which is what is considered for purposes of benchmarking during TP assessment proceedings?" 3) Ground 3. "The appellant craves leave to amend OR alter any grounds OR add a new grounds which may be necessary. 3. The brief facts of the case are that the assessee, BP India Private Limited, is a company engaged in providing advisory and support services to various entities of the BP Group. For ....
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.... excluded from the final set of comparables. 6. Pursuant to the aforesaid directions of the Tribunal, the TPO passed the order giving effect on 30.03.2017. The TPO retained both Accentia Technologies Limited and Datamatics Financial Services Limited (segment) as comparables. In relation to Accentia Technologies Limited, the TPO did not accept the assessee's contention regarding functional differences and extraordinary events and Transfer Pricing Officer held that its relevant segments were comparable with the assessee's support service activity. In relation to Datamatics Financial Services Limited, the TPO noted that the Assessing Officer had obtained segmental information directly from Datamatics under section 133(6) of the Act and had thereafter furnished them to the assessee. Although such segmental accounts were not audited, the TPO held that they were reliable because the information had been certified by the management of Datamatics. According to the TPO, there was no statutory requirement that segmental information used for transfer pricing purposes must necessarily be audited. Accordingly, Datamatics Financial Services Limited (segment) was retained as a comparab....
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.... the case of Datamatics Financial Services Limited for A.Y. 2008-09 in ITA No. 1469/Mum/2012, wherein the issue of improper apportionment of expenses had been considered. The CIT(A) found that the ITeS/BPO segmental information obtained by the TPO under section 133(6) of the Act pertained to the same business segment in respect of which the issue of allocation of expenditure had arisen in Datamatics's own case. In these circumstances, the CIT(A) held that the management-certified segmental information could not be regarded as fully reliable for computation of the operating margin of Datamatics. Following the jurisdictional Tribunal's decision in Dimension Data India, the CIT(A) directed the TPO to exclude Datamatics Financial Services Limited from the final set of comparables. The assessee's appeal was accordingly partly allowed. 10. The Department is in appeal before the Tribunal only against the relief granted in respect of Datamatics Financial Services Limited. The first grievance of the Department is that the CIT(A) erred in excluding Datamatics merely because its segmental data was unaudited and certain expenses were not allocated, without appreciating that the ....
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.... of the BPO segment, as worked out on the basis of such information, gives a true and reliable picture of the profitability of that segment. It was submitted that the schedules to the financial statements of Datamatics show that various operating and general expenses have been allocated to the BPO segment. These include salary and wages and benefits, contribution to provident fund and other funds, staff welfare expenses, conveyance, travelling expenses, rent, professional and legal fees and repairs and maintenance. However, when the BPO segmental accounts are compared with the financial statements of Datamatics at the entity level, certain other operating expenses appearing in the entity-level accounts, particularly electricity charges, security and upkeep expenses and rates and taxes, have not been allocated to the BPO segment. According to the learned Counsel, selective allocation of some common expenses while leaving out other operating expenses makes the segmental cost and consequently the segmental profit margin unreliable. 14. We find force in the above contention of the assessee. At the outset, it needs to be made clear that the issue is not whether the information obtain....
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....ed to the BPO segment. 18. However, the entity-level financial statements separately contain expenditure towards electricity charges, security and upkeep expenses and rates and taxes, which do not find place in the BPO segmental schedule. This gives rise to a genuine question regarding the basis on which common expenses were allocated to the BPO segment. If rent, repairs and maintenance, professional expenses, travelling expenses and other establishment expenses can be allocated to the BPO segment, there must be some explanation as to why electricity charges, security and upkeep expenses and rates and taxes have been kept outside that segment. 19. We may clarify that we are not holding that the entire electricity charges, security and upkeep expenses and rates and taxes appearing in the entity-level accounts must necessarily be allocated to the BPO segment. It is quite possible that some or even all of these expenses may relate to another activity of Datamatics. However, there must be some material to show this. There should be a reasonable basis of allocation from which it can be verified as to which common expenses relate to the BPO segment and which relate to other activit....
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.... by the authorities below cannot be disturbed." 22. Thus, there was already a finding in the case of Datamatics itself that the allocation of common expenses required correction. This is relevant because the present case also concerns A.Y. 2008-09 and the reliability of the segmental profitability of Datamatics for that very year. 23. The matter was thereafter directly considered from the transfer pricing angle by the Mumbai Bench of the Tribunal in Dimension Data India v. Addl. CIT [2020] 118 taxmann.com 601 (Mum.-Trib.), ITA No. 7725/Mum/2012, dated 27.07.2020, again for A.Y. 2008-09. The Tribunal examined whether Datamatics could be retained as a comparable and, after referring to the decision in Datamatics's own case, held as under: "Then we decide the issue of comparability of M/s Datamatics Financial Services Ltd. with the appellant. A perusal of the order dated 26.06.2013 passed by the Tribunal in the case of the above company for the AY 2008-09 clearly indicates that the assessee (M/s Datamatics Financial Services Ltd.) had not properly apportioned common expenses between the eligible and in eligible units... Thus M/s Datamatics Financial Services cannot ....
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....ing facts having adverse impact about the report supplied by the revenue it. None of the authorities below has clarified those allegations of the assessee but merely proceeded to use the information gathered in response to the notice issued under section 133(6) as the gospel truth. Thus, what is transpired that neither the opportunity to the assessee was afforded nor points highlighted by the assessee in the financials of the BPO segment were addressed. Thus, in such facts and circumstances, it is of the view that the information gathered by the revenue in response to the notice issued under section 133(6) cannot be used while working out the ALP of the assessee. Accordingly, it is to be held that the impugned comparable should not be used for calculating the ALP of the assessee in the given facts and circumstances." 28. The ratio of the aforesaid decision supports the basic contention of the assessee before us. Information collected under section 133(6) of the Act cannot be treated as conclusive merely because it has been supplied by the proposed comparable itself. If the assessee points out specific defects in the segmental financials which may affect the operating margin, tho....
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....ted as reliable merely because it was obtained directly from Datamatics under section 133(6) cannot be accepted. Similarly, the second ground of the Revenue that the decision in Dimension Data India concerned only allocation between section 10A eligible and non-eligible units and had no effect upon the business segment profitability also is not acceptable. The decisions in Datamatics Financial Services Ltd., Dimension Data India and Doshi Accounting Services (P.) Ltd., read together, show that there were genuine issues concerning the allocation of expenses in the segmental financial information of Datamatics and that such information could not be mechanically used for determining the ALP merely because it had been obtained under section 133(6). 33. Considering the totality of the facts, particularly the specific differences noticed between the entity-level financial statements and the BPO segmental accounts, and respectfully following the decisions discussed above, we find no infirmity in the order of the learned CIT(A) directing exclusion of Datamatics Financial Services Ltd. from the final set of comparables. The order of the learned CIT(A) on this issue is accordingly upheld ....
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....l or any of the Cross Objections and to submit such statements, documents and papers as may be considered necessary either at or before the hearing of the appeal. 35. We have also considered the Cross Objections filed by the assessee. The Cross Objections have been filed without prejudice to the relief already granted by the learned CIT(A). The assessee has raised general objections regarding inclusion and exclusion of comparables, non-grant of risk adjustment, use of multiple-year data, limitation under section 153 and levy of interest under sections 234B and 234C of the Act. 36. In Ground Nos. 1.1 and 1.2, the assessee has generally contended that the TPO/AO erred in including certain functionally dissimilar companies and excluding certain functionally similar companies from the final set of comparables. However, we find that the assessee has not identified in the grounds of Cross Objections any particular company which, according to it, ought to have been excluded or included. The grounds have been raised only in general terms. 37. However, since the proceedings before the TPO pursuant to the earlier order of the Tribunal were concerned, inter alia, with Accentia Techno....
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....ish that even those segments were functionally different, it was necessary for it to place material on record showing the nature of the activities carried on in those segments and demonstrate how they were different from the services rendered by the assessee. The learned CIT(A) has recorded that no satisfactory evidence was produced to establish that the segments retained by the TPO contained software development activity or were otherwise unsuitable for comparison. 42. There is also an important distinction between the cases of Accentia Technologies Ltd. and Datamatics Financial Services Ltd. In the case of Datamatics, the objection went to the reliability of the very segmental profit margin adopted by the TPO. However, no similar defect in the computation of the segmental profitability of Accentia has been demonstrated before us in the Cross Objections. The assessee cannot, therefore, seek exclusion of Accentia merely because the company, at an overall level, also carried on software development activity when that segment was not used for comparison. 43. Though TNMM does not require complete identity between the tested party and the comparable company. Where separate segmen....