TaxTMI 
TaxTMI 
2026 (10) TMI 177
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....in the business of administering, monitoring and managing operations at offshore to suppliers in India and providing domestic knowledge of the BPO industry. In short, the assessee is providing Administrative Support services to its Associate Enterprise (AE). Income of Rs. 5,03,74,750/- declared in the return of income for A.Y. 2010-11 e-filed on 06.10.2010. Case selected for scrutiny through CASS followed by validly serving statutory notices. Since the assessee carried out International Transactions with its AE, ld. Assessing Officer referred the matter to Transfer Pricing Officer (TPO). After considering the submissions of the assessee and also by rejecting the comparables adopted by the assessee for computing the Arm's Length Price (ALP) and inserting new comparables, ld. TPO made an upward adjustment at Rs. 2,75,91,231/- for the Information Technology Enabled Services (ITES) and Rs. 75,34,681/- for the notional interest on outstanding receivables. Ld. Assessing Officer incorporating the additions passed assessment order u/s.143(3) r.w.s.144C of the Act making Transfer Pricing adjustment of Rs. 3,51,25,912/- and assessed the total income at Rs. 8,55,00,480/-. Thereafter, the asse....
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....ot warrant exclusion if functional comparability exists under TNMM. 3. Whether the learned CIT(A) erred in relying on the Advance Pricing Agreement (APA) entered into for subsequent years (AYs 2011-12 to 2019-20), which was not in effect during the assessment and is not legally binding for the subject year.. contrary to the provisions of Section 92CC and 92CD of the Act. 4. Whether the learned CIT(A) erred in accepting the use of multiple-year and non contemporaneous financial data in the TP study, contrary to Rule 10B(4), which mandates the use of current year data unless exceptions apply. 5. Whether the learned CIT(A) erred in concluding that the Appellant's margin was at arm's length solely based on comparison with APA-agreed margins and ignoring the contemporaneous TP analysis and valid comparables identified by the TPΟ indicating otherwise. 6. Assessee has raised following Cross Objections in C.O.No.21/PUN/2026 for A.Y. 2010-11 : "On the basis of grounds of Appeal submitted by Ld. DCIT (Appellant), the following cross objections are made by the respondent which are independent of and without prejudice to one another. ....
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.... Transactional Net Margin method by excluding some comparables selected by the assessee and including some comparables. We observe that ld.CIT(A) in the order passed 145 r.w.s.250 r.w.s.254 of the Act dated 27.06.2025 pursuant to the order of this Tribunal dated 16.09.2022 pertaining to A.Y. 2010-11 has examined the issue afresh and has held as under : 11. From going through the finding of ld.CIT(A) we find that in the Transfer Pricing Study Report filed by the assessee, comparables were selected based on the technological process, professional management, Transfer Pricing principles requirement of section 92A to 92F read with Rule 10A to 10E. So far as 75% export earning filter applied by ld. TPO is concerned, ld.CIT(A) observed that, out of 8 comparables included by ld. TPO, 3 comparables namely Accentia Technologies Limited, Infosys BPO Limited and TCS E-Service Limited were having turnover more than 10 times of that of the assessee. 12. We now proceed to examine whether the comparables selected by TPO are having similar functional comparability, turnover, risk profile and other relevant filters as required for applying Transactional Net Margin Method. (i) Accenti....
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....ee as the area of work is different. We also note that there is huge decline in the Revenue. It has been consistently held that comparable company exhibiting volatile financial results are not generally considered reliable in Transfer Pricing analysis and their results may not reflect Arms Length conditions under normal business operations. 13. Now once we have examined the comparables selected by ld. TPO referred above, we find that the turnover of three comparables namely Accentia Technologies Limited, Infosys BPO Limited is 10 times higher than that of the assessee. As rightly held by ld.CIT(A) placing reliance on the judgment of Hon'ble Bombay High Court in the case of Pentair Water India Private Limited reported in (2016) 69 taxmann.com 180 (Bombay) since the size of the above referred 3 comparable companies is too big and the turnover is more than 10 times, such type of comparables need not be selected for the purpose of calculating the Arms Length Price under TNMM. Therefore, even if we exclude the comparables namely Infosys BPO Limited, TCS E-Serve Limited and Accentia Technologies Limited, the revised Operating Margin comes to18.23% as compared to the appellants Operati....
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....ples that size alone does not warrant exclusion if functional comparability exists under TNMM. 3. Whether the learned CIT(A) erred in relying on the Advance Pricing Agreement (APA) entered into for subsequent years (AYs 2011-12 to 2019-20), which was not in effect during the assessment and is not legally binding for the subject year., contrary to the provisions of Section 92CC and 92CD of the Act. 4. Whether the learned CIT(A) erred in accepting the use of multiple-year and non contemporaneous financial data in the TP study, contrary to Rule 10B(4), which mandates the use of current year data unless exceptions apply. 5. Whether the learned CIT(A) erred in concluding that the Appellant's margin was at arm's length solely based on comparison with APA-agreed margins and ignoring the contemporaneous TP analysis and valid comparables identified by the TPO indicating otherwise." 18. Assessee has raised following Cross Objections in C.O.No.22/PUN/2026 for A.Y. 2011-12 : "On the basis of grounds of Appeal submitted by Ld. DCIT ('the Appellant'/ 'Ld. AO'), the following cross objections are made by the respondent, which are inde....
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....ng high end analytical and research services. Revenue is almost 19 times to that of the assessee and thus fails the 10 times Turnover filter. Therefore, it is not a fit comparable to assessee for calculating Arms Length Price as per TNM method and has been rightly excluded by ld.CIT(A). 23. Therefore, even for A.Y. 2011-12 excluding these four comparables, revised Operating Profit Margin would be much lower to that of the profit margin declared by the assessee, therefore, no further Transfer Pricing adjustment is called for. Finding of ld.CIT(A) needs no interference. Grounds of appeal raised by the Revenue are dismissed. 24. So far the Cross Objections, we find that they are merely in support of the findings of ld.CIT(A) and since we have dismissed the Revenue's appeal therefore the cross objections filed by the assessee are dismissed as 'Infructuous/Academic'. 25. In the result, both the appeals filed by the Revenue are dismissed and the cross Objections filed by the assessee are dismissed as Infructuous/Academic. Order pronounced on this 25th day of September, 2026. ============= Document 1 Background or the subject assessment year, A.G.S Customer Services In....
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....of this filter appears over restrictive and not should be prioritized over a strict export filter. Pentair), the filter is appropriate. Ground 6 - Application of +/- 5% No specific comment in CIT Appeals order Differences in risk profile are material factor affecting profitability and require appropriate adjustments comparable companies it selected Je Printing use of multiyear data Alwaysdo command in Ground 5 Ground 9 - Incorrect margin computation The TPO considered provisions written back, etc. as non-operating for a service Pod as operating Hence, calculation of margin by TPO was flawed. No specific comment AGS Customer Services (India) Private Limited Briefing Note Respondent's submission against grounds raised by the Department before the Hon'ble ITAT Ground 1: Whether the learned CIT(A) erred in law and on facts in deleting the djustment of Rs.2,75,91,231/- by unjustifiably excluding valid comparables selected by the ?2,75,91.231/- unjustitia"PO, without proper appreciation of functional Rebuttal on TPO comparables: Company Reasons for rejection Accentia Ltd. Accentia cannot be considered as functionally comparable as it i....
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....re) then On export revenue must match the Respondent's (100% exports to Singapore), then: Only o find such companies. Even accepted casarables (e o. Cosmic Global, TCS e-Serve) Woning suen export income. e. Timex Group India Ltd At the time of SCN - The Company was rejected by TPO on FAR Post Respondent's submission, the same was rejected on turnover filter of less than INR Rejection of Timex on a completely new ground violates Natural Justice No wody to resp opportunity was given to of the "right to be heard" audi anprom partene pond on this new ground which is violation adequate Supreme Court and Tribunal judgments confirm - Orders made without giving Several Tribuna AGS Customer Services (India) Private Limited Briefing Note Timex passes the 10 times filter as well the INR 1 crore mmer uppmanarP study. Technically and legally, Rule 10B(2) and the ICAI Guidance Note emphasize that siz the market and scale of operations are essential factors in assessing comparability goodwill, costs homem ingresosdie, oodwill, and lower costs, making them inhere& cce, stronger bargaining powe service providers. The bademployee criteria such as sales, ass....
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....distortion usiness, like typical ITes operationsdistortion caused by abnormal years. The Respondent's ives a more reliable ALp Operations, is sensitive to economic trends; hence multiple-year data . OECD Guidelines OECD Guidelines (Paras 3.75 to 3.79) strongly support the use of multi-year data to: Capture reliability of results. Respondentaties in comparable companies and enscapture For most comparables, FY 2009-10 data was not yet available when documentation was prepared. Therefore, the Respondent had no choice but to rely on earlier years' data multiple-year data ensures consistency, reflects market conditions accurately, and av Ground 5: Whether the learned CIT(A) erred in concluding that the Respondent's margin ntemporaneous Tp analyse and with APA-agreed margins and ignoring the otherwise. In the remand back proceedings, Hon. CIT(A) has not relied on the APA margins B. OECD Guidelines argue against restrictive filters Depenses in the before the Hon'ble "C" Bench of the Income-tax Appellate Tribunal, Pune ITA No. 2040/PUN/2025 & a Private Limite NO. 21/PUIN/2026 Synopsis ser Jos & CO 21/PUN/202 Document 2 1. FINDINGS : Dur....
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....and administrative support services. It is derstood get inder sungmanagement similarity of functions. Functional differences are generally equiring only broad simuerte operating expenses. Transfer pricing is not an exact through adjustments to science, and finding exact comparables) is difficult, particularly under TNMM. This provides evaluating the filters and comparable companies chosen context for evaluCO It is also seen from the records that the Appellant had undertaken a detailed TP Study, Sections 92A to 92F read with Rules 10A to 10E, The Appelle somente thements of determination was made in good faith and with due diligence. The primary onus is on the taxpayer to determine an arm's length price and Primaryand sayers substantiate it with prescribed documentation. The AO/TPO can intervene only under the assessee is the rule, and its rejection is the exception. The election of thedeclared by detailed TP analysis requires cogent and sound reasoning. Nevertheless, the specific points of dispute regarding comparable selection and data usage are discussed hereunder: 1. Rejection of Appellant's Comparable Companies: a. Application of 75% Export Earnin....
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....ignificance que, and large size/economies of scale. Furthermore, the principle that companies earning supernormal administrative support services. b. profits should not be compared to captive, risk-mitigated service providers like the Appellant is supported by judicial rulings. c. Infosys BPO Limited: The TPO included Infosys BPO. The Appellant argued that Infosys BPO is not comparable due to its waren este 4g es gle as a full-fledged economies of scale, market leadership, brand value, and different risk profile entrepreneur compared to the Appellant's role as a captive service Planeer garcia precedents cited by the Appellant overwhelmingly support the exclusion of large companies and market leadersemences in sizemoment decriar assumed, and brand value. established. Apie d. Fortune: The TPO included Fortune. The Appellant argued for its exclusion due to abnormal variations and significant declines in revenue and PBT (over 50% decline) in FY 2009-10. Companies exhibiting such volatile financial results due to extraordinary circumstances are generally not considered reliable comparables in transfer pricing analysis as their results may not reflect arm's leng ....
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....n back, miscellaneous balances written back, unclaimed bank balances written back, provisions ho the generation of comparable companies. For a service provider, many of these items are intrinsically linked to business operators TNMM. classification distorts the operating margin and impairs comparability under INMM. The items. INCOM ap debove Based on the detailed analysis above, it is clear that the TPO's approach to comparable selection and data usage for benchmarking Ine Appellant's management and administrative support services was flawed. The IPO appma propre risk brand, or financial stability. were not truly comparable cases of using contemporaneous and failed to adhere to prof the Appellant's comparable and, where appropriate, multi- ear data. The rejection of co data. the principles applicable to TNMM. t is noted that appellant's turnover is approximately Rs. 24 crore. Seen from a perspective of turnover filter, if 10 times turnover filter (the application of which has been upheld in several judgements, including the jurisdictional High Court in the case of Pentair Water India Pvt Ltd TS-566-HC2015(BOM)-TP) is applied to the comparable companies sel....