TaxTMI 
TaxTMI 
2026 (10) TMI 339
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....Bengaluru, against that order. 02. The Assessee has raised the following grounds of appeal: In the facts and circumstances of the case and in law, the Learned Assessing Officer ("Ld. AO")/Transfer Pricing Officer ("Ld. TPO") and the Hon'ble Dispute Resolution Panel ("Hon'ble DRP") has: 1. Erred in law and on facts, by making total additions of INR 3,95,22,034 to the returned income of the Appellant in respect of the international transactions pertaining to provision of sourcing support services ("Sourcing support segment") and provision of Information Technology ("IT")/IT enabled Services ("ITeS") ("IT/ITeS segment") (collectively referred as "impugned transactions") to its associated enterprises ("AEs"). 2. Erred in rejecting the economic analysis carried out by the Appellant without providing any reasons for the same and by taking a different opinion on the filters adopted and set of comparable companies considered. 3. Erred in using the data of third parties not available in public domain, and not provided to the Appellant, which is unfair and unjust and against the provisions of law, for adjusting the international transactions of the Appe....
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....working capital adjustment for impugned transactions to account for differences in the working capital employed by the Appellant vis-à-vis the comparables. 9. Erred by ignoring that the Appellant, being a captive service provider and a risk-free entity, is entitled to suitable adjustments, including risks adjustment, to account for differences in its risk profile vis-vis the comparables. 10. Erred in proposing initiation of penally proceedings under section 274 read with section ("r.w.s.") 270A of the Act. All of the above grounds of appeal are without prejudice and notwithstanding each other. The Appellant craves leave to add, alter, substitute or withdraw any or all of the above grounds of appeal, at any time before or at the time of hearing 03. Briefly stated, the assessee is engaged in the business of computer-related and other IT-enabled services. It filed its return of income on 29 November 2022, declaring total income of Rs.37,423,030. The case was selected for scrutiny, and a notice under section 143(2) of the Act was issued on 2 June 2023. As the assessee had entered into international transactions, a reference was made under s....
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....For the IT support services segment, the assessee adopted the Transactional Net Margin Method, using operating profit to operating cost as the profit level indicator, to benchmark the international transaction of Rs.376,950,000. The assessee's margin was computed at 15.23%. The selected 10 comparables reflected a 35th percentile margin of 3.98%, a median margin of 7.27%, and a 65th percentile margin of 15.49%. Accordingly, the assessee contended that the transaction was at arm's length. 09. The learned Transfer Pricing Officer examined the assessee's transfer-pricing study report for both international transactions. In respect of the marketing support services segment, he reviewed the seven filters applied by the assessee and accepted them as appropriate. However, while considering the related-party transaction filter of 25%, the learned TPO observed that the taxpayer had not applied the filter requiring income from core services to exceed 75% of sales. He therefore invoked section 92C(3)(c) of the Income-tax Act, holding that the data used for computing the arm's length price was unreliable. 10. Thereafter, the learned TPO conducted an independent search by applying his own ....
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....ent of Rs.34,094,101. 15. The assessee filed objections before the learned Dispute Resolution Panel, which issued its directions on 25 November 2025. Thereafter, the learned Transfer Pricing Officer passed the order giving effect to those directions on 17 December 2025. In the sourcing support services segment, the final set of 11 comparables showed a 35th percentile margin of 17.47%, a median margin of 20.78%, and a 65th percentile margin of 26.59%. Accordingly, the arm's length price of the international transaction of Rs.227,438,942 was determined at Rs.238,221,327, resulting in a shortfall adjustment of Rs.10,782,387. In the ITeS segment, the final set of 28 comparables showed a 35th percentile margin of 19.01%, a median margin of 25.02%, and a 65th percentile margin of 33.66%. The arm's length price of the international transaction of Rs.376,950,692 was determined at Rs.405,690,338, resulting in a shortfall adjustment of Rs.28,739,648. Thus, pursuant to the directions of the learned Dispute Resolution Panel, the total transfer-pricing adjustment was increased from Rs.34,094,101 to Rs.39,522,034. The learned Assessing Officer passed the final assessment order on 26 December ....
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....assification of the National Informatics Code 2008, and selected 4568 companies. It further benchmarked them by stating their business activity. It also carried out a search on the ACe TP database, which resulted in a final list of 2490 companies. This list was merged with the first database, and a total of 12,009 companies were identified for further evaluation as comparable companies. It eliminated 10,573 comparables for insufficient financial information, 14 for no operations, 122 for sick companies, and 88 for significant relatedparty transactions. It further excluded 251 comparables for turnover less than rupees one crore. This left 890 comparable companies. Out of these, the assessee removed 879 companies, comprising 166 comparables on functional analysis and 671 for noncomparable services. Thus, the assessee was left with 11 comparables. The assessee explained the business functions of those 11 comparables, computed their margins for three years, computed their weighted average, and thereafter computed the median margin and the 35th and 65th percentile margins. The transfer pricing study report then stated that the assessee's international transaction is at arm's length.....
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....3 filters are required to be applied, he should have directed the assessee to apply those filters to the same search analysis carried out by the assessee and thereafter should have examined whether the comparable removed by the assessee from the final set of comparables was indeed correctly removed. 24. In this case, the learned transfer pricing officer rejected the Capitaline Neo and the Ace TP database search of the assessee, and carried out a search on a different database, the Prowess database. The learned transfer pricing officer did not say that the database used by the assessee for comparability analysis was incorrect or unreliable. 25. Thus, we find that the learned transfer pricing officer is incorrect in rejecting the assessee's transfer pricing study report on the ground that the data is incorrect or unreliable, by invoking the provisions of section 92C(3)(c) of the Act. 26. In view of the above facts, we do not subscribe to the view of the learned transfer pricing officer and the learned dispute resolution panel in rejecting the assessee's transfer pricing study report. 27. Accordingly, we direct the assessee to incorporate all filters added by the learn....