2018 (2) TMI 1821 - AT - Income Tax

TPA - selection of comparable - Held that - The assessee company is engaged in the business of providing Information Technology enabled back office process outsourcing and related services i.e. ITES to its Associated Enterprise (AE) Helix US. The IT enabled back office process outsourcing and related services performed by Blackrock India mainly include web search data entry data management support services etc. thus companies functionally dissimilar with that of assessee need to be deselected from final list.

Summary

Issues Involved:
1. Jurisdictional error in reference to the Transfer Pricing Officer (TPO).
2. Rejection of Transfer Pricing (TP) documentation and selection of comparables.
3. Computation errors in determining the arm's length margin.
4. Initiation of penalty under section 271(1)(c) of the Act.
5. Computation of interest under sections 234A, 234B, 234C, and 234D of the Act.

Detailed Analysis:

1. Jurisdictional Error in Reference to the TPO:
The assessee argued that the reference made by the Assessing Officer (AO) to the TPO suffered from jurisdictional error as the AO did not record any reasons for the necessity of such reference under section 92CA(1) of the Act. This issue was raised but not elaborately discussed in the judgment.

2. Rejection of TP Documentation and Selection of Comparables:
The TPO rejected the TP documentation maintained by the assessee and conducted a fresh comparability analysis. The TPO selected additional filters and arrived at a set of 20 comparables, determining the arm's length price margin at 29.16%. The Dispute Resolution Panel (DRP) upheld most of the comparables but directed the exclusion of Mold-Tek Technologies Ltd. and foreign exchange gains/losses from the calculation of operating income/expenditure.

Specific Comparables Challenged:
- Accentia Technologies Ltd.: The assessee contended that this company is functionally different due to its diversified services, including high-end services (KPO) and extraordinary events like acquisitions. The Tribunal agreed and directed its exclusion based on various judicial precedents.
- Coral Hub Ltd.: The assessee argued that this company is into data digitization and publishing, which is functionally different from the assessee's low-end ITES activities. The Tribunal agreed and directed its exclusion.
- Datamatics Financial Services Ltd.: The assessee highlighted the lack of segmental information, making it impossible to separate revenues from different streams. The Tribunal directed its exclusion.
- Eclerx Services Ltd.: The Tribunal found this company engaged in high-end KPO services, which are functionally different from the assessee's low-end ITES. It directed its exclusion based on judicial precedents.
- Genesys International Corporation Ltd.: The Tribunal noted that this company provides high-end GIS services and experienced abnormal growth, making it incomparable to the assessee. It directed its exclusion.
- HCL Comnet Systems & Services Ltd.: The Tribunal found functional differences and restored the issue to the TPO for reconsideration.
- Acropetal Technologies Ltd.: The Tribunal noted that this company is engaged in software development and engineering services, which are not comparable to the assessee's ITES. It directed its exclusion.

3. Computation Errors:
The assessee pointed out a factual error in the computation of the arm's length margin for Datamatics Financial Services Ltd. The TPO included foreign exchange gains contrary to the DRP's directions. The Tribunal restored the issue to the TPO for correct computation.

4. Initiation of Penalty under Section 271(1)(c):
The assessee argued that the AO initiated penalty proceedings mechanically without recording any satisfaction. This issue was raised but not elaborately discussed in the judgment.

5. Computation of Interest under Sections 234A, 234B, 234C, and 234D:
The assessee contended that the AO proposed to compute interest mechanically without satisfactory reasons. This issue was raised but not elaborately discussed in the judgment.

Conclusion:
The Tribunal allowed the appeal partly for statistical purposes, directing the exclusion of certain comparables and correcting computation errors. Other grounds not argued were dismissed as not pressed. The order was pronounced on 02nd February 2018.