2023 (9) TMI 1206 - AT - Income Tax

TP adjustments made in respect of Marketing Distribution Services and Backend Processing Services - Comparable selection - HELD THAT - As gone through the financial statements of M/s Birla Global Finance Co Ltd and we notice that this company has started financing activities during the year under consideration. We noticed that the assessee is engaged in providing marketing support services only. Hence a company which is engaged in financing activities in our view cannot be said to be comparable with the assessee. Accordingly we direct exclusion of this company. The alternative submission on the error in computation of margin need not be adjudicated since the company itself is directed to be excluded. The assessee also sought exclusion of M/s CRISIL Ltd and M/s ING Vysya Financial Services Ltd on account of high RPT. However it was stated earlier that the exclusion of M/s Birla Global Finance Co Ltd would make its transactions at arms length. Hence we do not find it necessary to adjudicate upon above said two companies. TP adjustment made in respect of Backend processing support services - We notice that the co-ordinate bench in the case of WTW Global Delivery and Solutions India P Ltd 2022 (8) TMI 1435 - ITAT MUMBAI has directed exclusion of seven companies Mold-Tek Technologies Ltd (Seg.) E-clerx Services Ltd Accentia Technologies Ltd Vishal Information Technologies Ltd Infosys BPO Ltd Wipro Ltd HCL Comnet Systems Services Ltd. The company M/s I services India P Ltd was excluded by the coordinate bench in the case of DBOI Global Services P Ltd 2021 (8) TMI 1272 - ITAT MUMBAI due to non availability of contemporaneous data in public domain. Accordingly we direct AO/TPO to re-compute arms length price of international transactions in both the segments under consideration.

Summary

Issues Involved:
1. Transfer pricing adjustments in respect of "Marketing & Distribution Services."
2. Transfer pricing adjustments in respect of "Backend Processing Services."
3. Additional ground challenging the levy of dividend distribution tax.

Summary:

Issue 1: Transfer Pricing Adjustments in Marketing & Distribution Services

The assessee contested the transfer pricing adjustment of Rs. 38.71 crores made by the TPO for Marketing services, which was confirmed by the CIT(A). The TPO had used current year data of comparable companies, leading to an arithmetical mean of 65.33%. The assessee argued for the exclusion of Birla Global Asset Finance Co. Ltd., citing its new financing activities and incorrect margin computation by the TPO. The Tribunal agreed with the assessee, noting that Birla Global's new financing activities made it non-comparable. Consequently, the Tribunal directed the exclusion of Birla Global Asset Finance Co. Ltd. and did not find it necessary to adjudicate on the other two companies (CRISIL Ltd. and ING Vysya Financial Services Ltd.).

Issue 2: Transfer Pricing Adjustments in Backend Processing Services

The TPO made a transfer pricing adjustment of Rs. 3.06 crores for Backend Processing Services, confirmed by CIT(A). The assessee sought the exclusion of eight companies, arguing functional dissimilarities and prior Tribunal decisions. The Tribunal referenced previous cases, such as WTW Global Delivery and Solutions India P Ltd and DBOI Global Services P Ltd, to justify the exclusion of the eight companies (Mold-Tek Technologies Ltd, E-clerx Services Ltd, Accentia Technologies Ltd, Vishal Information Technologies Ltd, Infosys BPO Ltd, Wipro Ltd, HCL Comnet Systems & Services Ltd, and I Services India Pvt Ltd). The Tribunal directed the AO/TPO to re-compute the arm's length price of international transactions in both segments.

Issue 3: Additional Ground on Dividend Distribution Tax

The assessee raised an additional ground challenging the levy of dividend distribution tax but chose not to press the issue. Consequently, the Tribunal dismissed this ground.

Conclusion:

The appeal filed by the assessee was partly allowed, with instructions for the AO/TPO to re-compute the arm's length price of international transactions in the Marketing & Distribution Services and Backend Processing Services segments. The additional ground on dividend distribution tax was dismissed.

Pronounced in the open court on 16.6.2023.