9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (5) TMI 864 - AT - Income TaxTP Adjustment - comparable selection - Manipal Digital Systems Private Limited - HELD THAT -Functions performed by Manipal Digital Systems Private Limited are not comparable to assessee. Hence we are of the opinion that Manipal Digital Systems Private Limited is not comparable to the assessee accordingly we direct AO/TPO to delete it. CES Limited functionally non-comparable to assessee. It is also observed in the case of Vodafone Global Services Private Limited 2023 (4) TMI 1417 - ITAT PUNE has held that CES Limited is not comparable to Vodafone Global Services Private Limited as CES Limited have mixed functions as BPO/KPO. In these facts and circumstances of the case we direct the Transfer Pricing Officer to exclude CES Limited as CES Limited is not comparable to assessee. MPS Limited is not comparable to the assessee due to extraordinary events of amalgamation and dissolution hence we direct the AO/TPO to exclude it. Access Healthcare Services Private Limited has specifically mentioned in the Annual Report that it is doing Medical Billing and Revenue Cycle Management. Ld.AR based on Google search filed a note on activities performed under Revenue Cycle management and pleaded that Revenue Cycle management needs specialized knowledge hence it is a KPO. However it is observed that said note was not filed before the TPO/DRP. Therefore the DRP/TPO had no opportunity to analyze the submission of the assessee on the issue of Revenue Cycle management. We deem it appropriate to set aside the issue of Comparability of Access Health Care Services P Ltd to the TPO for de-novo adjudication. The Assessee shall file all the details before the TPO. The TPO shall provide opportunity to the assessee. TPO shall try to find the exact function of Access Health Care Services P Ltd. Accordingly this issue is set aside to TPO.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS Applicability of APA to UK Transactions: The assessee contended that the arm's length rate agreed in the Bilateral APA with its AE in the USA should apply to similar international transactions with its AE in the UK. The DRP partially accepted this contention, restricting the transfer pricing adjustment to only the transactions with the UK AE and limiting the adjustment amount accordingly. This issue was not pressed further before the Tribunal, and hence no detailed adjudication was undertaken on this point. Transfer Pricing Adjustment and Rejection of Assessee's Transfer Pricing Study: The TPO rejected the assessee's transfer pricing study, which used the Transactional Net Margin Method (TNMM) with operating profit to operating cost (OP/OC) as the profit level indicator (PLI). The assessee's PLI was 13.3%, whereas the TPO's selected comparables yielded a median PLI of 23.19%. Based on this, the TPO proposed an upward adjustment of Rs. 20,24,85,411, which was later restricted by the DRP to Rs. 2,06,94,009 relating to UK transactions. The Tribunal noted that the assessee had not pressed grounds challenging the overall adjustment except for the issue of specific comparables (Ground No.6). Thus, the detailed analysis focused on the appropriateness of the comparables selected by the TPO. Comparability Analysis and Selection of Comparables: The assessee challenged the inclusion of four companies as comparables:
The Tribunal examined each company's functional profile, business segments, and financial reports to determine comparability with the assessee's captive business support services. Manipal Digital Systems Private Limited: The Tribunal observed that Manipal Digital Systems' revenue comprised IT Enabled Services (ITES), pre-media work, and e-book/book distribution. Since the assessee exclusively provides ITES business support services, the mixed nature of Manipal Digital Systems' activities rendered it functionally non-comparable. The Tribunal relied on prior precedent where similar mixed-function companies were held non-comparable and directed the deletion of this company from the comparable set. CES Limited: CES Limited's principal business was described as BPO/KPO, with no separate segmental data for ITES alone. The Tribunal noted that the presence of Knowledge Process Outsourcing (KPO) activities, which involve specialized knowledge, distinguishes CES Limited from the assessee's purely ITES function. The Tribunal referenced earlier decisions where CES Limited was held non-comparable due to mixed functions and accordingly directed its exclusion from the comparable set. MPS Limited: The Tribunal found that MPS Limited underwent extraordinary corporate events during the relevant year, including the dissolution of a wholly owned foreign subsidiary and transfer of software and intellectual property to itself. These events materially altered the functional and risk profile of MPS Limited, making it non-comparable to the assessee. The Tribunal observed that the Revenue did not rebut these facts and relied on precedent to exclude MPS Limited from the comparable set. Access Healthcare Services Private Limited: This company was engaged in ITES activities but specialized in medical billing and revenue cycle management, which the assessee argued was KPO and thus functionally different. The Tribunal noted that the assessee's submission regarding the specialized nature of revenue cycle management was not placed before the TPO or DRP, depriving them of an opportunity to examine the issue. Consequently, the Tribunal set aside the question of comparability of Access Healthcare Services Private Limited to the TPO for de novo adjudication, directing the assessee to furnish all relevant details and the TPO to provide a fair opportunity for examination. Use of Qualitative and Quantitative Filters and Rejection/Acceptance of Comparables: The assessee had challenged the TPO's modification of various filters applied in the transfer pricing study, including turnover thresholds, financial year ending, export earnings, employee cost ratios, intangible asset levels, forex spending, revenue trends, financial year duration, and receivables period. However, since the assessee did not press these grounds before the Tribunal, they remained unadjudicated. Comparison of Full-Fledged Risk Bearing Entities with Captive Operations Without Risk Adjustment: This ground was also not pressed before the Tribunal and thus was not examined in detail. Penalty under Section 270A: The assessee contended that penalty under section 270A was erroneously levied since the adjustment arose from a difference of opinion on transfer pricing. This ground was not pressed before the Tribunal and was dismissed as unadjudicated. 3. SIGNIFICANT HOLDINGS The Tribunal's key determinations and principles established include: "Manipal Digital Systems Private Limited is not comparable to the assessee as its sales comprise ITES and distribution activities, whereas the assessee is exclusively in ITES." "CES Limited is functionally non-comparable to the assessee as it operates in mixed BPO/KPO activities, and no separate segmental data for ITES is available." "MPS Limited is not comparable due to extraordinary corporate events affecting its functional and risk profile, which were not rebutted by the Revenue." "The issue of comparability of Access Healthcare Services Private Limited is set aside to the TPO for de novo adjudication, as relevant submissions were not previously considered." The Tribunal emphasized the necessity of functional comparability in transfer pricing analysis and the inadmissibility of comparables with mixed or materially different functions without appropriate adjustments. It also underscored procedural fairness by directing re-examination where relevant evidence was not previously considered. Consequently, the Tribunal partly allowed the appeal for statistical purposes by excluding three companies from the comparable set and remanding one for fresh consideration. All other grounds not pressed were dismissed as unadjudicated.
|
