The Delhi High Court upheld the order of the Income Tax Appellate Tribunal (ITAT) directing the exclusion of comparables as there was functional dissimilarity between the companies and the assessee.
The record discloses that the respondent/assessee provides back-office support services i.e., call centre services to its Associated Enterprises (AEs). Besides this, the respondent/assessee also renders basic liaison and market support services to its AEs; hereafter referred to as the “Corporate Service Segment” [“CSS”].
The record also disclosed that the matter was referred by the Assessing Officer (AO) to the Transfer Pricing Officer (TPO). The TPO directed an upward adjustment amounting to Rs.1,14,92,874/- in the Information Technology Enabled Services (ITES) Segment. Likewise, the TPO also ordered an upward adjustment amounting to Rs. 31,329,348/- in CSS.
The CIT(A) allowed the appeal and directed the exclusion of Accentia, Eclerx, Mold-Tek, and TSR as there was functional dissimilarity between them and the respondent/assessee. Resultantly, the upward adjustment made by the TPO stood deleted. The aforementioned order passed by the CIT(A) impelled the appellant/revenue to prefer an appeal to the Tribunal. The Tribunal via the impugned order, sustained the order dated 31.01.2014 passed by the CIT(A).
The counsel for the assessee contended that since each of the companies that were taken up for benchmarking were functionally dissimilar, the CIT(A) and Tribunal have reached the correct conclusion, which was to exclude the said comparables.
A Division Bench comprising Justices Rajiv Shakdher and Girish Kathpalia observed that “Having heard the counsel for the parties and perused the record, we may note that insofar as each of the comparables are concerned, the Tribunal has indeed reached a conclusion, albeit on facts, that there is functional dissimilarity between the respondent/assessee and the comparables. The finding of fact with regard to each of the comparables has been returned in the following paragraphs of the impugned order.”
“The finding of fact was returned that during the period under consideration, i.e., AY 2007-08, TSR merged with Tata Share Registry. Evidently, TSR was operating in the Business Process Outsourcing (BPO)/ KPO sector with an emphasis on financial services. Furthermore, in the period in issue, TSR had registered unusually high margins. The main source of revenue for TSR was the software it developed for payroll processing” the Court noted.
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