ITAT Allows Use of Extrapolated Data for Comparables With Different Year-End in ITeS Transfer Pricing Dispute Involving Goldman Sachs [Read Order]

Goldman Sachs (India) Securities Pvt. Ltd.,appellant-assessee,was a wholly owned subsidiary of GSIA Holding Pte. Limited and registered as a stockbroker with Securities and Exchange Board of India (SEBI). It also held a merchant banking license and provided securities underwriting, corporate finance, and ITeS services to group companies through its Bangalore branch.

For A.Y. 2021-22, it filed its return of income on 25.02.2022, declaring ₹372.79 crore. The case was selected for scrutiny, and the Assessing Officer (AO) referred the matter to the Transfer Pricing Officer (TPO), who, on 09.10.2023, proposed a transfer pricing adjustment of ₹14.84 crore.

How to Compute Income from Salary with Tax Planning, Click Here

The AO incorporated this in the draft order dated 20.12.2023. Based on Dispute Resolution Panel (DRP) directions, the AO passed the final assessment order on 24.10.2024, assessing the income at ₹408.92 crore. Aggrieved, the assessee filed the present appeal.

The issue in the assessee’s appeal pertained to a transfer pricing adjustment for international transactions involving the provision of ITeS to its associated enterprises.

The two member bench comprising Sandeep Singh Karhail (Judicial Member) and Narendra Kumar Billaiya (Accountant Member) considered the submissions of both sides and perused the material on record. During the year, the assessee had received ₹207,96,21,727 from providing ITeS to its associated enterprises and benchmarked the transaction using Transactional Net Margin Method (TNMM) with OP/OC as the PLI.

It identified eleven comparables with a median margin of 13.98% against its own margin of 16%, claiming the transaction was at arm’s length. The TPO rejected seven comparables, added one new comparable, and finalised five companies with an average margin of 24.17%.

Know Practical Aspects of Tax Planning, Click Here

The assessee contended that inclusion of R Systems International Ltd. (Segmental), excluded by the TPO for having a different financial year ending, would place the transaction within the arm’s length range and eliminate the adjustment.

The appellate tribunal noted that R Systems had a December year-end, while the assessee followed a March year-end. Relying on the Delhi High Court ruling in CIT v. McKinsey Knowledge Centre India Pvt. Ltd., it held that a functionally comparable company could not be rejected solely due to a different year-end if relevant data could be extrapolated.

Accordingly, the tribunal directed the assessee to furnish extrapolated financial data for R Systems for the year ending March 2021. The matter was remanded to the TPO/AO for fresh de novo adjudication.

Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates