Computation of operating margin of comparable companies under the Income Tax Act

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, PUNE
(Through Virtual Court)

BEFORE SHRI R.S.SYAL, VP AND
SHRI PARTHA SARATHI CHAUDHURY, JM

ITA No. 133/PUN/2021
Assessment Year : 2016-17

Credence Resource Management Private Limited.
Plot No.3/1, E Park, Second Floor, South Tower,
MIDC, Kharadi, Pune-411 014
Maharashtra.
PAN : AADCI3240E
Appellant

 V/s.

The Assistant Commissioner of Income Tax
Circle-1(1), Pune.
Respondent

Assessee by : Shri Ajit Kumar Jain &
Shri Siddesh Chaugule
Revenue by : Shri Mahadevan A M Krishnan

Date of Hearing : 14.06.2021
Date of Pronouncement : 18.06.2021

ORDER

PER PARTHA SARATHI CHAUDHURY, JM:

This appeal preferred by the assessee emanates from the directions of the Ld. Dispute Resolution Panel (DRP) dated 27.11.2020 passed u/s.144C(5) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟) for the assessment year 2016-17 as per the following grounds of appeal on record :

“1. On the facts and circumstances of the case and in law, the Learned AO/TPO and the Hon'ble DRP erred making / confirming total addition of INR 42,152,857 under section 92CA(3) of the Income-tax Act,1961('the Act') in respect of Information Technology Enabled Services („ITes‟) provided by the Assessee to its Associated Enterprise („AE').

2. On the facts and circumstances of the case and in law, the Learned AO/TPO and Hon'ble DRP erred in disregarding benchmarking analysis and comparable companies selected by the Assessee based on the contemporaneous data in the transfer pricing study report maintained as per Section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('the Rules').

3. On the facts and circumstances of the case and in law, the directions issued by the Hon'ble DRP is bad in law as it is issued in violation of the provisions of section 144C of the Act, and accordingly the DRP directions and consequential final assessment order is liable to be quashed.

4. On the facts and circumstances of the case and in law, the directions issued by the Hon‟ble DRP have:

1. Erred in incorrectly rejecting functionally comparable companies selected by the Appellant.

2. Erred in applying modified and additional filters without providing cogent reasons and arrived at a fresh set of companies as comparable to the Appellant.

3. Erred in cherry picking functionally non comparable companies.

4. Erred in selecting comparable companies earning high margins and rejecting low margin comparable companies.

5. Erred in not considering Informed Technologies India Limited and Allsec Technologies Limited as part of comparable set.

6. Erred in not allowing economic adjustments like Risk, R & D, marketing adjustment in accordance with the provisions of Rule 10B of the Rules to account for difference between the Assessee and comparable companies.

7. Erred in incorrectly computing operating margin of comparable companies.

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