CLINCHOICE PRIVATE LIMITED,BENGALURU vs. DCIT CIRCLE 2(2)(1),BANGALORE, KORAMANGALA

The brief facts of the case are that the assessee is a company and subsidiary of Clinchoice USA. The assessee is doing the ITes (Data Processing and Data Mining) to its AE in the field of drug safety related services and provides integrated solutions to support data management, Medical writing, drug safety during clinical trials, post marketing safety surveillance, regulatory and clinical trial related services and solutions. The assessee acts as a global delivery centre for clients of Clinchoice USA. The assessee had entered into international transactions with its AE. The assessee had also furnished the TP study documents. The AO in order to determine the ALP in respect of the international transactions referred the same to the Ld.TPO u/s. 92CA. The Ld.TPO thereafter issued notices and sought for the details and the assessee also furnished the details. The Ld.TPO had redrawn the segmental financials based on the revenue, since the assessee has not provided any cost audit for segmental financials for AE and non-AE. The Ld.TPO also treated the foreign exchange loss or gain as operating in nature. Based on the documents maintained in terms of section 92D of the Act, the Ld.TPO alleged that the assessee had selected 15 companies as comparables for ITes segment based on the search conducted in Prowess IQ by applying TNMM being the most appropriate method. The Ld.TPO also communicated the reasons for rejecting the original TP study due to non-application of appropriate filters. The Ld.TPO also communicated the final list of comparables. The Ld.TPO found defects in the TP analysis carried on by the tax payer and also alleged that the assessee had used inappropriate filters. The Ld.TPO applied the appropriate filters for selecting proper comparables functionally similar to that of the tested party. The Ld.TPO selected 11 comparable companies and the assessee objected for the inclusion of big companies which was rejected by the Ld.TPO. The Ld.TPO also rejected the assessee’s objection that the companies having different financial years should not be taken as comparables when the functional similarity was established. Similarly the objection of service income filter also rejected by the Ld.TPO. The Ld.TPO had rejected all the objections made by the assessee.

Similarly the assessee filed their objections against comparables selected by the Ld.TPO and the comparables excluded by the Ld.TPO. The Ld.TPO had not accepted the additional comparables proposed by the assessee. Finally the Ld.TPO had selected 13 companies as comparables and computed the Transfer Pricing Adjustment u/s. 92CA in respect of ITes segment. The Ld.TPO had benchmarked the interest on delayed trade receivables by adopting the LIBOR + with a markup of 450 basis points (4.83%) at Rs. 16,043/-. The AO based on the order of the Ld.TPO, had passed a draft assessment order and communicated the same to the assessee. The assessee filed their objections before the Ld.DRP. The Ld.DRP excluded only one comparable company from the 11 comparables selected by the Ld.TPO. The Ld.DRP also rejected the objections in respect of the 10 companies which were selected as comparable companies. The Ld.TPO passed an order giving effect to the directions of the Ld.DRP and revised the TP adjustment in respect of ITes segment and made a total adjustment u/s. 92CA at Rs. 6,26,09,808/-. The AO considered the order giving effect to the directions of the Ld.DRP and passed a final assessment order u/s. 143(3) of the Act on 31.12.2025.

As against the final assessment order, the assessee filed this appeal before this Tribunal.

At the time of hearing, the Ld.AR submitted that even though several grounds were raised by the assessee, the assessee is pressing ground nos. 8 and 14 in which the bigger companies were added as comparable companies. The Ld.AR also submitted that out of the 10 companies selected by the AO, the assessee is particular about the Sutherland Global Services Pvt. Ltd., Tech Mahindra Business Services Ltd. and TTEC India Customer Solutions Pvt. Ltd. since their revenue is much higher when compared with the assessee company and also in support of the said contention, the Ld.AR relied on the order of the Ld.TPO in which the revenue earned by the said companies were mentioned at page no. 292, 293 & 300 of the appeal set. The Ld.AR further submitted that if the above three companies are excluded from the comparables, the arms length price computed by the AO would be different and in that circumstances, the assessee had not pressed about the other 7 companies which were mentioned in the grounds as not comparable companies. The Ld.AR further submitted that when the exclusion is decided, the assessee is not pressing the other grounds and prayed to pass orders accordingly. The Ld.AR also relied on the Coordinate Bench of this Tribunal in IT(TP)A No. 115/Bang/2023 dated 04/09/2024 in the case of Marvell India Pvt. Ltd. vs. DCIT wherein the turnover filter has been adopted by this Tribunal and prayed to consider the issue by applying the turnover filter.

The Ld.DR submitted that the Ld.TPO had included the said companies based on the functionality of the said companies and therefore merely on the basis of the turnover filter, the said companies would not be excluded. The Ld.DR relied on the findings given by the Ld.TPO and prayed to dismiss the appeal.

We have heard the arguments of both sides and perused the materials available on record.

In the present appeal, at the time of argument, the assessee had restricted their claim in excluding the following three companies.

The main grievance of the assessee is that the above said three companies are liable to be excluded based on the turnover filter. We have also perused the Ld.TPO order in which the assessee had earned a total revenue of Rs. 79,27,51,333/- whereas the Sutherland Global Services Pvt. Ltd. had earned a total revenue of Rs. 1944.87 crores and Tech Mahindra Business Services Ltd. had earned a total revenue of Rs. 8892 crores and TTEC India Customer Solutions Pvt. Ltd. had earned a total revenue of Rs. 418.33 crores. Therefore, the claim made by the assessee that the above three companies could not be added as comparables while computing the arms length price seems to be a valid argument. In the decision of the Tribunal relied on by the Ld.AR, the Coordinate Bench of this Tribunal had considered the said submissions and held that the companies who are having more revenue than the assessee company has to be necessarily excluded from the list of comparable companies in determining the arms length price. The Coordinate Bench had considered the several orders of the Tribunal and after giving a lengthy finding, had accepted that high turnover is a ground for excluding the companies as not comparable with a company that has low turnover. In the present case, the above said three companies had more than 10 times of the revenue earned by the assessee and therefore they should not be added as a comparable company for computing the arms length price.

We, therefore, direct the assessing officer to exclude the above three companies from the comparable companies and thereafter compute the arms length price in accordance with law.

Accordingly, ground nos. 8 and 14 raised by the assessee are partly allowed.

Insofar as the other grounds raised by the assessee, we are not adjudicating the same since the assessee had not pressed the same.

In the result, the appeal filed by the assessee is partly allowed.