M/S. RAGE COMMUNICATION PVT. LTD.,CHENNAI vs. ACIT, CIRCLE-1, LTU,, CHENNAI

आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the assessment

order dated 30.08.2024 vide DIN No. ITBA/AST/S/143(3)/2024-

25/1068160140(1) for AY 2021-22.

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services to various clients and delivering multitude of digital solutions.

They are also engaged in designing, development and maintenance of

web sites and E-commerce online software applications. For AY 2021-22,

the assessee had filed return of income on 24.01.2022 declaring total

income at ₹2,63,17,610/-. The case was selected for scrutiny under CASS

and a notice u/s. 143(2) of the Income Tax Act, 1961 (hereinafter

referred to as ‘the Act‘) was issued and served upon the assessee. A

reference u/s.92CA of the Act was made to the TPO after obtaining the

approval of the Ld. Pr. CIT for determination of Arm's Length Price (ALP)

with reference to all the international transactions reported by the

assessee. The TPO vide order u/s. 92CA(3) of the Act dated 17/10/2023

proposed adjustment(s) of ₹1,04,69,332/-. Thereafter, the AO passed a

draft assessment order u/s.144C(1) of the Act was passed on 11.11.2023

determining the total income of ₹3,67,87,382/-. Pursuant to the AO

passing the draft assessment order, the assessee filed its objections

before the DRP. The DRP by order dated 26.07.2024 rejected the

objections of the assessee and therefore the additions/adjustments

proposed in the draft assessment order was retained in the final

assessment order dated 30.08.2024 passed u/s.143(3) r.w.s.

144C(13)/144B of the Act.

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objected to the transfer pricing adjustment of ₹1,04,69,332/- made to the

international transaction involving payment for provision of marketing

support and after-sales support services by the assessee to their AEs,

Rage Singapore and Rage Australia. The assessee is noted to have

selected the Transactional Net Margin Method (hereinafter referred to as

‘TNMM’) as the Most Appropriate Method and considered the AEs i.e. Rage

Singapore & Rage Australia as the tested party for benchmarking the

Arm’s Length Price (ALP) of the international transaction. The assessee is

noted to have identified a set of foreign comparables and claimed that,

the margin of the tested party i.e. the AEs was commensurate with that

of the foreign comparables. The TPO is noted to have issued several

notices calling for details and thereafter issued a show cause notice for

rejecting the adoption of the foreign AEs as the tested party, which was

followed by multiple corrigendums to the original show cause notice.

Rejecting the explanation furnished by the assessee, the TPO is noted to

have adopted the assessee as the tested party which led to the impugned

transfer pricing adjustment.

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submitted that, the TPO was unjustified in outrightly rejecting the

selection of foreign AEs as tested party and that he ought to have

objectively considered the same and thus wants us to remit the matter

back to the TPO for consideration afresh. For this, he invited our attention

to the decision of the Hon'ble Madras High Court in the case of Virtusa

Consulting Services (P.) Ltd. v. Dy. CIT (282 Taxman 95) wherein

the Hon'ble High Court has, in principle, held that, a tested party is

normally the one which is least complex party to the controlled

transaction. In the ultimate analysis, the Hon'ble High Court sent the

matter back to the TPO by observing that: 'The issue regarding the

assessee's plea to consider foreign AE as tested party to determine the

Arm's Length nature of the underlying international transactions stands

remanded to the Transfer Pricing officer for a fresh decision on merits and

in accordance with law ...'. As it is a binding judgment of the Hon'ble

jurisdictional High Court on the question as to whether a foreign/AE can

be taken a tested party for benchmarking, we agree with the Ld. AR that,

the outright rejection of the Rage Singapore & Rage Australia as a tested

party on the ground that a foreign/AE can never be a tested party, cannot

be countenanced. As the Hon'ble High Court has itself held that, the least

complex entity to a transaction should be adopted as a tested party, and

for analysis it sent the matter back to the lower authority, according to

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us, in the present case also, the first exercise which is required to be

undertaken is to identify as to which out of the entities to the

transaction(s) - the assessee or Rage Singapore/ Rage Australia - is least

complex in the present case.

Transfer pricing provisions. The OECD guidelines in this regard

emphatically provide that, 'As a general rule, the tested party is the one

to which a transfer pricing method can be applied in the most reliable

manner and for which the most reliable comparables can be found, i.e. it

will most often be the one that has the less complex functional analysis.'

Further, as per the UN Manual, a tested party should have the following

attributes, namely, availability of reliable and accurate data for

comparison; least Complex (amongst the parties to the transaction); and

the data available can be used with minimal adjustments. It further

provides that, the choice of a tested party should be consistent with the

functional analysis of the transaction, and the characterization of the

entities. The tested party generally would be the less complex party to

the controlled transaction but at the same time, it should also be the

party in respect of which most reliable data for comparability is available.

depends upon two factors, viz., the least complex entity and availability of

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suitable comparables. This coincides with the normal ALP determination

process envisaged under the Act, as per which we find out the value or

PLI etc. of/from the international transaction in the hands of the assessee

as a first step and then the value or the PLI etc. of comparables as a

second step. The first step under the Act is similar to the first factor of

finding out the least complex entity as per the OECD guidelines and the

UN Manual and the second step of finding out comparables under the Act

matches with the second factor of the availability of suitable comparables.

According to us, both these aspects are relevant and decisive for

undertaking a valid benchmarking exercise.

above exercise was not undertaken by the lower authorities before

rejecting foreign AEs as the tested party. Hence, in the fitness of matters

and fairness to both parties, we remit the impugned issue to the file of

TPO/AO to first ascertain whether the assessee or the foreign AEs is the

least complex entity and which entity can be treated as a tested party, in

light of the ratio decidendi laid down by the Hon’ble Madras High Court

(supra), and if the foreign AEs satisfies the same, then whether reliable

data and availability of suitable comparables is there, for undertaking a

valid benchmarking exercise. The assessee is directed to submit all

relevant evidences and documents to establish functional profile and risks

assumed by its AEs along with all relevant details/documentation to

IT (TP) A No.69/Chny/2024 (AY 2021-22) M/s. Rage Communication Pvt. Ltd. :: 7 :: support their benchmarking exercise. Needless to say, the TPO shall allow the assessee adequate opportunity of being heard in this regard. These grounds of appeal are allowed for statistical purposes.

Order pronounced on the 04th day of November, 2025, in Chennai.

Sd/- Sd/- (अिमताभ शु�ा) (एबी टी. वक�) (AMITABH SHUKLA) (ABY T. VARKEY) लेखा सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated: 04th November, 2025. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF