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Income Tax Appellate Tribunal, DELHI BENCH ‘I’: NEW DELHI
(Assessment Year: 2021-22) Assimilate Solutions India Private Limited, vs. DCIT/ACIT, C/o Sanjiv Sapra & Associates LLP, Circle 1 (1), Chartered Accountants, New Delhi. C – 763, New Friends Colony, New Delhi – 110 025. (PAN :AAKCA4501H) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Sanjiv Sapra, AR REVENUE BY : Shri Dharam Veer Singh, CIT DR Date of Hearing : 30.07.2025 Date of Order : 15.10.2025 ORDER
PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
The assessee has filed appeal against assessment order dated 31.12.2015 passed by the Assessment Unit, Income Tax Department under section 143(3) read with section 144C(13)r.w.s. 144B of the Income-tax Act, 1961 (for short ‘the Act”) for Assessment Year 2021-22 pursuant to the directions of the Dispute Resolution Panel u/s 144C(5) of the Act.
M/s. Assimilate Solutions India Private Limited, the assessee was incorporated on 19.04,2012 and is engaged in the business of providing (IT) enabled services. There has been no change in business during the year under consideration when compared with earlier years. The assessee has filed its return of income for the Assessment Year 2021-22 on 26.02.20222 vide acknowledgement no.262650710260222 in ITR-6 declaring return income of Rs.8,46,22,740/-. The case was selected for scrutiny under CASS and notice under section 143(2) of the Income-tax Act, 1961 (for short ‘the Act’) was issued on 28.06.2022 and duly served upon the assessee. The case was selected for scrutiny under CASS on the following grounds:
(a) International transaction(s) arising out/being part of business restructuring or reorganization (T.P. risk parameter.
3. During the year, the assessee has undertaken the following international transactions/specified domestic transaction :- S.No. Nature of international transaction Amount in (INR) 1 Provided back-office services ITES 90,30,69,262 services
4. At the time of hearing, ld. AR of the assessee brought to our notice the relevant facts which are reproduced below: 1.1 During FY 2020-21, Assimilate Solutions India Private Limited (“Assessee” or “Appellant” or “Company”) continued, as in the past, to be engaged in the business of providing back office/other (“ITES”) to Assimilate Solutions LLC of USA (“AE”). 1.2 Legal agreements executed by the Assessee with its AE namely Assimilate Solutions LLC for providing/exporting 100% of its ITES services to such AE as filed before the TPO/AO/DRP are enclosed as under: Master Service Agreement (“MSA”) for Gurgaon unit of the Company with AE (effective from January 1, 2014) at pages 3-16 of Paper Book (“PB”)read with First Amendment to MSA (effective from May 1, 2015) at pages 17-19 of PB and Second Amendment to MSA (effective from December 1, 2016) at pages 20-22 of PB.Nature of services as provided are defined in Annexure A attached to MSA (refer to page 15 of PB). MSAfor Chandigarh unit of the Company with AE (effective from May 1, 2016) at pages 23-36of PBread with First Amendment to MSA (effective from December 1, 2016) at pages 37-39 of PB.Nature of services as provided are defined in Annexure A attached to MSA (refer to page 35 of PB). MSAfor Noida unit of the Company with AE (effective from February 1, 2020) at pages 40-53 of PB. Nature of services as provided are defined in Annexure A attached to MSA (refer to page 52 of PB). 1.3 As per aforesaid MSAs read with First /Second Amendments to MSA (wherever applicable), it was agreed between the parties that the Assessee will charge from its AE profit margin ranging between 5% to 25% on its direct cost and expenses (excluding foreign exchange gain/loss) for invoicing 100% of its services as exported to the AE.
1.4 On this basis, the Assessee during the year under consideration undertook international transaction of exporting 100% of its back office/ITES services to its AE for an arm’s length price (ALP) of Rs.90,30,69,262 which worked out to 12.53% profit level indicator (PLI) of OP/OC. 1.5 Such ALP as declared by the Assessee in the return as filed was supported by the following documents as also furnished before the TPO/AO/DRP: - Copy of audited financial statements for F.Y. 2020-21 alongwith auditor’s report placed at pages 54-86 of PB. - Copy of report in prescribed Form No. 3CEB placed at pages 87- 96 of PB. - Copy of TP Study report by independent external consultant placed at pages 97-158 of PB. - Copies of above mentioned relevant legal agreements i.e. MSAs as executed with the AE placed at pages 3-53 of PB. 1.6 Transactional net margin (“TNM”) method was selected and considered to be the most appropriate method by the Assessee for justifying its ALP as charged for the services exported to its AE. 1.7 Assessee benchmarked its international transaction with its AE using PLI of OP/OC as per TNM method with 8 comparables with 35th and 65th percentile computed at 6.67 % and 18.55% respectively and since the PLI of the Assessee of 12.53% was within such range as determined, the international transaction with AE was considered by the Assessee to be on arm’s length – kindly see TP study report atpages97-158 of PB (refer to page 133) .
Further submitted that TPO made upward TP adjustment/addition of Rs.5,74,93,755 as under: a. TPO vide his order under section 92CA(3) dated 30/10/2023 accepted the TNM method as adopted by the Assessee to be the most appropriate method and also accepted various filters as used by the Assessee for benchmarking purposes except the export filter as applied was not considered to be an appropriate filter by the TPO. b. TPO rejected ERP Soft Systems Ltd. as being one of the 8 comparables selected by the Assessee by incorrectly stating that this company fails the turnover filter in FY 2019-20 and therefore is not a suitable comparable whereas the fact remains that this company fulfils the accepted turnover filter of more than Rs. 1 crorein current FY 2020-21. c. Out of the 8 comparable companies selected by the Assessee, 5 companies were retained by the TPO to be comparable but the TPO made inadvertent/factual errors apparent from the record while computing OP/OC margin of these 5 comparable companies as retained by him. d. TPO included 9 additional companies listed at para 4 of his order to be comparable for benchmarking purposes despite the fact that they were not strictly comparable as per the rules of comparability under rule 10B(2) of Income Tax Rules. e. It was also submitted that TPO is factually incorrect while making the following observations at para 6 of his order: “…..since the assessee’s operating profit margin is less than the arm's length profit margin, an adjustment is warranted in this case. Further, from the perusal of the “Master Service Agreement” with Assimilate Solutions LLC, it is evident that the assessee is entitled to Cost+ 20% margin, which has not been fulfilled in this year”.
The aforesaid cost + 20% margin as per MSA read with their subsequent amendments was replaced with cost + 5% to 25% margin range as applicable for the year under consideration, which appears to have been overlooked/ ignored by the TPO for reasons best known to him. Hence, the very basis taken by the TPO for rejecting the TP study undertaken by the Assessee was factually incorrect. f. The TPO accordingly listed out final set of 14 comparables alongwith their OP/OC margin as per which the 35th percentile margin was worked out at 15.39%, 65th percentile margin was worked out at 22.36% and median was worked out at 19.69% (kindly see para 5.1 at internal pages 9 & 10 of TPO’s order). On this basis, the TPO applied arm’s length margin percentage of 19.69% on operating cost incurred by the Assessee of Rs.80,25,42,415 and derived ALP of Rs.96,05,63,017 as against the ALP of Rs.90,30,69,262 declared by the Assessee. Accordingly, the difference between the two ALPs of Rs.5,74,93,755 was considered to be the adjustment/addition by the TPO which was adopted by the AO in the draft assessment order dated 23.11.2023 passed under section 144C(1) of the Act.
Aggrieved with the above order, the assessee preferred an appeal before DRP. After Considering the submissions of the assessee, passed order under section 144C(5) giving partial relief as under: a. DRP vide its directions dated 30.08.2024 have rejected the legal grounds as raised by the Assessee including violation of principles of natural justice and further directed as under: b. Accepted Assessee’s contention that application of export filter is valid and accordingly threshold of 75% is to be applied for such purpose (refer to para 5.3 at pages 10 & 11 of DRP order). c. Upheld the Rejection of ERP Soft Systems Ltd. as a comparable Co. (refer to para 6.2 & 6.3 at pages 12 & 13 of DRP’s order). d. Out of the 9 additional comparable companies selected by the TPO, DRP has accepted that following3 companies are to be excluded from such list of comparable companies (refer to pages 22 & 23 of DRP’s order): Vitae International Accounting Services Pvt. Ltd. E Care India Pvt. Ltd. Datamatics Business Solutions Ltd. e. AO/TPO to recompute the profit margins of the selected comparables on the basis of audit reports and in line with margins of Tested Party (viz. the Assessee) and Safe Harbour Rules (refer to para 8.2 at page 25 of DRP’s order).
As there were certain mistakes/errors apparent from the directions of DRP, a rectification application dated 05.09.2024 as per Rule 13 of DRP Rules was filed as per copy enclosed at pages 159-161 of PB, which has not been disposed off till date.
Final Assessment Orderdated 26.09.2024 passed under section 143(3)/144C(13)/144B of the Acton the basis of TPO’s order dated 20.09.2024 giving effect to directions of the DRP as per which the final TP adjustment has been reduced to Rs.4,83,44,771 from Rs.5,74,93,755 by determining the arm’s length margin @18.55% instead of 19.69% taken earlier.
9. Aggrieved, assessee is in appeal before us raising following grounds of appeal :- “Based on the facts and circumstances of the case, Assimilate Solutions India Private Limited ('the Appellant') respectfully prefer an appeal against the final assessment order dated 26.09.2024 passed by the Assessing Officer ('the AO') under Section 143 (3) r.w.s 144C (13)/144B of the Income-tax Act, 1961 ('the Act') for the Assessment year 2021-22 in pursuance of the directions dated 30.08.2024 issued by Dispute Resolution Panel -1, New Delhi ('the DRP') under Section 144C(5) of the Act on the following grounds, which are independent and without prejudice to each other: (i) That on the facts and circumstances of the Appellant's case, the AO/TPO/DRP have erred on facts and in law in not accepting the economic analysis undertaken by the Appellant in accordance with provisions of the Act read with Income Tax Rules, 1962 ('the Rules') and in modifying the same for determination of arm's length price (‘ALP') by making a transfer pricing (TP') adjustment/addition to the income as declared by the Appellant. (ii) That on the facts and circumstances of the Appellant's case, the AO/TPO/DRP have erred on facts and in law in rejecting certain companies from and adding certain companies to the final set of comparables on ad hoc basis, thereby resorting to cherry picking of comparables for benchmarking the impugned international transactions. (iii) That on the facts and circumstances of the Appellant's case and in law, the DRP and consequently the TPO/AO have erroneously/incorrectly included the following companies as comparables for benchmarking purposes whereas the same ought to have been excluded since they failed to satisfy the export filter test as was accepted to be an appropriate filter by the DRP: - MAA Business Solutions Pvt. Ltd. - Cosmic Global Ltd. - Allsec Technologies Ltd. (iv) That on the facts and circumstances of the Appellant's case and in law, the DRP and consequently the TPO/AO have DRP Soft Systems Ltd. as comparable company for benchmarking purposes whereas the same ought to have been included since it satisfies the turnover/service income as well as all other filter tests as applied and accepted. (v) That on the facts and circumstances of the Appellant's case and in law, the DRP and consequently the TPO/AO have erroneously/incorrectly included WNS Global Services Ltd. as comparable company for benchmarking purposes whereas the same ought to have been excluded since it fails the appropriate RPT filter test as was also accepted by the TPO in her remand report to the DRP. (vi) That without prejudice to the above and on the facts and circumstances of the Appellant's case, the TPO/AO have erred in taking/considering incorrect operating margin of the following alleged comparable companies for benchmarking purposes, which is not in compliance with the specific directions dated 30.08.2024 of the DRP: - MAA Business Solutions Pvt. Ltd. - Suprawin Technologies Ltd. - WNS Global Services Pvt. Ltd. - Rprocess Outsourcing Services Pvt. Ltd. (vii) That on the facts and circumstances of the Appellant's case and in law, the draft assessment order dated 23.11.2023 as passed under section 143(3) r.w.s. 144C(1) of the Act read with order under section 92CA(3) dated 30.10.2023 passed by the Transfer Pricing Officer-DC/ACIT TP1 (1 )(2), Delhi ('TPO') for Assessment Year 2021-22 thereby proposing an upward TP adjustment/addition of Rs. 5,74,93,755 ought to have been quashed/annulled set aside by the DRP since such orders as passed were bad in law and unsustainable. (viii) That the final assessment order dated 26.09.2024 under section 143(3) r.w.s. 144C(13)/144B of the Act as passed by the AO in pursuance to the directions dated 20.08.2024 of the DRP without providing copy of alleged TPO order dated 20.09.2024 to the Appellant is bad in law, illegal and invalid.
(ix) That the DRPITPO and consequently the AO while passing the final assessment order dated 26.09.2024 have grossly erred on facts and in law in sustaining the TP adjustment/addition of Rs. 4,83,44,771 to the income as declared and at any rate, without prejudice, such adjustment/addition as sustained is very excessive. (x) That the AO while computing the income tax demand of Rs. 2,24,63,883 as raised vide computation sheet forming part of the final assessment order dated 26.09.2024 has erroneously/incorrectly: a. Charged surcharge @12% instead of applicable 7% on income tax as payable; b. Restricted the MAT Credit to Rs. 42,15,300 instead of brought forward MAT credit of Rs.1 ,93,85,826 as was available under section 115JAA of the Act; c. Charged/levied interest of Rs. 4,74,702 under section 234A of the Act, which is illegal and at any rate, without prejudice, is very excessive; d. Charged/levied interest of Rs. 66,45,828 under section 234B of the Act, which is illegal and at any rate, without prejudice, is very excessive; e. Charged/levied interest of Rs. 4,89,944 under section 234C of the Act, which is illegal and at any rate, without prejudice, is very excessive (xi) That the income tax demand of Rs. 2,24,63,883 as created is very excessive. (xii) That the penalty under section 270A of the Act, as initiated for alleged under- reporting of income in consequence of misreporting of income is not applicable on the facts and under the law in the Appellant's case. (xiii) The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal at any time before or at the time of hearing of the appeal so as to enable the Hon'ble
At the time of hearing ld. AR of the submitted that Copy of TPO’s order dated 20.09.2024 giving effect to directions of the DRP was not provided to the Assessee prior to passing of final assessment order. Such TPO’s order has been provided subsequently on request of the Assessee as is evident from Assessee’s application dated 09.05.2025 enclosed at page 162 of PB and copy of such TPO’s order dated 20.09.2024 enclosed at pages 163-168 of PB.
Further, he submitted his arguments ground-wise as under :- Ground No. (i)& (ii): are for rejection of economic analysis undertaken by the Appellant for determination of ALP From the above, it is evident that the Appellant had maintained TP documentation in good faith and economic (TP analysis) was undertaken through an independent external consultant in accordance with the procedures outlined in law, which provided a fair analysis. There was never any intention on the part of the Assessee of avoidance of tax and the authorities below have failed to point out existence of any tangible material and valid reasons that there was avoidance of tax. Comparability analysis undertaken by the Assessee is based on well accepted TP principles and ALP for the international transaction had been determined by applying the prescribed method in accordance with sub- section (1) & (2) of section 92C of the Act. There was no material or information or document in possession of TPO based on which intervention in determination of ALP was required as per the provisions of sub-section (3) of section 92C of the Act.Hence, TP study undertaken by the Assessee has been rejected without any cogent reasons, which is beyond the principles of natural justice and not permissible under the law. In this connection, the Appellant refers to and relies upon the following: Rajesh Kumar vs. DCIT reported in 287 ITR 91 (Supreme Court)
Assessee files a return the same is not presumed to be incorrect.” Mentor Graphics (Noida) Pvt. Ltd. vs. DCIT “Assessment under the Act is a judicial act and must be based on cogent material, not on unsound presumption.” CBDT Circular No. 12 dated 23.08.2001 as per copy enclosed at page 169. Relevant extracts from such Circular are reproduced below: “It should be made clear to the concerned Assessing Officer that where an international transaction has been put to a scrutiny, the Assessing Officer can have recourse to sub-section (3) of section 92C only under the circumstances enumerated in clauses (a) to (d) of that sub-section and in the event of material information or documents in his possession on the basis of which an opinion can be formed that any such circumstances exists. In all other cases, the value of the international transaction should be accepted without further scrutiny”. Sony India Pvt. Ltd. vs ACIT, reported in 157 Taxman 125 (Delhi Trib.). Relevant findings from Head Notes are reproduced below: “Sub-section (3) of section 92C envisages the Assessing Officer having to form an opinion on the existence of the factors enumerated in clauses (a) to(d) as a pre-condition to proceeding to himself determine the ALP. In other words, acceptance of the ALP declared by the assessee is the rule and its rejection is the exception posited on the presence of the factors enumerated in clauses (a) to (d)…...” NLC Nalco (India) Ltd. vs DCIT 71 taxmann.com 57 (Kol Trib). Relevant extract of its observations/findings from para 19 are reproduced below: “We have gone through the data as well through the details filed by assessee in its paper book and the TPOhimself mentioned in his order that the assessee performed arm's length analysis in respect of all the international transactions entered into by assessee with its associated enterprises under section 92C of the Actread with 10B and 10C of the Rules. And that nothing was found in the TPO's order which was indicative of the existence of any of the circumstances prescribed under (a) to (d) of section 92C (3) of the Act which necessitates intervention of the AO/TPO for determination of arm's length price……..”. Ground No (iii) for exclusion of MAA Business Solutions Pvt. Ltd as comparable company As is evident from the Synopsis alongwith chart as filed before the DRP and enclosed at pages 170-184of PB, three companies namely Maa Business Solutions Pvt. Ltd., Cosmic Global Ltd. and Allsec Technologies Ltd. (refer to Sr. No. 1, 2 and 3 of such chart at pages 179-180 of PB)were to be excluded from the list of comparable companies as they failed to satisfy export filter test, which was accepted to be a valid/appropriate filter by DRP itself vide para 5.3 of its order. Out of the above three companies, Cosmic Global Ltd. and Allsec Technologies Ltd. were excluded from the final list of 9 comparable companies by the TPO vide giving effect to DRP directions (refer to para 6.2 of TPO’s order at page 165 of PB) and by the AO vide his final assessment order under section 143(3)/144C(13)/144B of the Act.However, TPO/AO have inadvertently included Maa Business Solutions Pvt. Ltd. in the final list of 9 comparable companies as taken by them even though such company failed to satisfy the export filter test as is evident from its annual financial statements for FY 2020-21 enclosed at pages 185-196 of PB (refer to P & L A/c at page 193 read with notes at page 196)read withchart given in the Synopsis at pages 179-184 of PB (refer topage 179). TPO vide her remand report dated 08.08.2024 enclosed at pages 197-202 has failed to controvert/disprove such factual calculation based on financial data reflecting that Maa Business Solutions Pvt. Ltd. failsto satisfy the 75% threshold for export filter test as held to be a valid filter by DRP. Appellant also refers to and relies upon its Rejoinder dated 12.08.2024 on TPO’s remand report as filed before DRP and enclosed at pages 203-220 of PB. In view of the above facts and circumstances, Maa Business Solutions Pvt. Ltd. may be directed to be excluded from the list of comparable companies since it fails to satisfy the export filter test DRP (refer to para 5.3 of DRP order). TPO vide her order dated 20.09.2024 has excluded Cosmic Global Ltd. and Allsec Technologies Ltd. since they failed to satisfy the export filter test but has inadvertently included MAA Business Solutions Pvt. Ltddespite the fact that this Co. did not have any gain or loss on exchange rate fluctuation meaning thereby that it did not derive any export revenue and accordingly failed to satisfy the export filter test. No reasons whatsoever were provided by the TPO in her order dated 20.09.2024 for not excluding MAA Business Solutions Pvt. Ltd. from the list of final comparables. Ground No. (iv) read with (ii) for inclusion of ERP Soft Systems Ltd as a comparable company: TPO vide its order under section 92CA(3) dated 30.10.2023 had accepted the following filters, amongst others, for selecting comparables for benchmarking purposes: Reject companies with Turnover < Rs 1 Cr (refer to Sr.No.2 of para 2.2 at page 3 of TPO’s order). Companies whose Service income < Rs 1 Cr are excluded (refer to para 2.4(ii) at page 4 of TPO’s order). In other words, any comparable company having Turnover or Service income of Rs. 1 Cr or more would satisfy the Turnover and Service income filter as specified to be an appropriate filter by the TPO himself. However, TPO vide its aforesaid order under section 92CA(3) had rejected ERP Soft Systems Ltd. to be a comparable company on the ground that such company fails to satisfy the turnover filter since its turnover was less than Rs.1 Cr. in the immediatepreceding FY 2019-20. Vide para 6 of its order, DRP has accepted that during the year under consideration, ERP Soft Systems Ltd. (with turnover of Rs.1.15 Cr.) marginally crosses the minimum turnover filter threshold of Rs. 1 Cr (kindly see its financials for FY 2020-21 at pages 221-222 of PB) but has rejected its inclusion on an altogether different ground that the turnover of this Co. is only Rs. 1.15 Cr. whereas the turnover of the Assessee is much higher by 90 times resulting in huge turnover difference without providing any opportunity to the Assessee to explain its position on such new allegation as made in the DRP’s order. This clearly shows the intent of DRP/TPO/AO in cherry picking the comparables that suit the Department’s objectives of justifying TP adjustment by excluding ERP Soft Systems Ltd. as comparable even though such company satisfies all the filters as applied by the TPO/DRP including the turnover/service income filter of considering companies having turnover of Rs.1 Cr. or more. In this connection, Appellant refers to and relies upon the Rejoinder dated 12.08.2024 on the remand report of TPO enclosed at pages 203-220 of PB for justifying inclusion of ERP Soft Systems Ltd. in accordance with Sub-Rule (5) of Rule 10B of I.T. Rules. It is noteworthy thatvarious other companies were held by the TPO to be comparable even though their Turnover/Service income was lesser than the Turnover/Service income of Rs.90.31 Cr. achieved by the Assessee during the year under consideration. Similarly, TPO had taken various companies as comparables even though their turnover was much higher when compared with the turnover of the Assessee. On a combined reading of sections 92C, 92D and Rules 10B and 10D, it is clear that data used for the purpose of conducting comparability analysis should relate to the relevant financial year and since data for ERP Soft Systems Ltd. for the year under consideration shows that it fulfils all the filters including the minimum turnover/service income filter, the same ought to be included to be a comparable company for benchmarking purposes. Reliance is placed on the following judicial precedents where it has been held that there cannot be cherry picking for deciding parameters of rejection of a comparable: ITAT Delhi order in the case of DCIT v. Panasonic AVC Networks India Co. Ltd. (ITA 4620/Del/2011), reported in42 taxmann.com 420. Relevant extract of findings of ITAT from para 9 of its order are reproduced below:
“…..In our considered viewalso, there cannot be a cherry picking for deciding parameters of rejection of a comparable, and theparameters have to be broad enough of being general application. In the scheme of things envisaged under theTNMM, it is inevitable that there will be some differences between the comparables and the tested party butthe impact of these differences is substantially mitigated by the averaging. If a comparable is being sought tobe rejected on the ground of its differences vis-à-vis the tested party, similar criteria must be adopted fordeciding suitability of other comparables as well. It cannot be open to any judicial authority to reject acomparable on the ground that the comparable has significant differences vis-à-vis the tested party, unless thedifferences are broad enough of general application, are such as materially affecting the profitability, as notbeing capable of reasonably accurate adjustments to eliminate the impact of such differences, and as are alsonot found in other comparables. All the comparables must face the same test on which comparability of aparticular comparable is being sought to be rejected…...” ITAT Bangalore order in the case of Phillips Software Centre Pvt. Ltd. vs. ACIT reported in 119 TTJ 721. Relevant findings from para 5.25 of such order are reproduced below: “The assessee had identified the appropriate category in the database of companies and had used filters foreliminating companies that are not comparable to it. The filters used for eliminating companies are systembased (quantitative filters) and manual eliminations (qualitative filters). The final comparables are those companies that have survived all the elimination filters. On the other hand, the tax department has resorted to cherry picking comparables (typically those companies which are making huge profit margins) withoutexplaining the basis and rationale thereof. This is also clear from the way the department has 'normalised' theprofits of super-profit making companies”. ITAT Mumbai order in the case of Cheminova India Ltd. (ITA 4865/Mum/2005), copy enclosed at pages 225-235 of PB. Relevant observations of ITAT from paras 10.1 and 11 are reproduced below: “10.1 The ld counsel of the assessee took us through the Paper Book and submitted that TPO cannot pick and choose only the favourable ALP, discarding the other data or comparable transactions of uncontrolled enterprises are available…… 11 We find force in the arguments of the ld counsel of the assessee…..” Hence, DRP has erroneously directed that ERP Soft Systems Ltd. be excluded for the reason that its turnover of Rs.1.15 Cr. when compared with turnover of Rs.90.30 Cr. of Assessee results in huge turnover difference whereas no such criteria was adopted/applied by TPO for justifying inclusion/exclusion of other comparable companies as reflected above. Accordingly, ERP Soft Systems Ltd. may be directed to be included as comparable company since it fulfils the minimum Turnover/Service income criteria/filter of Rs.1 Cr. as well as other filters applied by the TPO himself particularly when DRP has not rejected such filters as were adopted and applied by the TPO. Ground No. (v)for exclusion ofWNS Global Services Pvt. Ltd. as a comparable company WNS Global Services Pvt. Ltd. has been erroneously directed to be included as comparable by DRP vide para 7.4 at internal pages 21 & 22 of its order when the TPO himself vide her remand report dated 08.08.2024 enclosed at pages 197-202 of PB(refer to page 200) had accepted that this Co. fails the RPT filter test. Extract of such remand report has also been reproduced in DRP’s order (refer to internal page 20of DRP order). Hence, DRP had inadvertently included WNS Global Services Pvt. Ltd. to be a comparable Co. vide internal page 22 of its order. Accordingly, WNS Global Services Pvt. Ltd. may be directed to be excluded from the list of comparables since it admittedly fails to satisfy the RPT filter test. Ground No. (vi)is for rectifying the operating margins of four additional companies as retained by the TPO as comparable companies TPO/AO have taken incorrect operating margins of following comparable companies for benchmarking purposes which is not in compliance with specific directions of DRP given vide paras 8.2 read with 9.2 of its order: - MAA Business Solutions Pvt. Ltd. (refer to its financial statements at pages 185-196 of PB). - Suprawin Technologies Ltd. (refer to its financial statements at pages 236-256 of PB). - WNS Global Services Pvt. Ltd. (refer to its financial statements at pages 257-566 of PB). - Rprocess Outsourcing Services Pvt. Ltd. (refer to its financial statements at pages 567-582 of PB). In this connection, Appellant refers to and relies upon the extract of chart of these four Cos as was filed before lower authorities and is enclosed at pages 583 of PB. It is therefore prayed that the TPO/AO be directed to rectify the operating margins of the aforesaid four Cos. on the basis oftheir audited financial statements enclosed at pages 185-196 & 236-582 of PB as also directed by DRP. It may be relevant to point out here that out of the above four Cos., MAA Business Solutions Pvt. Ltd. and WNS Global Services Pvt. Ltd. ought to be excluded from the final list of comparables for the reasons as given in Ground Nos. (iii) & (v) above. Ground No (vii) There was violation of principles of natural justice while conducting TP assessment for which reliance is placed on Synopsis as filed before the DRP as per copy enclosed at pages 170-184 of PB. Ground No (viii) Copy of TPO’s order dated 20.09.2024 as passed in pursuance to directions of DRP was not provided to the Assessee prior to 26.09.2024 by the AO under section 143(3)/144C(13)/144B and therefore the impugned assessment order as passed is bad in law, illegal and invalid. Ground No (ix) The upward TP adjustment/addition of Rs.4,83,44,771 as per impugned final assessment order is illegal and uncalled for. In this connection, the Appellant refers to and relies upon the updated chart of final list of 8 comparable companies to be retained (enclosed at page 584 of PB) where out of the final list of 9 comparable Cos. taken by TPO/AO, MAA Business Solutions Pvt. Ltd. and WNS Global Services Pvt. Ltd. are to be excluded and ERP Soft Systems Ltd. is to be included. From such updated chart, it will be observed that no TP adjustment/addition is called for since declared operating margin of 12.53% is within the range of 35th percentile of 6.67% and 65th percentile of 21.38%of final 8 comparable companiesand therefore, the entire TP adjustment/addition of Rs.4,83,44,771 as sustained deserves to be deleted. At any rate, without prejudice, such TP adjustment/addition is very excessive even if no changes in the final list of comparable companies are to be made since there are factual errors/mistakes in the operating margin of 4 additional companies as retained by TPO/AO as also submitted in Ground No. (vi) above. The factual errors/mistakes in such 4 additional companies are also reflected in the chart of 9 companies (enclosed at page 585 of PB) as considered/taken by TPO/AO as per the impugned final assessment order. Ground Nos. (x)& (xi): The income tax demand of Rs.2,24,63,883 as created in the impugned final assessment order by the AO is illegal at any rate, without prejudice, the same is excessive for various reasons including but not limited to the following: a) Surcharge erroneously/incorrectly taken @12% instead of applicable 7% on income tax as payable (refer to computation attached with impugned final assessment order); b) MAT Credit incorrectly restricted to Rs. 42,15,299 instead of taking into accountant absorbed brought forward MAT credit of Rs.1,93,85,802 as was available under section 115JAA of the Act; Additional interest of Rs. 4,74,702 as charged under section 234A of the Act is illegal and at any rate, the same is consequential in nature; d) Additional interest of Rs. 66,45,828 as charged under section 234B of the Act is illegal and at any rate, the same is consequential in nature; e) Additional interest of Rs. 4,89,944 as charged under section 234C of the Act, which is illegal and at any rate, the same is consequential in nature; The above-mentioned mistakes/errors were also pointed out vide Appellant’s rectification application 29.12.2024 as filed against the impugned final assessment order before the AO and enclosed at pages 586-591 of PB. Such rectification application has not been disposed of till date. Ground No. (xii) This ground is against initiating of penalty under section 270A of the Act for underreporting of income. In this connection, Assessee refers to and relies upon its detailed submissions filed before DRP at pages 592-619 of PB(refer to pages618-619)
On the other hand, ld. DR of the Revenue relied on the findings of the Assessing Officer/TPO. As far as issue of comparable are concerned for inclusion and exclusion, ld. DR relied on the findings of TPO.
Considered the rival submissions and material placed on record. We observed that the Ld AR basically pressed for inclusion of one comparable and exclusion of two comparable. After considering the detailed submissions of both parties, we also observed that the assessee had filed a rectification application indicating certain factual mistakes on the directions of DRP, which was not disposed off till now. We direct the AO/TPO also to consider the plea of the assessee raised on the above said DRP, before completing the findings in the below paragraph.
With regard to plea of the assessee on the issue of inclusion of ERP Soft Systems Ltd as comparable company, we observed that the above said company has passed turnover filter selected by the TPO i.e., above 1 crore. However, merely satisfying the turnover filter alone is not relevant, it must also be seen that whether the above said company is comparable on the basis of qualitative or quantitative as well. This is known facts while doing the TP study, it need not be given separate notice to the assessee. We observed that the DRP had observed that the above company no doubt passes the turnover filter but fails the quantitative filter on the basis of huge turnover recorded by the assessee 90:1 ratio. The findings of DRP are supported by the OECD Guidelines (Para 3.43). Therefore, we are not inclined to disturb the same. The case law relied by the assessee are distinguishable. In the result, the ground raised
by the assessee in this regard is dismissed.
15. With regard to exclusion of two comparable, with regard to Company MAA Business Solutions Pvt Ltd is concern, we observed that this company had failed export filter, the same was confirmed by Ld DRP in their order however, the AO/TPO inadvertently included the same. After considering the financial statements brought to our notice, we are inclined AO/TPO to exclude the above comparable from the final list of comparable. We direct accordingly and allow the relevant ground.
With regard to WNS Global Services Pvt Ltd, we observed that the above comparable failed on the RPT filter, which was confirmed by the TPO in his remand reported submitted vide letter dated 08.08.2024, which is placed at page 197 to 202 of the paper book submitted before us. Therefore, the Ld DRP had inadvertently included the above comparable in their directions. Hence, we direct accordingly. In the result, the ground raised
by the assessee allowed in this regard.
17. With regard to ground X raised by the assessee, considered the same and this relating to consequential issue raised by the assessee, we are inclined to remit this issue back to the file of AO to verify the above issues as per law after giving an opportunity of being heard to the assessee. In the result, ground raised by the assessee is allowed for statistical purpose.