AI Structured Summary
Not yet generated for this judgment
Judgment
PER VIMAL KUMAR, JM:
The appeal filed by the assessee are against the final assessment orders dated 16.09.2025 passed by Ld. Assessing officer/Assessment Unit (hereinafter referred to as ‘the AO’) u/s 143(3) r.w.s 144C(13) and Section 144(B) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) in pursuance to directions of Dispute Resolution Penal-1, New Delhi (hereinafter referred to as ‘the DRP’) dated 05.08.2025 u/s 144C of the Act for A.Y. 2022-23.
The brief facts of the case are that the assessee company filed return of income u/s 139(1) of the Act on 24.11.2022 declaring total income of Rs. 6,23,09,432/-. The return was processed u/s 143(1) of the Act on 25.11.2022. The case was selected for scrutiny under CASS was “On account of large value of international transactions in services compared to revenue from sale of services (ITES) and low profitability (TP risk parameter)”. Notices u/s 142(1) of the Act on 15.09.2023, 20.09.2023, 08.12.2023 were issued. During the proceedings, it was found that the assessee company entered into two transactions as per details in Form No. 3CEB. The case was referred to the Transfer Pricing Officer as per Section 92CA(1) of the Act. For determination of Arm’s Length Price in relation to the International transactions and required TP adjustment if any. Ld. TPO vide order dated 22.01.2025 u/s 92CA(3) of the Act passed and upward adjustment aggregating to Rs.4,67,18,440/- on account of provision of sourcing support services. Draft assessment order dated 08.02.2025 u/s 144C(1) of the Act was passed. In response to communication, the assessee vide submissions dated 07.03.2025 submitted that the assessee has filed objections u/s 144C(2)(b) of the Act before the Hon’ble Dispute Resolution panel against Draft Assessment Order dated 08.02.2025. Hon’ble DRP passed order dated 05.08.2025. The order giving effect u/s 144C of the Act dated 01.09.2025 proposing adjustment of Rs. 3,47,10,288/- was passed. The final assessment order dated 16.09.2025 u/s 143(3) r.w.s. 144C(13) r.w.s. 144B proposing adjustment of Rs. 3,47,10,288/-.
Being aggrieved appellant/assessee preferred present appeal on following grounds: -
“1.1. Ground of Appeal 1
That, in view of the facts and circumstances of the case and in law, the learned AO/learned Transfer Pricing Officer ("learned TPO") and the Hon'ble DRP have erred in increasing the returned income of the Appellant by INR 3,47,10,288 by making an upward adjustment in respect of the Assessee's international transaction pertaining to provision of sourcing support services ("impugned transaction") and holding that the impugned transaction is not at arm's length.
1.2. Ground of Appeal 2
On the facts, circumstances of the case and in law, the learned AO/ learned TPO/ Hon'ble DRP have grossly erred by not accepting the economic analysis undertaken by the Assessee in accordance with the provisions of the Act read with the Income Tax Rues, 1962 (the "Rules") and conducting a fresh economic analysis in an arbitrary manner without adopting any scientific search process for determination of the Arm's Length Price ("ALP").
1.3. Ground of Appeal 3
On the facts, circumstances of the case and in law, the learned AO/ learned TPO have grossly erred by not giving effect to the directions of Hon'ble DRP and thereby erred on account of following: Inclusion of two companies viz., ERM India Private Limited and Mudra Online Technologies Private Limited having related party transactions (RPT) of more than 25% of the turnover which are liable to be excluded as they fail the RPT filter; and Not allowing working capital adjustment to the margins of comparable companies.
1.4. Ground of Appeal 4
On the facts, circumstances of the case and in law, the learned AO/ learned TPO/ Hon'ble DRP have grossly erred by accepting a comparable company namely EdCil (India) Limited which is 100% Government of owned company and is liable to be excluded as it does not satisfy the functional, assets and risk (FAR) analysis test as mandated in Rule 108 of the Rules.
1.5. Ground of Appeal 5
On the facts, circumstances of the case and in law, the learned AO/ learned TPO/ Hon'ble DRP have grossly erred by accepting a comparable company namely Adbur Private Limited which operates on a commission-based model vis-à-vis taxpayer which is compensated on a cost plus basis. Thus, Adbur Private Limited is liable to be excluded in view of having a different business model and does not satisfy the FAR analysis test as mandated in Rule 10B of the Rules.
1.6. Ground of Appeal 6
On the facts, circumstances of the case and in law, the learned AO/ learned TPO/ Hon'ble DRP have grossly erred in selecting several other companies which are non-comparable to the impugned transaction ie., sourcing support services rendered by the Assessee viz., Artefacts Projects Limited, Infollion Research Services Private Limited, Method Apparel Consultancy India Private Limited, ERM India Private Limited and Mudra Online Technologies Private Limited or on account of failing quantitative filters viz., ERM India Private Limited and Mudra Online Technologies Private Limited. Thus, the said comparables are liable to be excluded and do not satisfy the FAR analysis test as mandated in Rule 10B of the Rules.
1.7. Ground of Appeal 7
On the facts, circumstances of the case and in law, the learned AO/ learned TPO/ Hon'ble DRP have grossly erred in disregarding the functionally similar comparable companies viz., Crystal Hues Limited and Kestone Integrated Marketing Services Private Limited.
1.8. Ground of Appeal 8
On the facts, circumstances of the case and in law, the learned AO/learned TPO have grossly erred by failing to make appropriate adjustments to account for differences in working capital employed by the Assessee vis-à-vis comparable companies while benchmarking the impugned transaction of the Assessee.
1.9. Ground of Appeal 9
On the facts, circumstances of the case and in law, the learned AO/ learned TPO/ Hon'ble DRP have grossly erred by not making suitable adjustments to account for differences in the risk profile of the Assessee vis-à-vis the comparable companies.
1.10. Ground of Appeal 10
On the facts, circumstances of the case and in law, the learned AO/ learned TPO/ Hon'ble DRP have erred by considering foreign-exchange gain as non-operating in nature.
1.11. Ground of Appeal 11
On the facts, circumstances of the case and in law, the learned AO/ learned TPO/ Hon'ble DRP have grossly erred in disregarding the principle of consistency and making an upward adjustment.
1.12. Ground of appeal 12
On the facts and in circumstance of the case and in law, the learned AO has erred by levying an interest under Section 234B of the Act.
1.13. Ground of appeal 13
On the facts and in circumstance of the case and in law, the Learned AO has erred by initiating penalty proceedings under section 270A of the Act, in relation to the adjustment made to the income of the Appellant.”
Ld. Authorized Representative for appellant/assesseee submitted that ground of appeal No. 1 and 2 are general in nature, so separate adjudication is not called for.
Ld. Authorized Representative for appellant/assesseee submitted that ground of appeal No. 3 is regarding inclusion of two companies i.e. ERM India Private Limited and Mudra Online Technologies Private Limited having related party transactions(RPT) of more than 25 % of turn over which are liable to be excluded as they failed to RPT filter and not allowing working capital adjustment to the margins of comparable companies. In written submissions, it is mentioned as under:
Ld. Departmental Representative relied on impugned order.
From appraisal of record, it is apparent on record that as per DRP directions companies failing RPT filter were to be excluded from the list of final comparable. Ld. TPO failed to give effect to DRP directions and included Mudra online technologies Private Limited despite its failing in RPT filter. A rectification application was filed on 16.09.2025 which was rejected vide order dated 25.10.2025. Therefore, the action of ld. TPO in including Mudra Online Technologies Private Limited being illegal is set aside. Accordingly, ground of appeal No. 3 is partly allowed.
Ld. Authorized Representative for appellant/assessee submitted that ground of appeal No. 4 is regarding erroneous inclusion of 100% Government owned company as comparable. Ld. AO, Ld. TPO and Ld. DRP grossly erred in accepting namely comparable company i.e. EdCIL India Ltd. which is 100% government owned company and liable to be excluded. As it does not satisfy the functional, assets and risk (FAR analysis Test) under Rule 10D. In written submissions, it was submitted as under:
Ld. Departmental Representative relied on impugned order.
From examination of record in light of aforesaid rival contention, it is crystal clear that Ld. AO/TPO and DRP accepted a comparable have namely EdCIL India Limited. As per annual report EdCIL India Limited is under control of Ministry of Education, Government of India pages 1401 to 1410 and 1454 to 1457 of paper book. A co-ordinate Bench in ITA No. 1448 & 1449/Del/2022 and 5618/Del/2024 in para No. 21, it is held as under:
“21.Respectfully following the DRP's reasoning in the assessee's own case in the A.Y. 2016-17, as well placing reliance on their functional and business description we hold that the EDCIL (India) Ltd being a Government undertaking should be excluded from the comparable list. Further, the ICRA Ltd which is a credit rating agency is into completely different business and cannot be said to be a functionally similar entity with the MSS segment of the assessee and hence liable to be excluded. After exclusion of these companies, the assessee's margin of 15.28% is at arm's length compared to the average PLI of remaining comparables. Therefore, no adjustment is warranted to the international transaction in respect of provision of Management Support Services.”
In view of above material fact that the EdCIL (India) Limited is a 100% Government owned company by respectfully following the judicial precedent, it is held that the action of accepting a comparable company namely EdCIL (India) Limited being illegal is set aside. Accordingly, the ground of appeal No. 4 is allowed.
Ld. Authorized Representative for appellant/assessee submitted that ground of appeal No. 5 is regarding erroneous inclusion of company as comparable namely Adbur Private Limited company has a different business model and does not satisfy FAR Analysis Test mandated in Rule 10B. In written submissions, it was submitted as under:
Ld. Departmental Representative relied on impugned order.
From perusal of record, it is apparent on record that Adbur Private Limited is working and engaged in purchase or sale of advertising space or time on commission basis. The company follows commission based revenue model, a Co-ordinate Bench in page No. 126 Brown Forman Worldwide LLC India in ITA No. 433 and 6139/Del/2012 order dated 11.05.2018 in para No. 7-page No. 140-141 of paper book.
“7.We have gone through the Annual report of this company, whose copy is available on page 1 onwards of the Paper book. Profit & Loss Account of this company shows that it has mainly two streams of income, viz., Sales of Rs.4.98 crore and Commission of Rs.1.52 crore. It is the Commission segment which has been adopted by the TPO for inclusion in the list of comparables. As against this, the assessee company is providing marketing support services on a cost plus 5% mark-up basis. There is an apparent difference in the business model of earning Commission on sales and getting remunerated at cost plus basis. Whereas in the case of commission business, no income is earned unless the efforts made by incurring expenses fructify into orders, in the case of Cost plus basis, a company gets remunerated on all the costs incurred with a particular mark-up irrespective of any actual sales made. These two business models, namely, of commission and cost plus basis, cannot, by any standard, be brought on a same pedestal. This basic difference in the two business models results in varying profit margins and distorts comparability. In view of the fact that Priya International Ltd. is following a business model of `commission', as against the assessee rendering marketing support services on cost plus basis', we hold that the two cannot be considered as comparable.”
In view of above material facts i.e. Adbur Private Limited following commission based revenue model by respectfully following the judicial precedent, it is held that inclusion of Adbur Private Limited as comparable being illegal is set aside. Accordingly, Ground of Appeal No. 5 is allowed.
Ld. Authorized Representative for appellant/assessee submitted that ground of appeal no. 6 is regarding erroneous inclusion of several companies which are not comparable to the impugned transaction. In written submissions it was submitted as under:
Ld. Departmental Representative relied on impugned order.
From examination of record in light of aforesaid rival contention, it is crystal clear that Ld. AO/TPO/DRP/ selected companies Artefact Project Limited and in Infollion Research Services Private Limited. Artefact Projects Limited has 100% revenue from rendering project management and consultancy services for infrastructure projects. Annual report is at page No. 1714, 1732 and 1737 Volume III. The official Website shows company is engaged in rendering engineering, architectural and project management services especially for Highways. Therefore, the company has a dissimilar functionality the inclusion of the same being illegal is set aside.
Infollion Research Services Private Limited is a consultancy company catering to sectors such as consumer goods, foods & beverages, technology & communications and financial & banking and is not sought from the website of the Board report have been submitted so the functions of company are dissimiarl to the functions of the assessee company. Therefore, inclusion of Infollion Research Services Private Limited as a comparable to the impugned transaction of sourcing support services rendered of services being illegal is set aside. Accordingly, ground of appeal No. 6 is partly allowed.
In view of the decision of ground of appeal No. 3 to 6, it is held that the impugned account of Ld. AO/TPO/DRP in inclusion of ERM India Private Limited, Mudra Online Technologies Private limited. EdCIL (India) Limited, Abdur Private Limited, Artefact Projects Limited and Infollion Research Services Private Limited are set aside and the matter is restored to the file of Ld. TPO for a fresh decision in accordance with law after affording fair opportunity of hearing to the appellant/assessee.
Grounds of Appeal Nos. 7 to 13 are left open.
In the result, the appeal filed by the assessee is allowed for statistical purposes.