Clarivate Analytics (India) Private Limited Vs Additional/JT/DY/ASSTT/CIT/ ITO (ITAT Mumbai)
The ITAT Mumbai allowed the appeal of the assessee for AY 2018-19 and deleted the transfer pricing adjustment after directing exclusion of MPS Ltd. from the final set of comparables on the ground of functional dissimilarity.
The assessee, engaged in providing Information Technology Enabled Services (ITES) relating to content development and editing services to its associated enterprises, had benchmarked its international transactions using the TNMM method. It characterized itself as a limited-risk captive service provider operating on a cost-plus basis. The assessee reported an operating margin of 14.75%, which it claimed was at arm’s length based on selected comparables.
The Transfer Pricing Officer (TPO), however, selected a different set of comparables and arrived at an arithmetic mean margin of 25.29%, resulting in a transfer pricing adjustment of Rs.18.80 crore. One of the key comparables included by the TPO was MPS Ltd.
Before the Tribunal, the assessee primarily challenged inclusion of MPS Ltd. It argued that MPS Ltd. was engaged in diversified activities including platform solutions, publishing solutions, accessibility solutions, software development, and end-to-end digital publishing services. The assessee further submitted that MPS operated as an entrepreneur bearing significant business risks, undertook research and development activities, and had grown through multiple acquisitions. It also highlighted absence of segmental financial data.
