Facebook India Online Services Private Limited Vs DCIT (ITAT Hyderabad)
ITAT Hyderabad held that for comparability of company with that of the assessee, in case of international transactions, the criteria of functionally comparability needs to be considered.
Facts-
During the year the assessee has entered into various international transactions with its AE. After going through TP documents of the assessee, TPO had rejected the TP study of assessee and had given show cause notice to the assessee dated 20.10.2017 as he had found that transactions were not at arm’s length. Thereafter, Transfer Pricing Officer (TPO) carried out a fresh search for appropriate comparable companies and also applied additional/modified filters for the selection of comparable companies.
After perusal of reply of assessee company and after applying margins of the comparables to the financials, arm’s length price at Rs.109,47,51,113/- and the shortfall of Rs.11,81,52,927/- was treated as adjustment u/s 92CA of the Act and the total income was enhanced as per 92CA(3) of the Act.
Later, the TPO, in compliance of DRP directions, passed order dt.25.10.2018 revising the transfer pricing adjustments.
The DRP has upheld the companies selected by the TPO in his final set of comparables. Feeling aggrieved by the order passed by the Assessing Officer / DRP, the assessee is in now in appeal before us.
Conclusion-
Held that for the purpose of ascertaining the comparability of a company as per rule 10B of the Income Tax Rules, it is to be seen whether company is performing similar functions as that of the assessee or not.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The appeal of the assessee for A.Y. 2014-15 arises from the order of Deputy Commissioner of Income Tax, Circle 17(1), Hyderabad dated 31.10.2018 involving proceedings under section 143(3) r.w.s. 92CA(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in short, “the Act”) raising the following grounds :
“Transfer pricing grounds – IT enabled services segment
1. On the facts and in the circumstances of the case and in law, the Learned Dispute Resolution Panel (‘Ld. DRP’) erred in upholding the action of the Ld. AO / Transfer Pricing Officer (‘Ld. TPO’) in making a transfer pricing adjustment of Rs. 11,81,52,927 to the total income pertaining to the international transaction of provision of IT enabled services to the associated enterprise.
2. On the facts and in the circumstances of the case and in law, Ld. AO / DRP / TPO erred in disregarding the separate transfer pricing benchmarking for IT enabled services and business support services segments maintained by the Appellant and aggregating the said segments for benchmarking the international transaction of provision of IT enabled services.
3· On the facts and in the circumstances of the case and in law, Ld. AO / DRP / TPO erred in:
a. rejecting the transfer pricing study which was maintained in good faith and with due diligence;
b. rejecting the search process followed by the Appellant for each segment and carrying out fresh comparability analysis for determining the Arm’s Length Price of the IT enabled services segment as the only segment;
c. rejecting the use of multiple year data and applying only single year data for comparability analysis which were not available at the time of preparation of transfer pricing study; and
d. rejecting/ modifying certain filters as applied by the Appellant in selection of the comparable companies at the time ofTP documentation and applying certain additional filters while undertaking comparability analysis.
4· On the facts and in the circumstances of the case and in law, Ld. AO / DRP/TPO erred in including the following companies in the comparable set which are not comparable to the Appellant’s functions, asset base and risk profile in the IT enabled services segment:
