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2025 Supreme(Online)(ITAT) 3045
INCOME TAX APPELLATE TRIBUNAL (MUMBAI BENCH)
SHRI AMARJIT SINGH, ACJ, SHRI SANDEEP SINGH KARHAIL, J
HERE SOLUTIONS INDIA PRIVATE LIMITED MUMBAI – Appellant
Versus
ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE 10 (1)(1) MUMBAI – Respondent
ITA 5919/MUM/2024
Shri Ketan Ved, Shri Pravin Salunkhe, Sr. DR
The court ruled that transfer pricing adjustments must be based on appropriate comparables and rigorous analysis to ensure arm's length pricing, rejecting flawed methodologies.
Headnote:(A) Income Tax Act, 1961 - Sections 250, 143(2), 142(1), 92CA(1), 92CA(3), 271(1)(c) r.w.s. 274 - Transfer Pricing - The assessee challenged the transfer pricing adjustments made by the TPO regarding international transactions of production and software development services, asserting that the adjustments were not at arm's length. (Paras 2, 5, 26)
(B) Transfer Pricing - The court emphasized the necessity of a rigorous benchmarking analysis and the rejection of inappropriate comparables. The court noted that the TPO's adjustments were based on flawed selection criteria and insufficient data. (Paras 9, 10, 24, 38)
(C) Penalty Proceedings - The court dismissed the premature penalty proceedings initiated under section 271(1)(c) as not applicable at this stage. (Para 39)
Facts of the case:
The appeal arose from an income tax assessment where the assessee's income was adjusted upwards based on transfer pricing assessments for the assessment year 2013-14. The assessee contended that the adjustments made by the TPO were unjustified and did not reflect arm's length pricing. (Paras 2, 5)
Findings of Court:
The court directed the exclusion of several comparables used by the TPO in making the transfer pricing adjustments, thereby allowing the appeal. (Paras 24, 38)
Issues: The main issues included whether the TPO's transfer pricing adjustments were justified and whether the selected comparables were appropriate for benchmarking. (Paras 5, 26)
Ratio Decidendi: The court ruled that the TPO's adjustments lacked sufficient justification and failed to adhere to the necessary legal standards for determining arm's length pricing, emphasizing the importance of relevant segmental information for comparability. (Paras 10, 24)
Result: Appeal allowed.
ORDER
PER SANDEEP SINGH KARHAIL, J.M.
The assessee has filed the present appeal against the impugned order dated 19/09/2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals) - 56, Mumbai, [“learned CIT(A)”], for the assessment year 2013-14.
2. The brief facts of the case are that the assessee is a subsidiary of HERE Pte Ltd, Singapore, and is engaged in the business of developing, marketing, licensing and distribution of map and related location-based data, software and services for the use in mobile navigation systems and other navigation and GIS applications and devices in India. For the year under consideration, the assessee filed its return of income on 26/11/2013, declaring a total income of INR 11,64,62,570. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. Pursuant to the reference by the Assessing Officer (“AO”) under section 92CA(1) of the Act, the Transfer Pricing Officer (“TPO”) proposed a total transfer pricing adjustment of INR 9,90,90,367 vide order dated 28/10/2016, passed under section 92CA(3) of the Act. In conformity, the AO passed the draft assessment order dated 03/12/2016, under section 143(3) r.w. section 144C(1) of the Act after incorporating the transfer pricing adjustment proposed by the TPO. Since the assessee chose not to file the objections against the draft assessment order, the AO passed the final assessment order on 05/01/2017 under section 143(3) r.w. section 144C(3) of the Act, assessing the total income of the assessee at INR 21,55,52,940. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee. Being aggrieved, the assessee is in appeal before us.
3. In this appeal, the assessee has raised the following grounds: –
“The grounds hereinafter taken by the Appellant are without prejudice to one another:
1:0 On the facts and in the circumstances of the case, and in law, the learned Assistant Commissioner of Income Tax Mumbai (the 'AO') erred in making an addition of Rs. 9,90,90,367 to the total income and assessing the total income of the Appellant for the captioned AY at Rs. 21,55,52,940.
Transfer pricing issues:
2:0 Transfer Pricing Adjustment of Rs. 7,78,33,860 in relation to the international transaction of receipt from production services ['ITeS services']:
2:1 The AO / Learned Transfer Pricing Officer (the 'TPO') / Learned Commissioner of Income Tax Appeals [the 'CIT (A)] have erred on the facts of the case and in law in making an upward adjustment of Rs. 7,78,33,860 to the total income of the Appellant by holding that the international transaction relating to ITeS services provided by the Appellant to its associated enterprises ('AEs') is not at arm's length.
2:1 The learned AO/TPO/CIT (A) erred on facts and in disregarding the benchmarking analysis conducted by the Appellant based on the contemporaneous data in the Transfer pricing study report ('TP Study Report') maintained as per Section 92D of the Income Act 1962 (the 'Act*) read with Rule 10D of the Income-tax Rules, 1962 (the 'Rules').
2:3 The AO/ TPO / CIT (A) have erred in rejecting the economic analysis and methodical search process undertaken by the Appellant to identify comparable companies providing services similar to the ITeS services rendered by the Appellant.
2:4 The AO / TPO / CIT (A) has determined the arm's length price of the Appellant's international transactions without undertaking any scientific search process in violation of sections 92C(1) and 92C(2) and resorting to cherry picking of comparable companies.
2:5 The AO/ TPO / CIT (A) erred in law and in facts of the case in applying inappropriate qualitative and quantitative criteria for accepting / rejecting comparable companies.
2:6 The AO/ TPO / CIT (A) erred in applying an inappropriate filter of including companies having export earnings less than 75% of total tu
