Facts of the Case

  • The Assessee, Macquarie Global Services Pvt. Ltd., was engaged in providing ITES services.
  • The matter relates to Assessment Year 2011–12.
  • The case was referred to the Transfer Pricing Officer (TPO) due to international transactions.
  • The TPO selected comparables including:
    • eClerx Services
    • TCS eServe
    • Accentia Technologies Ltd.
    • ICRA Techno Analytics Ltd.
  • The Assessee objected before the Dispute Resolution Panel (DRP).
  • DRP directed exclusion of these comparables citing:
    • Functional dissimilarity
    • Lack of segmental data
  • The ITAT upheld DRP findings, leading to nil adjustment.

Issues Involved

  1. Whether ITAT erred in excluding certain comparables in transfer pricing analysis.
  2. Whether the Assessee should be treated as a KPO instead of ITES provider.
  3. Whether exclusion of comparables based on functional dissimilarity and turnover filter was justified.
  4. Whether such exclusion raises a substantial question of law under Section 260A.

Petitioner’s Arguments (Revenue)

  • The Assessee itself classified its activities as KPO, hence ITAT erred in treating it otherwise.
  • Companies like eClerx and ICRA Techno Analytics Ltd. provide IT-enabled services and should be valid comparables.
  • ITAT wrongly applied high turnover filter.
  • Profit margins in ITES sector are not dependent on turnover.

Respondent’s Arguments (Assessee)

  • The selected comparables were functionally different from the Assessee’s operations.
  • Absence of reliable segmental data justified exclusion.
  • In earlier assessment years, similar comparables had already been excluded.
  • There was no change in functional profile across years.

Court Findings / Order

  • The High Court upheld concurrent findings of DRP and ITAT.
  • It was held that:
    • The comparables were functionally dissimilar.
    • No perversity was found in ITAT’s reasoning.
    • The Revenue failed to demonstrate any legal error.
  • The Court ruled that:

“Inclusion or exclusion of comparables per se cannot be treated as a question of law unless perversity is shown.”

  • Result: Appeal dismissed; no substantial question of law arises.

Important Clarification

  • Selection of comparables is a question of fact, not law.
  • High Court will interfere only if findings are perverse or legally unsustainable.
  • Consistency in earlier years plays a crucial role in transfer pricing disputes.

Sections Involved

  • Section 92C of the Income Tax Act, 1961 (Arm’s Length Price – Transfer Pricing)
  • Section 260A of the Income Tax Act, 1961 (Appeal to High Court)

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:3843-DB/58922092022ITA1562020_191325.pdf

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