CLARITRICS INDIA PRIVATE LIMITED,CHENNAI V. DCIT CORPORATE CIRCLE 1(1), CHENNAI

ITTPA 84/CHNY/2024

AI Insights

The case involves M/s. Claritrics India Private Limited, which appealed against the order of the Deputy Commissioner of Income Tax, Corporate Circle (1), Chennai, concerning the assessment year 2021-2022. The primary issue was the determination of the Arm's Length Price (ALP) for international transactions reported by the assessee. The TPO had rejected the assessee's Transfer Pricing Study Report and conducted an independent search, resulting in a proposed upward adjustment to the assessee's income. The Tribunal found that the TPO had not considered the assessee's submissions before concluding the order and thus remanded the matter for a re-evaluation.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 714746 (ITAT-CHENNAI)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 04-08-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2021-2022
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V.SREENIVASAN LD.
• Assessee Lawyers: S. SRIDHAR; LD
• Keywords: Transfer pricing; International transaction; Principle of natural justice

Judgement Text

" आयकर अपीलीय अिधकरण, डी’ Ɋायपीठ, चेɄई IN THE INCOME TAX APPELLATE TRIBUNAL , ‘D’ BENCH, CHENNAI ŵी मनु क ुमार िगįर ,Ɋाियक सद˟ एवं ᮰ी अिमताभ शुƑा, लेखा सद᭭य के समᭃ BEFORE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER आयकर अपील सं./ IT(TP)A No.84/Chny/2024 (िनधाŊरणवषŊ / Assessment Year: 2021-22) M/s. Claritrics India Private Limited, 46/50, Indira Nagar Main Road, Opposite to Ann Hospital, Valasaravakkam, Chennai-600 087. बनाम / Vs. DCIT Corporate Circle (1), Chennai. ˕ायीलेखासं./जीआइआरसं./PAN/TAN No. AAHCC-6213-H (अपीलाथŎ/Appellant) : (ŮȑथŎ / Respondent) अपीलाथŎकीओरसे/ Appellant by : Shri S. Sridhar, (Advocate) – Ld.AR ŮȑथŎकीओरसे/Respondent by : Shri AR.V. Sreenivasan (CIT) -Ld. Sr.DR सुनवाईकीतारीख/Date of Hearing : 08-05-2025 घोषणाकीतारीख /Date of Pronouncement : 04-08-2025 आदेश / O R D E R Per Manu Kumar Giri, JM: This appeal by the Assessee is arising out of the order of the Deputy Commissioner of Income Tax, Corporate Circle (1), Chennai passed u/s.143(3) r.w.s. 144C(13) r.w.s 144B of the Income Tax Act, 1961 (in short ‘’the Act’) vide order dated 13.09.2024 for assessment year 2021-2022. 2. Facts of the case are that the Assessee filed its return of income on 14.03.2022 declaring total income of ₹.1,78,580/-. The return of income was processed under section 143(1) (a) of the Act on 24.08.2022 determining total income at ₹.3,48,380/-. The case of the assessee was selected for complete scrutiny to verify the issue of large value of international transactions in services including transactions under section 92B(2) (having Transfer Pricing Risk Parameters). Accordingly, a reference under section 92CA(1) of the Act in the case Printed from counselvise.com 2 IT (TP)A No.84/Chny/24 of the assessee was made to Transfer Pricing Office (“TPO” in short) to determine arm’s length price in respect of international transactions reported in Form No. 3CEB filed by the assessee for the assessment year 2021-22. Accordingly, the TPO issued notice under section 92D(3) of the Act dated 09.08.2023 to the assessee requiring the assessee to file certain details including Transfer Pricing Study Report on or before 16.08.2023. However, the assessee has not responded for the notice till 30.08.2023. Hence, the TPO issued a show-cause for notice under section 271G of the Act to the assessee for failing to submit the details called for and posted the hearing on 03.09.2023. On 03.09.2023, the assessee vide its reply submitted the TP study report. In the TPSR, the assessee company has adopted other method as the MAM for testing the arm's length nature of international transaction. The assessee company considered ClariTrics Inc, its AE as the tested party to test the arm's length nature of tested transactions i.e. rendering of services and other transactions respectively and net margin on sales and gross margin on sales respectively were chosen as the most appropriate PLI. The assessee company has conducted a search process using the OneSource database and identified 11 foreign comparable companies whose three years weighted average PLI (OP/OR) range is 5.55% (lower quartile) & 10.87% (upper quartile) who provide IT Service in American Region. The tested party, ClariTrics USA's PLI is calculated as -66.00% and claimed that these transactions are at arm's length. Even though in its business description, the assessee has included work such as R&D, product development, etc., which are in the nature of IT Services. However, a letter was issued to the assessee on 06.10.2023 asking to produce company details regarding their operation. There is no response to the same. Hence the assessee is considered to be in to ITeS. The assessee company is deriving its income from provision of ITeS to its AE (Revenue Cycle Management). The assessee had considered its AE as tested party and 11 foreign companies as comparables. Since the financials of the tested party and the 11 foreign comparable companies are not available to the TPO on any public platform, the same cannot be accepted. Hence the tested party and comparable Printed from counselvise.com 3 IT (TP)A No.84/Chny/24 study in the TP report is rejected. Accordingly, in order to find out the ALP of the International Transactions, the TPO conducted an independent search by applying the Transactional Net Margin Method as the Most Appropriate Method. As the assessee company is deriving its income from providing ITeS, the pre-defined sets are selected accordingly in the PROWESS IQ and applied the filters viz., FY not ending March, More than 1 cr Sales, loss making companies (any 2 years), RPT(less than 25%), employee cost (more than 60%), export turnover (more than 75%) & similar products filters to determine the functionally similar comparable companies. The independent search conducted by the TPO has resulted in 13 comparable companies. The 3 year weighted average margin of the comparable companies and range for determination of arm’s length is tabulated at page 4 and 5 of the TPO’s order. After considering the reply of the assessee dated 29.08.2023 against show- cause notice issued on 06.09.2023 to benchmark the international transactions as disclosed in Form 3CEB by applying the median (11.93%) of the comparables, the TPO determined the ALP of the assessee’s international transactions related to Provision of BPO & IT services at ₹.19,56,45,835/- and proposed for an upward adjustment of ₹.2,00,48,645/- to transaction related to provision of IT services and concluded TPO’s order under section 92CA(3) of the Act dated 13.10.2023. 3. The ld. AR made following gist of submissions: The short point for the consideration of Bench in the captioned appeal is relating to the correctness of the addition of Rs.2,00,48,645/- representing the transaction between the appellant's AE at USA, happened to be the holding company of the Indian entity M/s. Claritrics India P Ltd. The appellant, Indian entity provided support services to the AE at USA in developing software products in the healthcare sector. The appellant has challenged the decision of the TPO in rejecting its transfer pricing study on the ground of non-availability of financial statements of comparable companies in the public domain. The TPO's order was passed on 13.10.2023 in proposing the variation impacting the taxable total income computation after issuing the show cause notice/letter on 06.10.2023 and proceeded to pass the order without referring Printed from counselvise.com 4 IT (TP)A No.84/Chny/24 to the response filed in relation thereto (refer Para 4 of Para 6.1 /Page 272 of the Paper book). The response was filed on 13.10.2023 and the acknowledgement generated therefor is available in Page 265 of the Paper book and the said response is also placed on record from Page 266. Effectively, the objections on the selection of fresh comparables taken by the TPO are not considered and further rejection of the comparables furnished by the appellant is also not backed by sound reasoning. The defiance of Principles of Natural Justice was also raised before the DRP (refer Page 339 of the Paper book / Para 2.0) and the appellant in this factual matrix pleaded for setting aside the orders passed by the lower authorities by placing this matter before the TPO for reasonable opportunity to the appellant for putting across its case effectively. In such circumstances, it is pleaded for the remand of the entire matter to the file of the TPO with specific directions for granting of reasonable opportunity of hearing by setting aside the orders passed by the lower authorities and accordingly it is prayed for appropriate order to the said effect in the interest of justice. 4. On the other hand, the ld.DR has fairly conceded that the matter may be remanded to the file of the TPO to consider the company details regarding their operation as was submitted on 13.10.2023. 5. We have heard both the parties and considered relevant material available on record. As per page 265 of the paper book, we find that the Assessee has uploaded its response to the notice dated 06.10.2023 vide acknowledgement No. 406648361131023. However, the TPO has concluded order under section 92CA(3) of the Act dated 13.10.2023 itself, thereby, the TPO had no occasion to consider the submissions of the assessee in response to his notice dated 06.10.2023. Under the above facts and circumstances of the case, we remand the matter to the file of the TPO to rework the Arm’s Length Price of the international transactions after considering the submissions made vide its response dated 13.10.2023. Printed from counselvise.com 5 IT (TP)A No.84/Chny/24 6. In the result, the appeal of the Assessee is treated as allowed for statistical purposes. Order pronounced on 4th August, 2025. Sd/- Sd/- (अिमताभ शुƑा) (मनु क ुमार िगįर) (Amitabh Shukla) (Manu Kumar Giri) लेखा सद᭭य / Accountant Member Ɋाियक सद˟/ Judicial Member चेɄई Chennai; िदनांक Dated : 04-08-2025 Vm/- आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ/Assessee 2. ŮȑथŎ/Revenue 3. आयकरआयुƅ/CIT Chennai/Madurai 4. िवभागीय Ůितिनिध/DR 5. गाडŊ फाईल/GF Printed from counselvise.com "