M/S. RAGE COMMUNICATION PVT. LTD.,CHENNAI V. ACIT, CIRCLE-1, LTU, CHENNAI

ITTPA 69/CHNY/2024

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M/s. Rage Communication Pvt. Ltd., engaged in providing web services and digital solutions, appealed against the transfer pricing adjustment of 1,04,69,332 made to their international transactions with AEs in Singapore and Australia. The transactions involved payments for marketing support and after-sales services. The assessee had selected the Transactional Net Margin Method (TNMM) and considered the foreign AEs as the tested party, claiming their margins were comparable to foreign comparables. However, the TPO rejected this and adopted the assessee as the tested party, leading to the adjustment. The Tribunal, referencing a decision by the Madras High Court, found that the TPO had not properly considered the complexity of the entities involved and remitted the matter back to the TPO for a detailed examination.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 783579 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 04-11-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2021-2022
• Appeal Filed On: 29-10-2024
• Other Referred Cases: Virtusa Consulting Services (P.) Ltd. v. Dy. CIT (282 Taxman 95)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARV SREENIVASAN
• Assessee Lawyers: VIKRAM VIJAYARAGHAVAN
• Keywords: Opportunity of being heard; Transfer pricing; International transaction

Judgement Text

" आयकर अपीलीय अिधकरण, ’डी’ \u0001यायपीठ, चे ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH: CHENNAI \u0001ी एबी टी. वक , ाियक सद\u0011 एवं एवं एवं एवं \u0001ी अिमताभ शु\u0018ा, लेखा सद क े सम\u001b BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER IT (TP) A No.69/Chny/2024 िनधा\u000eरण वष\u000e/Assessment Year: 2021-22 M/s. Rage Communication Pvt. Ltd., Old No.40, New No.97, Minerva Santhome High Road, R.A.Puram, Chennai-600 028. v. The ACIT, Circle-1, LTU, Chennai. [PAN: AAACR 3086 Q] (अपीलाथ\u0016/Appellant) (\u0017\u0018यथ\u0016/Respondent) अपीलाथ\u0016 क\u001a ओर से/ Appellant by : Mr.Vikram Vijayaraghavan, Advocate \u0017\u0018यथ\u0016 क\u001a ओर से /Respondent by : Mr. ARV Sreenivasan, CIT सुनवाईक\u001aतारीख/Date of Hearing : 23.09.2025 घोषणाक\u001aतारीख /Date of Pronouncement : 04.11.2025 आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the assessment order dated 30.08.2024 vide DIN No. ITBA/AST/S/143(3)/2024- 25/1068160140(1) for AY 2021-22. Printed from counselvise.com IT (TP) A No.69/Chny/2024 (AY 2021-22) M/s. Rage Communication Pvt. Ltd. :: 2 :: 2. The brief facts are that, the assessee is engaged in providing web services to various clients and delivering multitude of digital solutions. They are also engaged in designing, development and maintenance of web sites and E-commerce online software applications. For AY 2021-22, the assessee had filed return of income on 24.01.2022 declaring total income at ₹2,63,17,610/-. The case was selected for scrutiny under CASS and a notice u/s. 143(2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘) was issued and served upon the assessee. A reference u/s.92CA of the Act was made to the TPO after obtaining the approval of the Ld. Pr. CIT for determination of Arm's Length Price (ALP) with reference to all the international transactions reported by the assessee. The TPO vide order u/s. 92CA(3) of the Act dated 17/10/2023 proposed adjustment(s) of ₹1,04,69,332/-. Thereafter, the AO passed a draft assessment order u/s.144C(1) of the Act was passed on 11.11.2023 determining the total income of ₹3,67,87,382/-. Pursuant to the AO passing the draft assessment order, the assessee filed its objections before the DRP. The DRP by order dated 26.07.2024 rejected the objections of the assessee and therefore the additions/adjustments proposed in the draft assessment order was retained in the final assessment order dated 30.08.2024 passed u/s.143(3) r.w.s. 144C(13)/144B of the Act. Printed from counselvise.com IT (TP) A No.69/Chny/2024 (AY 2021-22) M/s. Rage Communication Pvt. Ltd. :: 3 :: 3. Aggrieved, the assessee is in appeal before this Tribunal. 4. In the several grounds raised in the appeal, the assessee has objected to the transfer pricing adjustment of ₹1,04,69,332/- made to the international transaction involving payment for provision of marketing support and after-sales support services by the assessee to their AEs, Rage Singapore and Rage Australia. The assessee is noted to have selected the Transactional Net Margin Method (hereinafter referred to as ‘TNMM’) as the Most Appropriate Method and considered the AEs i.e. Rage Singapore & Rage Australia as the tested party for benchmarking the Arm’s Length Price (ALP) of the international transaction. The assessee is noted to have identified a set of foreign comparables and claimed that, the margin of the tested party i.e. the AEs was commensurate with that of the foreign comparables. The TPO is noted to have issued several notices calling for details and thereafter issued a show cause notice for rejecting the adoption of the foreign AEs as the tested party, which was followed by multiple corrigendums to the original show cause notice. Rejecting the explanation furnished by the assessee, the TPO is noted to have adopted the assessee as the tested party which led to the impugned transfer pricing adjustment. Printed from counselvise.com IT (TP) A No.69/Chny/2024 (AY 2021-22) M/s. Rage Communication Pvt. Ltd. :: 4 :: 5. Heard both the parties. At the onset, the Ld. AR of the assessee submitted that, the TPO was unjustified in outrightly rejecting the selection of foreign AEs as tested party and that he ought to have objectively considered the same and thus wants us to remit the matter back to the TPO for consideration afresh. For this, he invited our attention to the decision of the Hon'ble Madras High Court in the case of Virtusa Consulting Services (P.) Ltd. v. Dy. CIT (282 Taxman 95) wherein the Hon'ble High Court has, in principle, held that, a tested party is normally the one which is least complex party to the controlled transaction. In the ultimate analysis, the Hon'ble High Court sent the matter back to the TPO by observing that: 'The issue regarding the assessee's plea to consider foreign AE as tested party to determine the Arm's Length nature of the underlying international transactions stands remanded to the Transfer Pricing officer for a fresh decision on merits and in accordance with law ...'. As it is a binding judgment of the Hon'ble jurisdictional High Court on the question as to whether a foreign/AE can be taken a tested party for benchmarking, we agree with the Ld. AR that, the outright rejection of the Rage Singapore & Rage Australia as a tested party on the ground that a foreign/AE can never be a tested party, cannot be countenanced. As the Hon'ble High Court has itself held that, the least complex entity to a transaction should be adopted as a tested party, and for analysis it sent the matter back to the lower authority, according to Printed from counselvise.com IT (TP) A No.69/Chny/2024 (AY 2021-22) M/s. Rage Communication Pvt. Ltd. :: 5 :: us, in the present case also, the first exercise which is required to be undertaken is to identify as to which out of the entities to the transaction(s) - the assessee or Rage Singapore/ Rage Australia - is least complex in the present case. 6. We find that, there is no definition of a 'tested party' in the Indian Transfer pricing provisions. The OECD guidelines in this regard emphatically provide that, 'As a general rule, the tested party is the one to which a transfer pricing method can be applied in the most reliable manner and for which the most reliable comparables can be found, i.e. it will most often be the one that has the less complex functional analysis.' Further, as per the UN Manual, a tested party should have the following attributes, namely, availability of reliable and accurate data for comparison; least Complex (amongst the parties to the transaction); and the data available can be used with minimal adjustments. It further provides that, the choice of a tested party should be consistent with the functional analysis of the transaction, and the characterization of the entities. The tested party generally would be the less complex party to the controlled transaction but at the same time, it should also be the party in respect of which most reliable data for comparability is available. 7. It, ergo, clearly transpires that selection of a tested party primarily depends upon two factors, viz., the least complex entity and availability of Printed from counselvise.com IT (TP) A No.69/Chny/2024 (AY 2021-22) M/s. Rage Communication Pvt. Ltd. :: 6 :: suitable comparables. This coincides with the normal ALP determination process envisaged under the Act, as per which we find out the value or PLI etc. of/from the international transaction in the hands of the assessee as a first step and then the value or the PLI etc. of comparables as a second step. The first step under the Act is similar to the first factor of finding out the least complex entity as per the OECD guidelines and the UN Manual and the second step of finding out comparables under the Act matches with the second factor of the availability of suitable comparables. According to us, both these aspects are relevant and decisive for undertaking a valid benchmarking exercise. 8. Reverting back to the facts of the present case, we find that, the above exercise was not undertaken by the lower authorities before rejecting foreign AEs as the tested party. Hence, in the fitness of matters and fairness to both parties, we remit the impugned issue to the file of TPO/AO to first ascertain whether the assessee or the foreign AEs is the least complex entity and which entity can be treated as a tested party, in light of the ratio decidendi laid down by the Hon’ble Madras High Court (supra), and if the foreign AEs satisfies the same, then whether reliable data and availability of suitable comparables is there, for undertaking a valid benchmarking exercise. The assessee is directed to submit all relevant evidences and documents to establish functional profile and risks assumed by its AEs along with all relevant details/documentation to Printed from counselvise.com IT (TP) A No.69/Chny/2024 (AY 2021-22) M/s. Rage Communication Pvt. Ltd. :: 7 :: support their benchmarking exercise. Needless to say, the TPO shall allow the assessee adequate opportunity of being heard in this regard. These grounds of appeal are allowed for statistical purposes. 9. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced on the 04th day of November, 2025, in Chennai. Sd/- (अिमताभ शु\u0018ा) (AMITABH SHUKLA) लेखा सद\u0003य/ACCOUNTANT MEMBER Sd/- (एबी टी. वक ) (ABY T. VARKEY) \u0005याियक सद\u0003य/JUDICIAL MEMBER चे ई/Chennai, !दनांक/Dated: 04th November, 2025. TLN आदेश क\u001a \u0017ितिलिप अ$ेिषत/Copy to: 1. अपीलाथ /Appellant 2. \u000e\u000fथ /Respondent 3. आयकरआयु\u0015/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय\u000eितिनिध/DR 5. गाड फाईल/GF Printed from counselvise.com "