PYRAMID IT CONSULTING P LTD V. ADDITIONAL COMISSIONER OF INCOME TAX,

W.P.(C)/5198/2019

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The case involves Pyramid IT Consulting P Ltd, which is engaged in providing IT solutions and staffing services, and the Additional Commissioner of Income Tax concerning a Transfer Pricing Adjustment for the staffing segment. The TPO had recommended an adjustment based on the comparable HCCA Business Services Pvt. Ltd., which the Assessee contested due to functional differences. The ITAT upheld the TPO's decision, leading the Assessee to file a writ petition and an appeal in the High Court. The court found that the ITAT had overlooked significant functional differences and previous rulings, leading to the decision to remand the matter back to the TPO for a fresh assessment.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 686062 (HC-DELHI)
• Appeal Type: Others
• Pronouncement Date: 14-05-2019
• Assessment Year: misc
• Other Referred Cases: LG Chemicals India Pvt. Ltd. v. ACIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: VIBHOOTI MALHOTRA; SHAILENDRA SINGH; SACHIN YADAV; BHUVNESHWAR RATHORE
• Assessee Lawyers: SAUBHAGYA AGARWAL; ASHUTOSH RASTOGI; DHRUV SETH
• Keywords: Arm's Length Price; Comparable; Functional Profile; International Transactions; Transfer Pricing Adjustment
• Section: 254(2); 115-JB

Judgement Text

"$-72 & 78 * IN THE HIGH COURT OF DELHI AT NEW DELHI 72 + W.P.(C) 5198/2019 PYRAMID IT CONSULTING P LTD Petitioner Through: Mr.Saubhagya Agarwal, Advocate with Mr.Ashutosh Mohan Rastogi and Mr.Dhruv Seth, Advocates. versus ADDITIONAL COMISSIONER OF INCOME TAX, Respondent Through: Ms.Vibhooti Malhotra, Mr.Shailendra Singh, Mr.Sachin Yadav and Mr.Bhuvneshwar Singh Rathore, Advocates. 78+ ITA1289/2018 PYRAMID IT CONSULTING P.LTD. Appellant Through: Mr.Saubhagya Agarwal, Advocate with Mr.Ashutosh Mohan Rastogi and Mr.Dhruv Seth, Advocates. versus ADDITIONAL COMMISSIONER OF INCOME TAX, Respondent Through: Ms.Vibhooti Malhotra, Mr.Shailendra Singh, Mr.Sachin Yadav and Mr.Bhuvneshwar Singh Rathore, Advocates. CORAM: JUSTICE S.MURALIDHAR JUSTICE I.S.MEHTA W.P. (C) 5198/2019 & ITA 1289/2018 Page 1 of 6 Signed By:RAM DATT Signing Date:15.10.2024 16:15 Certify that the digital and physical file have been compared and the digital data is as per the physical file and no page is missing. Signature Not Verified r\" ORDER % 14.05.2019 1. Notice. Learned counsel for the Respondent accepts notice. > 2. Both these matters concern a common issue regarding Transfer Pricing Adjustment for the international transaction involving the Petitioner/Appellant which is headquartered in the United States of America and is engaged in the business of providing value added IT Solutions and IT staffing services to global companies including growing mid-tier firms. The Appellant claims that it is primarily engaged in the provision of contract software development ('CSD segment') and recruitment/manpower services. However, the present cases concern the issue of transfer pricing for its staffmg segment. 3. For Assessment Year (AY) 2010-2011 the Assessee filed a return declaring an income of Rs. 32,79,820/- and paid tax under section 115 JB on a book profit of Rs 1,76,61,244/-. 4. The Assessing Officer ('AO') after noting that there were international transactions entered into by the Assessee with its Associated Enterprises, referred the case to the Transfer Pricing Officer ('TPO') for determining the arm's length price ('ALP') of the said international transactions. 5. Admittedly before the TPO as part of the Transfer Pricing Study, the Assessee had put forth two comparables as regards the staffmg segment. Both these comparables were rejected by the TPO. On the other hand, the W.P.(C) 5198/2019 & ITA 1289/2018 Page 2 of 6 TPO introduced another comparable i.e. HCCA Business Services Pvt. Ltd. (hereafter 'HCCA') and after determining that the margin of the said comparable was 20.05% recommended an adjustment of Rs.1,03,61,078/- on the staffing services segment earnings of the Assessee. 6. Aggrieved by the said order of the TPO, the Assessee went before the Dispute Resolution Panel (DRP) which by its decision dated 27 October 2014 upheld the order of the TPO. 7. The Assessee then went before the Income Tax Appellate Tribunal (ITAT) which by the order dated 11^*^ July 2018 rejected the Assessee's contention that HCCA was not a comparable as it was fimctionally different. The Assessee then filed MA No.632/Del/2018 before the ITAT under Section 254 (2) of the Act pointing out that in its order dated 11^^ July 2018 the ITAT had noted that HCCA owns 'intangibles' and yet it was not excluded as a comparable. The case of the Assessee was that a company owning intangibles like HCCA could not be compared with the Assessee which admittedly does not own intangibles. The Assessee pointed out that it had placed before the ITAT the decision dated 3'\"^ May 2016 of the ITAT itself in LG Chemicals India Pvt. Ltd. v. ACIT where the same comparable i.e. HCCA had been excluded since it had a different functional profile from the Assessee in that case. It was pointed out that the said decision was not even discussed by the ITAT in its order dated 11^ July 2018. 8. The said MA was dismissed by the ITAT by its order dated 25^*^ March 2019. It is against the said order that W.P. (C) 5198/2019 has been filed by W.P.(C) 5198/2019 & ITA 1289/2018 Page 3 of 6 the Assessee. 9. Ms. Vibhooti Malhotra, learned counsel for the Revenue, submitted that the mere exclusion or inclusion of a comparable for the purposes of Transfer Pricing Adjustment does not give rise to any substantial question of law and this has been the settled legal position as explained in several decisions of this Court as well as other High Courts. 10. While it is correct that the mere exclusion or inclusion of a comparable may not per se give rise to any substantial question of law, in the present case the Court finds that the only comparable on the basis of which the Transfer Pricing Adjustment has been recommended by the TPO is HCCA. The two comparables proposed by the Assessee have been excluded by the TPO. These two comparables were Ma Foi Management Consultants Ltd. and Overseas Manpower Corporation Ltd. The Court further finds that when the matter went before the DRP, another comparable was introduced by the DRP viz., Nirbhay Management Services Pvt. Ltd. However even the DRP picked up only HCCA for upholding the Transfer Pricing Adjustment as proposed by the TPO. In that view of the matter it cannot be said that the. impugned order of the ITAT does not give rise to any substantial question of law. 11. Admit (as far as the appeal is concerned). 12. The question of law that arises for determination in the appeal is whether the ITAT was justified in upholding the exclusion of the comparables W.P. (C) 5198/2019 & ITA 1289/2018 Page 4 of 6 suggested by the Assessee and in approving the TP adjustment as proposed by the TPO only on the basis of one comparable objected to by the Assessee on account of it being functionally different from the Assessee? 13. It appears that in the impugned order dated 11^*^ July 2018 of the ITAT there is no discussion of its earlier order in LG Chemicals India Pvt. Ltd. where it was held that a company owning intangibles carmot be compared with one which does not. Also, the order dated 25^*^ March 2019 passed by the ITAT rejecting MA No.632 clearly notes that the agreements referred to in the audit report concerning HCCA were not before the ITAT. The ITAT appears to have overlooked the Assessee's objections to inclusion of HCCA which according to the Assessee was only providing pay roll processing services. The difference in functionality of the Assessee and HCCA was not discussed by the ITAT. 14. Since the entire TP Adjustment has hinged only on one comparable, viz., HCCA the objection to the inclusion of which by the Assessee required a detailed consideration, the Court is of the view that the impugned order dated 11\"^ July 2018 of the ITAT cannot be sustained in law. The question of law is accordingly answered in the negative i.e. in favour of the Assessee and against the Revenue. 15. The Court notes that in the impugned order, the ITAT has remanded to the TPO the consideration of one of the comparables proposed by the Assessee viz.. Ma Foi Management Consultants Ltd. and one other as suggested by the DRP i.e. Nirbhay Management Services Pvt. Ltd. W.P.(C) 5198/2019 & ITA 1289/2018 Page 5 of 6 16. The Court is of the view that the entire issue of determining the TP adjustment if any in respect of the transactions in the staffing segment of the Assessee should be considered afresh by the TPO uninfluenced by his earlier order. (..J f7. Accordingly while setting aside the orders dated 11^^ July 2018 and 25^*^ March 2019 of the ITAT and the corresponding orders dated 2^^ January 2014 of the TPO and 27^'' October 2014 of the DRP, this Court remands the entire issue of determining the TP adjustment if any in respect of the transactions in the staffing segment of the Assessee to the TPO for a fresh determination. The TPO will examine afresh the question of inclusion and/or exclusion of comparables as proposed by the Assessee and the Revenue. 18. The writ petition and appeal are disposed of in the above terms. S. MURALIDHAR, J. I.S. MEHTA, J. MAY 14, 2019 sr W.P.(C) 5198/2019 & ITA 1289/2018 Page 6 of 6 "