2016 (10) TMI 1048 - HC - Income Tax

Exclusion of the three comparables in the transfer pricing exercise conducted by the revenue - exclusion was on the ground that in respect of each comparable certain extraordinary events had occurred during the previous periods which distorted the profitability thereby increasing the margin. Held that - Quite apart from the fact that tribunal s findings cannot be characterised as unreasonable this court also notices that even if the figures of comparables were to be included no adjustment would be permissible due to the fact that the margin of variation would be within the limits of the Safe Harbour Provision embodied in the Rules framed by the board in exercise of its power under Section 92CA(3). In the circumstance no questions of law arises the appeal is dismissed.

Summary

Issues: Tenability of exclusion of comparables in transfer pricing exercise for AY 2010-2011

Analysis:
The primary issue in this case revolves around the exclusion of three comparables in the transfer pricing exercise conducted by the revenue for the assessee for the Assessment Year 2010-2011. The assessee had reported international transactions with its Associated Enterprise (AE) and included certain details and data of specific comparables in its transfer pricing report. However, the Transfer Pricing Officer (TPO) and the Dispute Resolution Panel (DRP) decided to include different comparables, leading to the exclusion of M/s Accentia Technologies, iGate Global Consultants Ltd, and Infosys BPO based on certain extraordinary events in previous periods distorting profitability and increasing margins.

The crux of the matter lies in the acceptance of the assessee's grievance regarding the exclusion of the three comparables in the appeal by the impugned order. The tribunal's decision to exclude these comparables was deemed reasonable, with the court further noting that even if the figures of these comparables were included, no adjustment would be permissible due to the margin variation falling within the limits of the "Safe Harbour Provision" outlined in the Rules framed by the board under Section 92CA(3). Consequently, the court found no questions of law arising from the case, resulting in the dismissal of the appeal.

In conclusion, the judgment emphasizes the importance of justifying the exclusion or inclusion of comparables in transfer pricing exercises, highlighting the significance of adhering to regulatory provisions such as the Safe Harbour Provision to determine the permissible margin variations. The decision underscores the need for thorough analysis and adherence to established guidelines in transfer pricing assessments to ensure fairness and compliance with legal standards.