2016 (3) TMI 1258 - AT - Income Tax

TPA - selection of comparable - Held that - Assessee was a 100% export-oriented unit and providing ITE services to its holding company in British Virgin Islands, thus companies functionally dissimilar with that of assessee need to be deselected from final list of comparable.

Summary

Issues:
Transfer Pricing - Exclusion of comparables considered by the TPO.

Detailed Analysis:

Issue: Transfer Pricing - Exclusion of comparables considered by the TPO
In this appeal, the assessee raised objections regarding the rejection of certain comparables by the Transfer Pricing Officer (TPO). The assessee, an export-oriented unit providing IT services, adopted the Transactional Net Margin Method (TNMM) for justifying the price of its international transactions. The TPO applied filters like Related Party Transactions (RPT), insignificant ITES segment, and absence of data in the public domain to arrive at a list of ten comparables. The TPO recommended a final adjustment of Rs. 54,46,46,045 based on the Arm's Length Mean Margin on cost. The assessee moved the Dispute Resolution Panel (DRP) against the TPO's recommendations. The DRP excluded five comparables from the list but did not accept the objection regarding Accentia Technologies Ltd. The assessee argued that Accentia Technologies Ltd. should be excluded due to functional dissimilarity, citing previous Tribunal decisions. The coordinate bench's decision in Novo Nordisk India P. Ltd v. DCIT supported the exclusion of Accentia Technologies Ltd. from the list of comparables in the ITES segment. The DRP did not accept the assessee's contentions regarding Accentia Technologies Ltd, leading to the inclusion of the company as a comparable by the Assessing Officer (AO). The Tribunal noted that the exclusion of Accentia Technologies Ltd. and four other comparables directed by the DRP left only four companies in the list, which was considered insufficient for an effective TP study. Therefore, the Tribunal directed the exclusion of Accentia Technologies Ltd. from the list of comparables. The appeal was partly allowed, and the Tribunal pronounced the order on March 9, 2016.

This detailed analysis covers the issues related to the exclusion of comparables considered by the TPO in the transfer pricing assessment. The summary provides a comprehensive understanding of the legal judgment, including the arguments presented, the decisions made by the authorities, and the final outcome of the appeal.