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2016 (6) TMI 1265 - AT - Income TaxTPO - comparable selection criteria - Held that - The functional profile of the assessee is to provide specified procurement services to its foreign company Adidas Consultants Ltd. The nature of services have been brought out at para 8.1 and 8.2 of that order. A perusal of these demonstration that the functional profile of M/s Chemical & Metallurgical Design Co.Ltd. are totally different from the functional profile of the assessee company. Thus this company should be excluded as a comparable company for determining the ALP. The TPO/AO is directed accordingly.
Issues:
1. Adjustment in arm's length price of international transactions 2. Classification of functions of the assessee for selecting comparables 3. Rejection of economic analysis by the appellant 4. Making adjustments without specific findings under Section 92CA(3) 5. Rejection of comparable company Ma Foi Global Services 6. Errors in using single year data and determining arm's length margins 7. Rejection of Ma Foi Global Services based on negative net worth filter 8. Rejection of certain comparable companies based on turnover criteria 9. Inclusion of functionally dissimilar companies in the set of comparables 10. Failure to make adjustments for differences in risk profiles 11. Incorrect application of proviso to Section 920(2) for arm's length price determination 12. Allegations of furnishing inaccurate particulars of income and penalty proceedings initiation Analysis: 1. The appeal challenges the addition of INR 2,11,15,791 to the total income of the Assessee due to adjustments in the arm's length price of international transactions. The Assessee contests the decision made by the Deputy Commissioner of Income-tax, Transfer Pricing Officer, and Dispute Resolution Panel. 2. The Assessee disputes the classification of its functions as providing high value services and the selection of comparables in the same genre, arguing that it was erroneous. 3. The Assessee claims that the economic analysis undertaken was in accordance with the provisions of the Income Tax Act and Rules, challenging the rejection by the authorities. 4. The Assessee questions the adjustment made under Section 92CA(3) without specific findings as required by Section 92C of the Act. 5. The rejection of Ma Foi Global Services as a comparable company is contested by the Assessee based on accounting year differences. 6. Errors identified include the use of single year data instead of multiple years and determining arm's length margins based on data not available to the Appellant during compliance. 7. The rejection of Ma Foi Global Services due to an erroneous application of a negative net worth filter is challenged. 8. Certain comparable companies were rejected based on turnover criteria, which the Assessee argues was incorrect. 9. Functionally dissimilar companies were added to the set of comparables, which the Assessee contests. 10. The Assessee argues that suitable adjustments should have been made to account for differences in risk profiles between the Assessee and comparable companies. 11. Allegations include the incorrect application of the proviso to Section 920(2) for determining the arm's length price and the failure to allow the benefit of a downward variation. 12. The Assessee denies furnishing inaccurate particulars of income and challenges the initiation of penalty proceedings under relevant sections of the Act.
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