2013 (4) TMI 486 - HC - Income Tax

Determination of Arms Length Price - Whether Tribunal was correct in holding that comparable selected by the TPO were not functionally comparable while determining ALP - Held that - In the impugned order the Tribunal has in detail pointed out why the selected comparables are not proper and failure of the assessing officer to consider the objections of the assessee - In this view of the matter, we see no reason to entertain the Appeal. Whether Tribunal was correct in allowing safe harbor margin of ( /-) to the assessee - Held that - It becomes academic as if the eight comparables selected by the TPO are found not to be functionally comparable then the difference between the operating margin of the respondent at 15.05% as against the 18.97% of comparable companies being within the range of / - 5% the amounts received by the respondent - Assessee is within the statutory limits. Therefore, we see no reason to entertain this appeal - Revenue s appeal is dismissed with no order as to costs.

Summary

Issues:
1. Determination of Arms Length Price (ALP) for investment advisory and related support services.
2. Selection of comparables for Transfer Pricing.

Analysis:
1. The primary issue in this case revolves around the determination of the Arms Length Price (ALP) concerning investment advisory and related support services provided by the respondent to its Associated Enterprises (AE) in Hong Kong. The Transaction Net Margin Method (TNMM) was acknowledged as the most appropriate method for determining the ALP. The dispute arose from the selection of comparables by the Transfer Pricing Officer (TPO), where the Revenue relied on eight additional comparables besides one common comparable. The TPO concluded that the ALP determined by the respondent was not acceptable due to a significant difference in variables exceeding 5%. However, the Tribunal, in its order, deemed the eight additional comparables as not functionally comparable with the respondent, thereby rejecting them. The Tribunal highlighted the reasons for this decision, emphasizing the failure of the assessing officer to address the objections raised by the assessee. Consequently, the Court dismissed the first question regarding the correctness of the comparables selected by the TPO.

2. The second issue pertained to the allowance of a safe harbor margin of (+/-) to the assessee. However, this question became moot in light of the Tribunal's ruling that the eight comparables selected by the TPO were not functionally comparable with the respondent. As a result, the difference in operating margins between the respondent and the comparable companies fell within the statutory range of +/ - 5%, rendering the amounts received by the respondent within acceptable limits. Therefore, the Court declined to entertain the second question. Ultimately, the appeal was dismissed with no order as to costs, concluding the matter.