2015 (1) TMI 6 - AT - Income Tax

Transfer pricing adjustment Selection of comaprables - Assessee into the business of rendering technical help desk for end users Held that - Assessee has rightly submitted that if the above four entities are excluded from the final list of comparables for the purpose of comparability analysis, the Arithmetic Mean Margin of the remaining eight comparables would come to around 17% and the same being lower than the profit margin charged by the assessee company to its AE in the relevant international transactions, no addition on account of TP adjustment is required to be made in the case of the assessee the AO/TPO is directed to verify the claim of the assessee by re-computing the Arm s Length Price of the international transactions of the assessee company with its AE after excluding the four entities form the list of final comparables Decided in favour of assessee. Computation of deduction u/s 10A - Mistake in taking the amount of book profits or not Held that - The assessee has only sought a direction from the Tribunal to the AO to verify the relevant mistake from the record and rectify the same - Since the revenue has no objection in this regard, the AO is directed to verify from the record the mistake pointed out by the assessee Decided in favour of assessee.

Summary

Issues:
1. Transfer Pricing Adjustment of Rs. 1,54,40,203.

Detailed Analysis:

Transfer Pricing Adjustment:
The appeal concerns the addition made to the assessee's total income due to Transfer Pricing Adjustment. The assessee, a company wholly owned by a US entity, provided call center services to its associated enterprise (AE) for a total amount of Rs. 19,57,78,715. The Transfer Pricing Officer (TPO) selected 12 companies as comparables, with an Arithmetic Mean of their Operating Profit to Total Cost (OP/TP) at 27.42%. After adjustments, the TPO determined the Arm's Length Price at Rs. 21,10,63,951, resulting in a TP adjustment of Rs. 1,52,85,215. The Dispute Resolution Panel upheld the TPO's actions, leading to the addition of the adjustment to the total income. The assessee challenged the selection of comparables, seeking exclusion of six entities, citing precedents where similar exclusions were accepted by the Tribunal in earlier years.

The Tribunal agreed with the assessee's request to exclude four entities from the final list of comparables based on precedents and directed the Assessing Officer to recompute the Arm's Length Price after excluding these entities. This reevaluation could potentially eliminate the need for the TP adjustment. The Tribunal also addressed other issues raised by the assessee, directing the Assessing Officer to rectify mistakes related to the computation of deductions and levy of interest under specific sections. Consequently, the appeal was partly allowed, providing relief to the assessee on the Transfer Pricing Adjustment issue.

In conclusion, the Tribunal's detailed analysis and decision in this judgment highlight the complexities of Transfer Pricing Adjustments and the importance of proper comparability analysis in determining the Arm's Length Price for international transactions with associated enterprises. The judgment emphasizes the need for consistency in applying precedents and ensuring accurate computations to address issues related to TP adjustments effectively.