2015 (10) TMI 2425 - AT - Income Tax

Transfer pricing adjustment - selection of comparable - Held that - Following the decision of the Mumbai Bench of the ITAT in the case of Tevapharma Pvt. Ltd. (2011 (12) TMI 284 - ITAT MUMBAI) and of the co-ordinate benches of this Tribunal in the case of Millipore India Pvt. Ltd. (2014 (10) TMI 505 - ITAT BANGALORE), Apotex Research Pvt. Ltd. (2012 (11) TMI 1094 - ITAT BANGALORE) and the assessee s own case for Assessment Year 2007-08 we direct the Assessing Officer / TPO to exclude this company i.e. Oil Field Instrumentation India Ltd. and Celestial Biolabs Ltd. from the list of comparable to the assessee in the case on hand.

Issues Involved:
1. Legal issues related to Transfer Pricing.
2. Computation of Arm's Length Price (ALP).

Detailed Analysis:

1. Legal Issues Related to Transfer Pricing:

The appellant raised several legal issues concerning the procedural and substantive aspects of the Transfer Pricing assessment:

- Bad in Law: The appellant contended that the order passed was "bad in law."
- Principles of Natural Justice: The appellant argued that the order was passed disregarding the principles of natural justice.
- Reference to TPO: The appellant challenged the necessity and expediency of the reference made to the Transfer Pricing Officer (TPO) for determining the arm's length price (ALP).
- Motive of Tax Evasion: The appellant claimed that there was no demonstration that the appellant had a motive of tax evasion.
- Charging or Computation Provisions: The appellant argued that the charging or computation provisions related to income under the head "Profits & Gains of Business or Profession" do not refer to or include amounts computed under Chapter X, making the addition under Chapter X bad in law.

However, these grounds were not pressed during the appeal and were rendered infructuous and dismissed.

2. Computation of Arm's Length Price (ALP):

The appellant raised several issues related to the computation of ALP:

- Transfer Pricing Adjustment: The appellant contested the transfer pricing adjustment of Rs. 13,74,069.
- Data for Comparables: The appellant argued against the computation of the ALP based on the data for the financial year 2007-08 of the comparables, which was not available when the appellant undertook transfer pricing documentation and reporting obligations.
- Fresh Transfer Pricing Analysis: The appellant challenged the fresh transfer pricing analysis and the adoption of inappropriate filters.
- Selection of Comparables: The appellant contended that inappropriate comparables were selected and unjustifiably rejected the comparables selected by the appellant.
- Operating Margins: The appellant argued against the inappropriate computation of the operating margins of the comparables and the appellant.
- Adjustments for Differences: The appellant claimed that proper adjustments for enterprise-level and transactional-level differences in determining the ALP were not made.
- Minimum Comparables: The appellant argued that the law does not compel adopting many (or any minimum) companies as comparables and that the appellant could justify the price paid/charged on the basis of any one comparable only.
- Benefit of +/-5% Range: The appellant contended that the benefit of the +/-5% range mentioned in the proviso to section 92C(2) was not allowed.

Specific Comparables:

The appellant pressed for the exclusion of two specific companies from the TPO's list of comparables:

- Oilfield Instrumentation India Ltd.: The appellant argued that this company is engaged in activities like mud logging, gas detection, horizontal, MWD, and directional drilling, rig instrumentation, etc., which are functionally dissimilar to the appellant's R&D services in the Agro Chemical Industry. The Tribunal agreed and directed the exclusion of this company from the list of comparables, citing previous decisions in similar cases.

- Celestial Biolabs Ltd.: The appellant contended that this company is engaged in diverse activities like software development services, bioinformatics, and manufacturing and trading of products, making it functionally different from the appellant. The Tribunal agreed and directed the exclusion of this company from the list of comparables, following previous decisions in similar cases.

Conclusion:

The Tribunal partly allowed the appeal, directing the exclusion of Oilfield Instrumentation India Ltd. and Celestial Biolabs Ltd. from the list of comparables, thereby addressing the appellant's concerns regarding the computation of the ALP. The other grounds raised by the appellant were not pressed and were dismissed as infructuous. The order was pronounced in the open court on 24th Sept., 2015.

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