2019 (9) TMI 1337 - AT - Income Tax

TP Adjustment - comparable selection - HELD THAT - There cannot be a pick and choose of comparables every year unless there are some material difference in facts and circumstances compelling to take a different conclusion. Company cannot be excluded from the comparable list merely for the reason of low turnover especially when no turnover filter was applied by either party. Assessee is into investment advisory services thus comparables selected should be functionally similar with that of assessee. We direct the TPO to benchmark the assessee margin with the final list of comparable companies by including ICRA Management Consulting Services Limited and Kinetic Trust Limited in the final list of comparable companies and if it is found that they are within the range of 5% the entire adjustment should be deleted. Appeal of the assessee is allowed as indicated above.

Summary

Issues Involved:
1. Determination of Arm's Length Price (ALP) for international transactions.
2. Rejection of comparable companies by the Transfer Pricing Officer (TPO) and Dispute Resolution Panel (DRP).
3. Use of contemporaneous and multiple year data.
4. Application of ±5% variation from the ALP.

Issue-wise Detailed Analysis:

1. Determination of Arm's Length Price (ALP) for International Transactions:
The primary issue in this appeal is the determination of the ALP for the international transaction of investment advisory services rendered by the assessee to its Associate Enterprises (AE). The assessee argued that the ALP determined by them should have been accepted as the jurisdictional pre-condition in section 92C(3) of the Act was not fulfilled by the TPO.

2. Rejection of Comparable Companies by the TPO and DRP:
The TPO and DRP rejected the comparable companies selected by the assessee, namely Access India Advisors Limited, ICRA Management Consulting Services Limited, and Kinetic Trust Limited. The assessee contended that in its own case for the A.Y. 2010-11, the Tribunal had directed the inclusion of ICRA Management Consulting Services Limited and Kinetic Trust Limited as comparable companies. The Tribunal had previously held that ICRA Management Consulting Services Limited and Kinetic Trust Limited are functionally similar to the assessee and should be included in the comparability analysis.

3. Use of Contemporaneous and Multiple Year Data:
The assessee argued that the TPO erred in relying only on single-year data (for the year ended 31 March 2009) instead of using contemporaneous and multiple-year data available at the time of filing the return of income. The Tribunal did not explicitly address this issue in the judgment but focused on the inclusion of specific comparable companies.

4. Application of ±5% Variation from the ALP:
The assessee contended that the TPO failed to consider the ±5% variation from the ALP as permitted under section 92C(2) of the Act. The Tribunal directed that if the inclusion of ICRA Management Consulting Services Limited and Kinetic Trust Limited brought the arithmetic mean of the comparable companies within the ±5% range, the entire adjustment should be deleted.

Tribunal's Decision:
The Tribunal, after considering the rival submissions and perusing the orders of the authorities below, found that in the assessee’s own case for the A.Y. 2010-11, the Tribunal had directed the inclusion of ICRA Management Consulting Services Limited and Kinetic Trust Limited as comparable companies. The Tribunal reiterated that ICRA Management Consulting Services Limited and Kinetic Trust Limited should be included in the final list of comparable companies for the A.Y. 2009-10 as well.

The Tribunal directed the TPO to benchmark the assessee's margin with the final list of comparable companies, including ICRA Management Consulting Services Limited and Kinetic Trust Limited. If the assessee's margin falls within the ±5% range of the arithmetic mean of the comparable companies, the entire adjustment should be deleted.

Conclusion:
The appeal of the assessee was allowed, with the Tribunal directing the TPO to include ICRA Management Consulting Services Limited and Kinetic Trust Limited in the final list of comparable companies and to delete the entire adjustment if the assessee's margin falls within the ±5% range. The Tribunal's decision was pronounced in the open court on 30th September 2019.