2016 (12) TMI 1827 - HC - Income Tax

TP Adjustment - comparability - whether Tribunal was justified in accepting the comparables merely on the basis that they have been considered comparable in earlier years? - HELD THAT - So far as ICRA Management Consulting Services Ltd. is concerned, the impugned order on examination of the functional profile held that it was comparable to the respondent-assessee for the subject Assessment Year. This was further supported by the fact that for the immediately preceding Assessment Year the parties had accepted ICRA Management Consulting Services Ltd. to be a comparable for the purpose of determination of arms length price. Therefore, as far as ICRA Management Consulting Services Ltd. is concerned no interference is called for. In the above view the appeal is admitted on the following re-framed substantial question of law Whether on the facts and in the circumstances of the case and in law the Tribunal was justified in accepting EDCIL as comparable to determine the arms length price in the face of rule 10B(4) of the Act only on the basis that for the earlier Assessment Year , the same were also used as comparable.

Summary

Issues:
1. Justification of accepting comparables based on earlier years
2. Acceptance of ICRA Management Consulting Services Ltd. as comparable
3. Acceptance of EDCIL as comparable based on earlier Assessment Year

Analysis:
The High Court of Bombay addressed the issue of accepting comparables based on earlier years. The Revenue contended that the Tribunal erred in accepting comparables without a detailed comparability analysis for the relevant financial year as required by Rule 10B(4) of the Income Tax Rules, 1962. Specifically, the grievance was against EDCIL (India) Ltd and ICRA Management Consulting Services Ltd. being considered comparable. The Court noted that the impugned order considered data of comparable companies for the subject Assessment Year and found ICRA Management Consulting Services Ltd. to be comparable based on its functional profile and previous acceptance as comparable in the preceding year. Therefore, the Court upheld the acceptance of ICRA Management Consulting Services Ltd. as comparable.

Regarding EDCIL, the Court reframed the substantial question of law to determine whether the Tribunal was justified in accepting EDCIL as comparable solely based on its use in the earlier Assessment Year. The Court directed the Registry to serve a copy of the order on the Income Tax Appellate Tribunal for further proceedings. The judgment highlighted the importance of conducting a detailed comparability analysis for the relevant financial year when selecting comparables for determining the arms length price, as mandated by Rule 10B(4) of the Income Tax Rules, 1962.