2017 (11) TMI 266 - HC - Income Tax

TPA - comparables selection criteria - Held that - The assessee was engaged in software development services which were provided to its AE, thus companies functionally dissimilar with that of assessee need to be deselected from final list.

Summary

Issues Involved:
1. Whether the deletion of 16 comparables proposed by the Transfer Pricing Officer (TPO) in the ALP determination for AY 2007-2008 is erroneous.

Analysis:

Issue 1:
The primary question in this case revolves around the correctness of the deletion of 16 comparables by the Transfer Pricing Officer (TPO) during the assessment for AY 2007-2008 in the Arms Length Price (ALP) determination for the assessee. The TPO initially retained 10 comparables out of 55 entities compared by the assessee. Subsequently, additional companies were included, totaling 26 comparable entities for the ALP determination. The TPO calculated the Profit Level Indicator (PLI) at 124.51% of the operating cost, resulting in a transfer pricing adjustment recommendation under Section 92CA. The Dispute Resolution Board (DRP) left the TPO's decision undisputed, leading to the final assessment by the Assessing Officer (AO) on 29.08.2011.

Issue 1 - Continued:
The assessee appealed to the Income Tax Appellate Tribunal (ITAT) citing a previous decision in Hewlett Packard India Global Soft Pvt. Ltd. vs. DCIT. The ITAT, after considering submissions, found the functional profile of the assessee to be identical to Hewlett Packard India Global Soft Pvt. Ltd., thereby supporting the inclusion of comparables in the ALP determination. The Revenue contended that the ITAT erred in blindly following the previous ruling without reevaluating the functional profiles of the entities. However, the Court found the Revenue's arguments unsubstantial as the ITAT had conducted a detailed analysis, refuting the need for a fresh determination of comparables' identities.

Issue 1 - Continued:
The Court emphasized that a blind application of precedent is not sufficient grounds for exclusion or inclusion of comparables without factual analysis. In this case, the ITAT's extensive review of the comparables in the previous ruling demonstrated a thorough factual and functional analysis. Consequently, the Court concluded that no substantial question of law arose, leading to the dismissal of the appeal.

This detailed analysis of the judgment highlights the intricacies of the case, focusing on the core issue of the deletion of comparables in the ALP determination and the subsequent legal reasoning provided by the Court to support its decision.