2018 (4) TMI 1479 - HC - Income Tax

ALP determination u/s 92CA - selection / exclusion of comparable - functional dissimilarity - assessee objected to the inclusion of that concern on the ground that it reported high profits - Held that - no segmental data with respect to the disparage income schemes of Brescon Corporate Advisors Ltd. was available. - the exclusion of Brescon Corporate Advisors Ltd. does not per se result in any error of law. In case of another company, the ITAT took note of the fact that the profitability of M/s Keynote Corporate Services arose unusual to 185% from the reported level of 94%. - ITAT noted that, There is no estoppel against the assessee from demonstrating that a particular comparable was wrongly included in earlier year and, therefore, it should be excluded in this year. - the findings of the ITAT cannot be faulted.

Summary

Issues:
1. Inclusion of Brescon Corporate Advisors Limited as a comparable for ALP determination.
2. Exclusion of Keynote Corporate Services Ltd. as a comparable.

Issue 1: Inclusion of Brescon Corporate Advisors Limited as a comparable for ALP determination:

The Revenue's appeal concerns the inclusion of Brescon Corporate Advisors Limited as a comparable for ALP determination under Section 92CA of the Income Tax Act. The contention is that the ITAT's finding was solely based on a previous decision without proper analysis of functional dissimilarity. The Court noted that the assessee did not seek exclusion based on functional dissimilarity but objected due to reported high profits. The exclusion of Brescon Corporate Advisors Ltd. was upheld as it did not result in any error of law. The Court referenced previous judgments to support this decision.

Issue 2: Exclusion of Keynote Corporate Services Ltd. as a comparable:

The second question of law raised was regarding the exclusion of Keynote Corporate Services Ltd. as a comparable. The ITAT found that the profitability of Keynote Corporate Services had risen unusually, and the impact of amalgamation with another entity was directed to be reconsidered. The ITAT rejected the cross objection filed by the department, directed the Assessing Officer to address pending issues, and emphasized the relevance of FAR analysis in transfer pricing cases. The ITAT also directed for the exclusion of Brescon Corporate Advisors Limited from the list of comparables. Various other issues related to operating incomes, directors' payments, and severance costs were discussed, with the appeal being partly allowed based on the circumstances presented.

In conclusion, the High Court dismissed the appeals, upholding the decisions regarding the inclusion and exclusion of comparables for ALP determination and addressing various related issues in detail.