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2019 (7) TMI 550 - HC - Income TaxTP Adjustment - Comparable selection - excluding Axis as a comparable - HELD THAT - As pointed out by this Court in Rampgreen Solutions Pvt. Ltd. v. CIT 2015 (8) TMI 931 - DELHI HIGH COURT comparability analysis by the transactional net margin method may be less sensitive to certain dissimilarities between the tested party and the comparables. However, that cannot be the consideration for diluting the standards of selecting comparable transactions/ entities. A higher product and functional similarity would strengthen the efficacy of the method in ascertaining a reliable arm's length price. Therefore, as far as possible, the comparables must be selected keeping in view the comparability factors as specified. Wide deviations in profit level indicator must trigger further investigations/ analysis In the present case the reasons given by the ITAT for excluding Axis as a comparable appear to be plausible and based on a detailed analysis of the different profiles of the Assessee and Axis. Consequently, the Court is not persuaded that the ITAT has erred in excluding Axis as a comparable. No substantial question of law arises.
Issues:
1. Delay in re-filing the appeal 2. Justification for excluding a company as a comparable in Transfer Pricing Analysis Delay in re-filing the appeal: The High Court condoned a delay of 109 days in re-filing the appeal and disposed of the application based on the reasons stated in the application. Exclusion of a company as a comparable in Transfer Pricing Analysis: The Revenue filed an appeal against an ITAT order regarding the exclusion of a company, Axis, as a comparable in the Transfer Pricing Analysis for fixing the Arm's Length Price (ALP) of an international transaction during the Assessment Year (AY) 2013-14. The Assessee, engaged in sourcing support services, is a subsidiary of a Mauritius-based company and part of a group providing services for consumer goods. The TPO made an upward adjustment in the ALP, which was challenged before the DRP and then the ITAT. The ITAT agreed with the Assessee and excluded Axis as a comparable. The Revenue contended that the ITAT did not provide sufficient reasons for excluding Axis, while the Assessee argued that detailed reasons were given in the ITAT order. The TPO rejected objections to Axis's inclusion based on the availability of Axis's annual report online, showing income from liaisoning charges. However, the ITAT found that Axis, engaged in liaisoning services and digital certification, was functionally dissimilar to the Assessee, a routine captive sourcing service provider. The Court cited precedents emphasizing the importance of selecting comparables based on product and functional similarity for an accurate arm's length price determination. The Court found the ITAT's reasons for excluding Axis as a comparable plausible and based on a detailed analysis of the Assessee and Axis's different profiles. Consequently, the Court dismissed the appeal, stating no substantial question of law arose from the exclusion of Axis as a comparable in the Transfer Pricing Analysis.
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