2023 (1) TMI 374 - AT - Income Tax

Rectification of mistake u/s 154 - TP Adjustment - Comparable selection - whether the TTK healthcare Ltd is a functionally comparable to the the Assessee or not for deciding the arm s length price of the international transaction of the assessee? - HELD THAT - TPO after considering the explanation of the assessee issued a notice u/s 133 (6) to TTK healthcare limited which was replied to stating that medical devices segment of TTK healthcare limited is engaged in manufacturing activity having its own manufacturing units. Company has also submitted the margin in trading and manufacturing segments. The margin in trading segment is 1.36% which is very less. The learned TPO therefore held that TTK healthcare limited is not comparable to the assessee/tested party and therefore it is finally excluded from the list of final comparables. After that the learned TPO computed the margin of comparables at 2.69% and also computed the margin of the assessee at 3.98%. He held that since the profit level indicator of the assessee is higher than the profit level indicator of the comparables the international transactions under discussion is at arm s length. TTK healthcare limited is not a good comparable and therefore is required to be excluded. Further on exclusion of this comparable the margins of the assessee is higher than the margin shown by the comparables. Therefore, no transfer pricing adjustment can be made. This is the only dispute even in recalled order. We have heard the rival contentions and perused the orders of the learned transfer pricing officer passed under section 92CA (3) read with section 254 of the income tax act. The learned departmental representative could not show any reason that the order passed by the learned transfer-pricing officer pursuant to the direction of the coordinate bench, is not correct. Ground number 1 and 2 of the appeal of the assessee is allowed.

Summary

Issues involved:
Whether TTK healthcare Ltd is functionally comparable to the Assessee for determining the arm's length price of the international transaction.

Analysis:
The judgment pertains to a recalled matter where the order passed by a coordinate bench was recalled to decide Ground no 1 & 2 of The Appeal for assessment year 2011-12. The issue revolved around the inclusion/exclusion of TTK healthcare Ltd as a comparable company. The coordinate bench accepted the arguments of the assessee, stating a mistake was apparent on record, and recalled the matter to decide the mentioned grounds of appeal.

Regarding Ground no. 1, it was contended that the Ld. DRP erred in upholding the selection of TTK Healthcare Ltd as a comparable company without providing the search process to the appellant, which was deemed impermissible as per Transfer Pricing Regulations. Ground no. 2 highlighted errors in selecting TTK Healthcare as a comparable company, citing reasons such as differing activities, abnormally high margins, and exceeding related party transactions.

Subsequently, the learned transfer pricing officer, pursuant to the coordinate bench's order, examined the inclusion/exclusion of TTK healthcare Ltd. After considering explanations, it was found that TTK healthcare Ltd was not a suitable comparable due to its manufacturing activity and high related party transactions. Consequently, TTK healthcare Ltd was excluded from the final comparables list, leading to the conclusion that no transfer pricing adjustment was warranted as the assessee's margins were higher.

The judgment emphasized that the exclusion of TTK healthcare Ltd resolved the only dispute in the recalled order. The tribunal, after hearing contentions and reviewing the transfer pricing officer's orders, found no reason to dispute the correctness of the officer's decision. Consequently, Grounds 1 and 2 of the assessee's appeal were allowed, leading to the overall allowance of the appeal based on the recalled order's mandate.

In conclusion, the judgment focused on the crucial issue of determining the comparability of TTK healthcare Ltd with the Assessee for transfer pricing purposes, ultimately resulting in the exclusion of TTK healthcare Ltd as a comparable company and the allowance of the assessee's appeal based on the recalled order's directions.