2024 (3) TMI 1008 - AT - Income Tax

TP Adjustment - comparable selection - assessee is aggrieved with inclusion of one comparable namely Golden Chemical Private Limited having PLI of 8.88% - HELD THAT - As the relevant financial data of comparable company is available only for 9 months, whereas, the accounting period of the assessee is for 12 months and in absence of non-availability of the data in case of comparable company from 1st January, 2012, to 31st march, 2012, as same being Private Limited company, the above comparable for this reason is required to be excluded. Accordingly, the learned Transfer Pricing Officer is directed to exclude Golden Chemical Pvt. Ltd. from the comparability analysis. The appeal of the assessee on this issue succeeds. Comparable Nilchem Industries Ltd. - We find that in the remand report proceedings, the learned Transfer Pricing Officer included the above comparable company i.e. Nilchem Industries Ltd. having the margin of 10.78%. The assessee did not object to this comparable company for its exclusion but provided the correction in the margin. The learned Transfer Pricing Officer recomputed the margin of (-) 3.23%. Thus, we find that Nilchem Industries Ltd. is a comparable not in dispute between the assessee and TPO, could not have been excluded by the learned CIT (A) when none of the parties contended so. Accordingly, we direct the learned TPO/ Assessing Officer to include the Nilchem Industries Ltd. as a good comparable. Appeal of the assessee is partly allowed.

Summary

Issues Involved:
The judgment involves issues related to transfer pricing adjustment, rejection of Comparable Uncontrolled Price Method, rejection of Foreign Associated Enterprise as the Tested party, and the selection of comparable companies for benchmarking.

Transfer Pricing Adjustment Issue:
The appeal was filed against the appellate order passed by The Commissioner Of Income Tax (Appeals) concerning the transfer pricing adjustment of INR 1,66,15,022. The assessee contested the adjustment made under Section 143(3) read with section 144(3) of The Income-Tax Act, 1961. The Transfer Pricing Officer proposed adopting the Transaction Net Margin Method (TNMM) as the Most Appropriate Method, resulting in a significant adjustment. The assessee challenged the adjustment, leading to a detailed examination of the international transactions and the method used for benchmarking.

Rejection of Comparable Uncontrolled Price Method Issue:
The assessee contested the rejection of the Comparable Uncontrolled Price (CUP) Method as the most appropriate method for benchmarking the international transactions. The Commissioner Of Income Tax (Appeals) upheld the use of the Transaction Net Margin Method (TNMM) instead of CUP. The dispute centered around the reliability of the benchmarking method and the selection of the Most Appropriate Method for determining the arm's length price.

Rejection of Foreign Associated Enterprise Issue:
The issue involved the rejection of Foreign Associated Enterprises as the tested party for the international transactions. The Transfer Pricing Officer's decision to reject the foreign party as the tested party due to inadequate data availability was contested by the assessee. The dispute revolved around the selection of the appropriate tested party for benchmarking purposes.

Selection of Comparable Companies Issue:
The judgment addressed the selection of comparable companies for benchmarking purposes. The assessee objected to the inclusion of Golden Chemicals Pvt. Ltd. and the exclusion of Nilchem Industries Ltd. in the comparability analysis. The Tribunal directed the exclusion of Golden Chemical Pvt. Ltd. due to data availability issues and ordered the inclusion of Nilchem Industries Ltd. as a comparable company. The decision emphasized the importance of accurate selection and inclusion of comparable companies for fair benchmarking.