2024 (7) TMI 83 - AT - Income Tax

TP Adjustment - ALP determination - comparable selection - Turnover filter in ALP determination - HELD THAT - Insofar as the turnover filter is concerned as decided in the case of Chryscapital Investment Advisors (India) (P.) Ltd. 2015 (4) TMI 949 - DELHI HIGH COURT held that huge profit or a huge turnover ipso facto does not lead to its exclusion; whereas in the case of Pentair Water India Pvt. Ltd. 2016 (5) TMI 137 - BOMBAY HIGH COURT held that turnover is a relevant criteria for choosing companies as comparables in determining the ALP in Transfer Pricing cases. Hon ble Karnataka High Court however in the case of Obopay Mobile Technology ( 2018 (7) TMI 2129 - KARNATAKA HIGH COURT having noticed the view taken by case Chryscapital Investment Advisors (India) (P.) Ltd. (supra) and also the decision of M/s. Pentair Water India Pvt. Ltd. (supra) upheld the Tribunal order excluding certain entities from the list of comparables on the ground of huge turnover while following the principle that where two views are possible on an issue the view favourable to the assessee has to be adopted. Thus we hold that the turnover is a relevant criteria for choosing companies as comparables in determining the ALP in Transfer Pricing cases. Appropriate turnover filter - As in all the decisions relied upon by the learned AR a consistent view is taken that the application of tolerance range of turnover of ten times on both sides of assessee s turnover was proper. Following the same we direct AO to adopt the same for a fresh search. With this view of the matter we set aside the findings of the authorities below and direct AO/TPO to take the range of turnover filter at ten times on both the ends and conduct search afresh to take a plausible view. Appeal of the assessee is treated as allowed for statistical purposes.

Summary

Issues:
Delay in filing appeal due to pandemic, Arm's Length Price (ALP) determination, Turnover filter in ALP, Relevant criteria for choosing comparables, Appropriate turnover filter.

Delay in filing appeal due to pandemic:
The appeal was delayed by 129 days, attributed to the pandemic. The Supreme Court's decision allowed a 90-day extension for cases where the limitation would have expired between a specific period. As the limitation period for this appeal fell within this extension, the delay was condoned. The Tribunal proceeded to hear the appeal on its merits.

Arm's Length Price (ALP) determination:
The Transfer Pricing Officer determined the ALP at Rs. 3,84,41,049 using TNMM method, while the assessee argued for a lower ALP of 9.75% based on OP/OC as PLI. The Dispute Resolution Panel confirmed the TPO's adjustment, leading to the final assessment order.

Turnover filter in ALP:
The assessee contended that the turnover of comparables significantly differed from the assessee's turnover, affecting comparability. The AR argued that turnover is a relevant factor for comparability, citing various judicial precedents supporting this view.

Relevant criteria for choosing comparables:
The Tribunal considered conflicting decisions regarding the relevance of turnover in choosing comparables. While one view emphasized that huge profit or turnover does not automatically exclude comparability, another view highlighted turnover as a crucial criterion for selecting comparables in Transfer Pricing cases. Following the Karnataka High Court's stance, turnover was deemed a relevant criterion for choosing comparables in ALP determination.

Appropriate turnover filter:
The Tribunal directed the Assessing Officer to apply a tolerance range of turnover ten times on both sides of the assessee's turnover for a fresh search. This decision overturned the findings of the lower authorities and allowed the appeal for statistical purposes.

In conclusion, the Tribunal addressed the delay in filing the appeal, discussed the ALP determination methodology, emphasized the relevance of turnover in choosing comparables, and specified the appropriate turnover filter to be applied. The decision provided clarity on these crucial aspects of the case, ultimately allowing the appeal for statistical purposes.