2017 (11) TMI 464 - HC - Income Tax

TPA - selection of comparable - selection criteria - Held that - This Court is of the opinion that the rationale that Ashok Leyland was deriving major part of its revenue from wind energy segment and that there was an extraordinary event of merger and likewise M/s Kitco Ltd. deriving income from government entity and Mitcon Consultancy & Engineering Services Ltd, is deriving less than 75% revenue from consultancy services, is a reasonable basis for their exclusion. Any inclusion or exclusion of comparables perse cannot be treated as a question of law unless it is demonstrated to the Court that the Tribunal or any other lower authority took into account irrelevant consideration or excluded relevant factors in the ALP determination that impact significantly. Consequently, the appeal is without merits and is, therefore, dismissed.

Summary

Issues:
ALP determination excluding three comparables in the assessee's income.

Analysis:
The Revenue's appeal contested the exclusion of three comparables in the ALP determination of the assessee's income. The assessee, a subsidiary of a Cyprus-based company, provides design, engineering, and management consultancy services globally. The Transfer Pricing Officer (TPO) considered 16 comparables and adjusted the ALP, resulting in a tax liability of Rs. 6,55,34,938. The Dispute Resolution Panel (DRP) modified the comparables, leading to a final adjustment of Rs. 3,87,54,545. The assessee challenged the inclusion of three comparables - Ashok Leyland Projects Services Ltd., Kitco Ltd., and Mitcon Consultancy & Engineering Services Ltd. The Income Tax Appellate Tribunal (ITAT) upheld the assessee's contentions.

Regarding Ashok Leyland Projects Services Ltd., the ITAT noted that a significant portion of its revenue came from the wind energy segment, and a merger with another company created a potential differential advantage. For Kitco Ltd., the Tribunal highlighted its substantial government involvement. Mitcon Consultancy & Engineering Services Ltd. was found to derive less than 75% of its revenue from consultancy services, engaging in various other activities. The Court agreed that these reasons justified the exclusion of the comparables.

The Court emphasized that the inclusion or exclusion of comparables is not a legal issue unless it involves irrelevant considerations or excludes crucial factors impacting the ALP determination significantly. In this case, no such errors were found. Therefore, the appeal lacked merit and was dismissed.