2019 (9) TMI 880 - HC - Income Tax

Transfer pricing adjustment in respect of the international transaction OR on the entire sales - HELD THAT - Transfer Pricing adjustment has to be done only in respect of related party transactions and not on all transactions. See SANDVIK ASIA PVT. LTD., 2018 (5) TMI 262 - BOMBAY HIGH COURT Exclude Genesys International Corp Ltd. from the set of comparable - HELD THAT - M/s. Genesys is engaged in a different business and, therefore, not functionally similar. This finding of fact is not shown to be perverse in any manner by the Revenue. Risk adjustment - only grievance of the Revenue before the Tribunal was the appropriate grant of risk adjustment to determine the ALP is to be decided by the Adjudicating Authority - HELD THAT - Impugned order of the Tribunal has accepted the grievance of the Revenue and restored the issue to the TPO/Assessing Officer with direction to examine the allowability of risk adjustment as claimed. In the above facts and circumstances, the question as proposed is pre-mature and does not give rise to any substantial question of law.

Summary

Issues:
1. Transfer pricing adjustment on international transaction only.
2. Exclusion of a company from the set of comparables.
3. Grant of risk adjustment without demonstrating the link of risk with financial results of comparables.

Analysis:

Issue 1 - Transfer pricing adjustment on international transaction only:
The Tribunal allowed the Assessee's appeal, restricting transfer pricing adjustment to international transactions only, based on a precedent. The Court dismissed the Revenue's appeal, citing the same precedent and emphasizing that transfer pricing adjustment cannot be done at the entity level but only in respect of international transactions with Associated Enterprises. The issue was deemed concluded by the Court's previous order, and no substantial question of law arose.

Issue 2 - Exclusion of a company from the set of comparables:
The Tribunal excluded a company from the list of comparables based on functional dissimilarities with the Assessee. The Revenue argued that the Assessee could not withdraw a previously chosen comparable, but the Court disagreed, citing a precedent that allowed such withdrawals if the company was included by mistake. The Transfer Pricing Mechanism requires comparability analysis between like companies, and the Assessee's submission on ALP is not final. The Court emphasized that the Transfer Pricing Regime aims to determine a benchmark price and is not adversarial. The Court found no merit in the Revenue's primary submission and upheld the Tribunal's decision to exclude the company from comparables.

Issue 3 - Grant of risk adjustment without demonstrating the link of risk with financial results of comparables:
The Tribunal acknowledged the need for risk adjustment in determining ALP but left the decision on the appropriateness of the adjustment to the Adjudicating Authority. The Court found the issue premature and not giving rise to any substantial question of law. Therefore, the Court did not entertain the question.

In conclusion, the Court dismissed the appeal, upholding the Tribunal's decisions on transfer pricing adjustment, exclusion of a company from comparables, and the grant of risk adjustment.