Summary and Review of Case Laws Decided by Income Tax Appellate Tribunals
Sunday, 13 March 2016 13:12

Section 144C - Transfer Pricing - Four comparables cannot be considered as too small a sample for Transfer Pricing study - Bangalore Tribunal Featured

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Transfer Pricing - Section 144C - Minimum Number of Comparables

Even  after  exclusion  of Accentia Technologies  Ltd, along  with  the exclusion  of  four  comparable  companies  directed  by  DRP,  there  will  be four companies left in the list of comparables which, in our opinion, cannot be  considered  as  too  small  a  sample  for  an effective TP  study


1. Assessee  was  a  100%  export-oriented  unit (‘EOU’  in  short)  and  providing  ITE  services to  its  holding  company  in British Virgin Islands 

2. Revenue from such transactions came  to  Rs.52,47,44,085/-

3. Assessee  in  the  TP documentation   had   adopted   TNMM   for   justifying   the   price of its international  transactions  and  considered  nine  comparable companies  for this  purpose,   based  on  an  analysis  done  on  prowess  and  capitaline  data base.    As  per  the  Ld.  AR,  TPO  had  on  the  other  hand  applied filters  like RPT,  insignificant  ITES  segment,  absence  of  data  in  public  domain,  etc, and arrived at a list of ten comparables

4. TPO had allowed working capital adjustment of  0.23%  and  a  final  adjustment  of  Rs.54,46,46,045/-,  as  given  hereunder was recommended

5. Assessee moved  the  DRP  against  the  above recommendations of the TPO

6. DRP had considered the arguments    of    the    assessee    and    directed    exclusion    of   Acropetal Technologies  Ltd  (seg),  E-clerx  Services  Ltd,  ICRA  Online Ltd  (seg), Infosys  BPO  Ltd  and  Sundaram  Business  Services  Ltd,  from  the  list  of eleven  comparables. However,  according  to  him,  DRP  did  not  accept  the assessee’s contentions in so far as it related to Accentia Technologies Ltd. As  per  the  Ld.  AR  though  Accentia  Technologies  Ltd  was  a  part  of assessee’s own list of comparables in the TP study, it had before the TPO objected  and  sought exclusion

7. assessee  had  relied  on various  decisions  of  this  Tribunal  in  support.    However,  this  was  not considered  by  the  TPO.    Ld.  AR  pointed  out  that  similar exclusion  was sought  before  DRP  also,  but  with  no  result.  As  per  the  Ld.  AR,  AO  had thereafter concluded    the    assessment    considering    M/s.    Accentia Technologies as a good comparable

8. Tribunal Partly allowed the appeal in favour of the Assessee


Respectfully following the decision of the Tribunal   referred   to   above,   we   direct   that   the   aforesaid   2 companies be excluded from the list of comparable companies for the  purpose  of  computing  arithmetic  mean  for  comparability purpose. The TPO is directed to give effect accordingly. Even  after  exclusion  of Accentia Technologies  Ltd,    along  with  the exclusion  of  four  comparable  companies  directed  by  DRP,  there  will  be four companies left in the list of comparables which, in our opinion, cannot be  considered  as  too  small  a  sample  for  an  effective  TP  study. In  the circumstances, we direct exclusion of Accentia Technologies Ltd also from the list of comparables

Cases referred to

CIT V/s. Agnity Technologies Pvt. Ltd. (219 Taxman 26)

Additional Info

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