Partial appeal success in transfer pricing case, exclusions directed from comparables list. Working capital adjustment granted. The appeal was partly allowed for statistical purposes. The tribunal directed the exclusion of certain entities from the comparables list, including M/s. ...
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Partial appeal success in transfer pricing case, exclusions directed from comparables list. Working capital adjustment granted.
The appeal was partly allowed for statistical purposes. The tribunal directed the exclusion of certain entities from the comparables list, including M/s. Coral Hubs Ltd., M/s. Accentia Technologies Ltd., M/s. Acropetal Technologies Ltd., and M/s. Crossdomain Solutions. The Transfer Pricing Officer was instructed to finalize the computation considering the exclusions and allowed working capital adjustment and +/-5% relief. The decision was pronounced on December 26, 2016.
Issues: Transfer pricing adjustment in international transactions for provision of marketing support services.
Analysis:
1. The appeal was filed against the assessment order passed by the ACIT, Circle-1(2), Baroda, based on the directions of the Dispute Resolution Panel (DRP) for the assessment year 2008-09 under section 143(3) r.w.s. 144C(1) of the Income Tax Act, 1961.
2. The main contention of the assessee was regarding the transfer pricing adjustment of Rs. 73,43,657 in relation to international transactions of providing marketing support services to its associate enterprises in Europe and Asia Pacific region.
3. The assessee, a company manufacturing cassia and guar gum powder, provided marketing support services to its associate enterprises. The Transfer Pricing Officer rejected the assessee's transfer pricing study and selected new comparables, resulting in the impugned adjustment.
4. The Dispute Resolution Panel upheld the Assessing Officer's action but directed the exclusion of one comparable entity. The Assessing Officer then re-computed the transfer pricing adjustment, leading to the appeal by the assessee.
5. During the hearing, the assessee argued against the rejection of its transfer pricing study and the selection of new comparables. However, the assessee failed to prove that the original comparables met the necessary criteria, leading to the rejection of this argument.
6. The assessee further sought to exclude certain entities from the comparables list, which was considered by the tribunal.
7. The tribunal directed the exclusion of M/s. Coral Hubs Ltd. based on previous decisions and excluded M/s. Accentia Technologies Ltd. due to a merger impacting its margins.
8. M/s. Acropetal Technologies Ltd. was excluded as it provided different services, and M/s. Crossdomain Solutions was restricted to its IT enabled services segment only.
9. The tribunal directed the Transfer Pricing Officer to finalize the computation considering the exclusions and also allowed working capital adjustment and ±5% relief as per law.
10. The appeal was partly allowed for statistical purposes, and the decision was pronounced on December 26, 2016.
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