Tribunal grants stay on Transfer Pricing adjustment, citing flawed comparables. Stay until Tribunal order.

The Tribunal granted a stay for six months or until the Tribunal's order, whichever is earlier, in relation to a Transfer Pricing adjustment made by the Transfer Pricing Officer concerning IT enabled back office support services. The Tribunal found that the inclusion of certain comparables with significantly different operational metrics affected the adjustment, favoring the assessee. The stay would not impact the appeal's merit hearing scheduled for 27-10-2014, and would be vacated if the assessee requested an adjournment. The stay application was allowed as per the order pronounced on 12th Sept. 2014.

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Issues:
Stay application in relation to Transfer Pricing adjustment made by TPO based on comparables selected for IT enabled back office support services.

Analysis:
The Stay Application pertains to an appeal filed by the assessee regarding a Transfer Pricing adjustment made by the Transfer Pricing Officer (TPO) concerning IT enabled back office support services. The learned AR argued that the TPO's selection of comparables led to an adjustment of Rs. 2,92,13,537, resulting in a higher arm's length mark-up than what the assessee had earned. The AR contended that excluding certain comparables, especially one with an abnormally high operating profit to total cost ratio of 243.69%, would bring the assessee within the acceptable range of +5%. This exclusion would align the assessee's mark-up of cost with the arm's length standard.

The learned DR opposed the stay application, advocating for the payment of the demand before granting any stay. However, upon careful examination of the case, the Tribunal found that the TPO's inclusion of certain comparables, like Excel Infoways Ltd., with significantly different operational metrics compared to the assessee, affected the Transfer Pricing adjustment. Notably, the high profit ratio of Excel Infoways Ltd. rendered it functionally incomparable to the limited risk service provider assessee. By excluding such comparables, the Tribunal observed that the assessee had a prima facie case in its favor. Additionally, the Tribunal noted that the appeal was scheduled for a hearing on merits shortly, on 27-10-2014.

Considering the facts and circumstances, the Tribunal granted a stay for six months or until the Tribunal's order, whichever is earlier. However, the Tribunal clarified that the observations made in the stay order would not impact the appeal's merit hearing. Furthermore, if the assessee requested an adjournment, the granted stay would automatically be vacated. The stay application filed by the assessee was allowed in terms specified in the order pronounced on 12th Sept. 2014.

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