Tribunal affirms exclusion of company for Arm's Length Pricing, dismissing department's appeal.

The Tribunal upheld the Dispute Resolution Panel's decision to exclude Asian Business Exhibition and Conferences Limited as a comparable for computing Arm's Length Pricing. The department's appeal was dismissed, affirming the exclusion and resulting in the dismissal of the assessee's appeal as well. The decision was rendered on 20th November 2015.

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Issues Involved:
1. Exclusion of Asian Business Exhibition and Conferences Limited as a comparable for computation of Arm's Length Pricing (ALP).

Issue-wise Detailed Analysis:

1. Exclusion of Asian Business Exhibition and Conferences Limited as a Comparable:

The primary issue raised by the department was whether the Dispute Resolution Panel (DRP) erred in rejecting Asian Business Exhibition and Conferences Limited as a comparable for computing Arm's Length Pricing (ALP). The assessee, an Indian company, provided marketing support, business support services, and software development services to its associated enterprises (A.E.s) overseas. The total value of these international transactions was Rs. 17,71,89,894.

The Transfer Pricing Officer (TPO) analyzed the assessee's transfer pricing study, which used the Transaction Net Margin Method (TNMM) with operating profit to operating cost as the Profit Level Indicator (PLI). The assessee had selected 21 comparables for software development and IT services, showing an arithmetic mean margin of 11.26%, and 14 comparables for business and marketing support services, showing an arithmetic mean margin of 10.32%. The TPO, however, rejected the assessee's study, citing reasons such as the use of multiple-year data and unaudited segmental accounts. The TPO aggregated both segments and selected seven comparables, including Asian Business Exhibition and Conferences Limited, resulting in an upward adjustment of Rs. 1,45,54,007.04 to the ALP.

The DRP, upon reviewing the draft assessment order, found Asian Business Exhibition and Conferences Limited to be functionally different from the assessee, primarily engaged in event management, earning income from exhibitions, sponsorships, and entry fees. The DRP noted that the company had earned super-normal profits and lacked segmental reporting. Consequently, the DRP directed the exclusion of this company from the list of comparables.

The department argued that since the assessee initially considered this company as a comparable, it should not object to its inclusion. However, the assessee countered that the company was fundamentally different in its business model, focusing on event management rather than support services.

Upon review, the Tribunal agreed with the DRP's decision, noting that the business models were indeed different and that the assessee could object to a comparable if new information justified it. The Tribunal cited relevant case law supporting this view, including DCIT V/s. Quark Systems (P) Ltd. and other decisions. Thus, the Tribunal upheld the DRP's exclusion of Asian Business Exhibition and Conferences Limited as a comparable.

Conclusion:

The Tribunal dismissed the department's appeal, affirming the DRP's decision to exclude Asian Business Exhibition and Conferences Limited as a comparable. Consequently, the assessee's appeal became infructuous and was also dismissed. The order was pronounced in the open court on 20th November 2015.

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