Tribunal excludes Saket Projects Ltd. as comparable due to functional dissimilarity. Appeal partly allowed.

The Tribunal directed the exclusion of Saket Projects Ltd. as a comparable due to functional dissimilarity and unreliable segmental data. The appeal was partly allowed, with Saket Projects Ltd. being excluded from the list of comparables for the relevant year.

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Issues Involved:
1. Determining the arm's length margin/price using only financial year 2007-08 data.
2. Selecting companies earning super profits/abnormal profits as comparable.
3. Selecting companies which had an exceptional year of operation as comparable.
4. Selecting companies, the segment results for which are not completely reliable as comparable.

Detailed Analysis:

Issue 1: Determining the arm's length margin/price using only financial year 2007-08 data.
The appellant argued against the use of financial year 2007-08 data for determining the arm's length margin/price, as this data was not available at the time of complying with transfer pricing documentation requirements. The Tribunal noted that the assessee had initially used multiple year data, which was later updated to the current year data as per the mandate of Rule 10D(4). The Tribunal did not find merit in the appellant's argument as the use of current year data is a regulatory requirement unless it is demonstrated that factors of earlier years have affected the transfer prices in the current year.

Issue 2: Selecting companies earning super profits/abnormal profits as comparable.
The appellant contested the selection of companies earning super profits as comparables, specifically arguing for the exclusion of Saket Projects Ltd. The Tribunal emphasized that high profitability alone is not a valid ground for exclusion. The Tribunal cited the OECD Guidelines, stating that extreme results require further examination to understand the reasons behind them. The Tribunal concluded that high profit is a measure of efficiency and does not automatically disqualify a company from being a comparable unless there is a significant comparability defect.

Issue 3: Selecting companies which had an exceptional year of operation as comparable.
The appellant argued that companies with exceptional years of operation should not be considered as comparables. The Tribunal examined the functional profile of Saket Projects Ltd. and found that there was no change in its functions compared to earlier years. The Tribunal referenced previous judicial precedents, noting that Saket Projects Ltd. had been consistently excluded as a comparable in similar cases due to its functional dissimilarity and unreliable segmental data.

Issue 4: Selecting companies, the segment results for which are not completely reliable as comparable.
The appellant argued that the segment results of Saket Projects Ltd. were not reliable. The Tribunal reviewed the segmental data and found that the expenses related to the event management segment were clearly identified in the annual report. However, the Tribunal also noted that previous judicial precedents had consistently found the segmental details in the public domain for Saket Projects Ltd. to be unreliable. The Tribunal further observed that the revenue generation model of Saket Projects Ltd., which involved organizing events with sponsorships and offering space for rent, was functionally different from the appellant's business support services. Consequently, the Tribunal directed the exclusion of Saket Projects Ltd. as a comparable.

Conclusion:
The Tribunal concluded that Saket Projects Ltd. should be excluded as a comparable due to its functional dissimilarity and unreliable segmental data. The appeal of the assessee was partly allowed, and the Tribunal directed the exclusion of Saket Projects Ltd. from the list of comparables for the year under consideration. The order was pronounced in the open court on 06th January 2016.

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