ITAT Pune allows Revenue's appeal in transfer pricing case for AY 2011-12, excludes comparables with different accounting periods.

The ITAT Pune allowed the Revenue's appeal in a transfer pricing assessment case for the assessment year 2011-12. The ITAT directed the exclusion of R System International Ltd. and Coral Hub Ltd. as comparables due to their different accounting periods, aligning with the Revenue's argument. This decision was based on the principle that concerns with varying accounting periods cannot be considered comparable when compiling financial data. As a result, no transfer pricing adjustment was required for the assessee, and the Revenue's appeal was upheld despite a nil tax effect.

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Issues:
1. Inclusion of companies with different accounting periods as comparables in transfer pricing assessment.

Analysis:
The appeal before the ITAT Pune involved the Revenue challenging the order of DCIT, Circle 11, Pune, related to the assessment year 2011-12 under sections 143(3) and 144C(13) of the Income-tax Act, 1961. The Revenue raised concerns regarding the inclusion of R System International Ltd. and Coral Hub Ltd. as comparables by the Dispute Resolution Panel (DRP) despite these companies having different accounting periods. The Revenue argued that the data for the same period should be applied to hold selected concerns as comparable, as per the decision in CIT Vs. PTC Software (I) Pvt. Ltd. The ITAT Pune agreed with the Revenue's contention, stating that when the assessee follows financial years for data compilation, concerns with different accounting periods cannot be considered comparable. Therefore, the ITAT directed the Assessing Officer/TPO to exclude the margins of R System International Ltd. and Coral Hub Ltd. The ITAT noted that if margins of comparables are within +/-5% range of margins shown by the assessee, no transfer pricing adjustment is required. Consequently, the ITAT allowed the Revenue's appeal, even though the tax effect was nil.

The ITAT Pune considered the arguments presented by both the Revenue and the assessee. The Revenue contended that the concerns selected as comparables, R System International Ltd. and Coral Hub Ltd., did not meet the filter of using data for the financial year 2010-11, as maintained by the TPO. The ITAT found merit in the Revenue's plea, emphasizing the importance of aligning accounting periods for comparability. The ITAT referred to the decision in CIT Vs. PTC Software (I) Pvt. Ltd. to support its conclusion. The ITAT highlighted that discrepancies in accounting periods between the selected concerns and the assessee could impact the accuracy of benchmarking for arm's length price determination. Therefore, the ITAT directed the exclusion of R System International Ltd. and Coral Hub Ltd. from the comparables list, ultimately resulting in no transfer pricing adjustment for the assessee.

The ITAT Pune reviewed the transfer pricing assessment involving the Revenue's appeal and the assessee's Cross Objections. The Revenue raised concerns about including companies with different accounting periods as comparables, which the ITAT found valid based on established legal principles. The ITAT's decision to exclude R System International Ltd. and Coral Hub Ltd. from the comparables list was influenced by the need for consistency in accounting periods for accurate benchmarking. By ensuring alignment in data periods, the ITAT upheld the arm's length principle in transfer pricing, leading to the allowance of the Revenue's appeal. The ITAT's detailed analysis emphasized the importance of applying uniform standards in transfer pricing assessments to maintain fairness and accuracy in determining arm's length prices.

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