ITAT Upholds Inclusion of Comparables, Excludes Crisil; Partial Relief on Transfer Pricing, Calls for Further Analysis.

The ITAT upheld the inclusion of nine comparables rejected by the TPO but found the inclusion of 'Crisil Marketwire Limited' unsustainable. The issue of the addition made by the Assessing Officer on the advance received was set aside for verification. The ITAT ruled in favor of the assessee regarding the upward transfer pricing adjustment for notional interest on export receivable. The appeals were partly allowed, directing further analysis and verification where necessary.

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Issues:
1. Adjustment u/s. 92CA(4) of the Act for international transactions.
2. Deletion of addition made by the Assessing Officer on advance received.
3. Upward transfer pricing adjustment for notional interest on export receivable.

Issue 1: Adjustment u/s. 92CA(4) of the Act for international transactions:

The case involved an appeal by the Revenue against the order of the CIT(A) for the assessment year 2005-06. The Transfer Pricing Officer (TPO) made an adjustment of &8377; 2,14,25,160 in respect of international transactions with the Associated Enterprise (AE). The TPO's selection of comparables was challenged, as he rejected nine out of twenty-one companies without reason. The CIT(A) directed the inclusion of the rejected companies and added 'Nittany Outsourcing Limited' to the comparables. However, the CIT(A) also included 'Crisil Marketwire Limited,' which was not expressly rejected by the TPO, leading to a challenge by the Revenue. The ITAT upheld the inclusion of the nine comparables rejected by the TPO but found the inclusion of 'Crisil Marketwire Limited' by the CIT(A) unsustainable, terming it as cherry-picking. The ITAT directed a comparable analysis based on the twenty-one companies selected by the TPO and 'Nittany Outsourcing Limited,' with a marketing support adjustment of 2.30%.

Issue 2: Deletion of addition made by the Assessing Officer on advance received:

The Assessing Officer had made an addition of &8377; 3,54,40,407 on account of an advance received by the assessee from its holding company, treating it as 'income.' The CIT(A) deleted this addition, but the ITAT, following a precedent, set aside the issue to the Assessing Officer for verification. The ITAT directed the Assessing Officer to provide the assessee with an opportunity to substantiate the nature, purpose, and utilization of the advance received, and then decide the issue in accordance with the law. The ITAT partly allowed the Revenue's appeal in this regard.

Issue 3: Upward transfer pricing adjustment for notional interest on export receivable:

In the appeal for the assessment year 2012-13, the only issue pressed by the assessee was the upward transfer pricing adjustment of &8377; 4,61,413 for notional interest on export receivable from its AE. The ITAT decided this issue in favor of the assessee, citing a precedent where no interest was charged from both AE and non-AE debtors, leading to the deletion of notional interest. The ITAT allowed the assessee's appeal partly in this regard.

In conclusion, the ITAT upheld the inclusion of rejected comparables by the CIT(A) but found the addition of 'Crisil Marketwire Limited' unsustainable. The ITAT set aside the issue of the addition made by the Assessing Officer on the advance received for verification. Additionally, the ITAT decided in favor of the assessee regarding the upward transfer pricing adjustment for notional interest on export receivable. The appeals were partly allowed in both cases.

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