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Court sets aside transfer pricing adjustment order, excludes company from comparables for ALP calculation. Remanded for reassessment. The court set aside the order regarding a transfer pricing adjustment on IT Support Services, directing exclusion of MPS Limited from comparables for ...
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Court sets aside transfer pricing adjustment order, excludes company from comparables for ALP calculation. Remanded for reassessment.
The court set aside the order regarding a transfer pricing adjustment on IT Support Services, directing exclusion of MPS Limited from comparables for re-computing the ALP. The matter was remanded for re-computation of ALP, granting the assessee a reasonable hearing opportunity. The appeal was partly allowed for statistical purposes.
Issues: Transfer pricing adjustment of Rs.9,18,00,388 on rendering Information Technology Support Services.
Analysis: The appeal was against the final assessment order regarding the transfer pricing addition. The assessee, a subsidiary of a US company, provided ITES through its Pune center. The AO referred the matter to the TPO for determining the ALP of international transactions. The TPO accepted TNMM as the method but made adjustments to comparables, resulting in a transfer pricing adjustment. The DRP partially favored the assessee, but the AO made the final adjustment. The only challenge was the inclusion of MPS Limited as a comparable.
The functional profile of the assessee was crucial in determining comparability. The assessee provided ITES without a formal agreement, as per a Purchase order. MPS Limited, chosen as a comparable, was engaged in software products besides ITES. The company's annual report and financial statements confirmed its diverse operations, including software products. As the assessee was solely in ITES, MPS Limited was deemed incomparable. The order was set aside, directing exclusion of MPS Limited from comparables for re-computing the ALP.
In conclusion, the order was set aside, and the matter was sent back for re-computation of ALP for IT Support Services transaction. The assessee was granted a reasonable hearing opportunity. The appeal was partly allowed for statistical purposes. The judgment was pronounced on 22nd June 2021.
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