Tribunal directs reassessment of transfer pricing analysis for statistical purposes.

The Tribunal allowed the appeal for statistical purposes, directing the reconsideration of the transfer pricing analysis by the Assessing Officer / TPO in accordance with the business model of the assessee and using functionally similar comparables. The decision was rendered on December 15, 2020.

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Issues:
Transfer pricing adjustment without proper appreciation of business model.

Analysis:
The appeal was against the final assessment order for the assessment year 2013-2014, where the assessee, an IT services company, declared a loss in its return of income. The assessment was taken up for scrutiny, and the Transfer Pricing Officer (TPO) determined an adjustment of Rs. 28,27,00,781 under section 92CA of the Income Tax Act. The Assessing Officer included this adjustment in the draft assessment order, and the Dispute Resolution Panel (DRP) upheld the adjustment. The primary issue raised in the appeal was that the transfer pricing adjustment was made without properly understanding the business model of the assessee.

The Tribunal referred to a previous judgment in the assessee's case for the assessment year 2014-2015, where it was found that the TPO had conducted the transfer pricing analysis based on an erroneous understanding of the business model. The Tribunal had set aside the issue for de novo consideration to the TPO, directing that the analysis should be carried out considering the business model of the assessee and using comparables with a similar business model. The Tribunal noted that the facts for the assessment year 2013-2014 were similar to those in the assessment year 2014-2015 and accordingly restored the entire transfer pricing analysis for de novo consideration to the Assessing Officer / TPO.

Therefore, the Tribunal allowed the appeal for statistical purposes, ordering the transfer pricing analysis to be reconsidered by the Assessing Officer / TPO in line with the business model of the assessee and using functionally similar comparables. The decision was pronounced on December 15, 2020.

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