Tribunal directs fresh ALP determination for transfer pricing issue, emphasizes fair hearing

The tribunal allowed the appeal on the transfer pricing adjustment issue for the Assessment year 2011-12. The tribunal directed the Assessing Officer/Transfer Pricing Officer to determine the arm's length price (ALP) afresh in accordance with its directions, emphasizing the appellant's right to a fair hearing. The tribunal excluded Apitco Ltd. and TSR Darashaw Limited from the list of comparables due to functional dissimilarity with the appellant's services. The tribunal rejected the Revenue's plea to exclude other comparables, stating that once accepted, comparables are final. The appeal was allowed for statistical purposes.

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Issues:
1. Transfer pricing adjustment

Analysis:
The appeal was filed against the final assessment order concerning the addition on account of transfer pricing adjustment for the Assessment year 2011-12. The appellant, a subsidiary of a UK-based joint venture, provided travel security services to its clients. The Transfer Pricing Officer (TPO) determined the arm's length price (ALP) by selecting comparable companies and proposed an adjustment of Rs. 92,95,316. The Dispute Resolution Panel (DRP) reduced the adjustment to Rs. 46,00,511. The primary issue was the inclusion of two companies, Apitco Ltd. and TSR Darashaw Limited, in the list of comparables.

Regarding Apitco Ltd., the TPO included it despite objections from the appellant, considering its revenue from various services. The tribunal found functional dissimilarity between Apitco Ltd. and the appellant's services, ordering its exclusion from the comparables. The tribunal cited a judgment emphasizing the need for comparables to be selected based on similarity even under TNMM.

Regarding TSR Darashaw Limited, the TPO selected it without discussing its functional profile. The tribunal observed that TSR Darashaw Limited was involved in diverse activities such as payroll administration, record management, and depository-related services, which were dissimilar to the appellant's services. Consequently, the tribunal ordered the exclusion of TSR Darashaw Limited from the comparables.

The tribunal set aside the order on the transfer pricing adjustment issue and remitted the matter to the Assessing Officer/Transfer Pricing Officer for a fresh determination of the ALP in line with the tribunal's directions. The tribunal emphasized that the appellant should be given a reasonable opportunity to be heard in the fresh proceedings. The tribunal rejected the Revenue's contention to exclude other comparables, emphasizing that once the TPO accepted certain companies as comparable, they become final and cannot be challenged without appeal.

In conclusion, the appeal was allowed for statistical purposes, and the order was pronounced on 12.04.2017 by the tribunal comprising Shri R.S. Syal, Vice President, and Ms. Suchitra Kamble, Judicial Member.

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