2019 (7) TMI 1080 - AT - Income Tax

Tribunal upholds comparability analysis, emphasizing finality of findings & application of arm's length principle

The Tribunal dismissed the assessee's Miscellaneous Application seeking rectification of the order, emphasizing the finality of its findings on ... Rectification u/s 254 - TPA - comparability selection - HELD THAT:- We notice that similar to assessee, Celestial Bio Labs also offers several services to its AEs and since we are determining with ALP based on TNMM, we consider the average margin of all the several activities carried on by the assessee. On a compartmentalizing two profit making companies with several activities, we can compare the end result, unless they are into product or highly diversified or some activities which will modify the profit making ability of the organization. In this case, we do not see any reason to interfere with the selection process. Therefore, the objection of the assessee to exclude the said company is hereby rejected. With regard to other submissions of the assessee, we have considered the decision of ITAT, Bengaluru Bench and other orders referred by the assessee and gave our findings considering the factual matrix. We are in agreement with the submissions of the DR that bench has already applied the mind and came to the conclusion in the order. He submitted that the comparative analysis is part of determining ALP and is final with a quietus at the hands of the final fact finding authorities, bench has given clear cut findings. Therefore, the Bench came to the conclusion after considering all the facts and not inclined to review our decision as the ITAT has no power to review its own order u/s 254(2) of the Act. Issues:Rectification of order under section 254(2) of the Income Tax Act regarding transfer pricing adjustments based on comparability analysis.Analysis:1. The assessee filed a Miscellaneous Application seeking rectification of the Tribunal's order dated 18/04/2019 in ITA No. 2010/Hyd/2017. The grounds raised by the appellant included challenges to the arm's length principle application, comparability analysis, adjustment calculations, and exclusion of certain companies as comparables based on functional dissimilarity and other factors.2. The Tribunal disposed of the grounds in its order dated 18.04.2019. It was noted that the case of 3DPLM Software Solutions Ltd [2014] 42 taxmann.com 333 (Bangalore - Trib.) could not be relied upon as it pertained to AY 2007-08. The Tribunal considered the functional dissimilarity and other parameters of Celestial Biolabs Ltd, emphasizing that the company was not comparable to the assessee due to its engagement in R&D activities and specific sectors, leading to exclusion as a comparable for AY 2008-09.3. The authorized representative highlighted the decision of the Bengaluru bench in the case of Celestial Biolabs Ltd for AY 2008-09, emphasizing the company's unchanged functional profile, which led to its exclusion as a comparable. The Tribunal acknowledged the arguments but clarified the reference to AY 2007-08 in its order, rectifying it to AY 2008-09. The Tribunal upheld its decision on the comparability analysis, emphasizing the finality of its findings based on the factual matrix and the application of the arm's length principle.4. The Tribunal, after considering the submissions and case laws, concluded that the bench had already applied its mind and arrived at a decision, indicating no mistake apparent on record. The Tribunal highlighted that the ITAT lacked the power to review its own order under section 254(2) of the Act. The Miscellaneous Application was partly allowed, with the Tribunal pronouncing its decision on 17th July 2019.This detailed analysis of the issues involved in the rectification application under section 254(2) of the Income Tax Act showcases the Tribunal's considerations regarding comparability analysis, functional dissimilarity, and the finality of its decision-making process in transfer pricing matters.