Tribunal directs exclusion of comparables & re-computation of PLI, emphasizing functional profile & expense consistency.

The Tribunal allowed the appeal, directing the exclusion of M/s. Container Corporation of India Ltd. and M/s. Sanco Trans Ltd. as comparables and the re-computation of the Profit Level Indicator (PLI) of the assessee by excluding Fringe Benefit Tax (FBT) expense. The order emphasized the importance of accurately understanding the functional profile of the assessee and maintaining consistency in the treatment of expenses for comparability analysis.

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Issues Involved:
1. Transfer Pricing Adjustment
2. Functional Profile of the Assessee
3. Selection of Comparable Companies
4. Computation of Profit Level Indicator (PLI)
5. Treatment of Fringe Benefit Tax (FBT)

Detailed Analysis:

1. Transfer Pricing Adjustment:
The sole issue in dispute is the Transfer Pricing Adjustment of Rs. 3,53,24,242/- proposed by the Transfer Pricing Officer (TPO) and sustained by the Disputes Resolution Panel (DRP). The assessee, an Indian company with 51% equity held by a German company and 49% by an Indian resident, engaged in Ground and Passenger Handling services, entered into an international transaction of Rs. 32,26,71,057/- for ground handling services rendered to its Associated Enterprise (AE). The TPO conducted a fresh search for comparable companies and selected four companies with an OP/TC of 27.99%, proposing an adjustment under section 92CA.

2. Functional Profile of the Assessee:
The TPO doubted the functional profile of the tested party, noting discrepancies between the assessee's claimed activities and those listed on its website. The TPO observed that the assessee had not properly understood its functions, which included services like fueling supervision and aircraft security. However, the assessee contended that it was merely rendering a few facets of Ground Handling Services to its AE, as analyzed in a previous Tribunal order for AY 2007-08. The Tribunal held that the TPO had wrongly interpreted the functions provided by the assessee, which mainly included passengers and baggage handling services, not specialized airport services.

3. Selection of Comparable Companies:
The TPO selected M/s. Container Corporation of India Ltd. and M/s. Sanco Trans Ltd. as comparables. The DRP upheld the selection, excluding M/s. Cochin International Airport Ltd. due to functional dissimilarities. The Tribunal found that Container Corporation of India, with a turnover of Rs. 3,300 crores and a fixed asset base of Rs. 2,244 crores, was not a service-oriented company and operated in virtual monopoly conditions. Similarly, M/s. Sanco Trans, primarily engaged in Customs Clearing & Forwarding, was also not service-oriented, with significant passive income. The Tribunal directed the exclusion of both companies as comparables.

4. Computation of Profit Level Indicator (PLI):
The TPO computed the PLI of the comparable companies by excluding Fringe Benefit Tax (FBT) as a non-operating item, while the assessee included it as an operating item in its TP Study. The Tribunal directed the TPO to adopt a uniform policy, excluding FBT expense while computing the PLI of both the tested party and comparable companies.

5. Treatment of Fringe Benefit Tax (FBT):
The Tribunal noted that the TPO had treated FBT expense as non-operating for comparable companies but included it for the assessee. The Tribunal directed the TPO to re-compute the PLI of the assessee by excluding FBT expense, ensuring a consistent approach.

Conclusion:
The Tribunal allowed the appeal, directing the exclusion of M/s. Container Corporation of India Ltd. and M/s. Sanco Trans Ltd. as comparables and the re-computation of the PLI of the assessee by excluding FBT expense. The order emphasized the importance of accurately understanding the functional profile of the assessee and maintaining consistency in the treatment of expenses for comparability analysis.

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