ITAT Delhi excludes four companies from transfer pricing comparables due to segmental reporting issues and functional differences

ITAT Delhi excluded Aptico Limited, Indus Technical and Financial Consultants, Technicom-chemie (India) Ltd., and WAPCOS Ltd. from the list of comparables for transfer pricing analysis due to lack of proper segmental reporting and functional differences. The tribunal directed inclusion of India Tourism Development Corporation Ltd. and Idma Laboratories Ltd. as comparables, following precedent in assessee's own case and considering functional similarity respectively. The working capital adjustment computation issue was restored to the Assessing Officer for correct calculation after providing reasonable opportunity to the assessee.

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Issues Involved:
1. Selection/Rejection of Comparables
2. Inclusion of Specific Comparables
3. Computational Error in Working Capital Adjustment

Summary:

1. Selection/Rejection of Comparables:
The assessee, a wholly-owned subsidiary of Honda R & D Company Ltd., Japan, engaged in providing market research and testing services, challenged the selection/rejection of six comparables by the Transfer Pricing Officer (TPO). The assessee used the Transactional Net Margin Method (TNMM) for benchmarking international transactions, selecting 11 comparables with an average margin of 5.05%. The TPO, however, accepted only four of these and added eight new comparables, resulting in an average margin of 18.18%. This led to an upward adjustment of Rs. 3,11,13,165/- to the Arm's Length Price (ALP). The Dispute Resolution Panel (DRP) retained 10 of the TPO's comparables and excluded two.

2. Disputed Comparables:
- Aptico Limited: The assessee argued this company was functionally dissimilar, engaged in high-end technical consultancy across various sectors without relevant segmental data. The Tribunal agreed, directing its exclusion.
- Indus Technical and Financial Consultants: The assessee contended this company provided diverse services without adequate segmental information. The Tribunal, following a precedent, directed its exclusion.
- Technicom-Chemie (India) Ltd.: The assessee claimed this company was a marketing organization for capital goods, lacking segmental details. The Tribunal, citing a similar case, directed its exclusion.
- WAPCOS Ltd.: The assessee argued this company provided engineering consultancy and turnkey projects, making it functionally different. The Tribunal agreed, directing its exclusion.
- India Tourism Development Corporation Ltd.: The assessee sought inclusion, noting its functional similarity and previous acceptance in similar cases. The Tribunal directed its inclusion.
- Idma Laboratories Ltd.: The assessee argued for inclusion, citing its quality control testing segment and previous acceptance in similar cases. The Tribunal directed its inclusion.

3. Computational Error in Working Capital Adjustment:
The assessee raised an additional ground regarding a computational error in the working capital adjustment, specifically the incorrect SBI PLR rate. The Tribunal restored this issue to the Assessing Officer for correct computation after providing the assessee an opportunity to be heard.

Conclusion:
The appeal was partly allowed, with specific directions for the exclusion/inclusion of certain comparables and correction of computational errors. Grounds not specifically argued were deemed dismissed.

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