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Issues: (i) Whether comparables for transfer pricing under TNMM should exclude companies having a turnover far above the assessee's turnover by applying an upper turnover filter; (ii) whether the disallowance of repairs and maintenance expenditure treated as capital in nature required reconsideration.
Issue (i): Whether comparables for transfer pricing under TNMM should exclude companies having a turnover far above the assessee's turnover by applying an upper turnover filter.
Analysis: The record showed that the assessee was a relatively small service provider with turnover of about Rs. 33.24 crores, while the selected comparables included companies with turnover ranging from Rs. 207 crores to Rs. 3,032 crores. The settled approach applied in transfer pricing comparability analysis was that size, scale, asset base, brand value, and market reach can materially affect margins, and that very large companies are not proper comparables for a small service entity under TNMM. Applying the turnover filter of 0 to 200 crores was therefore held to be necessary for a reliable comparability set.
Conclusion: The turnover filter had to be applied, and the transfer pricing adjustment was to be recomputed after excluding comparables beyond the prescribed turnover range.
Issue (ii): Whether the disallowance of repairs and maintenance expenditure treated as capital in nature required reconsideration.
Analysis: The assessee claimed that the expenditure was on current repairs such as replacement of A/C ducts, projector, interior work, false ceiling refixing, workstation extension, carpet laying, and related items, while the revenue authorities treated it as capital expenditure on the footing of enduring benefit. The facts and supporting evidence were found insufficiently clear for a conclusive determination on the nature of the expenditure. In these circumstances, the proper course was to afford the assessee another opportunity and re-examine the claim on the basis of evidence and applicable law.
Conclusion: The disallowance was set aside and the issue was remanded to the Assessing Officer for fresh consideration.
Final Conclusion: The appeal succeeded on the turnover-filter issue and the repairs and maintenance disallowance was sent back for fresh adjudication, so the assessee obtained partial relief overall.
Ratio Decidendi: For transfer pricing comparability under TNMM, materially dissimilar companies with vastly different turnover and scale should not be treated as comparable, and unresolved factual controversy on the nature of expenditure warrants remand for evidence-based re-examination.
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