Transfer pricing comparability: upper turnover filters must reflect assessee size, and fresh benchmarking was required.

In transfer pricing comparability, size and turnover were treated as relevant factors because materially different turnover can distort the realism of benchmarking. The Tribunal rejected any universal application of a Rs. 200 crore upper turnover threshold and held that the appropriate filter must be set with reference to the assessee's turnover and surrounding circumstances. The matter was restored for fresh comparability examination so the Transfer Pricing Officer could apply an appropriate upper turnover filter in benchmarking the selected comparables.

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Issues: Whether the upper turnover filter should be applied in the transfer pricing comparability analysis, and whether the matter required restoration for fresh benchmarking.

Analysis: The appeal was confined to the transfer pricing adjustment, since the limitation ground was not pressed. The assessee's turnover was much lower than that of several selected comparables, and the Tribunal held that size and turnover can materially affect comparability in transfer pricing. It observed that comparability analysis must be realistic and that an appropriate upper turnover filter is a relevant parameter in the facts of the case. The Tribunal also noted that the specific figure of Rs. 200 crores cannot be treated as a universal rule and that the proper filter should be determined with reference to the assessee's turnover and the surrounding circumstances.

Conclusion: The Tribunal held that an upper turnover filter must be applied in the transfer pricing analysis and restored the matter to the Transfer Pricing Officer for fresh comparability examination with the appropriate filter.

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