Bombay H.C : the Tribunal was correct in holding that comparable selected by the TPO were not functionally comparable while determining ALP

High Court Of Bombay

CIT-10, Mumbai Vs. Carlyle India Advisors (P.) Ltd.

Assessment Year : 2007-08

Section : 92C

J.P. Devadhar And M.S. Sanklecha, Jj.

It Appeal (L) No. 1286 Of 2012

February  22, 2013

JUDGMENT

1. In this appeal by the Revenue for assessment year 2007-08, following reframed questions of law have been proposed for our consideration.

“(a) Whether on the facts and circumstances of the case, the Tribunal was correct in holding that comparable selected by the TPO were not functionally comparable while determining ALP ?

(b) Whether on the facts and circumstances of the case, the Tribunal was correct in allowing safe harbor margin of (+/-) to the assessee ?”

2. The basic dispute in this case is the determination of Arms Length Price (ALP) in respect of investment advisory and related support services by the respondent – assessee to its Associated Enterprises (AE) in Hong Kong. It is undisputed that the Transaction Net Margin Method (TNMM) is the most appropriate method for determining the ALP. There was one comparable viz. M/s. IDC (India) Limited which was common between the Revenue and the assessee. However, eight more comparable were relied upon by the Revenue. On the basis of the mean so determined, the Transfer Pricing Officer (TPO) concluded that the difference was in excess of 5% variables and, therefore, the ALP determined by the respondent – assessee was not accepted. The Tribunal by the impugned order held that the eight comparables other than M/s. IDC (India) Limited were not functionally comparable with the respondent and, therefore, could not be relied upon. The counsel for the Revenue states that for the subsequent assessment years, assessing officer has found that the eight comparables selected by the TPO were not functionally comparable with the respondent for determining the ALP. Moreover, in the impugned order the Tribunal has in detail pointed out why the selected comparables are not proper and failure of the assessing officer to consider the objections of the assessee. In this view of the matter, we see no reason to entertain question (a) as framed.

3. Insofar as question (b) is concerned, it becomes academic as if the eight comparables selected by the TPO are found not to be functionally comparable then the difference between the operating margin of the respondent at 15.05% as against the 18.97% of comparable companies being within the range of +/ – 5% the amounts received by the respondent – assessee is within the statutory limits. Therefore, we see no reason to entertain question (b).

4. Accordingly, the appeal is dismissed with no order as to costs.

[Citation: 357 ITR 584]