INCOME TAXACT, 1961

Section 92C

Transfer pricing - Determination of ALP - Selection of comparables - No FAR Analysis done by TPO

Assessee engaged in providing design and engineering services and drawings relating to engineering, and IT services entered into international transactions with AEs. TPO considered Desein (P) Ltd. as not comparable to assessee's case on the ground that company was actively associated with Central Government statutory bodies, wherein project was accorded to company having lowest bidding and, therefore, same could have resulted in lower margin of this company. Held: From the perusal of extracts from website of Desein Pvt. Ltd., it was evident that Desein Pvt. Ltd. served not only to the public sector clients but also to the private sector clients as well as the international clients. Therefore, it would be completely incorrect to assume that Desein Pvt. Ltd. has only earned its revenue from Central Government statutory bodies. Thus, TPO was justified in only considering Central Government entities clientele of Desein Pvt. Ltd. Desein Pvt. Ltd. was operating in a completely different segment insofar as its revenue from operation and maintenance was concerned and the aforesaid services, could not be said to be comparable to the assessee. Desein Pvt. Ltd. also earns income from consultancy fees and same had been declared separately in its financials. However, TPO did not examine whether functions performed, assets employed and risks assumed for earning the income from consultancy fees was comparable to assessee. Further, segmental information regarding income from consultancy fees was also not examined by TPO, the company was excluded on one or the other reason. Therefore, issue of comparability of relevant segment of Desein Pvt. Ltd. with assessee was remanded to TPO for de novo adjudication after necessary examination of all the data.

REFERRED :

FAVOUR : Matter remanded.

A.Y. : 2016 -- 17

INCOME TAX ACT, 1961

Section 92C

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