Transfer Pricing Analysis Challenged: ITAT Orders Fresh Benchmarking Analysis

The Income Tax Appellate Tribunal Ahmedabad Orders Fresh Benchmarking Analysis. 

Facts 

The Return of income for A.Y. 2009- 10 was filed on 30.09.2009 declaring total income of Rs. 4,61,39,040/-. The Transfer Pricing Officer (in short “TPO”) in the order under Section 92CA(3) of the Act proposed an adjustment of Rs. 3,02,66,356/-. In the draft assessment order, apart from confirming the additions made by the TPO, the Assessing Officer made disallowance under Section 40(a)(ia) amounting to Rs. 45,99,634/-. Aggrieved by the aforesaid draft assessment order the assessee filed objections before the Dispute Resolution Panel (in short “DRP”), Ahmedabad, wherein the DRP upheld the order passed by the Assessing Officer and enhanced the Transfer Pricing adjustment to Rs. 4,17,26,088/-. 

Submissions 

The Counsel for the assessee submitted that GTN India may be excluded from set of comparables since it is a direct manufacturer and hence comparability analysis on the basis of GTN alone would not give acceptable results and further Hon’ble ITAT in the first round of appeal also give a specific direction to carry out a fresh benchmarking analysis after excluding GTN from the set of comparables. 

D.R. submitted that GTN Ltd. cannot be excluded as a comparable for the reason that the assessee is a 100% export oriented unit and if the comparability analysis is taken as above 50% only then GTN would be required to be included in the set of comparables. 

Decision 

The two member bench of Waseem Ahmed, Accountant Member & Siddhartha Nautiyal, Judicial Member observed that proper comparability analysis has not been done by the TPO taking into consideration the directions of ITAT in the order. 

It was further observed that the ITAT has specifically observed that the TPO has sought to compare the valves which is a consumer product with the industrial product of the tested party, which would not give a true picture of the profit. However, despite the directions of ITAT vide order, the directions of ITAT ostensibly have not been followed and the same comparable was again used for conducting the comparability analysis, which was directed to be excluded. 

The bench restored the matter again to the file of the TPO for carrying out a fresh benchmarking analysis in light of the observations made by ITAT.

Case title: Weatherford Drilling & Production Services (India) Private Limited v/s Assistant Commissioner of Income Tax

Citation: I.T.A. Nos.2629/Ahd/2017