In AT & T Communication Services India Pvt Ltd v. Assistant Commissioner of Income Tax (ACIT), the Delhi bench of the Income Tax Appellate Tribunal (ITAT) recently held that the Government undertakings or companies are not the suitable comparables for benchmarking the International Transaction.
Assessee Company in the present case is a wholly owned subsidiary of AT&T Communications Services International Inc. USA, engaged in the provision of support services to overseas AT&T group companies and customer support services, telecommunications network planning and management services to customers in India. During the assessment year, the Assessee entered into international transactions with its associated Enterprises (AE). For benchmarking these transactions its Transfer Pricing (TP) study applied Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM).
During the assessment proceedings, the Transfer Pricing Officer (TPO) considered international transactions entered into by the Assessee with its Associated Enterprises in support of the provisions of services under network outsourcing support services at arm’s length and international transaction as being reimbursement of AE at arm’s length and accordingly he made Arm’s Length Price (ALP) adjustment to the remaining two transactions along with interest on receivables.
Assessee carried the matter before the Tribunal on appeal. The counsel for the Assessee submitted before the Tribunal that grievance is to the extent of excluding Government owned undertaking from the final set of comparables for benchmarking the international transactions.
After considering the facts and circumstances of the present issue, the Tribunal bench comprising of Judicial Member Kuldip Singh and Accountant Member R.K.Panda observed that “Government undertakings/companies are not the suitable comparables for benchmarking the international transaction. Therefore the AO was directed to verify all the Government undertakings or companies from the final set of comparables which are taking preferential treatment from Government in getting contract etc. and are not driven by profit motive alone impacting the profit margin and to exclude the same and then benchmark the international transactions in support with Network Support Services”.
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