In a relief to the Income Tax Appellate Tribunal (ITAT), Bangalore Bench held that the Companies be excluded from the final list of comparables for determining the arm’s length margin.
The Assessee, M/s SAP Labs India Pvt. Ltd. filed his return of income declaring a total income of Rs.64,48,31,500/-. The return was processed under section 143 (1) of the Act. The case was selected for scrutiny and notices under section 143 (2) were issued to the assessee, in response to which, representative of the assessee appeared before the AO and filed requisite details as called for.
During the year under consideration, the AO observed that the assessee had international transactions with its associated enterprises that exceeded Rs. 15 crores. Accordingly, reference was made under section 92C of the Act, to the TPO. The TPO on receipt of reference called upon the assessee to file economic details of the international transaction entered into by the assessee with its AE.
The assessee computed its margin at 4.83% by using OP/TC as PLI and TNMM as the most appropriate method. As margin was within the permissible range it held its transaction to be at arm’s length.
Dissatisfied with the selection of comparables by the assessee, the TPO carried out a fresh search, thereby shortlisting 14 comparables with an average margin of 13%. The assessee further filed additional comparables from which the TPO accepted 2 comparables. The final list of comparables selected by the TPO consisted of 10 companies with an average margin of 23.63%.
The two-member bench of Accountant Member, B.R.Baskaran and Judicial Member, Beena Pillai held that the companies are to be excluded from the final list of comparables for the purpose of determining the arm’s length margin.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.
