No Exclusion of comparable if Data available on Records can be reasonably Extrapolated: ITAT [Read Order]

In a recent ruling the Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) observed that no exclusion of comparable if data available on records can be Reasonably Extrapolated

This appeal by the assessee was directed against the assessment order dated 08/06/2022 passed u/s. 143(3) r.w.s. 144C (13) of the Income Tax Act, 1961

The counsel for the assessee Vishal Kalra argued that the company is primarily involved in providing Business Support Services to its Affiliate Companies, specifically in finance, human resources, and Corporate Information Technology. The assessee has engaged in international transactions with its overseas group companies to offer these support services.

However, despite the acceptance of the method and profit level indicator, the TPO disputed the selection of comparable made by the assessee in its Transfer Pricing (TP) study. The TPO rejected all but one company from the assessee’s chosen list of comparable and introduced eight new companies as comparable instead. Consequently, the final list of comparable included nine companies with an average margin of 22.68%.

Further argued that the Sundaram Business Services operates in the field of processing and IT-enabled services (ITES), covering areas such as accounting, insurance, banking, human resources, among others. The company was deemed comparable by the Transfer Pricing Officer ( TPO ) in Assessment Year 2017-18 and 2020-21. As there have been no alterations to the company’s business activities, the counsel contended that once the TPO had previously accepted the company as comparable, it should not be excluded from the list of comparable.

Mr. Rignesh Das, representing the revenue upholding the directives issued by the Dispute Resolution Panel ( DRP ) and challenged the assessment order. Citing the decisions made by the Transfer Pricing Officer ( TPO ) and the instructions provided by the DRP, the Departmental Representative urged the rejection of the arguments put forth by the assessee and advocated for the acceptance of the list of comparable compiled by the TPO as conclusive.

The counsel representing the assessee pointed out that the TPO had previously accepted this company as comparable in Assessment Years 2017-18 and 2020-21. There have been no changes in the business activities of either the assessee or the comparable company in the current assessment year. These facts were not contested by the Revenue.

The two member bench of the tribunal comprising S. Rifafur Rahman ( Accountant member ) and Vikas Aswathy ( Judicial member ) observed that the company was deemed functionally comparable in both preceding and subsequent assessment years; there appears to be no justifiable reason to reject it based on functional disparities in the current assessment year. Therefore, the said company was directed to be included in the list of comparable.

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