ITAT Directs TPO to Re-calculate Adjustment after Exclusion of Erroneous Comparable and Re-application of Filters [Read Order]
The Tribunal confirmed the assessee's contention and noted that since SPT Investment Advisory Services Ltd. had a turnover of ₹3.65 crores, it failed the TPO's own adopted turnover filter
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) directed the Transfer Pricing Officer (TPO) to re-evaluate the arm's length price (ALP) of an assessee’s international transactions after excluding a company that failed the prescribed turnover filter.
FIL India Business & Research Services Pvt. Ltd. (assessee), engaged in rendering software development, IT-enabled services, and research support services. The assessee had appealed against a substantial transfer pricing adjustment of ₹14,56,72,227 related to its research support services segment for the Assessment Year (AY) 2020-21.
The core of the dispute centered on the selection of comparable companies used by the TPO for benchmarking the assessee's transactions. The TPO conducting the fresh comparability analysis had applied a turnover filter stipulating that comparables must have a turnover of more than ₹5 crores and less than ₹100 crores.
Aggrieved by the AO’s order which was incorporated after Dispute Resolution Panel (DRP)’s directions, the assessee filed an appeal before the ITAT.
The counsel for the assessee specifically objected to the inclusion of one comparable, SPT Investment Advisory Services Ltd. The counsel argued that it failed the very turnover filter applied by the TPO.
The assessee pointed out that this company had a turnover of only ₹3.65 crores in the Financial Year 2019-20, falling below the lower limit of ₹5 crores.
The two-member bench, comprising Satbeer Singh Godara (Judicial Member) and Manish Agarwal (Accountant Member), examined the TPO’s order and the financial statements of the disputed company.
The Tribunal confirmed the assessee's contention and noted that since SPT Investment Advisory Services Ltd. had a turnover of ₹3.65 crores, it failed the TPO's own adopted turnover filter.
The tribunal held that the inclusion of this company was erroneous and directed the TPO/Assessing Officer (AO) to re-consider the comparables. The Tribunal instructed the TPO/AO to exclude SPT Investment Advisory Services Ltd. and then re-work the resulting adjustment, if any, after properly applying the filters.
By allowing this ground of appeal concerning the selection of comparables, the Tribunal directed a fresh calculation of the arm's length price, offering the assessee a potential reduction in the massive transfer pricing adjustment. The appeal of the assessee was partly allowed.
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