Transfer Pricing benchmarking is based on Functional Profile of Tested Party: ITAT grants interim relief to Sulzer Tech India [Read Order]

The Income Tax Appellate Tribunal(ITAT), Mumbai bench has held that Transfer Pricing benchmarking is based on the functional profile of the tested party and granted interim relief to Sulzer Tech India.

The appellant, M/s. Sulzer Tech India Pvt. Ltd.is engaged in providing design and engineering services and drawings relating to engineering, and IT services to its associated enterprises. For benchmarking this transaction, the assessee used Transactional Net Margin Method (TNMM) as the most appropriate method with the Profit Level Indicator (PLI) of operating profit tototal expenses.

During the TP assessment proceedings, the TPO observed that DeseinPvt. Ltd. has a significantly lower margin as compared to other companies as it is actively associated with Central Government statutory bodies, wherein the project is accorded to a company having the lowest bidding and therefore same could have resulted in the lower margin of the company and.

The TPO, after excluding Desein Pvt. Ltd., as comparable for benchmarking the international transaction, in addition to the amount suo-motto offered by the appellant towards TP adjustments made a further adjustment of Rs. 6,69,18,234 in respect of international transactions pertaining to ‘Rendering of Tendering, Design & Engineering services and IT services. The aggrieved appellant approached ITAT.

The counsel for the appellant submitted that Desein Pvt. Ltd. is also having private clientele in addition to Central Government entities and thus this company cannot be said to be earning its revenue only from Central Government entities.

Mr. Pramod Kumar, Vice President, and Mr. Sandeep Singh Karhail, Judicial Member have observed that the DeseinPvt. Ltd. is operating in a completely different segment insofar as its revenue from operation and maintenance are concerned and the aforesaid services, cannot be said to be comparable to the assessee. Further observed that the Desein Pvt. Ltd. also earns income from consultancy fees and the same has been declared separately in its financials, but the lower authorities didn’t examine whether functions performed, assets employed and risks assumed for earning the income from consultancy fees are comparable to the assessee.

The Tribunal has held that “we deem it appropriate to remand the issue of comparability of the relevant segment of DesignPvt. Ltd. with assessee to the file of TPO for de novo adjudication after necessary examination of all the data”.

Mr. Ravi Saeana along with Ms. Malika Ahuja and Mr. Tejinder Pal Singh appeared on behalf of the appellant and revenue respectively.

To Read the full text of the Order CLICK HERE

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