2013 (10) TMI 747 - ITAT HYDERABAD

Selection of comparable for computing ALP in Transfer Pricing transaction – Held that:- Excluded companies whose turnover is more than Rs. 100 crores – It is not applicable the 'employee cost to sale' filter as relevant data/information for this filter are not available - Employee cost is included by many companies under different other heads. Selection of comparables applying the 'onsite income' filter also stands on the same footing as relevant data/information are not available in respect of all the companies in the database - Loss making companies and companies having super normal profits cannot be considered as comparables in view of the ratio laid down in case of Mentor Graphics (India) (P.) Ltd. [2013 (5) TMI 49 - DELHI HIGH COURT]and Philips Software Centre (P.) Ltd. v. Asstt. CIT [2008 (9) TMI 466 - ITAT BANGALORE-B] – Decided against the Revenue.

Benefit of (+)/(-) 5% under the proviso to section 92C(2) of the Act to the Assessee – Held that:- The Provision of section 92C(2A) makes it clear that an assessee shall not be entitled to exercise its option as referred in the proviso to sub-section (2) if the variation between the arithmetical mean and the price at which such transaction has actually been undertaken exceeds 5% of the arithmetical mean – As per the retrospective operation of the aforesaid provision, the benefit of (+)/(-) 5% as a standard deduction cannot be allowed.

Allowance of risk adjustment of 1% while computing the adjusted average PLI – Held that:- There are divergent decision in this regard – Therefore, in the facts and circumstances of this case, accepted the view favorable to the assessee - Allowed the benefit of risk adjustments at 1% - Decided against the Revenue.

Selection of method for computation of arm’s length price – Held that:- Assessee has itself accepted that TNMM is similar to CPM excepting that CPM is based on gross margins whereas TNMM is based on net margins - The assessee has also accepted that if proper selection criteria are adhered to application of TNMM would also result in the fact that the price at which the assessee has undertaken the international transactions are at arm's length – Also, reliance has been placed upon the judgment of Hon'ble Punjab & Haryana High Court in the case of Coca Cola India Inc v. ACIT [2008 (12) TMI 67 - PUNJAB AND HARYANA HIGH COURT] has held that merely because the assessee has chosen one of the methods, it does not take away the discretion of the TPO to select any other method which may be considered to be more appropriate for the purpose of determining the true income – Moreover, assessee has not disputed adoption of TNMM by the TPO in the earlier assessment years - Applied TNMM as the most appropriate method – Decided in favor of Revenue.