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2016 (1) TMI 116 - AT - Income TaxTransfer pricing adjustment - selection of comparable - Held that:- From a perusal of the order of the DRP, it is clear that the assessee’s objections / contentions against the inclusion/exclusion of the comparables has not been dealt by the DRP while exercising the appellate jurisdiction against a quasi-judicial order of the TPO, which exercise is sine qua non for deciding the issue as to whether a comparable is comparable to the FAR of the tested party i.e. assessee. Simply by observing that tested party is broadly comparable will not suffice. We are of the opinion that the DRP cannot absolve from its duty without going into the merits of the contention of the assessee as to whether a comparable company is comparable to it or not as envisaged by the Act and Rules governing the subject. Since the DRP has not met the contention of the assessee in respect of inclusion/exclusion of comparable in its order, we deem it fit to remand the matter back to the file of DRP for fresh adjudication. Ex consequenti, the DRP order is set aside and the matter remanded back to the file of the DRP for passing a speaking order in respect of all the grounds raised before it and has to deal with each of the comparables contested above by the assessee. Needless to say that when considering the arguments in respect to selection of the comparables, the DRP must keep in mind the following aspects:- (a) Companies with extra ordinary circumstances, like those which suffered events like merger/demerger, impacting the financial results could not be treated as comparables; (b) Companies which are functionally dissimilar cannot be taken as comparables; (c) Companies acting merely as intermediary having outsourced its activity cannot be considered as comparables; (d) Companies whose directors were involved in fraud cannot be taken as comparable, as their financials are not reliable. The aforesaid aspects may be kept in mind by the DRP while addressing the objections in respect to inclusion / exclusion of comparables and pass a speaking order after giving adequate opportunity to the assessee. - Decided in favour of assessee for statistical purposes
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