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2018 (3) TMI 222 - HC - Income TaxTPA - ALP determination - comparable selection - deletion directed by the ITAT, based upon its application of the Related Party Transaction (“RPT”) and the exclusion of the comparable i.e. M/s Wipro Limited (BPO service segment) - Held that:- The RPT filter, is relevant and fits in with the overall scheme of a transfer pricing study which is premised primarily on comparing light entities having similar if not identical functions. Therefore, if a particular entity predominantly has transactions with its associate enterprise – in excess of a certain threshold percentage, its profit making capacity may resulted in a distorted picture, either way. The ITAT, in the present case, followed a previous precedent and was of the opinion that a broad threshold figure of 25% RPT in the case of comparables was essential. Applying that rationale, the ITAT excluded some comparables listed in the TPO’s report. There is no error of law per se in this approach. As to the exclusion of M/s Wipro Limited, here too, the Court is of the opinion that the brand value of an entity has a significant role in its ability to garner profits and negotiate contracts. While considering the comparables, the likelihood of profits derived or attributable to the brand having regard to the consistency of the quality of services that an entity is able to offer would be relevant; although functionally, the two entities may be similar in terms of the services or products they offer, brand does play its own role in price or cost determination. If this singular aspect is kept in mind, the ITAT’s approach cannot be faulted with. - Decided against revenue
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