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2020 (4) TMI 319 - AT - Income TaxTP Adjustment - comparable selection - filters applied by Ld.TPO - HELD THAT:- TPO has considered entity level revenue as well as cost for computing margin of assessee which was compared with the segmental margin of comparables. This is in total contradiction to transfer pricing law laid down by legislature. DRP failed to adjudicate this objection raised by assessee having to transfer pricing rules envisaged in the Act/Rules. DRP in a cryptic manner upheld action of Ld.TPO to be justified. Comparables that were objected by assessee has not been dealt with independently. As regards the comparables though DRP excluded certain comparables as well as upheld inclusion of remaining comparables, has not given proper reasoning for its exclusion/inclusion. It is observed that certain comparables cannot be considered in case of a captive service provider like assessee From the Transfer Pricing document placed in the paper book at page 614, it is observed that assessee is not involved in any of the strategic functions and is only undertaking preliminary tactical managerial functions. Assessee also does not undertake any marketing/business development activity. Further it is observed that assessee do not undertake any key risks. Based upon the above in our view the comparables needs to be revisited. Working capital adjustment has been restricted by Ld.TPO and upheld by DRP at 1.63% which is contrary to provisions of transfer pricing rules. As held by various decisions of coordinate benches of this Tribunal, we direct Ld.TPO to recompute working capital adjustment in actual, and to consider the same for purposes of computing arm’s length margin. Risk adjustment on ad hoc basis at 1%, it is observed that there is no scientific manner which has been applied by DRP. Assessee is a low risk bearing company and therefore while computing risk adjustment risks assumed by the comparables for earning revenue in the particular segment needs to be analysed. Assessee is directed to provide for necessary details in respect of all the comparables finally selected. Ld.AO/TPO shall then compute the risk as adjustment in accordance with law. Transfer pricing issues raised by assessee is set aside to Ld.AO/TPO. Ld.AO/TPO is directed to pass a detailed order by considering all the submissions advanced by assessee in respect of each objections raised therein. Ld.AO/TPO shall granted proper opportunity to assessee of being represented as per law.
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