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2024 (2) TMI 826 - AT - Income TaxTP Adjustment - comparable selection - cherry picking the comparables - Appellant had applied lower turnover filter of INR 1 Crore - as argued TPO did not accept the economic analysis conducted by the Appellant and applied certain additional filters - additional turnover filter of 1/10th to 10 times of Turnover was introduced by the TPO to rejected the two comparables selected by the Appellant namely (a) APITCO Ltd, and (b) IDMA laboratories HELD THAT:- It emerges that the Appellant had applied lower turnover filter of INR 1 Crore. The TPO did not reject the aforesaid lower turnover filter and introduced additional upper/lower turnover filters. Thus, the TPO applied second lower turnover filter of 1/10th of Turnover on application of which two companies selected by the Appellant were excluded from the list of 8 comparables selected by the Appellant. The upper filter selected by the TPO had no application in the facts of the present case and therefore, the decisions cited by the Ld. Departmental Representative have no application in the facts of the present case. We concur the observations made by the Tribunal that turnover filter cannot be applied as a tool for cherry picking the comparables at the later stage after completion of the search process with the object of excluding comparables which was otherwise found to be functionally comparables after the Functions Assets Risks (FAR) Analysis. We are of the view that the application of the second lower turnover filter by the TPO without rejecting the first turnover filter adopted by the Appellant resulted exclusion of two companies which were otherwise functionally comparable and thus, resulted in cherry picking. It is not the case of the Revenue that the comparables excluded were not functionally comparable with the Appellant. The lower turnover of filter adopted by the Appellant and the explanation provided by the Appellant for adopting the same was not rejected by the TPO. CIT(A) upheld the adoption of additional turnover filter on the incorrect premise that in the Transfer Pricing Study Report the Appellant did not apply any filters while selecting the comparables. Accordingly, we find merit in the contentions advanced on behalf of the Appellant and direct the TPO/Assessing Officer to re-compute the ALP and transfer pricing adjustment, if any, after including (a) APITCO Limited and (b) IDMA Laboratories Limited in the final set of comparables.
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