Foreign Associated Enterprises can be treated as tested parties for comparables: ITAT Kolkata

ITAT Kolkata held that foreign Associated Enterprises are least complex entities and accordingly can be treated as tested parties for comparability analysis of international transaction.

Facts- The present appeal is filed by the revenue mainly contesting that CIT(A) has erred in accepting the foreign Associated Enterprise as tested party for establishing arm’s length price. It is also contested that CIT(A) has erred in accepting the foreign AEs as tested party without appreciating that the accounts of AEs are based on the accounting policies of the respective countries which is different from the Indian GAAP.

Conclusion- Held that foreign AEs are least complex entities and therefore, should be treated as tested parties and thus, no interference is called for with the order of Ld. CIT(A) in treating foreign AEs as tested party.

Held that the basis of adopting tested party as foreign AEs and acceptance of segmental accounting data for the purpose of bench marking, in favour of the assessee and against the revenue. Thus, the premise on which Ld. TPO has made the transfer pricing adjustment itself does not stand and the bench marking exercise adopted by the Ld. TPO cannot be upheld.