PCIT Vs Freescale Semiconductor India Pvt Ltd (Delhi High Court)
Delhi High Court held that functionally dissimilar entities cannot be included as a comparable entity for benchmarking the Arm’s Length Price (ALP) of the international transactions. Accordingly, appeal of the revenue dismissed.
Facts- The assessee had furnished its transfer pricing study before the Transfer Pricing Officer (TPO) to establish that its international transactions were on ALP. The assessee had adopted Transactional Net Margin Method (TNMM) as the most appropriate method and Operating Profit/ Operating Cost [OP/OC] as the Profit Level Indicator for benchmarking the international transactions. The TPO did not dispute the method adopted by the assessee.
However, the TPO adopted seven additional comparables entities in the software development services segment and excluded certain other comparables, for determining the mean PLI. The assessee had raised certain objections which were substantially rejected; however, the Dispute Resolution Panel (DRP) accepted inclusion of two entities as suggested by the assessee as comparable entities.
TPO had suggested an addition of ₹21,41,14,047/- on account of ALP adjustments. As stated above, certain objections raised by the assessee which also required inclusion of two other companies, were accepted by the DRP. Pursuant to the directions issued by the DRP, the TPO passed an order dated 16.11.2016 recommending final ALP adjustments of ₹17,26,00,000/-. Accordingly, the AO passed the final assessment order and made additions based on the findings of the TPO. The assessee’s appeal against inclusion of the four entities was accepted by the Tribunal. The Revenue is seeking to assail the said decision.
