ITAT Delhi rejects Assessing Officer’s approach of cherry picking the comparables and proposing an arbitrary Transfer Pricing adjustment

Court : Delhi bench of the Income-tax Appellate Tribunal

Citation :ACIT Vs M/s Toshiba India Private Limited (2010-TII-14-ITAT-DEL-TP)

Brief :Recently, the Delhi bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of ACIT Vs M/s Toshiba India Private Limited (2010-TII-14-ITAT-DEL-TP) has rejected the Assessing Officer’s approach of cherry picking the com parables and proposing an arbitrary Transfer Pricing adjustment.

Facts of the case

• · representative and marketing services to its associated enterprises (AEs). The Company had bench marked its international transactions under the Transactional Net Margin Method (TNMM).
• · The Assessing Officer (AO) rejected the bench marking approach followed by the taxpayer on the basis that out of eight companies selected as com parables, three companies (all Public Sector Units) had margins higher than that of the taxpayer while one company (M/s Kitco Ltd) had negative margin.
• · The AO then proceeded to identify four com parables out of companies which were rejected by the taxpayer in its Transfer Pricing Documentation. The taxpayers’ justification for not selecting these companies as com parables was not considered by the AO.
• · The AO further observed that these four companies had earned margins greater than that of the taxpayer. Based thereon, the AO made an ad-hoc adjustment of 5 percent to the taxable income of the taxpayer.

CIT(A)’s Observations