DCIT Vs 3M India Limited (ITAT Bangalore)
The Income Tax Appellate Tribunal Bangalore dismissed the Revenue’s appeals for Assessment Years 2008-09 and 2009-10 in a transfer pricing dispute involving exclusion of certain comparables and adjustment relating to IT support services.
The assessee company was engaged in manufacture, conversion, and trading of diversified products. The dispute primarily related to the healthcare segment, where the assessee reported an operating profit margin of 2.90% on sales. The assessee had selected five comparable companies with an arithmetic mean margin of 2.8% and claimed that its international transactions were at arm’s length.
The Transfer Pricing Officer (TPO) rejected the transfer pricing study and conducted a fresh search using Prowess and Capitaline databases. Six comparable companies were selected and an arithmetic mean margin of 14.55% on sales was determined. The TPO made an adjustment under Section 92CA after concluding that the arm’s length operating revenue was higher than the assessee’s reported figures.
The assessee argued before the TPO and subsequently before the Commissioner of Income Tax (Appeals) [CIT(A)] that it was predominantly engaged in trading activities, whereas some of the selected comparables were mainly manufacturing companies. The assessee pointed out that trading activities constituted 93.1% of its sales revenue while conversion activities accounted for only 6.7%.
