SRF Limited Vs ACIT (ITAT Delhi)
TP adjustments on MSS & reimbursements deleted; functional comparability can’t be diluted even under TNMM — ITAT Delhi in SRF Ltd
Delhi Tribunal partly allowed Assessee’s appeals and granted substantial relief on transfer pricing issues, following Assessee’s own precedents. On Management Support Services (MSS), Tribunal held that functional comparability is paramount even under TNMM, and standards of comparability cannot be diluted merely because a broad-based method is adopted. Respectfully following DRP directions in Assessee’s own case for AY 2016-17, Tribunal excluded EDCIL (India) Ltd (Govt undertaking) and ICRA Ltd (credit rating & industry research entity) as functionally incomparable with MSS segment. Once these entities were excluded, Assessee’s margin of 15.28% was found to be at arm’s length, and TP adjustment of Rs.34.41 lakh was deleted, relying inter alia on Rampgreen Solutions Pvt Ltd (Delhi HC) and other binding precedents.
On allocation / reimbursement of software costs to AEs, Tribunal reiterated that pure cost-to-cost reimbursements do not warrant any mark-up, especially where Assessee, as holding company, merely recovers group-level costs and has already recovered finance charges for delay. Following coordinate bench decisions in Assessee’s own case for AYs 2014-15 & 2016-17 and OECD guidance approved by SC in Engineering Analysis Centre of Excellence Pvt Ltd, Tribunal deleted TP adjustment of Rs.12.20 lakh. Tribunal also reiterated that Govt undertakings, entities engaged in PR, event management, market research, data analytics or credit rating cannot be mechanically treated as comparables for MSS.
Separately, Tribunal directed rectification of apparent computational mistakes, including double disallowance of deduction u/s 80-IA, incorrect restriction of Chapter VIA deduction, non-grant of MAT credit u/s 115JAA, and adoption of income as per 143(1) instead of revised return, holding these to be mistakes apparent from record. Such grounds were allowed for statistical purposes, with direction to AO to recompute demand & grant consequential relief. Overall, Tribunal reaffirmed that consistency with own-case precedents, strict FAR analysis & substance over form must guide TP benchmarking, and Revenue’s mechanical reliance on high-margin but functionally alien comparables cannot survive judicial scrutiny.
FULL TEXT OF THE ORDER OF ITAT DELHI
