DRG Analytics and Insights Pvt. Ltd. Vs ACIT (ITAT Bangalore)
TP Adjustments Reworked – ITAT Strikes Down Wrong Comparables, Demands Parity & Scientific Analysis
In the case of DRG Analytics and Insights Pvt. Ltd., the Bangalore ITAT dealt with multiple transfer pricing (TP) issues relating to comparables, ESOP costs, working capital adjustment, and interest on receivables.
On comparables, the Tribunal held that:
- A company (Liquidhub Analytics Pvt. Ltd.) must be excluded since its Related Party Transactions (RPT) exceeded the 25% threshold adopted by the TPO himself.
- Once a filter is applied, it must be applied uniformly, and violation makes the comparable unreliable.
On inclusion/exclusion of comparables, ITAT laid down important principles:
- Search matrix is only a tool, not the final authority.
- FAR analysis (Functions, Assets, Risks) is supreme.
- Rejecting or including comparables mechanically = “cherry picking” (whether by TPO or assessee).
- Matter restored to examine comparables based on functional similarity, not mere database presence.
On ESOP cost adjustment, ITAT delivered a key ruling:
- If ESOP cost is treated as operating cost, then corresponding reimbursement must be treated as operating income.
- One-sided adjustment by TPO distorts cost-plus model and is impermissible.
On working capital adjustment:
- Cannot be denied casually; requires scientific computation based on averages.
- Matter remanded to AO/TPO with clear methodology (average WC, SBI PLR linkage, etc.).
On interest on receivables:
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