Case Law Details
Brief of the case:
Assessee was engaged in the field of providing insurance & Human Resources services to its associated enterprise in UK. The Ld. AO /TPO made an addition to the income of the assessee by comparing the income of the assessee with the income of the comparable companies because in the eyes of the Ld AO/TPO they were functionally comparable if the companies are in the same functional segment. But on the other hand assessee argued by filing an appeal with ITAT that the addition made by the Ld AO/TPO is not justifiable on the grounds that the above companies are not comparable on the function basis though they are in the same segment. ITAT at last reached the conclusion that though the companies are in the same segment but there functional lines are totally different ,so they are not comparable at all.
Facts of the case:
The Ld AO /TPO made an addition of Rs 2,34,97,662/- towards the adjustment in arm’s length price after making comparison with the companies which were in the same segment but different in functional lines .The DRP(Dispute Resolution Panel) also gave decision in the favor of revenue. Assessee proved that out of the 3 companies with which the Ld.AO/TPO compared one was in the outsourcing business which the assessee’s company was not in such business .The other two were in totally different functional lines which could not be compared with the above 3 companies which Ld/TPO had compared.
Contention of the assessee:
Assessee was of the view that the companies with which Ld.AO/TPO were comparing were actually not comparable because those companies were in different functional lines, though they were in similar segment. So the Ld.AO/TPO erred in making addition on the ALP basis by comparing with non-comparable companies in regard to IT enabled services segment .So while calculating ALP in transfer pricing only those companies could be compared who were in similar functional line. Assessee was in the line of providing human resources and insurance services but the Ld. AO/TPO was comparing the assessee with the companies who were in the outsourcing activities of IT services and who were engaged in providing high services which involves special knowledge ,therefore the same were not comparable.
Contention of the revenue:
Ld. DP was of the view that the companies with which Ld. TPO/AO had compared assessee were also performing same roles as the assessee was performing. So the Ld AO is justified in calculating ALP and making addition of Rs 2,34,97,662/- as the assessee was also in the IT industry as the comparable companies were.
Held by respective court:
ITAT was of the view that the companies with which the Ld. AO/TPO had compared the assessee for calculating the ALP of the transactions entered into with the associated enterprise in not justified because the Ld AO/TPO had just considered that the companies were in the same IT industry without giving any effect to the functional lines of the comparable company.
