Transfer Pricing – Important Law On ‘Comparable Uncontrolled Transaction’ Explained

DCIT Vs BP India Services Pvt. Ltd.

(ITAT Mumbai)

Decisive factors for determining inclusion or exclusion of any case in/from the list of com-parables are the specific characteristics of services provided , assets employed, risks assumed, the contractual terms and conditions prevailing including the geographical location and size of the markets, costs of labour and capital in the markets etc. Nowhere, the higher or lower profit rate, as presumed by the ld. CIT(A), has been prescribed as the determinative factor to make a case incomparable.

Rightly so, because profit is not a factor in itself, but consequence of the effect of various factors. Only if the higher or lower profit rate results on account of the effect of factors given in rule 10B(2) read with sub-rule (3), that such case shall merit omission. If however such extreme profit rate is achieved because of factors other than those given in the rule, then such case would continue to find its place in the list of comparables.

The facts of the case of Quark System (supra), which is the trump card of both the ld. CIT(A) as well as the assessee. In that case it was contended on behalf of the assessee, by way of an additional ground, that a particular case with high profit rate was not comparable with that of the case before the Bench on account of positive reasons pointed out and hence the same be excluded. The Bench, while holding that the assessee could not be estopped from pointing out that such case was wrongly taken as a comparable, remitted the matter to the AO for de novo examination of the assessee’ s claim in this regard. Thus it is palpable that the decision of the case is not as has been projected, that the special bench of the tribunal ordered for the exclusion of high profit rate case from the list of comparables supplied by the assessee. On the contrary, we find that it remitted the matter to the AO for examination of the claim as to whether such high profit case could be excluded.