Delhi ITAT: Comparables having super-normal profits to be excluded from forming basis for Transfer Pricing

Adobe Systems India Private Ltd. v. ACIT, on 21^st January, 2011

Assessment Year: 2006-07

Question/s before the Hon’ble Tribunal: Whether the comparables to be used under transfer pricing can be ones using super-normal profits?

Relevant facts: The TPO in this case passed a Transfer Pricing order making a upward adjustment of ` 10,40,75,727/- on the arms length price of the international transactions. The TPO did so by rejecting some of the comparables used by the assessee and added some more comparables which the assessee had objected.

Upholding the appeal of the assessee, the Hon’ble Tribunal held that:

Para 5: “It is undisputed that these three companies have shown supernormal comparable profits as compared to the other comparable. There exclusion from the list of comparable is quite correct. By excluding these three companies from the comparables and showing the computation on the basis of TPO data the arithmetic mean of OP/OC to 17.15% which falls within the +-5% range as permitted by section 92(C)(2). Hence, we find considerable cogency in the arguments of the ld. counsel of the assessee in this regard.”

The decision is available here.