CIT vs. Tata Power Solar Systems Ltd |Party not barred in law to withdraw from the list of comparables a company which has been included on account of mistake of fact

(Bombay High Court) Aug 9, 2017

The High Court had to consider two questions of law at the instance of the department:

(a) Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified in excluding two comparables viz. Indowind Energy Ltd. and B. F. Utilities Ltd. for determination of Arm’s Length Price (ALP) of international transaction with AEs, when these two comparables were originally included by the assessee company among the comparables?

(b) Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified in directing for determination of Arm’s Length Price (ALP) with regard to Sales of Rs.641,49,36,255/made to AEs and not on entire sales of Rs.909,91,45,631?

HELD by the High Court dismissing the appeal:

(i) The Tribunal held that merely because an Assessee has included M/s. Indowind Energy Ltd. and B. F. Utilities Ltd. in its list of comparables to determine the ALP would not by itself estop a party from establishing that these companies are not comparable. The impugned order found that the two comparables viz: M/s. Indowind Energy Ltd. and B. F. Utilities Ltd., were engaged in completely different line of business i.e. generation of wind energy while the Assessee is engaged in generation of solar energy. Thus, not functionally comparable. In the above view, the impugned order on the basis of Function, Assets & Risk (FAR) analysis excluded M/s. Indowind Energy Ltd. and B. F. Utilities Ltd. from the list of final comparables to determine the ALP.

(ii) We find that the impugned order of the Tribunal holding that a party is not barred in law from withdrawing from its list of comparables, a company, if the same is found to have been included on account of mistake as on facts, it is not comparable. The Transfer Pricing Mechanism requires comparability analysis to be done between like companies and controlled and uncontrolled transactions. This comparison has to be done between like companies and requires carrying out of FAR analysis to find the same. Moreover, the Assessee’s submission in arriving at the ALP is not final. It is for the TPO to examine and find out the companies listed as comparables which are, in fact comparable. The impugned order has on FAR analysis found that M/s. Indowind Energy Ltd. and B. F. Utilities Ltd. are not comparable. They are in a different area i.e. wind energy while the RespondentAssessee is in the field of solar energy.

(iii) In the above view, question (a) as proposed does not give rise to any substantial question of law. Thus, not entertained.

(iv) Re Question (b) The issue raised herein is concluded against the Revenue and in favour of the Assessee by the decision of this Court in CIT v/s. Tara Jewellers Pvt. Ltd., 381 ITR 404. In view of the above, the question as framed does not give rise to any substantial question of law. Thus, not entertained.

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