ITAT Remands Transfer Pricing Adjustment for Fresh Examination of Comparables:

Jones Lang LaSalle Property Consultants (India) Pvt. Ltd. is engaged in providing real estate consultancy, property management, advisory and brokerage services. For AY 2019-20, the assessee filed its return of income declaring total income of Rs. 299.77 crore under the normal provisions of the Income Tax Act, 1961.

During the assessment proceedings, the AO referred the assessee's international transactions to the TPO under Section 92CA of the Income Tax Act for determination of their Arm's Length Price.  The assessee challenged the proposed adjustments before the DRP, contending that the business services had actually been received from its AEs and that the TPO had wrongly rejected the comparable companies selected in its transfer pricing study.

The assessee had adopted the Transactional Net Margin Method (TNMM) as the Most Appropriate Method and selected 19 comparable companies. However, the TPO rejected these companies and conducted a fresh comparability analysis by applying various filters, including export revenue, employee expenditure and related-party transaction filters. Pursuant to the DRP's directions, the aggregate transfer pricing adjustment was revised to Rs. 195.88 crore, including Rs. 138.08 crore towards property management, advisory and brokerage services. 

The Tribunal observed that the determination of ALP under TNMM requires a proper examination of the functions performed, assets employed and risks assumed (FAR analysis) by the tested party and comparable companies, in accordance with Rules 10B(2) and 10B(3) of the Income Tax Rules, 1962. The Tribunal noted that the assessee had raised specific objections regarding the selection and rejection of comparable companies, application of filters and functional differences. These objections required proper adjudication through reasoned findings.

Importantly, the Tribunal noted that the assessee had not placed independent details, annual reports, financial statements, segmental information or other relevant material concerning the disputed comparable companies before it. The Tribunal further observed that the alleged deficiencies in the TPO's analysis, by themselves, did not establish that the entire transfer pricing adjustment was liable to be deleted.

Accordingly, the Tribunal considered it appropriate to restore the issues arising from Grounds Nos. 13 to 20 to the file of the TPO for fresh examination.