Transfer Pricing: Companies which are functionally similar to the assessee cannot be excluded merely because of high or low turnover

When a company is functionally similar to that of the assessee company, the same cannot be excluded merely because of its turnover at a higher or lower level. Here it is important to mention that sec. 92C(1) of the Income-tax Act, 1961 provides for the computation of Arm’s Length Prices by one of the methods prescribed therein. First proviso to sec. 92C(2) clearly provides that when more than one price are determined by the most appropriate method, then the Arm’s Length Prices shall be taken to be the arithmetic mean of such prices. It does not talk of excluding the companies with high or low turnover or high or low profit rate. Recently the Delhi Tribunal in Nokia India Pvt. Ltd. Vs DCIT (ITA No. 242/D/2010 etc.), vide its order dated 31.10.2014, has held that a potentially comparable case cannot be excluded for the reason of high or low turnover or high or low profit margin. In reaching this conclusion, the Delhi bench also considered a Special Bench order passed in the case of Maersk Global Centres (India) (P.) Ltd. Vs ACIT (2014) 147 ITD 83 (Bom.) (SB). In view of the fact that the assessee has admitted the functional comparability of the relevant segment of this company and the only difference pointed out is about its higher turnover, we are satisfied that this case cannot be excluded from the list of comparable.