The Bangalore Bench of the Income-tax Appellate Tribunal recently provided judgment in the case of ACIT v. McAfee Software (India) Pvt Ltd, [IT(TP)A No. 1388/Bang/2011 and IT(TP)A No. 04/Bang/2012] on factors such as functional comparability that are to be used in transfer pricing reports and related-party transaction filters and that are to be considered in the selection of comparable companies. The tribunal held that various filters are required in selecting comparable companies and that a turnover filter is to be adopted to avoid the selection of “high-end companies” (big companies) to compare to “minnows” in a similar line of business.
Accordingly, a factor to be considered is the turnover / receipts of the taxpayer and the range of the upper limit at 10 times as well as the lower limit at 10 times (i.e. one-tenth with a margin of variation).
