Recently, the High Court (HC) issued its decision in the transfer pricing case of Chrys Capital Investment Advisors (India) Pvt. Ltd v. DCIT (ITA No. 417 of 2014) on the usage of multiple year data and high-profit comparables on 27 April 2015. The concern was whether the transfer pricing officer (TPO) was accurate in including high-profit margin comparables and demanding that multiple year data should not be used.
The High Court upheld the findings of the Income Tax Appellate Tribunal (ITAT), which held that the mere fact that an entity makes high profits/losses does not, by itself, lead to its exclusion from the list of comparables for the purpose of determining the arm’s length price.
In such situations, an analysis of comparables under Rule 10B (3) should be carried out to determine whether the material differences between the taxpayer’s controlled transactions and the comparables can be eliminated.
Also In determining the comparability of transactions, the High Court specified that the multiple year data can only be incorporated in the manner provided in Rule 10B (4). As a common rule, the assessee may not rely upon data from the previous year. In the present case, the taxpayer had verified that multiple year data of the comparables were warranted to remove the effect of year-specific deviation.
