Column Rules of transfer pricing

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in case of comparable companies with extraordinary profits, it would be prudent for the tax authorities to evaluate whether the said companies ought to be considered as comparables. However, the Tribunal did not dwell upon what other factors are to be looked into for considering certain companies as oversized companies. In the backdrop of the above ruling, one may argue whether abnormally high-profit making companies need to be rejected or not while interpreting the meaning of “oversized companies”.

The Tribunal accepted the contention of the taxpayer that as the line of business of certain comparable companies was different from the business of the taxpayer, the said companies were to be excluded.

This ruling is a step in the right direction, as it focuses and reaffirms the importance of comprehensive functions, assets and risks analysis for identifying and selecting comparable companies. It is a welcome relief to taxpayers, as it provides assurance that the powers conferred on the revenue authorities would need to be exercised in a prudent manner.