Facts of the Case

The assessee, WSP Consultants India Pvt. Ltd., filed its return for AY 2012-13 declaring a loss of ₹5.58 crores. The case was referred to the Transfer Pricing Officer (TPO) under Section 92CA concerning international transactions related to building design services.

The TPO proposed an upward adjustment of ₹4.76 crores, which was partially reduced by the Dispute Resolution Panel (DRP) to ₹4.26 crores. Consequently, the Assessing Officer passed the final order under Sections 143(3) read with 144C.

The assessee challenged the adjustment before the Income Tax Appellate Tribunal (ITAT), which partly allowed the appeal. The Revenue then filed an appeal before the High Court.

Issues Involved

  1. Whether the Tribunal was justified in rejecting the Profit Level Indicator (PLI) adopted by the Assessing Officer.
  2. Whether the Tribunal was justified in rejecting Korus Engineering Solutions Pvt. Ltd. as a comparable for benchmarking international transactions.

Petitioner’s Arguments (Revenue)

  • Segmental accounts were not properly maintained, making it difficult to allocate employee costs between Associated Enterprises (AEs) and non-AEs.
  • The TPO correctly allocated salary costs based on turnover.
  • Sufficient information existed to consider Korus Engineering Solutions Pvt. Ltd. as a valid comparable.

Respondent’s Arguments (Assessee)

  • Segment-wise and project-wise accounts were maintained, allowing accurate allocation of employee costs.
  • Employees working for AEs were clearly identifiable, making turnover-based allocation incorrect.
  • Korus could not be considered a valid comparable due to lack of sufficient functional data and differences in business profile.

 

Court Findings / Order

On PLI Issue

  • The Tribunal correctly found that the assessee maintained proper segmental and project-wise records.
  • Allocation of salary costs based on turnover was unjustified.
  • The PLI of 11.52% declared by the assessee was higher than the comparable average (9.23%), establishing arm’s length pricing.

On Comparable (Korus) Issue

  • The Tribunal rightly rejected Korus as a comparable due to insufficient and sketchy publicly available data.
  • Functional dissimilarity between Korus and the assessee was not properly examined by the DRP.

Final Order

  • No substantial question of law arose.
  • Appeal of the Revenue was dismissed.

Important Clarifications

  • Maintenance of project-wise and segmental accounts is sufficient for cost allocation in transfer pricing.
  • Turnover-based allocation cannot be imposed where precise cost identification is available.
  • A comparable must pass functional similarity and data reliability tests; mere inclusion without analysis is invalid.
  • Courts will not interfere where Tribunal findings are factual and well-reasoned.

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS01122023ITA6752023_171455.pdf

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