ITAT Allows Inclusion of Comparable Companies in Transfer Pricing Analysis

Background

The Delhi Bench of the Income Tax Appellate Tribunal has granted partial relief to Idemitsu Lube India Private Limited in a transfer pricing dispute relating to Assessment Year 2021–22. The case concerned an upward adjustment of ₹12.44 crore made by the Transfer Pricing Officer on the company’s international transactions involving the purchase of raw materials from associated enterprises. While the assessee had benchmarked the transactions using the Transactional Net Margin Method, the tax authorities rejected certain comparables and sustained the adjustment through the Dispute Resolution Panel.

Tribunal Emphasises Consistency in Comparable Selection

Allowing the company’s appeal on the core transfer pricing issue, the Tribunal directed the inclusion of two additional comparable companies, Universal Petro-Chemicals Ltd. and Iftex Oil and Chemicals Ltd., in the final benchmarking set. The Bench noted that these very companies had been accepted by the Revenue as valid comparables in earlier assessment years, where their functional similarity with Idemitsu’s manufacturing segment was not disputed.

Rejecting the DRP’s allegation of “cherry-picking,” the Tribunal held that once functional comparability was acknowledged in prior years, there was no justification to exclude them in the present year without a material change in facts. With the inclusion of these comparables, the revised profit margins fell within the permissible arm’s length range, effectively neutralising the transfer pricing adjustment.

As a result, the Tribunal allowed the assessee’s primary ground and dismissed the connected stay application as infructuous, reinforcing the principle of consistency in transfer pricing jurisprudence.