Transfer pricing: International transaction: Arm’s length price: A. Ys. 2004-05 and 2005-06: Marketing services to associated enterprise: Different from services in nature of engineering services rendered by four companies taken as comparables by TPO: Functionally different and not comparable: Addition made by AO on basis of adjustment made by TPO not justified:

The assessee company had entered into a service agreement with its associated enterprise in Singapore for rendering marketing services. The Assessing Officer referred the matter to the Transfer Pricing Officer (TPO) for determining the arm’s length price. TPO compared the services provided by the assessee to its associated enterprise with four companies rendering engineering services for determining the arm’s length price and made adjustments which resulted in the Assessing Officer making additions in respect of both the years. CIT(A) and the Tribunal held that the two services, that is, marketing services and engineering services, were functionally different and were, hence, not comparable and deleted the addition.

On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under:

“(i) The services rendered by the assessee to its associated enterprise were in the nature of marketing services which were entirely different from the set of services in the nature of engineering services rendered by the four comparables.

ii) Consequently, the adjustment arrived at by the TPO and the additions made by the Assessing Officer could not be sustained on the basis of the transfer pricing study with regard to the four companies which were clearly functionally not comparable.

iii) So, no question of law arises for our consideration. The appeals are dismissed.”