Partly allowing the assessee’s appeal, the Hon’ble Mumbai Tribunal held that the assessee’s argument to exclude a comparable on the ground of non-availability of its data for the year under consideration at the time of preparing the transfer pricing study report cannot be sustained.

Further, the Hon’ble Tribunal also held that due to an extraordinary financial event of amalgamation and its recording in the books of accounts happening in the preceding year, a comparable cannot be excluded for the current year on this sole reason, if it is otherwise functionally similar.

The Hon’ble Tribunal also went on to hold that where trading activity is regularly pursued by an assessee and forms a reasonably good percentage of the manufacturing activity, the assessee, on entity level, could not have been treated as a comparable to another lone Manufacturing company. Per contra, if trading activity of a company forms a minimal and inconsiderable portion with the overwhelming functionally similar manufacturing activity, then such a company cannot be ruled out for a comparison with a company engaged only in manufacturing activity.

Further, where the same comparable was suo-moto included by the assessee and was not tinkered with by the TPO in the preceding year and there was no noticeable difference in the functional profile for the current year vis-à-vis the preceding year, the inclusion is justified.

Finally, the Hon’ble Tribunal, relying on the decision of the co-ordinate bench in the assessee’s own case (ITA No.565/PUN/2015 and 644/PUN/2015) directed exclusion of BEML, being a government company, from the list of comparables.

In result, the Hon’ble Tribunal set aside the matter to the file of the TPO with the direction to carry out reasonably accurate adjustment to the profit of the comparable so as to eliminate the effect of a microscopic difference due to trading sales and service income. (AY. 2011-12)