A “controlled transaction” can never be regarded as “comparable” even if at ALP

Tecnimont ICB Private Limited vs. ACIT (ITAT Mumbai Third Member)

In determining the comparable parties for purposes of TNMM, the TPO selected a wholly owned subsidiary of the assessee called ICB Contractors India Pvt Ltd (“ICB”) even though there were related party transactions between ICB and another AE called JTS Contracting Co. Malta. In appeal before the Tribunal, the AM held that as there were controlled transactions between the assessee and ICB, ICB could not be taken as a comparable party. However, the JM took the view as the comparable transaction entered into by ICB was found to be at arms’ length, it was an internal comparable which could not be ignored. The Third Member had to consider whether “the net margin realized from a transaction with an AE found and accepted at ALP could be taken as a comparable being an internal comparable for computation of ALP an international transaction with another AE?” HELD by the Third Member: