The Delhi Income Tax Appellate Tribunal (Tribunal) rejected an approximate INR 290 million (about $4.5 million) transfer pricing adjustment relating to marketing services provided by the assessee, Microsoft Corporation India Pvt. Ltd., to its US parent and Singapore and UK affiliates. The dispute centered on determining the appropriate comparables to include in determining an arm’s-length operating margin. The assessee computed an arm’s-length operating margin of 7.32% based on nine comparables. The transfer pricing officer computed an arm’s-length operating margin of 21.18% after including five additional comparables, which not only engaged in routine marketing services but also provided high-end marketing services leading to the creation of marketing intangibles, and making other adjustments.

The transfer pricing officer argued that these five companies had been used as comparables by the assessee in the past. The Tribunal agreed with the assessee that the five companies did not provide comparable marketing services and that the inclusion by the assessee in prior years was not determinative.