Appeal partially allowed, excludes comparables, remands risk adjustment issue for reconsideration

The Tribunal partially allowed the appeal, directing the exclusion of certain comparables for the software services and back office support services segments. The Tribunal remanded the risk adjustment issue back to the Transfer Pricing Officer for reconsideration, emphasizing the need for risk adjustment as per Rule 10B(1)(e)(iii) based on the decision in Motorola Solutions India Private Limited. The final order was pronounced on September 18, 2015.

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Issues Involved:
1. Transfer Pricing Adjustment for Software Services Segment.
2. Transfer Pricing Adjustment for Back Office Support Services Segment.
3. Risk Adjustment.

Detailed Analysis:

1. Transfer Pricing Adjustment for Software Services Segment:

Comparability Analysis:
- Accel Transmatic Ltd.: The assessee did not object to this company being a comparable.
- Avani Cimcon Technologies Ltd.: Despite the assessee's objections, the Tribunal upheld its inclusion based on a previous decision in Toluna India Private Limited.
- Celestial Labs Ltd.: Excluded due to functional dissimilarity and involvement in developing software tools and owning IPRs.
- Datamatics Ltd.: No objection from the assessee.
- E-Zest Solutions Ltd.: Despite objections, included based on functional similarity as per Toluna.
- Flextronics Software Systems Ltd. (Seg.): Excluded due to significant R&D activities and product development.
- Geometric Limited (Seg.): No objection from the assessee.
- Helios & Matheson Information Technology Ltd.: Excluded due to diversified services and failing employee cost filter.
- IGate Global Solutions Ltd.: No objection from the assessee.
- Infosys Technologies Ltd.: Excluded due to significant size, ownership of intangibles, and substantial R&D.
- Ishir Infotech Ltd.: Excluded due to high A&M ratio indicating marketing intangibles.
- KALS Information Systems Ltd. (Seg.): Excluded due to revenue from products and training without segmental details.
- LGS Global Ltd.: No objection from the assessee.
- Lucid Software Ltd.: Excluded due to being a product company with proprietary software.
- Mediasoft Solutions Ltd.: No objection from the assessee.
- Megasoft Ltd. (Seg.): Excluded due to significant restructuring and ownership of intangibles.
- Mindtree Ltd.: No objection from the assessee.
- Persistent Systems Ltd.: Excluded due to merger affecting financial results.
- Quintegra Solutions Ltd.: No objection from the assessee.
- R S Software (India) Ltd.: No objection from the assessee.
- R Systems International Ltd. (Seg.): No objection from the assessee.
- Sasken Communication Technologies Ltd. (Seg.): Excluded due to acquisition and R&D activities.
- SIP Technologies & Exports Ltd.: No objection from the assessee.
- Tata Elexi Ltd. (Seg.): Excluded due to specialized embedded software development.
- Thirdware Solutions Ltd. (Seg.): Excluded due to revenue from software products.
- Wipro Ltd. (Seg.): Excluded due to significant size and diversified business operations.

2. Transfer Pricing Adjustment for Back Office Support Services Segment:

Comparability Analysis:
- Accentia Technologies Ltd.: Excluded due to involvement in high-end KPO services.
- Allsec Technologies Ltd.: Included despite objections regarding risk profile and advertising expenditure.
- Asit C Mehta Financial Services Ltd., Caliber Point Business Solutions Ltd., HCL Comnet Systems & Services Ltd., Informed Technologies India Ltd.: Excluded due to related party transactions exceeding 15%.
- Eclerx Services Ltd., Vishal Information Technologies Ltd.: Excluded due to involvement in KPO services.
- Infosys BPO Ltd.: Included despite objections regarding high-end services and substantial turnover.
- Maple eSolutions Ltd., Triton Corp Ltd.: Excluded due to involvement in fraud and mergers.
- Mold-Tek Technologies Ltd.: Excluded due to involvement in high-end KPO services.
- Wipro Ltd.: Excluded due to acquisitions affecting financial results.
- Aditya Birla Minacs Worldwide Limited, Apex Knowledge Solutions Pvt. Ltd., Appollo Healthstreet Ltd., Cosmic Global Ltd., Datamatics Financial Services Ltd. (Seg.), Flextronics Ltd. (Seg.), Genesys International Corporation Ltd., ICRA Techno Analytics Ltd. (seg), IServices India Pvt. Ltd., R Systems International Ltd (Seg), Spanco Ltd. (Seg.): No objection from the assessee.

3. Risk Adjustment:

Risk Adjustment Analysis:
- The TPO rejected the risk adjustment claim, stating that the taxpayer's risk and the comparables' risk nullify each other.
- The Tribunal referred to the decision in Motorola Solutions India Private Limited, which emphasized the need for risk adjustment as per Rule 10B(1)(e)(iii).
- The Tribunal directed the TPO/AO to reconsider the risk adjustment using the CAPM model with the help of technical experts.

Conclusion:
The Tribunal partially allowed the appeal, directing the exclusion of certain comparables and remanding the risk adjustment issue back to the TPO/AO for reconsideration. The final order was pronounced on September 18, 2015.

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