Tribunal grants partial appeal, excludes comparables, allows risk adjustment, remits depreciation issue, upholds interest.

The Tribunal partly allowed the appeal, directing the exclusion of certain comparables, granting risk adjustment, and remitting the issue of depreciation adjustment to the TPO. The interest under Section 234B was upheld as consequential. Specific grounds not pressed by the assessee were dismissed as infructuous.

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Issues Involved:
1. Transfer Pricing Adjustments
2. Comparability of Selected Companies
3. Risk Adjustment
4. Depreciation Adjustment
5. Interest under Section 234B

Detailed Analysis:

1. Transfer Pricing Adjustments:
The appeal is against the order of assessment for AY 2008-09, where the DCIT, Circle 11(4), Bangalore, proposed a Transfer Pricing (T.P.) Adjustment of Rs. 24,15,96,448. The assessee, engaged in software development services, reported several international transactions. The TPO determined the Arm's Length Price (ALP) using the TNMM method and selected 11 comparables, resulting in the proposed adjustment. The DRP confirmed these additions.

2. Comparability of Selected Companies:
The assessee contested the inclusion of certain companies as comparables, arguing functional dissimilarity and high turnover. The Tribunal examined the comparability of each company:

a. KALS Information Systems Ltd.:
The Tribunal held that KALS, being in product development, is not comparable to a software development service provider. This decision was based on previous rulings where KALS was excluded for similar reasons.

b. Bodhtree Consulting Ltd.:
The Tribunal excluded Bodhtree, noting it provides software products and end-to-end web solutions, making it functionally different from the assessee.

c. Turnover Filter:
The Tribunal excluded seven companies (Tata Elxsi Ltd., Sasken Communication Technologies Ltd., Persistent Systems Ltd., Zylog Systems Ltd., Larsen & Toubro Infotech Ltd., Infosys Technologies Ltd., and Mindtree Ltd.) due to their turnovers exceeding Rs. 200 Crores, which is not comparable to the assessee's turnover of approximately Rs. 150 Crores.

3. Risk Adjustment:
The Tribunal acknowledged the assessee's claim for risk adjustment, as it is a low-risk service provider compared to the risk-bearing comparables. The Tribunal directed the TPO to examine the quantitative computation of risk adjustment and decide the percentage accordingly.

4. Depreciation Adjustment:
The assessee argued for an adjustment due to significant differences in depreciation costs. The Tribunal admitted this additional ground and remitted the issue to the TPO to examine and consider the adjustment, following the principles laid down in the case of 24/7 Customer.com Pvt. Ltd.

5. Interest under Section 234B:
The Tribunal upheld the charging of interest under Section 234B, stating it is consequential and mandatory. The AO was directed to recompute the interest chargeable while giving effect to this order.

Conclusion:
The Tribunal partly allowed the assessee's appeal, directing the exclusion of certain comparables, granting risk adjustment, and remitting the issue of depreciation adjustment to the TPO. The interest under Section 234B was upheld as consequential. The specific grounds not pressed by the assessee were dismissed as infructuous.

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