Tribunal Partially Allows Appeal, Assessee Responsible for Data, Order of 13th July 2016

The Tribunal partly allowed the appeal, restoring several issues back to the Transfer Pricing Officer for re-examination and passing a speaking order. The onus for providing relevant data for working capital and risk adjustments lies with the assessee. The order was pronounced on 13th July 2016.

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Issues Involved:
1. Inclusion of certain companies in the final set of comparables.
2. Denial of working capital adjustment.
3. Denial of risk adjustment.

Detailed Analysis:

1. Inclusion of Certain Companies in the Final Set of Comparables:

Persistent Systems Ltd.:
The exclusion of Persistent Systems Ltd. was sought on the grounds of functional differences and extraordinary events. The company derives income from both software services and products, and significant events like the formation of a subsidiary and acquisition of assets occurred during the year. The Tribunal restored the issue back to the TPO to demonstrate the impact of these events on the net profitability.

Bodhtree Consulting Ltd.:
The exclusion was justified due to high volatility in margins and diverse operations. The Tribunal restored the issue to the TPO to examine abnormal factors causing high volatility in margins and make necessary adjustments.

KALS Information Systems Ltd.:
The exclusion was sought on the grounds of functional differences and unreliable financial information. The Tribunal restored the issue to the TPO to examine the impact of revenue recognition policies on the segmental net profitability of the comparable.

I Gate Global Solutions Ltd.:
The exclusion was sought due to functional differences and extraordinary events like merger and termination of a joint venture agreement. The Tribunal restored the issue to the TPO to demonstrate the impact of these events on the net profitability.

Tata Elxsi Ltd.:
The exclusion was justified based on judicial precedent, as the company is engaged in niche product development. The Tribunal accepted the exclusion on the grounds of functional differences.

Lucid Software Ltd.:
The exclusion was sought on the grounds of functional differences and involvement in R&D activities. The Tribunal rejected the exclusion, stating that there was no functional dissimilarity and no abnormality in the accounting policy.

Acropetal Technologies Ltd.:
The exclusion was sought on the grounds of failing the employee cost filter. The Tribunal rejected the exclusion, stating that the employee-related costs and on-site expenses were 80.22% of the total expenses, making it a valid comparable.

2. Denial of Working Capital Adjustment:
The assessee argued that working capital adjustment is essential due to differences in cash collection cycles, which affect profits. The Tribunal restored the issue to the TPO to consider the relevant data and pass a speaking order.

3. Denial of Risk Adjustment:
The assessee argued that risk adjustment is necessary due to minimal business risks compared to comparable companies. The Tribunal restored the issue to the TPO to consider the relevant data and pass a speaking order.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes, restoring several issues back to the TPO for re-examination and passing a speaking order. The onus for providing relevant data for working capital and risk adjustments lies with the assessee. The order was pronounced on 13th July 2016.

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